More Trouble Brewing at Wachovia after CEO ousted

Losses, losses and more losses appear to be the name of the game at Wachovia (WB). Quarter after quarter of losses and increased write down provisions, analysts and investors had hoped the worst had come and gone for the bank. With shares down almost 60% from their 52-week levels, sooner or later the patience well will run dry and for Wachovia's board, that day was today.

After claiming dividends would be safe and then subsequently cutting them (Link) Wachovia showed further chinks in an already severely weakened armor. Today's chink, the axe for CEO Kennedy Thompson. Analysts immediately started speculating that the worst is yet to come and 2nd quarter numbers will show another substantial loss. The company gave a statement that it isn't "in crisis" but shareholders have heard that for the last 2 quarters and having the board oust the CEO in an environment where economic data points have started to slightly rebound certainly makes a bold counter-point.

Analysts have also begun speculating about take-overs or buyouts with respect to Wachovia, but with a $50Billion market price tag, Wachovia doesn't seem the most attractive take over target. However, the credit crisis and sub-prime collapse have crippled some very respectable names over the months and if there's any truth to this speculation shareholders may indeed stick around in the hopes of getting an offer that would boost their holdings near the $40/share range.

It is hard to see in this environment a suitable bidder, although JPMorgan (JPM) seems to make the most sense. Coming off its buyout and rescue of Bear Stearns, JP could take another run in the regional banking sector by trying to get Wachovia on the cheap. However, all signs as of today seem to point to further losses and JP could find itself with Wachovia in the high teens after its next quarterly results hit the wire.

The Financial turnaround will come eventually, and it wont be quick. The major US banks are like tanker ships that can't turn on a whim, so Investors should feel solace and knowing they may get several chances to catch the rebound. Today's announcement at Wachovia shows that this still just isn't the time.

Disclosure: Author does not own WB

Markets continue Rally on Home Sales and Bear bid

US Markets continued their rally today as the market opened after the Easter Weekend.
On a weekend highlighted by an exciting opening 2 rounds of the NCAA College Basketball tournament it was Cinderella in the form of Bear Stearns (BSC) that provided the market's initial spark.

Due to the backlash over its steal of a bid for Bear last weekend, JP Morgan (JPM) agreed to raise its bid from $2/share to $10/share. This made Bear's stock double in value, setting the firm at over $1Billion in valuation. Clearly JP Morgan realize it couldn't get away with its initial valuation as the oncoming Bear shareholder displeasure and potential lawsuits started gaining momentum.

Housing Sales rose in February giving the market further hope that the Fed interest rate action of the past months was indeed creating a bottom in the credit/housing market and that the US economy could turn itself around. This positive outlook propelled stocks even higher leading the Dow up 1.5%, the Nasdaq 3% and the S&P 1.5%.

As the market was led by Technology stocks today, it's important to note a major announcement that wasn't built as such. Google (GOOG), having lost the 700MHz spectrum auction to Verizon obviously had other backdoor plans of its own. All the speculation pointed to Google bidding to lose the spectrum just to see the Open Access guidelines pass, came to a major head today. Google announced that it had sent a letter to the FCC outlining its plans for using the White Space (spectrum between the analog TV channels currently not used) for broadband Internet access. What a score this would be for Google, having the ability to use Android phones on Verizon's expensive 700MHz network due to Open Access policies and then turning around and asking the FCC to look into its own devices that would use the White Space between the spectrum of analog TV channels. It'll be interesting to see how it plays out but Investors were clearly pleased with Google approach sending shares up over 6% to $460/share.

Disclosure: Author owns Google.

Bear Stearns Fall from Grace

The story that will makes the rounds of the Investment Banking Boardrooms, and business school curricula alike, will be that of the fall of Bear Stearns (BSC). The once proud up and comer on Wall Street is now being scooped up for $2/share by JP Morgan Chase (JPM).

Just to put things in perspective, Bear's all time high was last year's $159/share, giving it a market cap of over $18Billion. The stock closed today down 84%! at $4.80, giving it a market cap of $560Million. JP Morgan's buyout offer values the firm even less at just over $200Million.

A Staggering almost 99% loss in value from highs reached less than a year ago. A dramatic fall indeed! Bear made headlines at the end of last week when it took on more debt to keep itself liquid. JP Morgan and the New York Fed provided financing to the troubled Investment Bank, as the news incensed the Street dropping Bear by almost 40%. News broke of the buyout on the weekend and Bear Investors had no chance to get out prior to open this morning.

The company's heavy write-downs from the mortgage crisis have left it battered, bruised and now forced to take on more debt. All that was left was for JP Morgan to pick up the pieces at a substantial discount. Although not much is clear about the shape of Bear's books, they probably have never looked worse. The $200Million buyout by JP was a clear indication that Bear was more than likely headed to bankruptcy protection and the firm behind the Chase banking brand felt like there are valuable assets worth salvaging.

It'll be interesting to see how it all plays out, as Investors cheered the "buying bargains" strategy of JPM, sending shares up 10% today. I think JP Morgan will be paying for this one for many months to come, not only with the write-downs that are surely to follow Bear's funds from this quarter to the next, but also the string of shareholder lawsuits that will ultimately find their way to Class-Action status.

Disclosure: Author holds no position in BSC, JPM