Archive for August, 2011

AIG chief unhappy with stock analysts’ view: report

Thursday, August 25th, 2011 | Finance News

(Reuters) – American International Group (AIG.N) Chief Executive Robert Benmosche has complained to senior executives at investment banks about the "unfavorable research" of the insurer's stock, the Wall Street Journal said, citing people familiar with the matter.

Benmosche's complaint suggested that some analysts do not fully understand the company and its value, the Journal said.

AIG is considering which four banks should lead another large offering of the U.S. government's shares later this year, the paper said.

Benmosche told the Wall Street Journal that he intends to change at least one of the four lead underwriters following his dissatisfaction with how the last deal went.

In May, AIG raised $8.7 billion in a stock offering, which included 200 million shares sold by the Treasury and 100 million sold by AIG, far smaller than the $10 billion to $20 billion deal some banking sources had suggested earlier this year, hinting at a potential lack of investor interest.

The offering was led by Bank of America Merrill Lynch, Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N) and J.P. Morgan Chase (JPM.N).

An AIG spokesman declined to comment to the Journal. The company could not immediately be reached by Reuters for comment outside regular U.S. business hours.

Of the 15 analysts covering AIG stock, four have a "buy" rating, while 11 recommend their clients to hold the stock, according to Thomson Reuters I/B/E/S.

U.S. government bailout of AIG at one point totaled $182.3 billion. The government's investment now stands at $51 billion -- the 77 percent of AIG's common stock held by the U.S. Treasury, and the remaining $9.3 billion in preferred interests in the AIA entity.

(Reporting by Sakthi Prasad in Bangalore; Editing by Vinu Pilakkott)


Analysis: Buffett trades off his reputation, returns follow

Thursday, August 25th, 2011 | Finance News

NEW YORK (Reuters) – Warren Buffett showed again that his name and money is enough to give a struggling company instant credibility in the market. But the legendary investor also demonstrated his canny command of that reputation means that such deals can immediately generate profits.

Bank of America Corp (BAC.N) on Thursday said Buffett's Berkshire Hathaway (BRKa.N) (BRKb.N) would invest $5 billion in the bank, the largest by assets in the United States.

Buffett, known for his grand gestures and his calls to buy American assets, may have looked like he was a lender of last resort -- or at least a lender of last credible resort -- but he was also turning a hefty profit, experts said.

"He's not doing it out of charitable motive or even out of a concern for the safety and soundness of the financial system," said Robert Reich, who served in three U.S. governments, most recently as secretary of labor under President Bill Clinton.

"He's got a lot of shareholders and they depend upon him to maximize the value of their investments," said Reich, now a public policy professor at the University of California Berkeley.

Bank of America's shares had been sinking on worries that it might need a massive injection of capital, a major concern given the importance of the bank to the American financial system.

Buffett is buying preferred shares and receiving warrants. The deal guarantees Berkshire $300 million a year in dividends and offers a chance for huge returns if the stock climbs.

At one point on Thursday the shares climbed 25.8 percent. By the close those gains were trimmed back to 9.4 percent, but Berkshire was still sitting on a paper profit of nearly $3 billion.

Berkshire Class A shares closed down 2.8 percent at $103,415 on Thursday, while its Class B shares closed 2.5 percent lower at $68.99.


In many ways, Buffett has perfected the art of swooping in at the last minute when he thinks an American icon is undervalued and has hit troubled times.

Back in the late 1980s, Buffett purchased a stake in Salomon Brothers and even temporarily stepped in as chairman after a trading scandal threatened the company.

The investment was ultimately profitable but for a while looked like it could turn into a bankruptcy, the inside story of which was described in an October 1997 Fortune magazine article.

Since then, Buffett has continued to profit on financial stocks.

During the 2008 financial crisis, he invested $5 billion in Goldman Sachs Group Inc (GS.N) and $3 billion in General Electric Co (GE.N).

Buffet got a 10 percent dividend on each of those investments.

The investment in Goldman famously earned him the equivalent of more than $15 in dividends each second, or $500 million per year.

In March, Goldman said it would buy back its preferred stock from Buffett at the agreed upon 10 percent premium.

GE, which also has an agreement with Buffett that includes a 10 percent redemption premium, plans to buy back its shares in October. By then, dividends will have topped $900 million.

In the Bank of America deal, the annual dividend may only be 6 percent, but that isn't bad at a time when an investor can only get a 2.2 percent yield on a 10-year Treasury note or next to nothing from a bank deposit or money-market fund.

"Mr. Buffett is a very shrewd investor and is not altruistic at all. The terms he gets are very favorable to him," said Richard Bernstein, former chief investment strategist at Merrill Lynch and current CEO of investment advisory Richard Bernstein Advisors.

"Too bad the government didn't do the same with TARP. Taxpayers got ripped off in comparison to the terms Mr. Buffett got," Bernstein said in an e-mail referencing the U.S. government's bank rescue plan, the Troubled Asset Relief Program, which was introduced in 2008.

Buffett has shown he won't invest in a storied name just because it is in trouble, though. He turned down pleas from Lehman Brothers then-CEO Dick Fuld for an injection of capital before it collapsed.


Financial experts said Buffett at times may almost seem as powerful a player in financial markets as the government or the Federal Reserve.

"Warren is not the Fed and is not a branch of government, but he comes about as close as any private individual can come to having the power of public policy," Reich said.

Mark Zandi, Moody's Analytics' chief economist and former adviser to 2008 Republican presidential candidate John McCain, said a lot of it has to do with confidence.

"Our most serious economic problem at this point in time is a lack of confidence. We've lost faith in our economy and I think (Buffett) is working really hard to shore up confidence."

(Editing by Vinu Pilakkott)


Boeing’s Dreamliner becomes commercial reality

Thursday, August 25th, 2011 | Finance News

CHICAGO (Reuters) – After years of headaches and occasional heartbreak, Boeing Co is ready on Friday for the U.S. government to declare its revolutionary 787 Dreamliner safe to fly passengers.

Operating certification by the Federal Aviation Administration will enable Boeing to make the first delivery of its plastics-based airplane next month to Japan's All Nippon Airways.

FAA certification will be granted at a ceremony on the Boeing flightline in Everett, Washington.

The Dreamliner, which promises to raise the bar for fuel efficiency and passenger comfort, is nearly three years behind its original schedule and at least several billion dollars over budget by some outside estimates.

"It's momentous. A few years back no on thought this day would come. We have pretty much have one step left and that's delivery," said Alex Hamilton, managing director with EarlyBirdCapital.

With 827 orders for the plane on the books, the Dreamliner may be the most hotly anticipated aircraft in the history of the storied company.

The airframe is made largely of light-weight carbon composites that help lower fuel costs for airlines. The composites also enable various improvements for passengers such as more comfortable cabin air pressure and bigger windows.

Development and construction make unprecedented use of a vast global supply chain that could slash production costs if it works correctly.

"It will completely change the way that aircraft have been manufactured until now," Hamilton said.

Boeing expects a production rate of ten 787s per month by the end of 2013. Kinks in the supply chain, however, have caused several of the embarrassing program delays.

Boeing, which competes with EADS unit Airbus for commercial plane orders, has said that it would bring more of the work on future models back in house.

It is unknown how long it could be before the 787 program earns a profit. Boeing Chief Executive Jim McNerney said in June that the program faces financial headwinds, and he declined to say when the 787 could make money.

The CEO has long insisted that while Boeing may have stumbled since proposing the aircraft eight years ago, it has built a plane that airlines around the world want and need for the long term.

Boeing does not disclose how much is has invested in the plane's development.

As Boeing celebrates FAA certification, the company continues to grapple with program challenges.

Boeing is mired in a legal dispute with one of its top labor unions in Washington state, where it has traditionally built its aircraft.

The International Association of Machinists and the National Labor Relations Board have accused Boeing of building a nonunion 787 assembly plant in South Carolina to punish the IAM for past strikes.

Boeing blames one of its seven program delays on a 58-day strike in 2008 over a contract dispute, but it rejects the notion that placement of its second assembly line was retaliatory.

Boeing plans to assemble seven 787s a month in Everett and three more in South Carolina.

(Editing by Steve Orlofsky)