As always, some of the recent market developments that made one-day headlines will take some time to play out, and other things that aren’t so prominently featured in the news might be the things that affect the market in a more immediate way. One of the headlines last week that is expected to have ongoing consequences is Amazon’s (NASDAQ: AMZN) announced $1 billion stock buyback.
Tucked in with this announcement was that the online retailer will repurchase also $1.25B debt. Stock buybacks are often non-binding, as they are an announcement of company policies going forward. The companies reserve the right to change, amend, or even abandon such programs. In Amazon’s case, they had a stock repurchase program already in place for $500 million, as well as a program to repurchase $500 million of their debt. The stock, which has traded in the 37.04 to 101.9 range over the last twelve months, has recently traded in the mid-seventies. After the buyback announcement on Friday last week, Amazon went up to 73.50, a gain of 2.59 or 3.65%, fueling a modest 11+ point Nasdaq gain on the day.
In lesser highlighted yet potentially important news, William Seidman, former head of the FDIC and current CNBC commentator, said in an interview that he does not believe the worst is over with regard to the banks’ write downs in the sub prime troubles. Seidman maintained that the banks don’t really know precisely how much they have in the bad loans, and won’t have such figures until the auditors come in.
He also felt that at some point, the write downs would be so aggressive as to be overstated; when pressed, he guessed on the order of perhaps 25%. The banks will probably have to write down such intangible assets as goodwill, as well, which in some cases constitutes a significant amount of their worth. So Seidman’s take was this: the worst isn’t in yet, that will be forthcoming, then there will be excessive write downs. He also stated that none of the big banks are in major trouble, though, as they have plenty of reserve capital.
Later in the week, CNBC marked the one-year anniversary of the first big write-down due to bad sub prime loans, when HSBC bank came forward. This dubious anniversary was observed with commentators asking experts in the credit industry when might we see the end? Traders and investors ask that question also.
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