November 13, 2007
Fannie and Freddie Come to the Rescue of the Mortgage Market
Freddie Mac and Fannie Mae have not been known as model corporate citizens in recent years, as both were emboiled in major accounting frauds. In addition, policy makers worried that they were becoming too large or doubled the role of government-chartered institutions in the mortgage business. Today, however, both have renewed dominance as the private sector's appetite for mortgage bonds has dried up, and lenders increasingly look to Freddie or Fannie to buy their mortgages. The portion of U.S. mortgages offered to investors guaranteed by the two rose to 72% in October, and Congress is considering expanding the companies' powers. WSJ, Mortgage Crisis Extends Its Reach.
November 12, 2007
SEC Enforcement Actions Up Over Last Year
Increases in misleading corporate disclosure (including discloses related to backdated stock options) and insider trading cases have resulted in the SEC's filing 14% more enforcement actions than in 2006. The agency has brought 656 cases through Sept. 30, nearly 100 more than in 2006. In the insider-trading area, the SEC is focusing on "pillow-talk" exchanges of confidential corporate information by family members and Rule 10b5-1 plans that allow executives to sell shares automatically at pre-arranged time periods. CFO.com, SEC Enforcement Actions Shoot up.
E*Trade Shares Crash and Burn
E*Trade shares lost more than one-half of their market value today, following E*Trade's warning last Friday that it will have larger than expected fourth quarter writedowns due to its holdings in mortgage-backed securities and a Citigroup analyst's devastating report on E*Trade's financial difficulties, including a 15% chance that it will declare bankruptcy. In addition, the company announced that the SEC has opened an informal inquiry related to its securities and loan portfolios. WSJ, E*Trade Shares Plummet On Fears, Write-Downs.
Wall St. Firms Join Nasdaq's Portal System
A dozen Wall St. firms will drop their competing trading systems for 144a offerings and cooperate on a single platform operated by Nasdaq, its Portal system. Nasdaq, in turn, will upgrade Portal through some of the technology the firms use in their proprietary systems. The goal is to achieve greater liquidity and lower trading costs. Last year, according to Nasdaq, the amount raised through 144a offerings was greater than the combined amounts raised on the American Stock Exchange, Nasdaq and the NYSE. WSJ, Banks to Share Platform for 144a Trades.
FINRA Begins Advertising Campaign to Reach Baby Boomers
FINRA wants to become known as the source of investor education, so it is spending about $3 million in advertising to run a campaign that takes a humorous approach in an effort to reach baby boomers about retirement planning. While there are plenty of websites that offer investor education, FINRA's message is that it is not actually selling a product, unlike mutual funds or brokerage firms. Let's hope that it works. How to educate investors is an important and difficult issue, one to which the SEC has not provided sufficient attention. NYTimes, Decoding the Markets 101, for the Soon-to-Retire.
November 11, 2007
Hershey Trust Replaces Most of Directors
The Hershey Trust, the charitable trust that controls the Hershey Co., replaced 8 of the company's 10 directors, effective immediately. About a month ago, Hershey announced that CEO Richard Lenny would step down and be replaced by David West, already a board member. The Trust has been openly critical about the company's recent financial performance. WSJ, Eight Hershey Board Members Resign;
Replacements Chosen by Trust.
Coach Insiders Bail: I'm Still An investor
One of the very few individual stocks I own is Coach, because I love their hand bags and have done so for 30 years. One of the company's issues has always been how to generate continued sales when it produces a durable product that remains stylish for many years. The company has dealt with this problem brilliantly and has constantly found ways to deal with this; the best example is its invention, a few years ago, of the "wristlet," a small purse that we wear on our wrists, a product that previously we did not realize that we needed. Because I have faith in the company and its ability to create new products that will appeal to me, I have no plans to sell my Coach stock, even though the stock price is currentlly trading around 32.50, down from $54 in the first quarter. So I am disappointed to learn that Coach executives may not share my confidence in the Coach brand. As reported in today's New York Times, Coach insiders have sold $57.2 million in stock recently. The New York Times article quotes an analyst, who explains the difference between selling on what one knows about an industry, which is legal, and on inside information, which is illegal. According to the analyst, Coach "is a perfect example of the former." Maybe so, but I liked my impression of Coach better -- that it is a company that has the confidence to figure out what I want to own next and make a quality product that meets that newly discovered need. So I'm disappointed. NYTimes, Insiders Bail, Stockholders Suffer.