Another Airline Casualty

Eos, an all-business-class carrier operating between NYC and London, ceased operations today after filing for bankruptcy protection over the weekend, the latest casualty of a credit crunch and a money-losing airline industry that has been hit hard by high fuel prices.

No, Chavez is not a Communist

Venezuelan President Hugo Chavez said Ternium SA should accept a "fair" price for the nationalization of its 60% stake in the country's biggest maker of flat-steel products by tomorrow or face expropriation. The government has said it values Ternium's Siderurgica del Orinoco unit, known as Sidor, at $800 million. Chavez said he's prepared to occupy the company's facilities on April 29 should the company and the government fail to reach an agreement during a final meeting tomorrow. "I'll sign the expropriation decree and take control immediately of the company. I have no problem doing it." Ternium shareholders value its operations in Venezuela at $3.6 billion. Chavez said the company must be "crazy" to seek such a high amount, and that the government won't pay amounts reported by the press, which he said have ranged from $3 billion to $4 billion.

Chavez has also announced the nationalization of the country's cement industry this year in an attempt to increase state control over "strategic" parts of the economy.

Chavez also threatened today to take over Empresas Polar SA, Venezuela's largest food processor. The president said he has heard the company has considered shutting down one of its flour plants. "If they do that, we'll expropriate," Chavez said.

Last year, he nationalized foreign oil ventures and the country's biggest electricity and telephone companies.

HELOC Delinquencies

S&P said that 9.19% of lines issued in 2005 and 11.45% of lines issued in 2006 are delinquent, up 6.49% and 6.51% from February. UNREAL!!!

Moody Downgrades

Moody's has slashed ratings on 1,923 tranches from 232 seperate subprime RMBS deals from 2005-2007 vintages, all of which were previously rated AAA.

Some questions:
1) Why were they ever AAA?
2) What took them so long to downgrade?
3) How much of this crap has been used as collateral in the Fed window?

Bank of America Earnings

Bank of America's net fell 77% to $1.21 billion, or 23 cents a share, in the first quarter amid higher provisions for credit losses and at least $1.91 billion in write-downs. Net revenue fell 6.3% to $17 billion. The company had $1.31 billion in trading-related losses, which includes write-downs of $1.47 billion on collateralized-debt obligations and $439 million on leveraged loans. It increased its provision for credit losses to $6.01 billion from $1.24 billion amid rising credit costs in the home-equity, small-business and homebuilder portfolios.

Does anybody know what they're talking about...

First it was "The housing boom will continue."

Then it was, "Housing prices won't climb as fast as in the past, but they will continue to rise at more reasonable levels."

Then it was, "Housing prices won't climb, but they will plateau. Don't expect a drop."

Then it was, "Housing prices will drop but not sharply."

Then it was, "Housing prices are dropping sharply, but it shouldn't affect the broader economy."

Then it was, "The housing crash will affect financial stocks but not the broader stock market."

Then it was, "The housing crash will affect the broader stock market, but it's not a recession."

Then it was, "OK, it's a recession, but it will be short and shallow."

WTF?

Bankers Cast Doubt On Key Rate Amid Crisis

One of the most important barometers of the world's financial health could be sending false signals. In a development that has implications for borrowers everywhere bankers and traders are expressing concerns that LIBOR is becoming unreliable.

The concern: Some banks don't want to report the high rates they're paying for short-term loans because they don't want to tip off the market that they're desperate for cash. The Libor system depends on banks to tell the truth about their borrowing rates. Fibbing by banks could mean that millions of borrowers around the world are paying artificially low rates on their loans. That's good for borrowers, but could be very bad for the banks and other financial institutions that lend to them.

In one sign of increasing concern about Libor, traders and banks are considering using other benchmarks to calculate interest rates. Among the candidates: rates set by central banks for loans and rates on repurchase agreements.

A report published by the Bank for International Settlements raised concerns that banks might report incorrect rate information. It said that banks might have an incentive to provide false rates to profit from derivatives transactions. The report said that although the practice of throwing out the lowest and highest groups of quotes is likely to curb manipulation, Libor can still "be manipulated if contributor banks collude or if a sufficient number change their behavior."

[Source: WSJ, pointed out to me by MPC]

Google Up 20%

GOOG: 539.41, +89.87 (+19.99%)

Investors cheered Google's Thursday earnings report. Net income for the quarter ended March 31 rose to $1.31 billion, or $4.12 a share. Revenue rose to $5.19 billion. Revenue minus payments made to other sites to acquire Internet traffic, came in at $3.7 billion. Margin = 25%.

Merrill Lynch - Third Quarterly Loss

Merrill Lynch reported a third straight quarterly loss ($1.96 billion or $2.19 a share) as ongoing write-downs for soured mortgage investments and other bad credit bets continued. The company also said it is cutting 4,000 jobs. CEO Thain characterized the three months of the year as "probably as difficult a quarter as I've seen in my 30 years on Wall Street." !uarterly revenue fell 69% to $2.93 billion, on a combined $4.5 billion in write-downs and valuation adjustments related to CDOs. ML also detailed $2.3 billion worth of write-downs from leveraged finance and residential mortgage exposure, offset by a $2.1 billion benefit from a change in value on long-term liabilities. after taking those valuation adjustments on board, the firm reported that it still has $64.8 billion of net exposure to complex mortgage-related vehicles known as CDOs, residential mortgage securities and leveraged loans at the end of the first quarter. Amazingly the stock is UP 4.2%. Crazy crazy market.

[Source: MarketWatch]

Citi to cut costs

Citigroup CEO says the bank will cut its costs across the board by up to 20%, a move almost certain to trigger big layoffs and further ravage the financial-sector employment picture. Savings would not come entirely from job cuts but would also be harvested by improving technology. The cost cuts suggest that Citigroup may shed more jobs than the 25,000 which analysts estimate. "It is clearly feasible for us to take 10, 15, 20% off our cost base, especially in information and technology and operations," Pandit said.

The usual solution - employees don't actually generate revenue, they are simply costs to be cut. Makes me wonder why they didn't get rid of them before. Duh!

Spiraling costs push software companies from India

Here's a unique twist: the high cost of doing business in India is pushing some smaller technology companies to relocate elsewhere. Smaller firms consider relocating to Malaysia, Singapore as inflation soars.

Economics 101 at work again.

This is downright scary!

There is no other word for it ... I am seriously worried about the state of our economy.

Fourteen percent of mortgage holders expressed worry that they might miss payments in the next six months.

Banking News

Busy day today as several banks reported first quarter earnings:

Washington Mutual reported a $1.14 billion first-quarter net loss ($1.40 a share) as the lender suffered from the mortgage meltdown and broader credit crunch. It also said it closed a previously announced deal to raise $7 billion from a group of investors led by private-equity firm Texas Pacific Group. It also reported "steady" results from its retail banking, credit card and commercial businesses.

State Street reported that first-quarter net income rose 69% but the stock lost ground as investors worried over the firm's outlook as well as unrealized losses in its investment portfolio and asset-backed commercial paper program.

Several of the nation's major regional banks saw their shares rally on better-than-expected earnings and for several a boost from selling shares in credit-card company Visa. Shares of Regions Financial (RF), M&T Bancorp (MTB), U.S. Bancorp (USB), Commerce Bancshares (CBSH) and Marshall & Ilsley (MI) were all up. Analysts responded warmly to earnings, saying that despite significant loan-loss reserves still to come, many regional banks did better than expected.

Delta-Northwest Merger

Delta Air Lines and Northwest Airlines announced plans to merge, creating the world's largest airline. The proposed merger would create a global giant with 810 jets, 6400 daily flights and nearly $32 billion in annual revenue. The carriers estimate the value of the new company at $18 billion dollars, far above their current market value.

The proposal could also be a catalyst for further consolidation among the big airlines at a time when the industry is threatened by steep losses from high fuel prices and a weakening economy (Continental and United ready to merge too).

If the merger closes, the new airline will be named Delta and headquartered in Atlanta where Delta is based; Delta CEO Richard Anderson will be its CEO (translation: it's an acquisition, not a merger). Northwest shareholders would receive 1.25 Delta shares for each Northwest share.

Wachovia News

Wachovia posted an unexpected loss for the first quarter ($393 million or 20 cents a share) on Monday, reduced its dividend (to 37.5 cents a share from 64 cents, which will save $2 billion a year) and said it would raise about $7 billion through the sale of common and convertible preferred stock because of mounting housing losses and an ill-timed acquisition of Golden West Financial. Revenue fell 4.5% to $7.89 billion from $8.27 billion. The company also said it plans to cut 500 jobs in its investment and banking unit. Company shares fell $2.26, or 8.1%, to $25.55.

Unemployment

Frontier Airlines Latest Casualty

Frontier (FRNT 0.42, -1.15, -73.5%) joined a growing list of airlines filing for bankruptcy amid rising fuel prices and a slowing economy. But Frontier said it expects to continue operating its full schedule of flights, adding it will honor tickets and reservations as well as providing refunds and exchanges as usual.

Third airline in a week

Skybus Airlines announced last night that it was halting operations today. Aloha Airlines halted operations Monday, and ATA Airlines halted operations Thursday.

April Fool's Joke?

UBS's chairman abruptly resigned today as the Swiss bank reported a first-quarter loss of $12.1 billion and said it would seek $15.1 billion in new capital. UBS revealed more serious damage from exposure to the U.S. subprime crisis and said it expects write-downs of approximately $19 billion (that's in addition to the $18 billion it wrote down last quarter). The punchline is that the stock led a rally in financial stock, posting a 15% gain.

Lehman Brothers hares jumped 18%. It said it plans to offer 3 million convertible preferred shares "in response to investor interest." Translation: we need capital.