IIC's Winners Watchlists

[IIC]

Sure dead arond here...Where the heck is everyone???

[IIC]

POINT OF VIEW: Bank Of America Smelled Opportunity In Countrywide Deal
.
The foundation of any financial system is the confidence its participants have that it can function and that it can function efficiently.
And when that confidence begins to wane, it can have far-reaching effects for individuals and companies around the world.
This is of course what has happened in recent months as concerns about the mortgage meltdown in the U.S. have spread beyond our borders. Once thought of as just a problem for the mortgage securities market here, the billions of dollars lost as bad mortgages blew up has created recently a worldwide aversion to anything perceived risky.
The easy money that financed acquisitions dried up. Healthy companies began to have difficulty tapping crucial short-term funds. The mortgage malaise spread from the junky subprime market to the good credit arena - meaning far fewer mortgages are being created, which means far fewer homes will be sold. And don't kid yourself about the importance of this - the housing market is a crucial part of the U.S. economy.
So it was on Wednesday that two major confidence boosters took place. And the financial markets around the world have cheered loudly ever since: a handful of major banks took the symbolic step of borrowing from the Federal Reserve's discount window to show the institutions that are really in need of funds that it is more than okay to do so.
And a major U.S. retail banking institution, Bank of America, took an equity stake in Countrywide Financial Corp., the nation's largest mortgage company that has recently faced a liquidity squeeze. Last week, an analyst at a major Wall Street firm even speculated that Countrywide could be pulled into bankruptcy.
These two confidence boosters are very different, though. The banks going to the Fed clearly did so, perhaps with a little nudge from the Fed, to show the world it is fine to borrow from the discount window. They did so, albeit in small amounts, at a cost greater than where they could borrow elsewhere.
Bank of America wasn't being quite so altruistic. It saw an incredible opportunity. And that of course is what being successful in the financial system is all about - making money and being smart about how you do it.
Countrywide sold to Bank of America $2 billion of convertible preferred securities that carry an annual dividend of 7.25% and are convertible into Countrywide common shares at $18 a share. Countrywide's stock closed Wednesday at $21.82 (the equity infusion was announced a few hours after the market closed).
Granted, to sell a big stake in a company you would likely need to sell it at a discount. And a company facing a liquidity problem needs to sell equity at an even steeper discount. By making these preferreds convertible at a price $3.82 below where Countrywide actually closed, Bank of America not only bought some healthy downside protection but bought the stock at a roughly 18% discount.
And its $2 billion investment at $18 a share rather than $21.82 allows it, upon conversion, to effectively own more stock - roughly 20 million more shares (at the $18 conversion price, the preferreds would turn into about 111.11 million shares of Countrywide. Bank of America becomes a roughly 16% owner of Countrywide).
In addition, Bank of America picks up a healthy annual dividend: about $145 million a year. It's actually worth a little more to Bank of America because the convertibles were structured as equity, not debt. Under tax rules, dividends received by one company from an investment in another are subject to more favorable tax treatment.
If a company owns less than 20% of the stock in another company, it can exclude from its tax calculations 70% of the dividends it received. So, Bank of America gets $145 million in dividends from Countrywide. But under the dividends received deduction rules, it only has to report to the tax authorities 30% of that dividend income, or $43.5 million. So, at Bank of Americas roughly 33% tax rate, it pays taxes of $14.36 million. After tax, the investment provides income of $130.64 million.
If this was interest income, Bank of America would have to pay taxes on the entire amount - roughly $47.85 million in taxes, leaving it with after-tax income of $97.15 million. By crafting this investment as a preferred stock rather than a bond results in more than $30 million of additional income for Bank of America.
(The DRD, by the way, is meant to lessen what is effectively triple taxation. The company paying the dividend does so after it pays taxes. That dividend to the receiving company gets taxed as investment income as well. And then when the receiving company pays a dividend to its shareholders, it gets taxed again).
The flip side of this, of course, is that this financing was more expensive for Countrywide. A company issuing debt can lower the amount of income it reports to the tax authorities by the amount of interest it pays out, effectively lowering its tax obligation. But dividends on equity securities, common or preferred, are paid out after taxes. So, no tax benefit.
But Countrywide didn't really have a choice.
Bank of America got another little concession to help protect its new investment in Countrywide. While Bank of America agreed not to increase its stake in Countrywide or to make a proposal to outright acquire the company, it did receive the right to be able to match any offer a third-party might make for Countrywide, according to a filing Thursday that Countrywide made with the Securities and Exchange Commission.
With some much-needed cash in its pockets, Countrywide can go back to transforming its mortgage model to one that focuses primarily on underwriting high-quality mortgages. What this investment does is shore up its balance sheet and adds some punch to its capital position. What it doesn't do, of course, is remove the short-term risks that have been created in the marketplace - volatile mortgage pricing and lack of liquidity. And that's why Standard & Poor's Thursday left Countrywide on its credit watch list with negative implications.

[IIC]

As I mentioned...I'm going on vacation tomorrow...Be back by Labor Day...Unless my wife pushes me overboard off the balcony

I'll try to check in while I'm gone...Doug

[IIC]

Hello Inflation...The FED added another $17.5 billion today...Keep those presses running

[jiesen]

It took him a while but I guess Ben Bernanke is finally showing his true colors. They don't call him "Helicopter Ben" for nothing!

[IIC]

CRNT...Still # 1...None of this on again off again stuff

IIC 100

YOU CAN VIEW ALL THE CHARTS OF THE IIC 100 AT Stockcharts.com's "PUBLIC CHART LISTS" Simply click the link below:

IIC 100 at Stockcharts.com

Please check out an independent review of the IIC 100 at:
U. S. Stock Screens

THANKS, DOUG(IIC)

IIC 100 for 8/27/07

CRNT, BIDU, FTK, VDSI, RIMM, TBSI, ISRG, EXM, BCSI, KMGB, SLP, CROX, SNCR, PRXI, PENX, FSLR, GME, DWSN, AMZN, JASO, CNH, CADA, LDK, OI, OIIM, ARGN, CMG, ICOC, VMW, JRJC, SPWR, IGTE, BGH, TLEO, VIP, CEDC, JCG, EDU, ZUMZ, CPLA, LWAY, FARO, GTLS, DAR, PTT, MR, LFL, HMSY, MORN, KAMN, TTEC, HANS, CIEN, VOCS, TEO, CLB, DRC, MICC, GCOM, SJR, ICE, NE, CEVA, MKTX, LAVA, HURN, AMX, RIG, DV, CBEY, ESLT, AG, WBMD, AMRI, BBBB, HTZ, FRPT, BEAV, LWSN, JNS, GPX, WFT, IGLD, ECLP, INXI, DO, SHOR, MTZ, IFSIA, STKL, TUNE, LIFC, NIHD, HRZ, IMA, FALC, GSF, OMPI, AXTI, PDE

If you want the IIC 100 in a vertical format, simply copy the list and use our Handy List Coverter Tool at http://Sharptraders.com

[IIC]

Updated the IIC 100 at Stockcharts this morning and also updated the IIC 100 New Highs and Today's MoMo for Friday 8/31/07 along with the IIC 100 Scans at http://SharpTraders.com ...I'll update this week's Cups w/ Handles and Patterns of Interest on Monday.

IIC 100

YOU CAN VIEW ALL THE CHARTS OF THE IIC 100 AT Stockcharts.com's "PUBLIC CHART LISTS" Simply click the link below:

IIC 100 at Stockcharts.com

Please check out an independent review of the IIC 100 at:

U. S. Stock Screens

THANKS, DOUG(IIC)

IIC 100 for 9/4/07

CRNT, BIDU, FTK, VDSI, TBSI, RIMM, ISRG, BCSI, EXM, KMGB, SLP, CROX, LDK, SNCR, PRXI, PENX, FSLR, ICOC, GME, JRJC, FARO, GTLS, CATS, BBBB, JASO, PTT, OIIM, CMG, CADA, EDU, ZUMZ, SYNA, CPLA, LWAY, CEDC, OI, BGH, TLEO, CFI, VIP, CNH, VMW, MORN, ARGN, MR, BEAV, DAR, DWSN, LFL, ICE, KAMN, DRC, HMSY, HANS, GCOM, CLB, MICC, VOCS, IGTE, JCG, LAVA, LIFC, SJR, CIEN, AMRI, TEO, SPWR, HURN, RIG, GSF, AG, CEVA, AMX, WFT, STKL, ESLT, FRPT, INXI, DO, NE, CBEY, MKTX, LWSN, GIVN, GPX, BW, WBMD, OMPI, JNS, MTZ, TUNE, DV, AMZN, ECLP, IFSIA, HTZ, FALC, IMA, CELG, IGLD

If you want the IIC 100 in a vertical format, simply copy the list and use our Handy List Coverter Tool at http://Sharptraders.com

[IIC]

First non CwH or PoI trade since April...in ICOC lo 12's for d/t

[IIC]

in ALVR mid 12.20's

[IIC]

in ALVR mid 12.20's

out ALVR +.35

[billyjoe]

Doug,
Wow ! CATS is the cat's meow so far.

-------------billyjoe

[IIC]

First non CwH or PoI trade since April...in ICOC lo 12's for d/t

I was stopped out on ICOC...thank goodness...made .02

[IIC]

Got filled on VDSI off support

[IIC]

Got filled on VDSI off support

out for 1%

[IIC]

EDO...in lo 46's d/t