Bank of America's (NYSE: BAC) newly-acquired Countrywide Financial is being sued by yet another state attorney general, with Indiana's Steve Carter announcing on Sunday that he's suing the company for deceiving borrowers into loans that they could not afford and/or were not aware of the associated risks.
In a press release announcing the suit, Carter said that "These unfair lending practices may have harmed thousands of people and, in turn, negatively affected our communities and neighborhoods throughout the state." According to Carter, "The most common misrepresentations uncovered to date have been on 1) pre-payment penalty terms, and 2) the time period in which interest rates would be recalculated (resetting ARMs – adjustable rate mortgages)."
Carter is seeking penalties of up to $15,500 per violation, plus investigative costs and restitution.
Countrywide had been sued many times before the Bank of America acquisition, and BofA knew that there would be more to come. But for a deal that is widely considered to have been too expensive and too risky, the distraction and headache of all these lawsuits would seem to make this a deal Ken Lewis probably regrets. Of course, he won't say that publicly.
CNNMoney notes that Morgan Stanley said it would offer to repurchase all ARS "held by individuals, charities and small and medium-sized business with accounts of $10 million or less at the bank." Morgan Stanley will begin to start buying back $4.5 billion worth of ARS on September 30th and will "make its best effort to provide liquidity solutions" for institutional investors by the end of 2009. But New York attorney general Andrew Cuomo is not satisfied with Morgan Stanley's proposal.
Meanwhile, the list of big ARS issuers that have not settled grows shorter. Here are six holdouts (with their 2007 municipal ARS issuance in parentheses):
The U.S. Department of Justice is challenging (subscription required) a settlement Countrywide Financial reached with a Pittsburgh bankruptcy court that had alleged that Countrywide was intentionally mishandling mortgage payments it received as part of a scheme to extract large fees and penalties from struggling borrowers.
The Justice Department says that a non-disparagement clause in the settlement could "impede, impair or otherwise chill witness testimony in the U.S. Trustee's ongoing investigation of Countrywide."
The non-disparagement clause required court official and whistle blower Ronda Winnecour to agree not to "in any manner, whether directly or indirectly, disparage" Countrywide, and to assure that her employees didn't disparage the company either.
After nearly six months of stalemate, things are finally starting to happen for holders of Auction Rate Securities (ARS) -- the $330 billion of long-term debt whose yield used to reset in weekly auctions. This morning, The Boston Globe reports that UBS AG (NYSE: UBS) is poised to announce that it will redeem $19.4 billion worth of ARS and pay $150 million in fines, split between Massachusetts and New York. UBS follows Citigroup, Inc. (NYSE: C) and Merrill Lynch & Co., Inc. (NYSE: MER), which yesterday announced plans to redeem over $17 billion worth of ARS.
Why should you care? If you have money frozen in these securities, the reason is obvious. If not, what's happening here suggests three lessons for investors:
Don't buy without knowing. Before you buy anything a broker is trying to sell you, read the prospectus, find out how the broker will be compensated for the sale, and if you don't understand what you're buying, don't buy it. Many people bought based on broker pitches that ARSs were cash equivalents, highly liquid, and yielded slightly more than money market funds. It turns out that ARS auctions started failing publicly last September.
If your money becomes illiquid, make alot of noise. ARS investors contacted government officials and the media in an organized way. The public attention led to investigations by legal officials. That attention uncovered UBS e-mails demonstrating that brokerage firms decided to dump the toxic waste from their own books to the accounts of their individual customers -- even as their executives dumped the securities from their own portfolios.
Credit Suisse intiated Apple (NASDAQ: AAPL) with an Outperfom, according toBriefing.com. The news service also reports that UBS downgraded Bank of America (NYSE: BAC) to Neutral from Buy.
Sun Microsystems (NASDAQ: JAVA) started as Neutral at Credit Suisse, according to 24/7 Wall St. The financial site also writes that IBM (NYSE: IBM) started as Neutral at Credit Suisse.
Douglas A. McIntyre is an editor at 24/7Wallst.com.
Financials have staged an impressive rally from extremely oversold levels," says Kelley Wright, editor of the top-rated IQ Trends, which focuses on high quality, blue chip, dividend-paying stocks. Here's his top long-term buys among banks.
"It is increasingly evident that the banking sector is dividing into two distinct camps; the have's and the have not's. The 'have's' are:
"The impressive rally to date notwithstanding, it still remains to be seen whether another retracement will develop should crude oil, gold and other commodities reverse course.
"A strong rally in these sectors could send the market down again. While Mr. Market can do whatever he pleases, it is highly unusual for stocks to bottom in the summer.
"It would not be imprudent to see what September and October have to offer before anyone begins to talk seriously about the bottom. For investors with an appetite for the financials, however, we would suggest dusting off that old tried and true tactic of dollar cost averaging as a prudent means to establish positions."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
Connecticut Attorney General Richard Blumenthal has sued Bank of America's (NYSE: BAC) Countrywide Financial alleging that the company misled borrowers into taking on risky loans that they couldn't afford. California, Illinois, and Florida have filed similar charges, and it seems likely that more will follow.
Blumental said that "Countrywide conned homeowners into mortgages they simply could not afford," and wants Countrywide to amend mortgages that violated state laws and make restitution to affected borrowers. Blumenthal is also seeking fines of $100,000 per violation of state banking laws, and up to $5,000 per violation of state consumer protection laws.
TheStreet.com's Jim Cramer says this commodity collapse is giving the Fed room to cut.
As the Fed meets and the credit crisis still roars, it is worth assessing all of the chatter that the Fed can't do a thing and that every aspect of everything is all bad. I put it like that because it is hard to read anything without concluding that there will be high-double-digit defaults and that the credit markets haven been crushed and are not useful and the world is, well, coming to an end.
Funny thing: when the world comes to an end, you get a collapse in commodities, which is what is happening right now; it is something the Fed should keep an eye on. That's because there is suddenly more room to cut if necessary, and that matters because the banks need it -- they need more room to make money on net interest margins and playing the curve, because we all know that they need capital, and this is a good way to raise capital. It is the way that capital was raised for BankBoston and Bank of America (NYSE: BAC) (Cramer's Take) and Chase and Citigroup (NYSE: C) (Cramer's Take) in the old days, and it would be the same again if the Fed needs to help.
In other words, caught in all the gloom is the fact that the Fed is winning, and with winning comes flexibility. I expect nothing from the Fed, nothing, but I also want to remind people that the "Fed will raise soon" talk makes no sense whatsoever now, even though the drumbeat was really loud just a couple of months ago.
David Sambol, the out-going president of kaput mortgage giant Countrywide Financial Corp., is taking his family on an African vacation -- on Countrywide's Gulfstream IV.
Yes, the guy in charge of the company that sold hundreds of thousands of suspect mortgages to people who couldn't afford them is leaving on a jet plane, for a nice three-week-long vacation in Africa with his family.
But you know, it's been a stressful year for Mr. Sambol, what with his company nearly collapsing and that stressful fire sale to Bank of America (NYSE: BAC). Not to mention being hauled before Congress to account for his part in helping facilitate the global credit crisis.
Marie Antoinette would have understood completely. "Let them take a vacation," she would have said. "An African safari would be nice. The kids will love it."
TheStreet.com's Jim Cramer says improving macro trends were ignored Thursday.
Tough day.
I could tell from the way the bears gang-tackled the market at the end of the day that they were simply motivated, using all the futures and ETFs at their disposal, to knock down the market after its tremendous run.
They were backed by odd bedfellows: terrible earnings from Exxon Mobil (NYSE: XOM) (Cramer's Take) and more miserable action in the big industrials -- action so horrid that you would actually think something was happening.
In truth, the oils are acting so poorly that they are freaking people out. I think we are in the "you can't have it both ways" moment where you can't hate it when the oils go up and hate it when the oils go down.
It's a big industry, and its coincident plays of ag and mining feel the pain, too. But oil's pain is now a real gain for everything from the transports to the soft goods. So there should have been a modicum of cheering.
The Street wasn't buying that pricing is up and margins are up courtesy of the collapse in oil, and that's a trend I suspect will continue.
There are clearly some banks, thrifts and other financial institutions doing better than others. That became clear in the most recent earnings releases. Wells Fargo & Co. (NYSE: WFC) showed a profit. True, lower than last year but that was expected. What wasn't expected was better revenues and lower losses. JPMorgan & Chase & Co. (NYSE: JPM) had a similar story. So did Bank of America Corp. (NYSE: BAC). Citigroup (NYSE: C) gave better than predicted numbers. Those were the good announcements.
Not doing so well is Wachovia Bank (NYSE: WB). That loss was much larger than analysts projected. The bank cut the dividend, as expected. The stock gave up more ground.
TheStreet.com's Jim Cramer says we're back in the same predicament, and more bank runs could be the result.
No one did a deal. The financials rallied gigantically, there was tremendous enthusiasm, and yet no bank was ready with an offering. It is amazing, especially when you consider that the natural gas companies, like Chesapeake Energy (NYSE: CHK) (Cramer's Take) and XTO Energy (NYSE: XTO) (Cramer's Take) were ready, despite horrible declines in their stocks.
Just spot 'em right out there. For about a week, people decided the rally could - and would - last if these banks had built up some fortresses. They didn't.
And that's why we are back in the same predicament. I don't want to write here which bank is next to fail. There are enough of them (particularly one that just changed its CEO) that the FDIC will have to have a plan to keep the bad loans and sell the banks, maybe not even with the branches because all that's worth anything is the deposits.
Here's the answer every hedge fund knows: It will not let you raise numbers in the out years.
Right now there is a tremendous struggle going on about near-term and far-term earnings growth and what we can expect to see. Everyone knows when Mosaic and Potash report next week that the numbers will be beaten and the estimates raised.
But so what? If you scrap the ethanol mandate or if people even think that it will be scrapped, you will see grains collapse just as quickly as oil collapsed when we found a level we didn't need it -- remember, we don't "need" ethanol, but it is mandated.
Today we saw another market gain, but several key stocks gave back some recent gains. The oil inventories report as well as reports Hurricane Dolly only took down a max of 8% of Gulf of Mexico and nearby production, helped lower oil prices over $3.00 to under $125.00 per barrel. Today was rather light on the economic front so the market was led higher mostly thanks to earnings from DJIA components. Longer-term rates rose on Fed comments today calling for rates to rise sooner rather than later, although that was independent and slightly different than the actual Beige Book comments.
AT&T Inc. (NYSE: T) was the winner of DJIA components after reporting earnings this morning, particularly since it has lost nearly one-third of its value. Shares were up 4% at $33.11 in today's final minutes.