The 5 Dumbest Things on Wall Street This Week: Oct. 18
10/18/13 - 07:00 AM EDT
5. Coronado's Collapse
You know the old Wall Street adage, right? Bulls make money, bears make money and biotechs selling pig parasite eggs get slaughtered.
OK, OK. Maybe that's not the exact phrasing, but it certainly comes pretty close to describing what happened to
stock this week.
Shares of Coronado tumbled 67% to $1.91 Monday after the company announced that its experimental Crohn's Disease treatment failed an important Phase II study. Coronado's drug, which is referred to as CNDO-21, contains the live eggs of a parasite found in the excrement of pigs (also known as
Trichuris suis ova
, or TSO). When swallowed, the eggs hatch and grow into tiny whipworms which were intended to stimulate a human's immune system and fight off inflammatory auto-immune diseases like Crohn's.
Yes, it's absolutely disgusting to even think about let alone ingest. Nevertheless, you know what they also say: Any pig parasite egg in a storm.
That is, if only Coronado's drug provided shelter from it, which, unfortunately, it doesn't, despite the company's best attempt to spin the sorry results in its favor.
"These results support the potential of TSO to regulate the immune system in patients with Crohn's disease, particularly those with higher level of disease severity," said Coronado CEO Dr. Harlan Weisman. "We look forward to further analyzing the data from TRUST-I, along with the anticipated data from Dr. Falk Pharma's TRUST-II study in Crohn's disease, to identify the most appropriate development path for TSO."
Mixed, mangled and entirely un-kosher metaphors aside, Crohn's symptoms of patients treated with CNDO-021 failed to respond any better than patients treated with a placebo. And as
biotech ax Adam Feuerstein alertly points out, blaming negative study results on a higher-than-expected placebo response is typically the "lame excuse" offered when a drug simply doesn't work.
Look. Weisman understands better than anybody the unenviable position he was put in. He's no dummy. However, he still had to offer his disappointed investors some kind of hope even though his so-called "path for TSO" now looks like a dead end.
What else could he do while standing up there with pig parasite egg on his face?
4. BlackBerry's Bad Ad
wants to prove that it's not dead yet then why is it wasting money on ink-stained tombstones?
The beleaguered Canadian device-maker published an open letter in 30 media outlets across nine countries Tuesday in order to reassure investors and customers about its ability to remain a going concern. The cost of Blackberry's extensive campaign to merely trumpet its existence was undisclosed. However, full-page advertisements like the ones Blackberry placed this week in the
The Washington Post
The Wall Street Journal
generally cost hundreds of thousands of dollars a shot.
Oh, by the way, last week Blackberry announced it was laying off about 300 head office employees as part of a broader cost-cutting plan that will reduce its workforce by about 40%. The company plans to eliminate 4,500 jobs over the coming months.
"You've no doubt seen the headlines about BlackBerry. You're probably wondering what they mean for you as one of the tens of millions of users who count on BlackBerry every single day. We have one important message for you: You can continue to count on BlackBerry," started the ad, which also touted the company's "substantial cash on hand" and "debt free" balance sheet.
Yeah, we don't get it either.
If you ask us, CEO Thorsten Heins should have saved the money he spent on these ridiculous one-time ads for long-term severance packages for soon-to-be laid-off employees. Lord knows those workers could use the money to buy
to aid them in their job searches.
Then again, the letter was signed by "The Blackberry Team" as opposed to Heins, so it seems fairly obvious that even if the S.S. Blackberry sails on, its captain is jumping ship.
Said differently, imagine if John Hancock signed the
Declaration of Independence
on behalf of "The Founders Team" instead of boldly affixing his own name to the document. Would you step up and join that revolution?
We didn't think so.
Of course, we already had a pretty clear idea that Thorsten wouldn't be sticking around for the battle well prior to the ad campaign. Shares of Blackberry are down over 30% this year to around $8 and the company is currently weighing purchase offers.
Last Friday, for example, a report circulated that founder and former co-CEO Mike Lazaridis was considering a potential takeover bid to compete with the $4.7 billion offer made by
in September. Private equity player
Cerebus Capital Management
and, as of Thursday,
, are also reportedly considering buying the company.
"Whoever is interested in BlackBerry understands that the company has world class products and services. These are products and services that customers can continue to count on," said Frank Boulben, the company's chief marketing officer, regarding the ads.
We trust they won't continue to count on such stupid and flat-out wasteful spending as well. What's next, buying another private jet?
Oops. Our bad. They already did that this summer.
3. Bank Earnings Brouhaha
Wait a second! Wasn't the financial crisis was supposed to be a once-in-a-lifetime event?
Judging by this week's earnings, America's biggest banks may spend the rest of their days accounting -- and atoning -- for their credit bubble sins.
, for example, said on Tuesday it utilized approximately $500 million of deferred tax assets (DTA) during the third quarter, and lowered its total income tax bill by nearly 50% to $1.08 billion as a result. The DTA, which are tax benefits left over from the company's massive 2008 and 2009 mortgage losses, made a big difference in Citi's bottom-line earnings of $3.23 billion, or a dollar a share. As of Sept. 30, Citi reported $44.5 billion in DTA in excess of the amount allowed to be included in the company's Basel III Tier 1 common capital.
That's right, folks. Because our good friends at Citi screwed up so royally during the bubble, they have $44.5 billion in tax credits to play with now that it's popped.
Put another way, while John Q. Taxpayer celebrates his meager $3,000 in capital loss carry forwards to lower his tax bill, these brainiac bankers have billions in tax credits to lower their tab to Uncle Sam.
No fooling. Because of its pre-crisis stupidity, Citigroup can enjoy low taxes for years to come. In fact, it almost makes you wonder how America will be able to fund its future obligations if mega-banks like Citigroup continue to use old losses to avoid paying new taxes.
Not to fear. Our intrepid public servants have found themselves a big fat piggy bank named Jamie they can crack open when they need to pay their bills.
Yep, you guessed it, Jamie as in
CEO Jamie Dimon.
Dimon's bank reported an unexpected third quarter loss last Friday on the back of higher-than-expected legal expenses as the bank faced "escalating demands and charges from multiple government agencies" over its behavior during the mortgage crisis. The New York-based bank lost $380 million or 17 cents a share in the quarter, the first loss the bank has ever reported since Jamie Dimon took over as CEO in 2006. The third-quarter results were thrown into the red by $7.2 billion in after-tax legal expenses, which amounted to a $1.85 per share hit to earnings after-taxes.
And like Citi's tax losses, Dimon's legal bills will likely last for a very long time.
JPMorgan has set aside $23 billion toward litigation reserves, a healthy war chest indeed, to cover a settlement that reportedly could end up as high as $11 billion. For his part, Dimon is holding out for a lower settlement since it was Uncle Sam in the first place who prodded him to purchase the toxic mortgage ridden carcasses of
in order to save the global financial system.
Yep, the whole thing never seems to end. And hilariously, that's not even the kicker.
Ironically, Dimon's negotiations with the government have been held back as a result of the government shutdown.
Forget about a
. That's a Catch $23 billion.
2. Stanley's Presumption
has found its Livingstone hiding in plain sight on the banks of the Potomac, we presume more companies will follow the toolmaker's trail.
Stanley Black & Decker slashed its 2013 profit forecast Wednesday, blaming sequestration and the U.S. government shutdown for its reduced guidance. The company reduced its full-year adjusted earnings forecast to $4.90 to $5.00 per share from $5.40 to $5.65. Stanley's stock got drilled on the news, falling 14% Wednesday to $77, despite the company reporting a better-than-expected 44% jump in third-quarter profit.
"We really believe the US government sequestration and shutdown has had a modest impact in Q3 on us and will have a slightly more significant impact on us in Q4," said Chief Financial Officer Donald Allan on a conference call with analysts.
We won't quibble with Don there. Like everybody else in America, we have no idea how the October shutdown will ultimately affect fourth quarter GDP. We all realize, of course, that Stanley's real problems are in its European security business, nevertheless, we will give them the benefit of the doubt.
Hey! It was probably easier for the real Lord Stanley to navigate the Congo River than for modern day CFOs like Allan to plan ahead with the restless natives in Congress actively trying to take the country over the falls.
All that said, we do see the very real possibility that the October shutdown will soon be the excuse
for companies seeking to justify an ugly quarter. And that goes for concerns that keep going even when government does not.
, for instance, revised its outlook down from previously cited levels Tuesday, fingering the budget impasse for the shortfall.
"Business in the United States may be impacted by the current budgeting stalemate at the federal government level," said CEO Lothar Maier in a press release. "Accordingly, we are forecasting revenue for our second quarter to be flat to down 4% from the first quarter of fiscal 2014."
Look. We don't know exactly how much the federal shutdown will depress global analog integrated circuits sales. That's too tough a calculation even for know-it-alls like us.
That said, we do know that the December quarter is generally a slow one for Linear and its ilk, so it doesn't hurt for Maier -- or any other CEO -- to blame the crazies in Congress now for any ugly results that pop up later.
Whether they deserve it or not.
Somebody page Chuck Barris. Washington is putting on a brand new version of
Despite Congress' last ditch deal to end the government shutdown and raise the debt ceiling, the Chinese rating agency Dagong downgraded America's local and foreign currency credit ratings Wednesday to A- from A. Dagong, which is not recognized by American regulators, maintained its negative outlook on the U.S., saying the agreement does not change the "fundamental situation" that the country's debt growth rate continues to outpace fiscal income while GDP remains stagnant.
"For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government's solvency," wrote Dagong. "Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future."
Look. Dagong does not have the sway of
. We know Wall Street will scoff at whatever Dagong says, even though our own ratings agencies failed to stop the mortgage meltdown that kicked off this debt binge anyway.
That said, it's hard to find fault with their analysis of America's dire fiscal situation and our political resolve to tackle it -- or lack thereof -- considering the screwball antics of Ted Cruz, John Boehner, Harry Reid and company in the past few weeks.
Seriously, if you ask us, we should gong those guys off Capitol Hill and send in Jamie Farr, the Unknown Comic and Gene Gene the Dancing Machine to do their jobs. Judging from this recent insanity, we can only imagine they would do just as well.
-- Written by Gregg Greenberg in New York