May 16

Nokia Corporation (NYSE: NOK) has been on a multiple-leg flight.  Destination: Hell.  Now it seems that any stop in Purgatory may be short-lived.  This downgrade may feel a bit late, but Society-Generale has downgraded the rating to Sell from Hold and the European price target of 3.0 Euro is now down to 1.80 Euro.  This is a situation where things seem bad, but are destined to get worse.

Nokia has been losing ma rket share due to the explosion of smartphones.  Whether this is fair or not after the company recently went after a new Windows phone, the company is considered to be a large seller of cheaper phones in emerging markets.  What is so ironic about this story is that Nokia was just recently shown to be one of the top brands in Asia. Apparently that isnt going to cut it.

The competition from Apple Inc. (NASDAQ: AAPL) for the iPhone and also from Samsung and Google Inc. (NASDAQ: GOOG) for Droid phones has been too steep.  Now even the emerging markets are starting to explode in smartphone use.  Even Research-in-Motion Ltd. (NASDAQ

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Tags: Nokia, Nokia Maybe

May 05

May 9 Cards and gifts retailer Clinton Cards expects to enter administration, becoming the latest casualty on the British high street after its biggest supplier American Greetings bought up loans from its banks and promptly called them in.

Clinton Cards said in a statement announcing the suspension of trading in its shares that it had been in breach of some conditions attached to 35 million pounds worth of loans and that it was not in a position to repay them.

The group said it had been informed overnight that its banks Barclays and Royal Bank of Scotland, which had given it temporary waivers over the breaches, had sold the loans.

Clinton Cards said that it had not been party to negotiations leading up to the deal but that it had anticipated American Greetings would extend the waivers granted by the banks and start talks with a view to supporting it.

“However, having secured control of the debt, American Greetings immediately informed the board that it intended to enforce the loan against the company and the board has concluded that because it is unable to repay the loan it has no option but to concur with American Greetings proposal to place the company and its subsidiaries into administration,” the group said in Wednesday’s statement.

The firm, which trades from about 628 Clinton Cards stores and 139 Birthdays outlets, had been due to publish the results of a strategic review into how it will cope with tough trading conditions and intense competition from supermarkets and the Internet.

The company announced in March that it had slumped to a first half loss and warned that its prospects for the second half were worse than originally anticipated.

Shares in Clinton Cards, which have lost more than 80 percent of their value since the start of 2010, closed at 6.75 pence on Tuesday, valuing the group at about 14 million pounds .

Nobody at American Greetings could immediately be reached for comment.

With British shoppers’ disposable incomes squeezed by rising prices, muted wage growth and government austerity measures, store chains have faced tough conditions, pushing a string of retailers to the brink.

Tags: Cards, Clinton Cards

Apr 15

American mega-banks are great.  For bankers.  For the rest of us, they encourage booms and busts in the economy and foster bankruptcy for the middle class.  Even their shareholders should agree its time to break up the Big Banks.

The President of the Dallas Federal Reserve Bank, Richard Fisher, recently made headline news when he called for the break-up of  Too Big To Fail (TBTF) Banks.   As Fisher point out, the banks are currently acting as a drag on the economic recovery.  The banks are profitable.  In fact all of them, except Citibank, have been deemed safe enough to start giving money to shareholders.  Nevertheless, they have not been lending money to help restart the economy at the pace most economists expected or that was part of the implicit deal with taxpayers when we bailed out Wall Street and guaranteed large chunks of the bankers borrowing to stay only a couple years ago.

Theres plenty of argument to be had over the politics of the Dodd-Frank Act and whether the TBTF banks can be allowed to continue to exist at their current size and not endanger the economy.  After all, the TBTF banks are like nuclear weapons planted in our economy that we have entrusted to managers who are generally rewarded for taking on risk.  They dont want to blow up the economy but if they take the wrong risk at the wrong time, the bomb starts ticking and could blow the whole place up.  And only the government can get it back under control if it can.  And the banks the bombs are getting larger while the government is getting weaker.

But ultimately TBTF investors shareholders should be thinking hard about breaking these institutions up.  Not out of patriotism (although that would be nice) but self-interest.  Why?  Because the business model doesnt really make sense!

A TBTF bank is a huge, expensive thing to operate.  You have to make a lot of money just to increase per-share profits even by a small percentage.  Where can that come from?  Basically, there are very few places where a bank can do that.

A bank can lend to businesses.  But most large and even mid-size businesses can go straight to the borrower through the bond and commercial paper markets.  Banks can help them offer this paper to the market but that generates a small transaction fee compared to lending.  And small businesses wont borrow the amounts needed to make it profitable to a large lender.

Large banks can lend to sovereign nations too.  But its very hard to put a whole country into bankruptcy or repossess its assets when it doesnt pay.  Just ask the banks that invested heavily in Greek loans.

Large banks can play the market with their own capital and borrow a great deal more to magnify their winsor multiply their losses.  Of course this scares the daylights out of regulators.  And anyone who ever held shares of Bear Stearns or MF Global knows how that can keep you up at night wondering  if the company will exist tomorrow.

Or large banks can lend to their most profitable borrowers consumers.  Consumers are notoriously bad at price-shopping loans, they overestimate how quickly theyll pay off a loan and underestimate how much theyll borrow.  They rarely have a basic education in finance and have only a rudimentary understanding of their personal budgets, future financial needs, risks, and (as the number of banks shrank) have fewer places to borrow.  In other words, were pretty stupid with money and we need a lot of it.  For the banker, its Christmas in July!

If you run a huge bank, lending to consumers has been the only way to make your business model look like a stable institution while still generating increased profits over the years.  But thats really quite insane.  Profits in consumer lending ought not be able to grow faster than the growth in consumer income at least not for long.  Obviously some banks could be doing better in niches say in Silicon Valley or Texas during their various boom cycles.  But TBTF banks lend everywhere, to everyone.  They cant make money faster than consumers can if their main source of consistent profits must be consumers.

And thats the problem.  Consumers received some protection from recent consumer lending reform.  If the Consumer Financial Protection Bureau is allowed to do its job and is not captured by the TBTF banks then the profits in consumer lending will stabilize but at a lower level than the past anyway.  As that happens, if it happens, TBTF banks will have to do something to make up the lost profits.  Raising fees on checking accounts and wire transfers and other in-your-face consumer squeezes will not fill the gap.

So how will TBTF shareholders turn higher profits in the future?  Well, they could keep demanding the banks cut costs.  TBTF banks are very good at firing people. But ironically it seems that the costs of

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Tags: Banks

Apr 11

Economists have begun to voice concerns that the price of gasoline, which is usually high, could damage the U.S. recovery and make the recession in Europe worse. That is probably true. An American who drives 20,000 miles a year faces paying $1,000 more for gas this year than last, based on AAA data, if he has a car that gets average gas mileage. In a state like California, where the price of a gallon of regular gas is nearly $4 a gallon, the number could be closer to $1,300. That is a lot of money for the average U.S. household with an income of slightly over $50,000 a year before taxes.

The consumer’s gas price is only part of the problem. The costs to companies is nearly as bad. That is not evident anyplace more than in the airline industry.

The International Air Transport Association, which is as close to a formal organization as the airlines have as a spokesman, forecast that:

Improving business confidence and encouraging news from the US economy are heartening developments. But it is far too early to start predicting a soft landing for 2012. The euro

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Tags: Gas, Gas Prices

Apr 01

Cometowner OpCapita buys troubled firm’s British stores

Deal saves nearly 3,200 jobs

Video games seller Game Group’s British stores were sold to investment firm OpCapita on Sunday, safeguarding nearly 3,200 jobs, the collapsed retailer’s administrator PricewaterhouseCoopers said.

The private equity firm, which bought electrical goods retailer Comet last year, will buy all 333 of Game’s British shops that have remained open during its administration.

It will also seek to reemploy a small number of staff who previously worked at Game’s head office but received redundancy notices last week, it said in a joint statement with PwC.

OpCapita managing partner Henry Jackson said: “We strongly believe there is a place on the high street for a video gaming specialist and Game is the leading brand in a 2.8 billion pound market in the UK.

“We have assembled a strong team of experienced industry operators to implement the programme of operational change that is needed.”

Game Group collapsed into administration on March 26, with the immediate closure of 277 of its stores in Britain and Ireland and 2,104 staff made redundant.

The rescue deal agreed on Sunday does not include Game’s international assets, PwC said.

It did not disclose the value of the deal.

Tags: Comet Owner, Owner

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