From Standard & Poor's Equity ResearchCITIGROUP KEEPS HOLD ON AIG
Citigroup analyst Joshua Shanker says the Federal Reserve Bank of New York has extended American International Group (AIG) an $85 billion credit facility in exchange for 79.9% of the firm. He says the loan will cost AIG LIBOR plus 850 basis points. He notes shareholders are significantly diluted.
In his view, AIG should now be able to meet liquidity requirements, but the company has become increasingly levered to debt, and mark-to-market losses should be meaningful for the quarter; he's estimating $20 billion. At rates that might be considered onerous, he thinks AIG will aim to repay its loan with sales of businesses.
Shanker says investors' stake has been reduced to 20% of former size. Also, high debt load significantly cuts into AIG's return on equity (ROE). He expects its dividend will be eliminated.
WACHOVIA KEEPS OUTPERFORM ON MORGAN STANLEY
Wachovia analyst Douglas Sipkin says Morgan Stanley's (MS) $1.32 third quarter EPS is ahead of his high estimate of $0.94 and $7.96 billion net revenues beat his $6.4 billion estimate. He notes fixed income trading bounced back, driven by strength in commodities; he hopes this quarter is a start to MS showing more consistency in this line item.
Sipkin says, though the macro environment negative for retail, he believes the microenvironment not been this good in long time. He thinks Morgan Stanley's capital is looking good -- he notes that the company reported preliminary Tier 1 of 12.7% - the highest in industry. He notes total liquidity rose 30% sequentially.
He says conditions are still challenging, but thinks Morgan's endgame is a winner in the industry. He still sees EPS of $1.18 for fiscal year 2008 (November) and raises $1.20 fiscal year 2009 estimate to $1.21.
AFTER SANDISK REJECTS SAMSUNG BID, GOLDMAN SEES LONG-TERN POSITIVES FOR INDUSTRIES
Goldman Sachs analyst James Covello believes Samsung's potential acquisition of SanDisk (SNDK) has important implications for both NAND flash memory chip and SPE industries. He says an acquisition could lead to rationalization of NAND industry capacity, which could help prevent prolonged periods of price, margin deterioration during industry downturns.
Covello also thinks there could be a short term disruption in SPE orders from Toshiba/SanDisk joint venture. He notes while incremental deterioration in SPE order activity would clearly be negative in the near term, he expects it to be longer-term positive as it would allow the industry to return to profitability sooner, ultimately lead to a faster sustainable order recovery.
He moves to not rated on SanDisk shares.