Thomson Financial News
Legg Mason Value Trust's Bill Miller forecasts 'worst is behind us'
04.23.08, 2:51 PM ET
SAN FRANCISCO (Thomson Financial) - Legg Mason Inc.'s Bill Miller, portfolio manager of Legg Mason Value Trust mutual fund, on Wednesday issued his first-quarter investment commentary to shareholders, projecting that the credit panic ended with the collapse of Bear Stearns.
'For planning purposes, here is my forecast: I think we will do better from here on, and that by far the worst is behind us,' Miller wrote. 'If spreads continue to come in, the write-offs at the big financials will end, and we may even have some write-ups in the second half instead of write-downs'
Miller noted that the wild card is commodities. (Another wild card might be the fund redemptions and margin calls Legg Mason Value Trust is getting as it hits 26 year lows. Bill's stuck now, he's got to keep going forward and hope for the best or call it a day. - Jesse)
'If commodities break, or even just stop their relentless rise, equity markets should do well,' he wrote. 'If they continue to move steadily higher, they have the potential to destabilize the global economy. We are already seeing unrest in many countries due to the soaring prices of rice and other grains.'
The weak dollar is another culprit of the commodity cycle, Miller said. However, he noted that the stage is set for 'what should be an improving environment for investors in stocks and in spread credit products. (Yes, things are looking just great. He's full steam ahead into the heart of a perfect financial storm like the skipper of the Andrea Gail - Jesse)
'Our portfolio, in my opinion, is in excellent shape, despite, or more accurately because of, its performance,' Miller said. 'Prices have declined substantially more than business values.'
Legg Mason Fund Hits 26 Year Low - Washington Post - April 5, 2008
The fund's top 10 holdings as of March 31 are Amazon.com Inc. at 6.5%, AES Corp. at 6.4%, JPMorgan Chase and Co. at 5%, Aetna Inc. at 4.9%, UnitedHealth Group Inc. at 4.5%, Yahoo Inc. at 4.4%, eBay Inc. at 4.2%, General Electric Co. at 4%, Sears Holding Corp. at 4%, and Federal Home Loan Mortgage Corp. at 3.5%.
The Legg Mason Value Trust dropped 19.7% in the quarter, compared with a loss of 9.4% for the S&P 500.
Shares of Baltimore-based Legg Mason were up 55 cents, or almost 1%, at $58.62.
Katherine Hunt
Legg Mason's Bill Miller Says 'The Worst is Over' - Forbes
We were going to give Bill the Pigman of the Week Award but the pigs started to complain.
23 April 2008
Bill Miller of Legg Mason Calls a Bottom (Hello Bottom? Please God, a Bottom!)
US Financials Slump As Bond Insurer Ambac Hit by Fresh Subprime Losses
Ambac shares hit after $3bn loss warning
By Aline van Duyn and Stacy-Marie Ishmael in New York
Wednesday Apr 23 2008 12:50
Financial Times
Ambac Financial (NYSE:ABK) lost more than a third of its stock market value on Wednesday as the bond insurer warned that potential losses related to mortgage-backed securities could reach more than $3bn, vastly more than expected.
The company's ability to retain its crucial triple A credit ratings is again under question amid concerns that credit ratings agencies may require Ambac to raise a new round of fresh capital. (The fact that they even have it is the equivalent of a financial blasphemy in taking the name of creditworthiness in vain - Jesse)
Tamara Kravec, analyst at Bank of America, said: "It is realistic to assume that Ambac could fall short of ratings agency capital requirements.
"Concerns over the prospects for new business and a cloud of uncertainty over the magnitude of future potential [mortgage] losses will likely continue to put pressure on the shares."
Shares in Ambac fell to their lowest level. By midday in New York, the shares were down 35 per cent to $3.90. MBIA (NYSE:MBI) , the biggest bond insurer, was also hit, and its shares fell nearly 24 per cent to $10.15.
The potential knock-on effects of downgrades have caused concerns for regulators and banks. Bonds worth more than $1,000bn are guaranteed by Ambac and MBIA, and these could be downgraded if they lose their triple A ratings.
Ambac raised $1.5bn in capital last month, just in time to stave off cuts to its triple A ratings by Moody's Investors Service and Standard & Poor's. Fitch Ratings has cut Ambac's rating to double A, and all the agencies have a "negative outlook" for the group.
Ambac's first-quarter net loss of $1.7bn, or $11.69 a share, compared with a net income of $213m, or $2.04 a share, in the same period a year ago. Analysts polled by Thomson Financial forecast a loss of $1.51 a share in the first quarter.
The bond insurer incurred $940.4m in losses on collateralised debt obligations backed primarily by residential mortgages, and a total mark-to-market loss on credit derivative exposures of $1.7bn. CDOs are pools of debts that are sliced into tranches of varying risks and returns.
Ambac, which said it had been "severely impacted" by sharp declines in the value of mortgage securities, will also reserve $1bn to provide against further losses on these securities.
Michael Callen, interim chief executive of Ambac, admitted that "earlier expectations have turned out to be optimistic".
He said it was still not possible to be certain how large losses on mortgage-backed assets would be, amid continuing high levels of foreclosures across the US.
The uncertainty over the bond insurer's health and strategic direction has undermined its core business - guaranteeing debt issued by lower-rated municipalities, such as schools and local governments.
Ambac's shares had already lost more than 90 per cent of their value before the results.
Mr Callen said "the capital raised and strategic business actions taken during the quarter will enable us to get beyond this credit market."
Ambac Financial Hit By Subprime Losses
