Dubai: Too Big To Fail

Stocks in Asia rebounded from earlier losses after the announcement of Dubai’s $10 billion bailout. The capital infusion marks one of several attempts for the emirate, which controls the UAE’s presidency, to salvage Dubai World, as well as the overall reputation and credit worthiness of the government. Standard and Poor’s. stated that "the move is a step toward rebuilding confidence”.

It's important to note that Abu Dhabi has directly and indirectly provided Dubai with as much as $25 billion over the past year, illustrating a commitment to keeping Dubai world afloat. Much of the support has come in the form of investment, such as purchasing large blocks of Dubai bonds. The message to the global financial community is a familiar one: "Dubai is too big to fail”.

So for now, the dreamy World of Dubai will be able to make interest payments, while any remaining funds will be used to cover its business needs though April.

Trivia of Interest:
At present, Abu Dhabi boasts the worlds highest absolute and per-capita level of sovereign wealth funds, calculated at USD 1,000,000.00 per inhabitant.

Somehow I wish I didn't know that.

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K. Reilly
Cohn-Reilly Report / News Flash

Black Friday: Mixed Results Leaves Retailers Wondering

Black Friday attracted an impressive number of holiday shoppers, but the bargain hunters spent less than the average shopper last year.

According to the National Retail Federation (NRF), Black Friday sales came in only slightly above the last year’s Black Friday spending. That would have been encouraging if the shopping spree had continued though the weekend. Unfortunately, the turn-out dropped considerably as the weekend progressed Accordingly, the NFR projects a 1 percent decline in overall holiday sales for this year. Making matters worse, the Wall Street journal reported Videogame sales as being in a slump, and running out of steam before the holiday shopping got underway.

In recent years, Video Games have become the bright spot for retailers’ 4th quarter sales. The hottest games and consoles are used to lure shoppers into stores, which created the opportunity for retailers to entice shoppers to make larger purchases. Although retailers are still using video games as a way to attract consumers, video games and console sales fell nearly 19% in October. It should be noted that the last three months of the year account for over 50% of Video game sales, therefore, October is a good predictor for what can be expected the last quarter.

That being said, the realization that sales may not be what retailers had hoped, they looked to Cyber Monday for enhanced holiday sales. Accordingly, stores shifted their discount focus online. Promotions were in high gear for Cyber Monday in an effort to drive revenues up. Needless to say, competition for online shoppers has accelerated this week. The silver lining comes into view, with on-line results beginning to trriggle in. The numbers came in from Coremetrics (a Marketing Optimization Company) which shows a 35% increase in online shopping this weekend, over last year. This may be just the kind of up-tick retailers need to pull off a great 4th Quarter.

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K. Reilly
Cohn-Reilly Report / News Flash

Bomb Scare on Wall Street

A pedestrian reported a suspicious pacakge laying unattended under the George Washington Statute yesterday. Wall Street was shut down for about 2 hours until NYPD Bomb Squad investigated the situation. An X-ray of the suitcase showed the abandoned case to be empty.

K. Reilly
Cohn-Reilly Report / News Flash

CIT Group filed for bankruptcy as of November 1, citing the exposure from subprime mortgages, and credit tightening. CIT, which was founded 101 years ago, is the 6th largest commercial lender, the number one lender for small and mid-sized business, and a leader in funding minority and women owned businesses. The lender’s bankruptcy filing is a pre-packaged plan, structured to exit bankruptcy on a fast track. CIT is making every effort to ensure the customers remain funded, with little or no interruption to their other operating businesses. CIT’s other profitable units, including CIT Bank, were not included in the bankruptcy filing. According to court documents, CIT will have immediate access to $125 million from a total of $500 million in a debtor-in-possession (DIP) loan* from Bank of America. They have also requested are requesting the ability to make intercompany loans, as it makes its way out of bankruptcy, which is expected in early December.
The New York based lender, which funds 1-million businesses, has received $1 billion from investor Carl Icahn, for operating costs while it reorganizes. It doesn’t appear that the government will recover much of the $2.3 billion in bailout funds, which is essentially tax-payer money, and unfortunately share holders will be wiped out according to the bankruptcy plan. Financial institutions don’t have a good record for recovering from bankruptcy, but it looks as though CIT has secured $1 billion in investor funding to support their operation, and the DIP loan from Bank of America and a well thought out exit strategy to beat the odds.
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*Debtor-in-possession (DIP) loan, is a special form of financing provided for companies in financial distress or under Chapter 11 bankruptcy process
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K Reilly
Cohn-Reilly Report / News Flash
Note: Political Cartoon illustration by: Denis Elmore

Telecom Earnings Update

AT&T earnings beat the Street by 4 cents -.54 actual earnings Per Share versus the expected .50.

- Revenues - $30.9 billion for the period. - Two million increase in total wireless subscribers - highest third-quarter net gain in the company's history. - 4.3 million postpaid 3G integrated wireless devices added to AT&T's network, the largest quarterly increase in the company's history; integrated device growth included 3.2 million iPhone activations. - 33.6 percent increase in wireless data revenues to $3.6 billion. - 240,000 net gain in AT&T U-verseSM TV subscribers — up from 232,000 added in the year-earlier third quarter — to reach 1.8 million in service. - 18.7 percent growth in wireline IP data revenues driven by AT&T U-verse expansion and growth in advanced business products. - $9.7 billion cash from operating activities in the third quarter and $25.5 billion year to date."

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C. Cohn
Cohn-Reilly Report / News Flash

Hedge Fund Fraud: Collateral Damage

The founder of Galleon, Raj Rajaratnam is charged by the SEC with insider trading of massive proportions, along with 6 other cohorts. The SEC complaint asserts that Rajaratnam used his high-end connections and corporate relationships to gain access to insider information about earnings reports ahead of announcements and merger activities on several high profile companies. A Wall Street Journal article quoted the SEC chairman, Mary L. Shapiro, as saying “Raj Rajaratnam is not the astute study of company fundamentals , or marketplace trends that he is widely thought to be. Raj Rajaratman is not a master of the universe, but rather a master of the rolodex.” Several sources close the Rajaratnam tipped the SEC about the fraudulent activities at the hedge fund.

Meanwhile, Galleon, which was founded in 1997, will have to begin the process of winding-down the 3.7 billion in assets, as investors struggle to divest their portfolios. Given the involvement of many other firms, it is difficult to tell how far the web of fraud will spread.

Others charged in the complaint are as follows

Danielle Chiesi: — a portfolio manager, New Castle Funds / NYC
Rajiv Goel: — a managing director,Intel Capital -Intel subsidiary /CA
Anil Kumar: — a director, McKinsey & Company /Saratoga, CA
Mark Kurland: — a Sr Managing Director & Partner, New Castle /Upstate N.Y.
Robert Moffat: — a senior vice president, IBM/ Ridgefield, Conn.
New Castle Funds LLC — a New York-based hedge fund

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K. Reilly
Cohn-Reilly Report / News Flash