We learn today that giant insurance company Allstate has sued BankAmerica and its Countrywide Financial unit over a bum investment. It seems Allstate bought $700 million of Collateralized Debt Obligations from Countrywide which were backed by residential mortgages originated by the mortgage lender. Allstate believes Countrywide misrepresented the quality of the portfolio.
Well, we don’t know yet the merits of this case – and we don’t know exactly what Countrywide disclosed in the offering documents for this CDO (were these stated-income mortgages? was performance of the mortgages listed in the documents? default rates? delinquencies?) To be sure, Countrywide originated some really bad mortgages and it is entirely possible that some of those made their way into the CDO Allstate bought.
Posted by Rick Stine
on July 28, 2010
, mutual funds
Sometimes, when you get yourself into a little trouble, it forces you to do some things you may not otherwise have done. Take the case of BankAmerica. Through various mergers over the years, it built up a pretty sizeable asset management division which became known as Columbia Management. But then along came the credit crisis, and some problematic acquisitions that weighed on BankAmerica. It had to raise capital, so, it sold Columbia to Amerprise Financial for $1 billion.
Today, Ameriprise reported second quarter earnings and it showed some good profit numbers in its asset management business, which had two months of Columbia’s performance included. The unit earned $56 million this quarter versus a loss of $12 million in the year-ago quarter. By no means was this the unit powering all of Ameriprise’s earnings (insurance, annuities and wealth management all had higher profits.) But it is clearly a profitable business, one creating millions of dollars of cash for Ameriprise – money you have to wonder if BankAmerica is now regretting it doesn’t have.
Two proxy advisory firms are urging shareholders of Bank of America Corp. to take away the chairman title from Chief Executive Kenneth Lewis.
The Wall Street Journal’s Dan Fitzpatrick reports RiskMetrics Group and Glass Lewis & Co. cite circumstances around the Merrill Lynch takeover as reason for trimming Lewis’s responsibilities to CEO only.
But no reason is needed to separate the functions of chairman and CEO. They are two different jobs, incompatible in the same person. Making this division of authority standard procedure still hasn’t caught on in the U.S., as it has elsewhere. It should.
Boston's Faneuil Hall Market
One of the largest Mall operators in the U.S. filed for Chapter 11 bankruptcy protection today and plans to keep markets, like the one above in Boston, open for business. That’s because it isn’t the performance of the markets themselves that got General Growth Properties into trouble. It was its inability to refinance some of its $27.3 billion in debt. The culprit – the company squarely places the blame on the credit markets. “Commercial real estate financing markets are effectively closed,” the company said in its Chapter 11 filing papers. It says the 24,000 stores, restaurants, movie theaters in its malls are certainly challenged by the recession. But by and large they are doing okay. It is the credit markets. Of course, if the company didn’t have such a highly leveraged structure it wouldn’t have to worry about the credit markets. The filing, though long, does offer the novice a noce road map of how the credit markets died for a bit last year and what it meant for a company like General Growth. Two interesting documents – first is a Declaration By The Restructuring Adviser and the second a Declaration by the CEO. Read the first one and skim down to the history section if you don’t have a lot of time on your hands.
We knew compensation was going to be an issue as government aids and owns pieces of large banks and financial institutions. That’s certainly been the case.
But the problems and conflicts inherent in the U.S. government’s deep involvement with big banks is wider than a say on pay for executives.
Those wider conflicts were well illustrated in a Wall Street Journal article April 13 (see article) whose first paragraph informs us that the committee overseeing government bank aid programs is “investigating” bank practices “following a rash of complaints about increases in interest rates and fees.”
Posted by Neal Lipschutz
on March 12, 2009
Bank Rescue Plan
, Credit Crisis
, Stock Market
This week’s big business headline is improbably turning out to be “Big U.S. Banks Start Year Profitably; All Is Well.” Well, maybe not all is well, but compared with the talk of bank nationalization and zombie banks that dominated conversations just a few weeks ago, it’s a banker’s grin from ear to ear.
Citicorp Inc. Chief Executive Vikram Pandit got the ball rolling early in the week by saying the beleaguered bank was profitable in January and February. JPMorgan Chase & Co. CEO Jamie Dimon kept things going Wednesday with a similar claim.
Posted by Rick Stine
on February 22, 2009
The stock market keeps sinking lower. as measured by the Dow Jones Industrial Average, it closed Friday at 7,365 and change.And with a big selloff in General Electric’s stock price, there are now five DJIA components trading in the single digits – GE, Citigroup, BankAmerica, General Motors and Alcoa. And Intel and American Express are jsut a few bucks away from breaching that $10 level. A number of funds don’t like to own stocks in the single-digits, so, that can put more pressure on these stocks as they approach that level.