Manufacturing orders were flat in May. The Journal:
“A flat number after two consecutive monthly declines is hardly a sign of vibrant growth,” said Wachovia economist Tim Quinlan. “Businesses are scaling back.”
What it sowed, Countrywide reaps
Countrywide was sued not only by Illinois, as expected, but also by California and was hit by legal action from a Washington state agency, the Journal reports on A3.
The paper says the California suit is “particularly notable” because Countrywide does so much business there. Interestingly, that lawsuit found that option adjustable-rate mortgages, where borrowers just pay the interest on their notes, had profit margins of 4 percent, compared to the more-conservative Federal Housing Administration loans, which made the lender just 2 percent.
The Los Angeles Times says California Attorney General Jerry Brown says the company used marketing to trick borrowers into taking the loans, whose consequences—a sudden, sharp rise in monthly payments down the line that many couldn’t afford—they didn’t understand.
The Journal says it’s just going to get worse for the disgraced lender. Connecticut says it will probably file suit, something the paper says will be “part of a second wave of civil actions.”
All states are seeking restitution for borrowers. If the states can persuade the courts to grant restitution, it “could be a staggering blow against Countrywide,” said Kurt Eggert, a law professor at the School of Law at Chapman University, in Orange, Calif. “Countrywide could be required to give back its profit on all those loans and conceivably give back houses on which it has foreclosed.”
The Seattle Times says the Washington legal action says Countrywide discriminated against minorities by charging them more than whites of “similar circumstances” were charged. Some got higher rates even though they had better credit scores.
Meantime, Countrywide shareholders voted to approve the buyout offer from Bank of America. But, surely, after lying down with a dog, BoA can’t now complain about fleas.
More chickens return home to roost
The Journal says General Electric is having a hard time attracting bidders for its big credit-card unit that’s up for auction.
The paper says that’s because investors are worried about debt-laden consumers’ finances and whether they’ll be able to afford their credit-card payments in the downturn. JPMorgan Chase recently backed off a bid, and other big credit-card companies like Citigroup and Capital One are unlikely to bid because of problems in their own units.
Seems like if GE really thinks its $30 billion credit-card business is going to be ok, it would yank it off the market, which isn’t going to give much for it right now. But its bad-debt rates are high:
In May, GE charged off 8% of the loans in the portion of its securitized credit-card portfolio, up from 5.17% in May 2007, according to data compiled by Keefe, Bruyette & Woods, a boutique investment firm that specializes in the financial-services industry. The monthly data filed by card issuers don’t comprise the complete portfolio, but typically are regarded as a fair representation of its performance. Some 4.82% of the portfolio was more than 30 days’ delinquent, up from 4.05% in May 2007.
Zell if he knows
Real estate and now newspaper tycoon Sam Zell is unsurprisingly going to the well to help ease Tribune Company’s crushing debt burden.
Zell said he may sell the Tribune Tower in Chicago—one of the country’s great buildings— and unload the headquarters of the LAT.
The newspaper industry woes are hardly news any more. The Journal (and we understand we’re doing it too) buries news that Tribune said yesterday it will slash one quarter of the Hartford Courant’s newsroom jobs, along with 100 Baltimore Sun jobs. The Chicago Tribune does the same, while the LAT doesn’t even mention it.
The Trib quotes an unnamed “individual” saying the paper’s headquarters and parking lot could be worth $200 million. We assume this is either a real-estate broker or a Tribune official, but regardless the paper should give more information on its sourcing.
This Bud’s not for you
Anheuser-Busch will turn down InBev’s $46 billion merger offer, reports the Journal on B1, the Times on C1, and the FT on its Companies & Markets front. Anheuser says the bid is too low, even though it’s 30 percent higher than where the company’s shares traded before it was proffered.
The papers say it will start a “bitter” (yuk yuk) hostile takeover battle by the Belgian brewer of Stella Artois for the St. Louis maker of Bud. Anheuser will propose to sell noncore assets like its amusement parks to help its shares and keep the company under Busch family control.
Expect the company to pull out all the red, white, and blue stops to protect Americans’ God-given right to weak beer.