SP 500 Bear Market Update - March 28

BSC Says CEO James Cayne Sold ALL His Shares at $10.84

BSC SEC Filing Says James Cayne Sold All His Remaining Shares in His Company

NEW YORK, Mar 28, 2008 NEW YORK (CNNMoney.com) -- Just a day after JPMorgan Chase quintupled its bid for Bear Stearns, James Cayne, the chairman of the troubled investment bank, dumped his entire stake in the firm, selling more than $60 million worth of company stock he owned.

Cayne, who also served as Bear Stearns' chief executive before stepping down in January of this year, sold over 5.6 million shares of company stock Tuesday at $10.82 a share, according to a company filing with the Securities and Exchange Commission on Thursday.

Bear Stearns (BSC, Fortune 500) shares closed at $11.23 apiece in Thursday trading on the New York Stock Exchange.

The deal, which was first announced by JPMorgan (JPM, Fortune 500) on the evening of March 16, initially valued the troubled investment bank at $2 a share, a 93% discount from its closing price on March 14.

The Dame of Doom Says UBS and MER to Take Another Big Hit

Ben's 'too big to fail' list is going to get busy.

Hey what about these non-US "banks" that are holding heavy like Bear Stearns? Will the Fed save them too? Or is this going to be a global central bank group effort?

Capability Tim at the NYFed can mail a 'how-to' document to Buba in care of Threadneedle Street. Obvious nationalisation is so déclassé.

Whitney: Merrill, UBS Face New Writedowns
03/27/08 -
09:16 AM EDT
Marketwatch

Oppenheimer analyst Meredith Whitney on Thursday forecast new writedowns and losses at Merrill Lynch and UBS two more investment banks hit hard amid the deep-rooted credit crunch.

Whitney, who last fall issued an early and accurate call that Citigroup would have to cut its dividend, predicted writedowns of $6 billion and $11.1 billion at the two firms, respectively. She issued the note late Wednesday, after shares of the two firms stumbled in the wake of a bearish note on Citi that predicted $13 billion in writedowns.

Shares of Merrill were falling 2% and UBS shares were up 3.6% in premarket trading. Merrill had fallen 7.2% and UBS sank 3.1% Wednesday. Citi fell 5.8% Wednesday.

Whitney expects Merrill to lose $3 a share in the first quarter, down from her earlier prediction of a profit of 45 cents a share. For the full year, she sees a profit per share of 20 cents, down from her earlier forecast of $4 a share.

UBS could lose $2.72 a share in the first quarter, she said, lowering her earlier outlook of a profit of 72 cents a share. For the full year, she sees a profit of 45 cents a share, vs. an earlier view of a $3.72-a-share profit. The two firms have been among the hardest hit in the credit crunch. Merrill wrote down $14.6 billion in soured mortgage-related investments in the fourth quarter, while UBS wrote down $18 billion.

Whitney's note on Citi Wednesday predicted as much as $50 billion in writedowns for the financial sector. The note also cut forecasts for Bank of America, JPMorgan Chase and Wachovia Bank.

...I saw pale kings and princes too,
Pale warriors, death-pale were they all;
They cried—“La Belle Dame sans Merci
Hath thee in thrall!”

I saw their starved lips in the gloam,
With horrid warning gaped wide,
And I awoke and found me here,
On the cold hill’s side.

And this is why I sojourn here,
Alone and palely loitering,
Though the sedge is wither’d from the lake,
And no birds sing. John Keats

Justice Department Sponsored Report Finds KPMG Culpable in Subprime Bankruptcy

What is there about the danger of 'moral hazard' that people don't understand?

Do highly profitable abuses usually stop by themselves, especially when the punishments assessed are a small cost of the price of doing business? When only a few 'outsider' scapegoats get punished while the enablers and insiders move on to corrupt new and larger circles of society?

Is there any decency and honor left in the media and our government and our businesses and our universities? Most everyone has their price, but we are dismayed to find out how relatively little it can be. How easily the rest go along with a few vocal thought leaders and lose their personal and professional souls.

What will it finally take to bring us to our senses?

March 27, 2008
Inquiry Assails Accounting Firm in Lender’s Fall
By VIKAS BAJAJ
NY Times

A sweeping five-month investigation into the collapse of one of the nation’s largest subprime lenders points a finger at a possible new culprit in the mortgage mess: the accountants.

New Century Financial, whose failure just a year ago came at the start of the credit crisis, engaged in “significant improper and imprudent practices” that were condoned and enabled by auditors at the accounting firm KPMG, according to an independent report commissioned by the Justice Department.

In its scope and detail, the 580-page report is the most comprehensive document yet made public about the failings of a mortgage business. Some of its accusations echo charges that surfaced about the accounting firm Arthur Andersen after the collapse of Enron in 2001.

E-mail messages uncovered in the investigation showed that some KPMG auditors raised red flags about the accounting practices at New Century, but that the KPMG partners overseeing the audits rejected those concerns because they feared losing a client.

From its headquarters in Irvine, Calif., New Century ruled as one of the nation’s leading subprime lenders. But its dominance ended when it was forced into bankruptcy last April because of a surge in defaults and a loss of confidence among its lenders.

The report lays bare the aggressive business practices at the heart of the mortgage crisis.

“I would call it incredibly thorough analysis,” said Zach Gast, an analyst at RiskMetrics who raised concerns about accounting practices at New Century and other lenders in December 2006. “This is certainly the most in-depth review we have seen of one of the mortgage lenders that we have seen go bust.”

A spokeswoman for KPMG, Kathleen Fitzgerald, took strong exception to the report’s allegations. “We strongly disagree with the report’s conclusions concerning KPMG,” she said. “We believe an objective review of the facts and circumstances will affirm our position.”

The report zeros in on how New Century accounted for losses on troubled loans that it was forced to buy back from investors like Wall Street banks and hedge funds. Had it not changed its accounting, the company would have reported a loss rather than a profit in the second half of 2006.

The report said that investigators “did not find sufficient evidence to conclude that New Century engaged in earnings management or manipulation, although its accounting irregularities almost always resulted in increased earnings.”

Even so, the profits were the basis for significant executive bonuses and helped persuade Wall Street that the company was in fine health when in fact its business was coming apart, the report contends.

In bankruptcy court, creditors of New Century say they are owed $35 billion. The company’s stock peaked at nearly $65.95 in late 2004; it was trading at a penny on Wednesday.

A spokesman for New Century, which is being managed by a restructuring firm under the supervision of the bankruptcy court, said the company was pleased that the report had been published.

The investigation was led by Michael J. Missal, a lawyer and former investigator in the enforcement division of the Securities and Exchange Commission who was hired by the United States trustee overseeing the case in United States Bankruptcy Court in Delaware.

Mr. Missal, who also worked on an investigation of WorldCom’s accounting misstatements, concluded that KPMG and some former New Century executives could be legally liable for millions of dollars in damages because of their conduct.

In the aftermath of the collapse of Enron, Arthur Andersen was indicted and convicted on obstruction of justices charges. The conviction was overturned by the Supreme Court in 2005, long after the company had ceased doing business.

Mr. Missal drew an analogy to Enron and said there was evidence that KPMG auditors had deferred excessively to New Century.

“I saw e-mails from the engaged partner saying we are at the risk of being replaced,” Mr. Missal said in a telephone interview about a KPMG partner working on the audit of New Century. “They acquiesced overly to the client, which in the post-Enron era seems mind-boggling.”

Ms. Fitzgerald of KPMG countered, “There is absolutely no evidence to support that contention.”

In one exchange in the report, a KPMG partner who was leading the New Century audit responded testily to John Klinge, a specialist at the accounting firm who was pressing him on a contentious accounting practice used by the company.

“I am very disappointed we are still discussing this,” the partner, John Donovan, wrote in the spring of 2006. “And as far as I am concerned we are done. The client thinks we are done.”

KPMG said Wednesday that a national standards committee had approved the practice in question.

The accounting irregularities became apparent when a new chief financial officer, Taj S. Bindra, started asking New Century’s accounting department and KPMG to justify their approach, beginning in November 2006.

Most of the mortgage company’s executives from that period have resigned or been laid off. A spokesman for two of the company’s three founders, Edward F. Gotschall and Robert K. Cole, said both had cooperated with the investigation but had not yet reviewed the report. A lawyer for Bradley A. Morrice, the third founder who was president and chief executive in 2006 and part of 2007, did not return a call.

The three founders together made more than $40.5 million in profits from selling shares in the company from 2004 to 2006, according to an analysis by Thomson Financial.

The company and its executives are the subjects of a federal investigation by the Justice Department. Investors have filed numerous civil lawsuits against the company