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Tuesday, January 29, 2008

LBO's Fail, While the Bounce Continues

Alliance Data Takeover May Collapse; Shares Fall (Update8): “Blackstone Group LP's $6.6 billion leveraged buyout of credit-card payments processor Alliance Data Systems Corp. may collapse because bank regulators have placed “unacceptable” requirements on the acquisition.

Alliance Data plunged 35 percent in New York trading today after Blackstone said conditions requested by the U.S. Office of the Comptroller of the Currency would impose “unlimited and indefinite” liability on the firm. It will try to keep the deal alive, the New York-based company said in an e-mailed statement.

Dallas-based Alliance Data owns World Financial Network National Bank, a credit-card issuer that, like all national banks, is regulated by the OCC. Neither Blackstone, manager of the world's largest LBO fund, nor Alliance Data said the purchase is threatened by financing problems or a slowdown in business, two issues that have scuttled other deals.”

When an LBO deal dies, the carnage is instant and massive. In these markets the risk reward probably isn’t there for you to be long anything involved in an LBO. If the LBO closes, you don’t really get much of a boost. If on the other hand the LBO fails… well, take a look at the charts: ADS, SLM and URI.

Countrywide Financial Posts Loss on Overdue Mortgages (Update2): “Countrywide Financial Corp., the mortgage lender that Bank of America Corp. plans to buy, lost $422 million in the fourth quarter, failing on its promise to return to profitability. The shares rose 6.1 percent.”

During the last conference call, Angelo Mozilo grandly promised that Crappyslide would return to profitability this quarter. If you believed that shiny orange little bastard, then I can almost guarantee that you will blow your trading account fairly quickly.

“The net loss equaled 79 cents a share, compared with a profit of $621.6 million, or $1.01 a share, in the year-earlier period, the Calabasas, California-based company said in a statement today. The loss was more than twice the 28 cents predicted in a Bloomberg survey of analysts.

Chief Executive Officer Angelo Mozilo agreed Jan. 11 to sell the company he co-founded in 1969 for about $4 billion in stock to Bank of America, the nation's second-biggest bank. He vowed in October to restore profit before year-end after Countrywide, the biggest U.S. mortgage lender, posted a $1.2 billion third-quarter loss, the first in 25 years. Investors have speculated Bank of America may try to lower its bid.

“Bank of America is going to keep its options open because they are in the catbird's seat,” said Sean Egan, managing director of Egan-Jones Ratings Co., the credit-rating firm. The bank's chief executive officer, Kenneth Lewis, “is going to be very careful about throwing the full creditworthiness of Bank of America behind Countrywide.””

I’m not saying that the acquisition of Crappyslide is in trouble, BUT keep a close watch on Bank of America (BAC). They should have been privy to these numbers, BUT should they get squeamish… well, just see the charts of ADS, SLM and URI. (Just think, those companies weren’t even on the verge of bankruptcy.)

U.S. Durable-Goods Orders in December Increase 5.2% (Update3): “Orders for U.S. durable goods rose more than forecast in December, indicating business investment is holding up even as other parts of the economy weaken.

The 5.2 percent increase in appetite for computers, aircraft and other items made to last several years was the biggest since July, the Commerce Department said today in Washington. The 0.5 percent gain in November was also greater than previously reported. Excluding transportation, demand rose 2.6 percent.”

Some bounce material. This should get them bottom callers out. Let it bounce and patiently wait for the re-short…

Bond Insurer Bailout Plan May Be `Too Late,' CreditSights Says: “New York Insurance Superintendent Eric Dinallo's attempt to bail out bond insurers is “coming too late in the game” to stave off ratings downgrades, CreditSights Inc. analysts said in a report.

Dinallo wants to bolster bond insurers' capital with a $15 billion guarantee fund supported by contributions from banks and securities firms, according to the New York-based bond-research firm. Setting up the fund and gaining the backing of the banks is likely to be overtaken by events, CreditSights said today.

“Given the number of competing interests and levels of commitment of participants involved, we think it is unlikely that an agreement sponsored by Dinallo could be hammered out within the appropriate timeframe,” Rob Haines, Craig Guttenplan and Joe Di Carlo wrote. “In the offchance that any deal could be solidified, the rating agencies are likely to have already taken action.””

Just don’t get all caught up in this bounce. None of the major problems have been or will be solved by anything less than a recession. The last few Bulltards will climb out of their holes on this bounce and start the usual cheerleading. Ignore it. This economy has had its Minsky Moment. It can’t be undone.

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