ING Hybrids - No Call, No Foul?

On the wire:

As part of its Restructuring Plan approved by the European Commission on 18 November 2009, ING Groep N.V. is required to ask the European Commission on a case-by-case basis for authorisation to call Tier-2 capital and Tier-1 hybrid securities, until the earlier of 18 November 2012 and the date on which ING has fully repurchased the core-Tier 1 securities issued to the Dutch state.

Following a request for authorisation to call, the European Commission denied permission to redeem the 8.439% Noncumulative Guaranteed Trust Preferred Securities issued by ING Capital Funding Trust III and guaranteed by ING, Cusip No. 44978NAA3 on their first call date on 31 December 2010.

In December 2000, ING Capital FundingTrust III issued USD 1.5 billion of 8.439% Noncumulative Guaranteed Trust Preferred Securities, guaranteed by ING, that qualify as hybrid Tier-1 capital. Following the first call date of the Trust Preferred Securities on 31 December 2010, the interest rate on the Trust Preferred Securities will change from the current annual fixed rate of 8.439% to a floating rate payable quarterly of 3 months LIBOR plus 360 basis points, which at current rates is approximately 3.9%.

 It is usually held that Tier 1 hybrids will be called prior to floating.  There are many arguments why this is the case, but typically one hears that if they are not called, the issuer better not come back to market or...  In this case, the EC denied ING the ability to call the security, so this mitigates the reputational/necessity impact.  It would not surprise me to continue to see this happen given the current environment.

When combined with the recent attempts to remove the replacement capital covenant (see the recent JPM tender and consent), risks and structure will have to be revisited by investors.

Bailout Jitters Favor Long Duration

Anyone else notice that the new "bailout disappointment" is showing the 10yr T no love?  Its been about getting long.

So much for the QE "preferred habitat" theory.  Everything is out the window when fear comes a knocking.

China - Labor Shortages Getting Worse

From the China Daily:

SHANGHAI / GUANGZHOU - The economy's twin engines, the Yangtze and Pearl river deltas, are spluttering due to a shortfall of migrant workers, especially in the service and manufacturing industries, amid soaring living costs and stagnant salaries.

The main reason for the severe labor shortage is the soaring cost of living coupled with stagnant income growth, experts said.The average monthly salary for an employee in the service sector in Shanghai is about 1,300 yuan ($197), barely enough to cover food costs.

"That has prompted more migrant workers to choose to stay in their hometowns, where they earn a bit lower but also spend less on living costs," said Zhang Zhenning, a senior HR consultant based in Shanghai.

In South China's Pearl River Delta region, labor shortages have already affected companies' expansion plans."Some companies have to give up orders because of worker shortages," according to sources with the Guangdong provincial department of human resources.

The Christmas and New Year periods are usually the busiest for production in the Peal River Delta.

The worker shortfall has been estimated at more than 900,000, according to a recent survey by the province's human resources department.The delta's major cities of Guangzhou, Shenzhen and Dongguan are experiencing a combined shortfall of about 550,000 workers, according to the survey.Labor-intensive industries such as garments, shoes, toys, textiles, construction, sales and catering are facing an even worse situation in employing new staff, sources said.

Some factory owners in the Pearl River Delta have been forced to move their production centers to inland regions, where most migrant workers come from.

 This is a big issue with export-led economies.  China is becoming a victim of its own success.  No trade recommendation here, just a snippet I found interesting.  Another piece of the puzzle as it were.

Euro Rate and News Don't Jive

Once again, we will try to marry the statements, news and Forex.

First the FX rate (EUR/USD):

Now the News:


PM Zapatero says no chance Spain will need bailout (AP) Asked in an interview if he ruled out financial help from the European Union, Prime Minister Jose Luis Rodriguez Zapatero said "absolutely." He said Spain's plans to reduce its deficit were on track and that its total debt was still 20 percentage points below the European average. Spain's debt at the end of 2009 was euro560 billion ($740 billion), roughly 60 percent of its GDP. "The deficit reduction plan is being fulfilled scrupulously, we have one of the most solid financial systems, the savings banks are restructuring at a good rate and should be consolidated by the end of the year," he said.  Finance Minister Elena Salgado insisted Friday that even if the yield on Spain's 10-year bonds were to rise to 6 percent it would still be manageable.

Portugal adopts austerity, says no bailout needed (AP) Prime Minister Jose Socrates said after Parliament approved the government's 2011 spending plan that the country had "no alternative at all" to the belt-tightening policy. "We must make this effort," Socrates said. He did not take questions. Socrates said Portugal is on track to lower its budget deficit to 7.3 percent of gross domestic product this year. The deficit reached 9.3 percent last year. Finance Minister Fernando Teixeira dos Santos said he reckoned Portugal has six months to show markets it is able to bring its spending under control. The minority Socialist government which managed to pass the plan only after negotiating its content with the main opposition party.

Anyone see a way to marry the two?  Me neither.

Kraft - Short Debt Tender Announced - Still Value in the Name

Kraft Foods Inc.(Baa2 BBB-) said it began a cash tender offer for up to $1 billion of its notes.The offer, which expires Dec. 27, is for its 5.625 percent notes that are due in 2011 and its 6.25 percent notes due in 2012. Holders who tender their offer by Dec. 10 will get an early tender premium of $30 for every $1,000 in principal amount of the notes they turn over.Kraft Foods said it intends to fund the purchase of the notes with cash on hand and short-term borrowings.

KFT 6.25% '12 traded +52/2yr - tendering at +30/ T 0.75%5/31/12 + early tender premium of $30


GIS   (Baa1/BBB+)   5.200   3/15     +54/5Y
GIS   (Baa1/BBB+)   5.700   2/17     +65/7Y
HNZ (Baa2/BBB)    5.350   7/13     +45/3Y
KFT  (Baa2/BBB-)   4.125   2/16     +105/5Y
 
Kraft is sitting on $2.3B in cash, but has 4x debt/EBITDA.  Hopefully they will fund the tender from cash in order to de-lever the company and keep their ratings.  Given the cash flow generation of the company, the name recognition of its brands and products and strategic positioning, I believe there is value in the debt and would be a buyer.  The downside here will be the increased feedstock cost effect on cash flow.

Seagate Deal Falls Apart - Implications

Reuters:

A potential takeover of Seagate Technology Plc, which could have been worth about $9 billion, fell apart on Monday and the hard drive disk maker will instead pursue a share buyback plan.

Buyout firm TPG Capital had been pursuing Seagate, and was seeking other private equity firms to partner with, several sources familiar with the matter previously said.

However, other firms which may have partnered with TPG in a deal lost interest, those sources familiar with the matter previously told Reuters. Bain Capital lost interest in the last two weeks, sources previously told Reuters, which followed cooling interest from rival Kolberg Kravis Roberts & Co.

Seagate said on Monday it had ended talks because "the indications of the valuation range were not in the best interest of the company and its shareholders." Its shares, briefly halted after the close, slid 5.5 percent after-hours.

The company instead has won board approval to buy back $2 billion of its own shares.

 Why do I post this, you ask?  Is it because I am interested in Seagate?  Nope.  While the company is interesting to me, I am more interested in another PE deal falling apart.  Think Dynegy.  This is the downside of a PE deal falling apart:  big share repurchases.  Couple implications:  as a debt holder, you cheer when the levered buyout doesn't happen, then immediately get whacked with a big share repurchase - usually funded by debt.As an equity holder, this will not get you to the same valuation as the buyout.  Lose, lose, lose.

Opportunity in Irish Bank Senior Debt

Nov. 29 (Bloomberg) --

Irish banks’ senior bonds rose after the nation’s 85 billion-euro ($113 billion) bailout spared holders of the debt from having to share in lenders’ losses.

Bank of Ireland Plc’s 1.47 billion euros of senior floating-rate notes due September 2011 rose 8.25 cents on theeuro to 91.6 cents as of 4:22 p.m. in London, a 10 percent increase, according to composite prices compiled by Bloomberg.  The securities fell 7 percent on Nov. 26 on concern senior noteholders were being lined up to take some of the burden of the imminent Irish rescue.

Senior bondholders will escape the cost of the bailout led by the European Union and International Monetary Fund, with holders of subordinated debt forced to share in the pain. Under the agreement, Irish lenders will receive 35 billion euros of the overall package, with 10 billion euros set aside for their immediate recapitalization.

One of the opportunities I was talking about.  Still some room left in the trade.  Gotta love moral hazard.

Hard Times for US Federal Workers? NOT!

NYT:

President Obama plans to announce a two-year pay freeze for civilian federal workers later Monday morning in his latest move intended to demonstrate concern over sky-high deficit spending. 

The president’s proposal will effectively wipe out plans for a 1.4 percent across-the-board raise in 2011 for 2.1 million civilian federal government employees, including those working at the Defense Department, but the freeze would not affect the naion’s uniformed military personnel. The president has frozen the salaries of his own top White House staff members since taking office 22 months ago.  

The number of federal workers making more than $150,000 a year has grown ten-fold in the past five years and doubled since Mr. Obama took office, according to a USA Today study earlier this month. Since 2000, federal pay and benefits have increased 3 percent annually above inflation, compared with 0.8 percent for private sector workers, according to data cited by the newspaper.

Just thinking out loud:  Imagine if the US had to implement the kind of austerity measures circulating throughout the world.  Leadership talks a good game, but did you read the increases taking place?  Seriously?  Now, take the amount they are being paid, add in their benefits and pension (remember, different plan than the bankrupt social security) and what do you have?  Its A Wonderful Life!

European Corporate Debt - Look for Opportunities

Bloomberg:

While European countries slide deeper into debt, the region’s companies are paying off creditors and boosting profits at the fastest rate in seven years.

Liabilities as a percentage of earnings in the benchmark Stoxx Europe 600 Index dropped 22 percent last quarter, the most since 2003, according to data compiled by Bloomberg. Analysts say annual profit growth in Europe will average 46 percent in 2010 and 2011, more than at any time in the previous seven years. The projected income would push valuations down to the lowest levels on record excluding the three months after Lehman Brothers Holdings Inc.’s bankruptcy in September 2008, the data show.

While debt has fallen for Europe’s companies, government liabilities as a proportion of gross domestic product climbed, partly due to the cost of bailing out banks. European Union government debt reached 77.5 percent of GDP this year from 58.5 percent in 2007, according to data from the IMF. The ratio will reach 82 percent in 2012, IMF data show. 

At the same time, the proportion of debt to shareholders’ equity in the Stoxx 600 Banks Index dropped to 6.9 times last week from 16 in September 2007, according to data compiled by Bloomberg. 

For now, corporate debt is the safest ever relative to governments, according to the credit-default swaps market. A Markit Group Ltd. index of 125 European companies dropped this month to a record 76 basis points below bonds issued by countries from Greece to Germany and Italy.

European companies bought back a net $90 billion in equity this year, according to data from UBS AG. While that’s a rebound from $140 billion of net selling in 2009, it’s down from the annual average of $360 billion in repurchases between 2005 and 2007, data compiled by the investment bank show.

 European corporate debt bears watching.  Look for moves that do not reflect the company or the industry.  There is always opportunity in fear or dismissal.

What is FX saying About Ireland?

We are all currency traders now.

As we get ready for the open across the world, Europe weighs heavy on everyone's mind.  Is the Irish bailout enough?  Is Portugal next, if so how far behind is Spain?

Is the Irish bailout enough?

 

The Euro touched, and went through Friday's low briefly.  While it is currently up, the answer to our question, as expressed through FX, is no.

Is Portugal (and Spain) next?  Right now, barring some unforeseen intervention, it looks like the vigilantes will move to Portugal.  While Portugal has high deficits and might fundamentally deserve a good whacking (name one country that doesn't - if you could whack the US, wouldn't you?), fundamentals are not forefront here.  The bigger picture is the inherently flawed nature of the union and their ability to remain intact and effect the changes and, importantly, optics that are required.

Sights will turn on Portugal.  Treasuries are the flight to quality.  Don't fight the trend, it will buck, but don't fight it.  The bigger concern is that there is a continued flight from risk.  I am going to stay flat risk and look for opportunities in the events that will follow.

Equities should be under pressure and credit should feel it too - look for a bit of backing up in some new issues and the IG/XO/HY generally.  Breadth has been somewhat negative in credit markets recently, so there is little support here.

Lets be careful out there.

Portugal - Strike 'Em if Ya Got 'Em

Reuters:

Portugal's two biggest unions hold their first joint general strike since 1988 on Wednesday, hoping to weaken the Socialist government's resolve on implementing austerity measures meant to tackle a debt crisis.

Unions plan to stop trains and buses, ground planes and halt services from healthcare to banking in protest against wage cuts and rising unemployment in western Europe's poorest country.

Prime Minister Jose Socrates, whose government is struggling to quash speculation that Portugal will be the next in Europe to need a bailout after Ireland and Greece, has pledged to stay the course on wage cuts and tax hikes to cut the budget deficit.

"Maybe the strike will not provoke radical changes in the austerity course the government has chosen, but it does represent an addditional element of uncertainty in the already unstable setting in the country," said Elisio Estanque, a sociology researcher at the University of Coimbra.

The unions hope to tap into the growing disatisfaction with the minority Socialist government's austerity measures, which also include across the board spending cuts in public services.

 Greece did the same thing - it didn't work there, but Portugal seems unwilling to recognize the issues and challenges they face.  The Eurozone is still scary (yeah, worry far more about this than North Korea - boots on the ground in South Korea are not overly worried) and I would not yet be a player in Portugal (fewer corporate names anyway).  Portugal will be the focus of specs even sooner than I thought.

P.E. - Game On

Reuters:

(Reuters) - Carlyle-backed pipeline company Kinder Morgan Inc, which was taken private in a $14.6 billion management buyout in 2007, on Tuesday filed with U.S. regulators for an initial public offering of up to $1.5 billion.

It is the latest in a string of private equity-backed portfolio companies to move to go public, such as Carlyle-backed government consulting firm Booz Allen Hamilton.

The window for private equity IPO exits was shut during the financial crisis but cracked open late last year. Private equity firms have a large number of companies to sell in coming years as they look to profit from buyouts done during the boom years of the last decade.

However, some have run into problems; such as Harrah's Entertainment Inc, which pulled a planned $500 million offering on Friday, citing difficult market conditions.

Some potential private equity-backed IPOs which have already filed, such as retailer Toys R Us Inc, may sit it out until next year.

Investors historically have been more critical of private equity-backed companies, which typically have higher debt.

Kinder Morgan, backed by Carlyle Group CYL.UL and Goldman Sachs Group Inc's (GS.N) buyout fund, said all of the common stock in the offering will be sold by existing investors, including Carlyle, Goldman, Highstar Capital and Riverstone Holdings.

HCA borrowing to dividend to investors, Kinder looking to come back, Buyouts back in fashion - welcome back to the future.  Ought to work out well again.

FDIC Bank Release

From the FDIC (emphasis mine):

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $14.5 billion in the third quarter of 2010, a $12.5 billion improvement from the $2 billion the industry earned in the third quarter of 2009. This is the fifth consecutive quarter that earnings have registered a year-over-year increase.

"The industry continues making progress in recovering from the financial crisis. Credit performance has been improving, and we remain cautiously optimistic about the outlook," said FDIC Chairman Sheila C. Bair. "Lower provisions for loan losses are driving bank earnings by allowing a larger share of revenues to reach the bottom line."

But Chairman Bair also said, "At this point in the credit cycle it is too early for institutions to be reducing reserves without strong evidence of sustainable, improving loan performance and reduced loss rates. When it comes to the adequacy of reserves, institutions should always err on the side of caution."

Total assets increased by $163 billion (1.2 percent) during the quarter. Investment securities holdings increased by $113.7 billion (4.5 percent). Assets in trading accounts rose by $86.9 billion (12.8 percent).

The primary factor contributing to the year-over-year improvement in quarterly earnings was a reduction in provisions for loan losses. While quarterly provisions remained high, at $34.9 billion they were $28 billion (44.5 percent) lower than a year earlier. Net interest income was $8.1 billion (8.1 percent) higher than a year ago, and realized gains on securities and other assets improved by $7.3 billion from a year ago.

 Full release here: FDIC Release on Banks

Couple things on this:  The reduction in reserves, while intuitive from a cyclical perspective, seems a little early.  I have noted my concern of the releases previously and still think they lead to lower quality earnings.  Also note the increase in trading account assets, find this interesting given the emphasis of the regulators on de-risking banks.

Disclosure:  Long various bank equity and preferred.

Altman's Z as a Predictor of Sovereign Problems

Bloomberg

A measure of companies’ probability of default may provide an early signal of countries’ ability to repay debt and can be used as an alternative to sovereign credit ratings, according to Ed Altman, a professor at New York University’s Stern School of Business, who devised the metric.

    Companies in Greece, which in May received a 110 billion-euro ($150 billion) bailout, had a 10.6 percent probability of default in April, the highest score among the 10 countries tracked by the so-called Z-metric. Portugal followed with a 9.4 percent score and Italy ranked third with an 8 percent probability. The numbers are likely to have worsened since then, Altman said in an interview in Milan yesterday.

    “Sovereign ratings take into account a macro picture and don’t provide an early signal,” said Altman, who is also an adviser to Classis Capital Sim, a Milan-based fund manager. “This is a bottom-up approach.”

    In June 2009, almost a year before the bailout, the Z-metric for Greece showed an 11.6 percent chance of default. Moody’s Investors Service cut Greece’s rating to non-investment grade this June, a month after the bailout, while Standard & Poor’s cut Greece to junk in April. Italy hasn’t suffered a rating cut from any agency since the start of the credit crisis.

Interesting concept, using a Z ratio to determine potential sovereign problems.  Note the 2nd place nature of Portugal and Italy taking 3rd.  The only problem is that the Z uses working capital etc., which is not relevant to financial firms which have caused (overtly) many of the problems we are experiencing today.  Altman says he is looking at a Z for financials.  Just another arrow in the quiver of market mavens and value seekers.

Q3 GDP Thoughts

From BEA's Q3 GDP release (emphasis mine):

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 2.5 percent in the third quarter of 2010, (that is, from the second quarter to the third quarter), according to the "second" estimate released by the Bureau of Economic Analysis.  In the second quarter, real GDP increased 1.7 percent.

Real personal consumption expenditures increased 2.8 percent in the third quarter, compared with an increase of 2.2 percent in the second.  Real nonresidential fixed investment increased 10.3 percent, compared with an increase of 17.2 percent.  Nonresidential structures decreased 5.7 percent, compared with a decrease of 0.5 percent.  Equipment and software increased 16.8 percent, compared with an increase of 24.8 percent.  Real residential fixed investment decreased 27.5 percent, in contrast to an increase of 25.7 percent.

***The growth rate is obviously slowing from the high RPM levels seen in Q2, but admittedly still growing at a decent clip.

Corporate Profits

Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $44.4 billion in the third quarter, compared with an increase of $47.5 billion in the second quarter.  Current-production cash flow (net cash flow with inventory valuation adjustment) -- the internal funds available to corporations for investment -- decreased $57.8 billion in the third quarter, in contrast to an increase of $61.1 billion in the second.

***Not the trend we like to see in any market.

Taxes on corporate income increased $31.8 billion in the third quarter, compared with an increase of $2.4 billion in the second.  Profits after tax with inventory valuation and capital consumption adjustments increased $12.6 billion in the third quarter, compared with an increase of $45.2 billion in the second.  Dividends increased $8.2 billion compared with an increase of $8.1 billion; current-production undistributed profits increased $4.4 billion, compared with an increase of $37.1 billion.

Domestic profits of financial corporations increased $33.3 billion in the third quarter, in contrast to a decrease of $3.4 billion in the second.  Domestic profits of nonfinancial corporations increased $18.6 billion in the third quarter, compared with an increase of $48.2 billion in the second.

Overall, the numbers continue to be strong, but the deceleration in the pace of growth is becoming clearly obvious.  Of concern is the slowdown in profits of domestic nonfinancial corporations (feedstock price increases and waning productivity gains)and the current production cash flow numbers falling nearly $58B during the quarter.

S&P500 Implied Correlations

Quick snapshot of S&P500 implied correlation data (from CBOE):

Correlations going down.  Return of the stockpickers market?  Lets hope so, I happen to be a big fan of analysts and analysis.

Global Bond Managers Euro Thoughts

From MoneyMarketing:

At least seven global bond funds revealed top 10 holdings in peripheral eurozone debt at the end of September, according to Trustnet, as Ireland’s financial woes accelerated towards its recent bailout.  Italy and Spain dominated the holdings, rather than Greece and Ireland, which have received a bailout from the IMF and the European Union - in Ireland’s case, the European Financial Stability Fund.

Managers also avoided Portugal, which has a deficit of almost 10 per cent of GDP and is struggling to pass budget cuts. 

Large portfolios which hold Spanish or Italian debt include the £753m Newton International Bond, the £423m F&C Global Bond, the £339.2m Threadneedle Global Bond, the £337m Old Mutual Global Strategic Bond and the £199m Henderson Overseas Bond funds.



Overall, Paul Brain, the manager of the Newton International Bond fund, says Spain is not growing fast enough to stomach the budget cuts required. He has sold out of Spanish debt entirely.

Dave Chappell and Martin Harvey, who co-manage the Threadneedle Global Bond fund, say the Italian situation looks somewhat superior. Like Brain, they have stuck with their holdings in the country.

Full article here:  Money Marketing on Global managers

Personally, It looks as if current Irish bank debt might be a better home (NOT SUB) as they will be receiving bailout funds (while there still are some) and we should see a "grandfathering" of the risk sharing (bail-in) that is being bantered about everywhere.  If this is the case, IRE might be worth a look.

Euro Comment

Saw this comment on the FT Alphaville.  Thought it was poignant (emphasis mine):

Spain CDS spreads will be 500bps unless we have a federal states of europe in pretty quick measure (which will not happen!)
Those with the privilege of having $ will just pick off the Euro countries one by one.
People have always said do not fight the fed, I have never heard someone saying "don't fight the ECB" 

As an aside:  Portugal also came out and said they will need NO money.  Always a bad sign when companies or countries try too hard to quell fear. 

Holdiay Travel with the TSA

As we kick off the holiday travel season, a little humor:





Can't help the advertisement, sorry.

Ireland Formally requests Aid

Reuters:

The EU and IMF agreed on Sunday to help bail out Ireland with loans to tackle its banking and budget crisis in a bid to protect Europe's financial stability.

Ireland, facing widespread public anger over its handling of the crisis, formally requested the aid on Sunday evening.

"The European authorities have agreed to our request," Prime Minister Brian Cowen said. "I expect that agreement to be finalised shortly, within the next few weeks."

The size of the rescue by the European Union and the International Monetary Fund has yet to be negotiated but is likely to be smaller than Greece's 110 billion euro ($150 billion) bailout last May.

"I would say we are talking about 80-90 billion euros," a senior EU source said, adding that this sum would include money to support the Irish banking sector.

EU Economic and Monetary Affairs Commissioner Olli Rehn said the European Commission, European Central Bank and IMF would prepare a three-year package of loans by the end of the month.

"Providing assistance to Ireland is warranted to safeguard the financial stability in Europe," Rehn told Reuters.

"The programme under preparation will address both the fiscal challenges of the Irish economy and the potential future capital needs of the banking sector in a decisive manner."

Britain, which is not part of the euro zone, said it would offer some 7 billion pounds ($11.19 billion) in bilateral aid.

Irish Banks should trade higher, the Euro is trading higher, Stoxx should trade higher.  FEZ still has room to go, but monitor closely as people turn their attention to Portugal.  Recall earlier post on Dark Days II and III.

Coal - The New Black Gold?

New York Times:

At ports in Canada, Australia, Indonesia, Colombia and South Africa, ships are lining up to load coal for furnaces in China, which has evolved virtually overnight from a coal exporter to one of the world’s leading purchasers.

The United States now ships coal to China via Canada, but coal companies are scouting for new loading ports in Washington State. New mines are being planned for the Rockies and the Pacific Northwest. Indeed, some of the world’s more environmentally progressive regions are nascent epicenters of the new coal export trade, creating political tensions between business and environmental goals.

Traditionally, coal is burned near where it is mined — particularly so-called thermal or steaming coal, used for heat and electricity. But in the last few years, long-distance international coal exports have been surging because of China’s galloping economy, which now burns half of the six billion tons of coal used globally each year.

Vic Svec, senior vice president of Peabody Energy, the world’s largest private coal company, said it was “planning to send larger and larger amounts of coal” to China.

“Coal is the fastest-growing fuel in the world and will continue to be largely driven by the enormous appetite for energy in Asia,” he said.

 The growth and shifts in coal exports to China are impressive, flowering even during the recession. Seaborne trade in thermal coal rose to about 690 million tons this year, up from 385 million in 2001.

The price rose to $60 from $40 a ton five years ago to a high of $200 in 2008. Coal delivered to southern China currently sells for $114 per ton. 

Although it has plentiful domestic supplies, China imports coal because much of its own is low grade and contains impurities. Coal from the Powder River Basin of Montana and Wyoming tends to be low in sulfur, for example, allowing power plants to burn more without exceeding local pollution limits. 

Another emerging customer is India, whose coal imports rose from 36 million tons in 2008 to 60 million tons in 2009, the last full year for which data is available. 

Read the rest here:  NYT on Coal

Personally, I am a believer in coal and the ability to use coal in a "cleaner" state.  read up on coal gasification and sequestration.  Like it or not, The US produces an awful lot of coal and has some of the highest quality stuff - high BTU, low sulfer.  Always look at the difference between thermal coal and met coal and who produces which (production of both helps partially mitigate the volatility in met coal prices). 

In equities, I like the diversified miners (Vale, BHP, Rio) and think that there continues to be upside in the names.  Peabody Massey and Arch are interesting, but the focus can cause volatility and while multiples on all miners are high, they are higher on coal focused (although I keep in mind that increased demand will also help jack go-forward earnings and lower forward multiples).

From a debt perspective, I like BHP, but worry about their big game hunting (where to now that POT went up in smoke? - Come on, that's humor!), leaning more towards RIO and Vale.  Cliffs is another I like (more ore biased and also looking for an acquisition - hedgies blew apart the alpha deal).  Also digging into Alcoa as there might be something there.

No preferred that I am aware of in the sector.

Rare Earth Project Metrics

The following is an article reproduced in its entirety from Resource Investor that I thought was very well done.  There is limited thought out and researched information on rare earths (alot of spec though) so I thought it would be worth the reproduction.  Take a look at resource investor (resource investor.com), I read it often for insight into the various resource markets and information on resource driven companies (no, I am not compensated at all by the site or any of its affiliates).

As of the beginning of November 2010, there are 251 individual active rare-earth projects in the TMR database, being run by 165 companies in 24 different countries outside of China. It will be no surprise that these projects are in a wide variety of development stages, ranging from being prospective for rare earths on the basis of a grab sample or two, to full-blown mining operations.
When working with clients to analyze the sector from a strategic point of view, I generally filter this list of projects and focus much of my attention on what I call advanced rare-earth projects – those that meet one or both of the following criteria:

1. The deposit associated with the rare-earth project has been formally defined as a mineral resource or reserve under the guidelines of a relevant scheme such as NI 43-101 or the JORC code;
2. The deposit has been subject to past mining campaigns for rare earths, for which reliable historical data is available, even if the data is currently not compliant with a relevant scheme in terms of a resource of reserve definition.

Based on these criteria, at this time the TMR Advanced Rare-Earth Projects Index comprises 13 projects, being run by 12 companies in six different countries.  These projects, in alphabetical order, are:

• Bear Lodge (Bull Hill Zone) - Wyoming, USA : operated by Rare Element Resources Ltd. (TSX.V:RES, AMEX:REE);
• Dubbo – New South Wales, Australia : operated by Alkane Resources Ltd. (ASX:ALK, PK:ALKEF);
• Hoidas Lake – Saskatchewan, Canada : operated by Great Western Minerals Group Ltd. (TSX.V:GWG, OTCBB:GWMGF);
• Kutessay II – Chui, Kyrgyzstan : operated by Stans Energy Corp. (TSX.V:RUU);
• Kvanefjeld – Kujalleq, Greenland : operated by Greenland Minerals and Energy Ltd. (ASX:GGG, PK:GDLNF);
• Mount Weld – Western Australia, Australia : operated by Lynas Corporation Ltd. (ASX:LYC, PK:LYSCF);
• Mountain Pass – California, USA : operated by Molycorp Inc. (NYSE:MCP);
• Nechalacho (Thor Lake Basal Zone) – Northwest Territories, Canada : operated by Avalon Rare Metals Inc. (TSX:AVL; OTCQX:AVARF);
• Nolans Bore – Northern Territory, Australia : operated by Arafura Resources Ltd. (ASX:ARU, PK:ARAFF);
• Steenkampskraal – Western Cape, South Africa : operated by Great Western Minerals Group Ltd. (TSX.V:GWG, OTCBB:GWMGF) in association with Rare Earth Extraction Co. ;
• Strange Lake (B Zone) – Quebec, Canada : operated by Quest Rare Minerals Ltd. (TSX.V:QRM);
• Zandkopsdrift – Northern Cape, South Africa : operated by Frontier Rare Earths Ltd. (TSX:FRO from 11/17/10 onwards);
• Zeus (Kipawa) – Quebec, Canada : operated by Matamec Explorations Inc. (TSC.V:MAT, PK:MTCEF).

There are a number of ways to compare the technical merits of rare-earth projects; we covered just one potential metric recently in the review of Dr. Sered in’s outlook coefficient for rare-earth deposits. Whatever we choose, at some point these have to be translated into economic merits, on the basis of the material grade, distribution of specific elements, and the prevailing market conditions at a point or range of points in time of particular interest – past, present or future. We also of course have to consider the merits of the individual companies that own or operate the projects, as well as the infrastructure, mineralogy and subsequent processing costs for exploiting the deposit and other parameters.
Two common metrics used to give a quick snapshot of the potential value of a deposit are:

1. The unit basket price (in US$/kg) : this is the theoretical price that could be obtained for one kilogram of fully separated rare-earth oxides, containing rare-earth oxides in the same proportions as found in-situ within the deposit (e.g. if the proportion of neodymium oxide in the total rare-earth-oxide material grade was 10%, then the unit basket price would include the market price for 100 grams of neodymium oxide);
2. The value per unit mass of mineral deposit (in US$/t) : also known as the rock value, this is the theoretical value of each tonne of material in the deposit, on the basis of the market value of the rare-earth content present (assuming 100% efficiency of extraction and separation).

There are obvious limitations to these two metrics. Most notably, they do not account for the costs associated with extracting and processing the minerals into separated oxides, and they do not account for the level of difficulty associated with the specific mineralogy of a deposit. They also do not account for the actual efficiency of extraction at each stage, and the associated losses of material that are inevitable at each step.
However, these metrics do provide some basic value to anyone doing their due diligence on a deposit; even more so with a deposit that has a defined mineral resource (such as the 13 deposits listed on the TMR Rare-Earth Projects Index), since there is a reasonably significant degree of confidence in the data that one needs to use, to do the calculations.
The following chart is a comparison of these two metrics for each of the 13 projects named above, based on the average market price for separated rare-earth oxides (excluding oxides of Ho-Er-Tm-Yb-Lu) in October 2010, FOB China published at metal-pages.com:
  
This second chart consists of the same comparison of metrics, but based on the average prices in 2009. Note the significant differences in scales for these two charts:
 
There is additional nuance to these metrics that comes out when you start to look at a breakdown of the individual rare earths present in each deposit; but we can quickly see that for the most advanced projects in the rare-earths sector, there is a very general inverse relationship between the unit basket price for each mineral resource or reserve, and their associated rock values. What the charts tell us is that rare-earth mineral resources with high rock values, generally have such values on the basis of a high material grade (i.e. a significant quantity of total rare-earth oxides present, as a fraction of the overall resource); it also tell us that generally, mineral resources with high unit basket prices, have such high values on the basis of a distribution of individual rare earths that skews towards the more-valuable rare-earth elements present, rather than a high overall material grade.
In the future, as current projects in development publish technical reports defining mineral resources that meet the appropriate guidelines, we’ll update the TMR Advanced Rare-Earth Projects Index accordingly. We’ll also look to update the above charts on a reasonably regular basis too.

Weekly Fund Flows - November 17, 2010

Fund flows:

Debt:
High Yield registered its first outflow in 11 weeks of -$723 million, -0.7% of assets. 
Bank Loans continued to see positive inflows of $453 million, +2.0% of assets. 
High Grade inflows of $65 million, compared to an inflow of $650 million the prior week. 
Municipals chalked up outflows of $3.1 billion, the largest on record for -0.9% of assets.

EM Debt at $27 million, +0.2% of assets and
Global Debt at $655 million, +0.5% of assets.
Equity:
Equity Funds, which had 10 weeks of inflows, registered outflows of $4.3 billion, -0.2% of assets.
Cash:
Money Markets continued to see sizable outflows, $8.7 billion or -0.3% of assets.   

Where is the MMKT cash going?  Is it being deployed in risk (doesn't look that way) or paying bills and being deployed at the mall.  Watch for retail sales/comp stores to give us the answer. 

High yield outflow is notable, and we will have to watch if it continues.  Munis are the big story here, they are getting whacked.  See my earlier post for my thoughts on munis, but to summarize - look for opportunities.

Market Cap Update

Equity market cap update:

Mid-caps continue to outperform, small-caps passing large-caps, so I am maintaining my mid-cap position with a little small-cap added for good measure within my passive allocation.  As I posted on Tuesday, FEZ would be a good play on the bailout.  Outperforming SPY by 200bps last two days.  Still a little left to go - watch for an actual announcement and pay attention to the roll of the ECB.

Muni's: Look Out or Look Into?

WSJ:

America's strapped states and cities took another hit Wednesday, with California seeing tepid demand for its latest bond sale and other governments pulling about $700 million worth of borrowing deals this week as investors continued stepping away from the municipal bond market.

The normally staid market has grown volatile the past week, posting its sharpest selloff in nearly two years, as investors demand higher interest rates to buy paper issued by states, cities and counties to finance their operations. Localities have been hammered by a drop in tax revenue amid the downturn—and unlike the federal government, most are barred constitutionally from running deficits. 

"The tax-exempt municipal bond market is a cold, cold world right now for issuers and taxpayers," Tom Dresslar, a spokesman for the California State Treasurer, said late Wednesday. He added that the state decided to cancel another $267.3 million bond sale it planned to price next week "in light of market conditions."

California's $10 billion bond sale this week was seen as a test of access for governments to the bond markets, and the middling interest signaled that municipalities could have to pay more to attract investors. The state further jolted the market by delaying the close of the bond sale, citing a lawsuit filed Tuesday that challenges a separate tactic the state is using to raise funds. 

The fragility of government finances was also evident in a move by Moody's Investors Service to downgrade the city and county of San Francisco, as well as the city of Philadelphia, and by a request by Hamtramck, a small Michigan city, for permission to file for bankruptcy.

California, facing a projected $25 billion shortfall through June 2012, aimed this week to sell $10 billion in so-called "revenue anticipation" notes. Over three days, it reported total orders of about 60% of that amount, or $6.06 billion, for the securities, according to the Treasurer's office. In September 2009, California sold 75% of a similar offering to retail investors. The remainder of an offering is typically bought by big institutional investors.

About $700 million worth of bond sales were pulled this week, according to Thomson Reuters. That is roughly 3% of the week's planned sales, according to data from Ipreo. Many of the bond sales were to refinance outstanding debt at lower rates, meaning the governments didn't need the money.

 Full article here:  WSJ on Munis

Being an opportunist, I always look for opportunity where other don't want to be.  I always had a saying "When there is a fire in the theater and folks are fleeing, they often leave their wallets on the table."  I will have to do some digging, but I can't help thinking there will be opportunities.  If there is follow-through on BABs, look there too.

Rolling the Dice on Death

WSJ:

In a closely watched case, New York state's highest court ruled that it is legal for somebody to take out a life-insurance policy and immediately sell it to a stranger.

The ruling is a blow to insurers and a victory for hedge funds that have bought billions of dollars of such policies in recent years, part of a controversial practice in which thousands of people have taken out life policies and quickly sold them to investors, who pay the premiums and collect when the insured dies.

The case, a focus of a page-one article in The Wall Street Journal in June, involves a dispute over $56 million in life insurance taken out by the late Arthur Kramer, a Manhattan attorney who died in 2008. Just after taking out the policies, Mr. Kramer sold the right to collect on them to hedge funds. 

His widow, Alice, later sued, claiming the transactions were illegal under a state "insurable interest" law, which says people can't procure life insurance on someone they aren't close to. Because the law was violated, his widow argued, the Kramer estate should instead collect.

The litigation became a three-way fight. The investors argued they were entitled to the proceeds from policies they paid for, while two of the insurers contended they shouldn't have to pay anything because the policies were illegal from the start.

In a 5-2 decision, the New York Court of Appeals ruled that the state's laws allow a person to take out an insurance policy with the intent of selling it to a stranger. The majority ruled that this didn't violate insurable-interest laws, which are intended to ban transactions tantamount to wagers on a stranger's life.

The ruling is valid only in New York, but some legal experts predict its influence will be broader. Scores of similar disputes over alleged "stranger-originated" life-insurance policies are being litigated across the U.S.

I have seen investments collateralized with life policies, real actuarial stuff.  Personally, I believe an insured should be able to assign or sell the payout on his/her life policy.  The whole insurable interest and person your close to argument doesn't hold water with me.  Example:  You divorce your wife, you die, she collects.  Were you close to her?  

As an aside, would you rather bet on death or home ownership?

Greece - Budget Cutting Paul Bunyan Style

From BBC:

The Greek government has unveiled an austerity budget that aims to cut its 2011 public deficit to 7.4% of the nation's annual economic output or GDP.

If achieved, this would mean a 5bn-euro ($6.8bn; £4.3bn) reduction on Greece's projected 9.4% deficit for 2010.

Under the budget plans, the government will cut health and defence spending, and increase the sales tax on most retail items from 11% to 14%.

Greece had to accept a 110bn-euro ($150bn; £93bn) rescue deal in May. This sum - which is being given to the country in three stages - has come from the European Union and International Monetary Fund.

To get the money, Greece had to agree to enforce substantial spending cuts to reduce both its public deficit and overall government debt, which are among the largest in Europe.

The country's finance department also said that the Greek economy would contract by 4.2% this year and by a further 3% in 2011, higher than its previous estimate of a 2.6% slowdown next year.

Greece is taking an axe to its deficit.  As much as everyone says the country and its citizens are in denial, they are taking the largest steps to get their house in order.  Will it be enough?  Time will tell.  Will it stay in place when the "crisis" subsides (a better question)?  This is the crux of the biscut.  It is easy to swim when the sharks are circling, but the calmer water often poses a bigger challenge.

Banks - Stress Test II before Capital Distribution

Press release by the Fed:

The Federal Reserve Board on Wednesday issued guidelines for evaluating proposals by large bank holding companies (BHCs) to undertake capital actions in 2011, such as increasing dividend payments or repurchasing or redeeming stock. The criteria provide a common, conservative approach to ensure that BHCs hold adequate capital to maintain ready access to funding, continue operations, and continue to serve as credit intermediaries, even under adverse conditions.
The criteria for evaluating capital distributions are outlined in a revised temporary addendum to Supervision and Regulation letter 09-4, "Dividend Increases and Other Capital Distributions for the 19 Supervisory Capital Assessment Program Firms." The guidelines state that any capital distribution plan will be evaluated on the basis of a number of criteria, with particular emphasis on:

• the firm's ability to absorb losses over the next two years under several scenarios, including an adverse macroeconomic scenario specified by the Federal Reserve and adverse scenarios appropriate for a particular firm's business model and portfolios;
• how the firm will meet Basel III capital requirements as they take effect in the United States, in the context of the proposed capital distributions as well as any anticipated impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the firm's business model or capital adequacy; and
• the firm's plans to repay U.S. government investments, if applicable. BHCs are expected to complete the repayment or replacement of any U.S. government investments in the form of either preferred shares or common equity prior to increasing capital payouts through higher dividends or stock buybacks.

The Federal Reserve expects to respond to capital distribution requests beginning in the first quarter.
The Federal Reserve will evaluate requests for planned capital actions in the context of its broader process for assessing capital adequacy at the largest BHCs. As part of the regular supervisory process, the Federal Reserve is requesting that large U.S. BHCs submit comprehensive capital plans by early next year, regardless of whether a capital action is planned. The capital plan review is the latest step in the Federal Reserve's efforts to enhance supervision of banking organizations. As recognized by the Dodd-Frank Act and demonstrated by the Federal Reserve-led Supervisory Capital Assessment Program in 2009, regular, horizontal reviews across groups of firms provide regulators with both firm-specific and industry-wide perspectives of various issues and trends. The Federal Reserve plans to undertake these capital plan reviews on a regular basis and will consult with primary federal bank regulators.

This is stress test part II.  Before the BHCs can begin releasing capital through dividends, they are going to have to show that they, essentially, have surplus capital to return.  Positive for bank longevity, but the anticipation of individual results and the headline gussing could lead to volatility.

Disclosure:  Long XLF, C and BAC (equity and preferred positions)

Banks - Higher Dividends On the Way?

Comerica Inc.’s decision to double its dividend may signal that U.S. regulators will allow more of the biggest lenders to begin restoring their payouts.
    Comerica, the Dallas-based bank that posted annual profits throughout the financial crisis, boosted its quarterly dividend to 10 cents a share yesterday. Comerica also authorized the repurchase of as much as 7 percent of stock outstanding, according to a company statement. Banks including JPMorgan Chase & Co., Wells Fargo & Co., U.S. Bancorp and PNC Financial Service Group Inc. may be next, said Jennifer Thompson, an analyst at New York-based Portales Partners LLC.

Interesting.  I was expecting banks to get approval as they show that they are well capitalized and will be able to meet proposed regulatory standards, but it might be coming sooner than I had expected.  Would expect some multiple expansion on the back of dividend chasers.

Disclosure:  long C, BAC common and preferred and RF (yeah, sucks) equity as well as European bank deep value plays.

Avis May Have to Sell Assets to Get Thrifty

Yeah, I just really liked the title.

Article here: Avis

One thing I disagree with though is the all to common comparison to Enterprise rent-A-Car.

The four largest U.S. rental-car companies account for 81 percent of the industry’s revenue, according to IBISWorld, a Santa Monica, California-based industry researcher. Based on 2009 revenue, Enterprise Rent-A-Car Co. is No. 1, followed by Hertz, Avis and Dollar Thrifty. 

The winner of the bidding war would become the second- largest U.S. auto-rental chain by revenue, trailing only closely held Enterprise. 

Different business model for the most part.  ERAC focuses on vehicle replacement (during repairs...), not so much on airport traffic.

ERAC has some trade by appointment bonds out there.  Always a nice find.

Soaring Cotton and a Clothing Substitute Idea

News via Bloomberg:

Gap Inc., J.C. Penney Co. and other U.S. retailers may have to pay Chinese suppliers as much as 30 percent more for clothes as surging cotton prices boost costs.

“It’s a little terrifying to deal with cotton suppliers now,” said Vicky Wu, a sales manager at Suzhou Unitedtex Enterprise Ltd., a closely held, Jiangsu province-based clothes maker that counts Gap and J.C. Penney among its clients.

Cotton futures in China have surged more than 70 percent this year and were at a record earlier as the global economy emerged from recession, allowing people to spend more on clothes. Production of the fiber in China, the world’s biggest user and importer, is forecast to lag behind demand for a 12th year, cutting its stockpile to the smallest since 1995, according to the U.S. Department of Agriculture.

Who remembers the 80s?  Two words:  parachute pants!

Rest of story here:  Cotton costs

Matthew Lynn on the Euro

I like Matthew Lynn.  Smart and witty - two things I aspire to.  Here are some excerpts of his thoughts on the Euro (it may seem like I am too focused on this, but I disagree - we are all currency traders now - and its my darn blog):

Who’s next? First Greece went bust. Now Ireland is on the brink of a bailout from the European Union and the International Monetary Fund.

When it happens, we’ll hear plenty of soothing words about how contagion has been stopped, the euro area has been put on a firmer footing, and the single currency saved. There will be a lot of grand rhetoric about the importance of the European project. Stern condemnations of the speculators will ring out across the continent.

Don’t listen to a word of it. The euro has turned into a bankruptcy machine. Once the markets have finished with Ireland, they will simply move on to Portugal and Spain, and after that to Italy and France.

In short, the problem wasn’t Ireland. It was the euro. The logic of that is inescapable. If it is the single currency that is at the root of the crisis, it won’t stop here. 

In each country, it will be a different trigger that causes a collapse in financial confidence. The root cause is the same, though. When the euro was launched, it was a big bet that sharing the same currency would make a group of very different economies converge, and so allow the European Central Bank to operate a single monetary policy for all of them.

It was an interesting theory, but it turned out to be wrong. The economies are just too different to allow a single central bank to manage all of them. Interest rates are always wrong everywhere. How that expresses itself varies. In Greece, it was a fiscal crisis. In Ireland, a banking collapse. In Spain, a construction bubble that burst. In Germany, a massive trade surplus. But, like a river looking for the sea, it always comes out somewhere.

This crisis will keep moving from country to country. The only permanent fix is splitting up the euro into more manageable currency areas. Until the euro area’s leaders recognize that simple truth, every bailout they come up with is only going to shift the attacks elsewhere.

The rest of the article is here:  Lynn on the Euro

As I am not as witty or smart (according to some, I couldn't possibly understand their 7th grade math, what with all the advances in math in the last 20 years), I will leave it at that.

Europe - Dark Days II Offers Opportunity

One of my favorite lines recently is "We are all currency traders now".  As we roll through the newest Euro-trouble, perhaps it is wise to see what has happened since the last european "issue", namely Greece.

Since the bottoming of the Euro on June 8th, the S&P is up 12% and S&P midcap growth is up 18%.

Am I saying that this will happen again?  No, decidedly not, as better earnings and US QEx has helped propel the markets forward.  What I am trying to point out is that the recovery from "dark days I or DD1" has been robust.  I would expect that recovery from "dark days II or DD2" will be decent as well.

I am looking at the following positions to benefit from "DD2":
Long FXE
Long FEZ (wouldn't mind shorting SPY into this leg, but I am a "long only" guy)

I will be playing with tight stops as I expect Portugal will offer us a "DD3" opportunity.

Thoughts?

DISCLOSURE:  No positions as of writing.

Another Day in the Market, Another Day Further from Retirement

Who buried the fuel rod in the market?  Ouch.  Not a good day to be short the long bond (even if you are long 7-10yrs) or long oil, commodities, stocks (of any cap) or, well, anything (but "risk free" treasuries).  Yuck.

Too much heat in the kitchen!

Ireland - One Step Closer to the IMF

Washington Post:

Ireland's Prime Minister acknowledged Tuesday that the country has been all but shut out from further borrowing on world bond markets as European leaders continued crisis talks over a possible rescue for the heavily indebted nation.

"The cost of money is simply too high. We have to find further initiatives," Irish Prime Minister Brian Cowen told the Parliament in Dublin, opening the door for the first time on a possible international bailout. 

"The issue now is whether Ireland will pull the trigger; will they ask for aid. They can't be helped without that request," said one official, who would not speak for the record because of the sensitive nature of the negotiations. 

As I pointed out in an earlier post, EU troubles are now very localized as LIBOR has stayed firm during this most recent episode.  Ireland will have to accept funds (needed or not) in order to help stabilize the makets and lead the way for Portugal to tap should they need to.  If Ireland takes money for the banks, and can shore up their capital, it will go a long way to reducing the spread on sovereign debt.

Fortune Brands - Mea Culpa

I stated in my post on FO that if I HAD to own the name, I would swap from 14s to 16s and take out $5.  Seemed reasonable at the time and for the levels being talked about.  One problem:

Interest rate adjustment:  The interest rate payable on the notes will be subject to adjustment from time to time if our debt rating is downgraded (or downgraded and subsequently upgraded), as set forth in “Description of the Notes — Interest Rate Adjustment."

Change of control offer:  If a change of control triggering event occurs with respect to the notes, each holder of the notes may require us to purchase all or a portion of such holder’s notes at a price equal to 101% of the principal amount, plus accrued interest, if any, to the date of purchase. See “Description of the Notes — Change of Control Offer.” 

The 16s do not include the steps or the COC.  Since I do not believe the COC would be triggered by a spin of a business line. I will ignore this and focus on the steps.  These will help support the bonds should FO spin a large business line and retain the debt.

Bad Michael, Bad! Inexcusable error.

Regions - Too Much Risk for Risk Managers

Regions Financial Corp. (RF), a bank dogged by losses resulting from too much risk ahead of the financial crisis, said its chief risk officer has resigned.

Chief Executive

Grayson Hall said it was important to note that neither Bill Wells's exit, nor that of two other departing risk executives, resulted from any determination about additional problem loan migration, loan loss reserves or charge-offs.

While the southern U.S. regional bank searches for a replacement, it will divide the former responsibilities of Wells between Barb Godin, the company's chief of credit operations and John Haley, head of risk analytics. They will report to Chief Financial Officer David Turner until new chief risk officer is named.

In addition to Wells's departure, Regions Financial said Michael Willoughby, director of credit risk, has retired and Tom Neely, head of problem asset management, has left the company.

Loss narrowed in the bank's most recent quarterly results, but it sold troubled loans at a loss and reported deterioration in nonperforming loans, signaling the potential for more credit woes ahead.

 This can't be good, can it?  The rats are leaving the ship - always a precursor to water coming in. 

Chart courtesy Nasdaq.  Trend and stock price courtesy greed and risk ignorance.