JPM Receives a Wells Notice

J. P. Morgan Receives Wells Notice from the SEC

NEW YORK, May 12 (Reuters) - JPMorgan Chase & Co (JPM) said on Monday that it received a notice from federal regulators indicating that one of its units may face an enforcement action related to "the bidding of various financial instruments associated with municipal securities."

Last month, Bear Stearns Cos (BSC), which JPMorgan is buying, also got a notice from the U.S. Securities and Exchange Commission indicating possible civil charges, stemming from anti-competitive activity relating to bidding for municipal securities.

It was unclear whether there was any relationship between the two investigations. (Reporting by Christian Plumb; editing by Carol Bishopric)

JPM Warns on Earnings and Revenues Due to US Recession, IndyBancorp Halts Payments on CDO's Putting AFN's Dividend in Question

File these under "the bottom is in for financials - NOT"

JPMorgan Expects Banking, Cards to Post Lower Profit
By Elizabeth Hester

May 12 (Bloomberg) -- JPMorgan Chase & Co., the third- biggest U.S. bank, will post lower earnings from investment banking and credit cards this quarter as the U.S. recession gets under way,Chief Executive Officer Jamie Dimon said.

JPMorgan is seeing lower revenue growth in its credit-card business and will probably have to set aside more money to cover bad loans in that unit, as well as in retail and investment banking, Dimon said today at a conference in New York sponsored by UBS AG.

``The recession is just starting,'' Dimon said. ``I don't know if it will be mild or severe.'' The chances of it being ``pretty bad'' are about one in three, the 52-year-old CEO said.

JPMorgan has posted about $10 billion of writedowns and losses since the beginning of last year, compared with more than $40 billion at bigger rival Citigroup Inc. Dimon said the capital markets crisis sparked by last year's collapse of the subprime mortgage market is about 75 percent over.

In home lending, New York-based JPMorgan expects to lose $200 million to $250 million in the second quarter related to subprime mortgages. Losses in prime mortgages, those made to people with the highest credit rating, could increase to about $100 million for the quarter, the bank said....

IndyMac Bancorp (IMB) Deferral Impact on Alesco Financial Inc.

PHILADELPHIA, May 12 /PRNewswire-FirstCall/ -- Alesco Financial Inc. , a specialty finance real estate investment trust, announced today that IndyMac Bancorp disclosed this morning that it will defer making the interest payments on IMB's trust preferred securities, including those in AFN's portfolio.

AFN holds a portion of the equity interests in eight collateralized debt obligation, or "CDO," transactions which include trust preferred securities issued by IMB. As previously disclosed, IMB's securities represent an aggregate of 2.43% of the total pool of collateral in those eight CDOs. This collateral represents approximately $2.1 million in aggregate interest payments per quarter to the eight CDOs, of which AFN's proportionate share is approximately $1.5 million or about $0.02 per diluted AFN common share per quarter.

AFN is in the process of reviewing the impact of the IMB deferral on its portfolio. AFN currently expects that IMB's deferral will trigger the over-collateralization tests in five of the eight CDOs for a period of time. Once an over-collateralization test is triggered in a CDO, AFN will no longer receive current distributions of cash in respect of its equity interests in the CDO until sufficient cash flow is paid to senior debt holders in the CDOs to cure the over-collateralization tests.

IMB did not disclose how long it expects to defer its payments. AFN currently expects that, even if IMB does not resume making payment, and assuming no additional deferrals, the five affected CDOs will recommence making equity distributions within three to eight quarters. For the year ended December 31, 2007, and the quarter ended March 31, 2008, the five CDOs which AFN expects to trigger over-collateralization tests contributed $30.1 million, or 36%, and $8.2 million, or 41%, respectively, of AFN's adjusted earnings for such periods. AFN's adjusted earnings will continue to include this income even though AFN will not receive corresponding cash distributions until the over-collateralization tests have been cured. (uh, what if they are NEVER cured? Is this GAAP in action? No reserves, not even a caution in the footnotes on income from CDOs that are taking dives in the market daily? What is this called, Marked-to-Maybe? - Jesse)

At April 30, 2008, AFN had available unrestricted cash of $120 million, including cash generated by previously-disclosed gains on credit default swaps. This cash would be sufficient to allow AFN to maintain its first quarter 2008 dividend rate for the remainder of 2008, even after giving effect to the trigger of the over-collateralization tests described above. The payment of future dividends is, however, subject to the review and approval of AFN's board of directors, and there can be no assurance that AFN's board will determine to maintain the first quarter dividend rate.

As discussed on AFN's earnings call last week, AFN is reviewing a number of strategies for the company, including whether to continue to maintain its REIT qualification. Any change in strategy could impact the level of future dividend payments.

Techs Rally on Rumours of a Takeover of EDS by Hewlett-Packard

After the close today Hewlett-Packard confirmed that it is in conversations with EDS regarding a 'pact' of some sort. As to the details, and if it is a serious acquisition for the amount of 13 billion, is something we will have to wait to see.

H-P Nears Deal to Buy EDS
By Matthew Karnitschnig
Wall Street Journal Online

Hewlett-Packard Co. was close to a deal to acquire Electronic Data Systems Corp. for between $12 billion and $13 billion, according to people familiar with the situation.

The terms of the deal were not immediately clear but an announcement was expected soon, the people said. EDS, which provides consulting and technology outsourcing services, had a market value of about $9.5 billion, based on Friday's closing price of $18.86 on the New ...

Hewlett-Packard Near Deal To Buy EDS for $13 Billion
By CNBC
12 May 2008
03:20 PM ET

Hewlett-Packard, the world's largest personal-computer maker, is close to a deal to acquire Electronic Data Systems for between $12 billion and $13 billion, the Wall Street Journal reported, citing people familiar with the matter.

An announcement was expected as early as Tuesday, the Journal said.

The report sent EDS shares soaring, while HP shares plunged.

The move is aimed at boosting Hewlett-Packard's competitive position against rival International Business Machines as a provider of services such as tech consulting and customer support, the Journal said.

The transaction could spark further large deals in the technology sector as cash-rich mature companies such as Hewlett-Packard look to acquisitions for growth, the paper said.

Neither HP nor EDS had immediate comment.

Story at CNBC

Citigroup is "Beyond Repair" and Dividend Cut "Foregone Conclusion" Says Meredith Whitney

Meredith Whitney was not pulling punches in the 'exclusive interview' which she gave on Bloomberg television this morning.

Here is a video excerpt of her interview on BloombergTV today: Meredith Whitney on Bloomberg TV

Here is a story based on the interview which we watched with some delight at a Wall Street analyst 'telling it like it is.'

Citi's Pandit Faces `Impossible Feat,' Whitney Says
By Margaret Popper and Josh Fineman

May 12 (Bloomberg) -- Citigroup Inc. Chief Executive Officer Vikram Pandit faces an ``impossible feat'' in turning around the biggest U.S. bank as it faces ``seismic'' costs to restructure, Oppenheimer & Co. analyst Meredith Whitney said.

Citigroup will be forced to announce the sale of major businesses toward the end of this year or in early 2009, Whitney, who recommends investors sell the shares, said in a Bloomberg TV interview today. One of the units could be Banamex, the company's Mexican branch, she said.

Whitney, 38, correctly predicted on Oct. 31 that New York- based Citigroup would cut its dividend to shore up capital after mortgage-related writedowns. Pandit on May 9 outlined plans to sell $400 billion in assets at the bank, which has booked more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed last year.

``I think it's an impossible feat,'' Whitney said. ``They don't have the revenue power, they don't have the earnings power in so many of their businesses. Even Stephen Hawking could not pull this off,'' she said, referring to the British physicist.


Whitney said she expects Citigroup, which lost a record $10 billion in the fourth quarter, to post ``de minimis'' profits during the next three to five years. ("de minimis" is Latin for "jackshit"). She repeated her prediction that Pandit would be forced to lower the dividend again, and didn't give an estimate for restructuring costs. She estimated a loss this year of 45 cents a share.

Citigroup spokeswoman Christina Pretto declined to comment.

Share Performance

Shares of the company rose 3 cents to $23.66 at 11:41 a.m. in New York Stock Exchange composite trading. Citigroup had lost 20 percent this year before today.

Pandit's plan, which he presented at a Citigroup analyst and investor meeting, includes shedding $400 billion of assets during the next three years and cutting $15 billion in costs. He also forecast annual revenue growth of 9 percent.

``The presentation was glaringly light on actual mechanics, and run-rate earnings figures seemed to cherry pick revenue and credit scenarios from recent years,'' Whitney wrote in a note today. Pandit ``set no delivery date as far as execution,'' she wrote.

Citigroup's ``single greatest challenge'' is the company's ``antiquated and disparate systems and technology,'' Whitney wrote in the note. ``We think that not only will restructuring be almost prohibitively expensive for (Citigroup), but that this expense will come during a time when revenues will be under significant pressure.''

Pandit will spend at least three years trying to get Citigroup's systems to work together, Whitney said, pointing to integration efforts in recent years at Wells Fargo & Co. and JPMorgan Chase & Co.

``The credit outlooks and the loss assumptions for banks across the board are way too low,'' Whitney said in the interview. ``The outlook for earnings across the board is going to be much worse than people expect.''

To contact the reporters on this story: Josh Fineman in New York at jfineman@bloomberg.net; Margaret Popper in New York at mpopper1@bloomberg.net.

Last Updated: May 12, 2008 11:58 EDT