1. Indymac Attack
is lashing out.
The Pasadena, Calif., mortgage company has lost a third of its market value this year amid a meltdown in subprime lending -- the business of providing mortgages to customers with weak credit histories. So the company
explained Thursday why it shouldn't be lumped in with
New Century and its ilk.
"Indymac has been inappropriately categorized by many media sources as a subprime lender," the company said. Indymac said just 3% of its 2006 loan production was subprime, and much more of its business is in so-called Alt-A.
The company quaintly describes these loans as used by borrowers who "choose not to fully document their income but instead elect to qualify for the loan based on their strong credit history, liquid cash reserves and home equity level."
Of course, in recent months
some lenders have noted an increase in apparent fraud. That has
observers wondering what's to stop the same thing from happening in documentation-light Alt-A, and from hitting earnings at lenders up and down the credit quality ladder.
But CEO Michael Perry stresses that we shouldn't worry. After all, Indymac has "a positive and constructive relationship" with regulators at the Office of Thrift Supervision, featuring "regular feedback and suggestions or ideas for improvement."
Regulators have had no shortage of those lately for other lenders. State and federal watchdogs have told
New Century and
cease and desist, citing questionable practices.
Actions like those, and the accompanying flight from mortgage-related securities, have put the market in an "irrational panic," Perry says. He complains that the fuss makes it "virtually impossible to predict short-term loan production and sales volumes or earnings with any reasonable precision until things settle down."
First, though, maybe Perry's the one who needs to settle down.
Dumb-o-Meter score: 93. "While we don't wish any of our competitors ill," Perry claims, "the current 'firestorm' in our industry is exactly what is needed to restore rationality and discipline to the mortgage business."
To watch Colin Barr's video take of this column, click here
2. Viacom's Digital Courtship
The Philippe Dauman era is fully under way at
The new chief executive put his stamp on the digital media business Tuesday. Dauman, charged by leading shareholder Sumner Redstone with reinvigorating Viacom's lackluster efforts online,
YouTube for an
inflated-looking $1 billion in damages.
"There is no question that YouTube and Google are continuing to take the fruit of our efforts without permission and destroying enormous value in the process," Viacom railed in a press release Tuesday. "This is value that rightfully belongs to the writers, directors and talent who create it and companies like Viacom that have invested to make possible this innovation and creativity."
Viacom is all about creativity. Dauman, a lawyer, took over as CEO just last September for media wheeler-dealer Tom Freston. Freston was done in by Viacom's flagging share price and his own failure to buy hot online properties like MySpace.
No such failures await Dauman, who "has gained important insights that will enable us to better navigate the digital transition," Redstone said on a Sept. 5 conference call. Redstone said he expects Dauman to "prudently capture the enormous opportunities that are clearly out there."
Apparently the first opportunity to present itself was a legal offensive against YouTube. Dauman said on an earnings call this month that an earlier effort to force YouTube to remove Viacom content had goosed video traffic on Viacom sites.
MTV and Google reached a revenue-sharing deal last year, but Viacom said talks aimed at a YouTube settlement have been "unproductive."
"Since we issued the takedown notice, video streaming traffic on our sites has increased dramatically," Dauman said March 1. "This is an important validation of our strategy."
The creative and insightful blame-it-on-YouTube strategy, that is.
Dumb-o-Meter score: 90. "We are confident that YouTube has respected the legal rights of copyright holders and believe the courts will agree," Google said in a statement.
3. Yahoo! Yaps Again
revival just took a detour.
Shares of the Mountain View, Calif., Net company fell 5% last Friday on
wants to shake up their partnership for delivering digital subscriber line, or DSL, high-speed Internet service.
The Wall Street Journal
reported that AT&T wants to share less revenue under the deal, which was struck back in 2001. Analysts said a change could cost Yahoo! some $200 million to $250 million in
desperately needed high-margin revenue.
The setback renewed investor skepticism about Yahoo!. Shares dropped 35% last year after a series of high-profile stumbles, including a number of earnings shortfalls and a delay in the rollout of its Project Panama advertising system. Some observers felt CEO Terry Semel and other top execs were more interested in
talking a big game than in taking on Yahoo!'s problems.
Shares have been on the upswing this year, advancing almost 20%. But Yahoo!'s penchant for spin was on display again last Friday. Rather than offering any definitive comment on the revenue sharing, it dismissed the story as based on "rumor and speculation" while conceding that negotiations have been taking place.
"AT&T and Yahoo! have already made adjustments over the years to reflect competitive conditions and the relative benefits each party brings to the relationship," Semel said in a joint statement. "As we continue our conversations, we have a common goal to increase the economic benefits for both parties."
Those economic benefits will really come in handy when AT&T stops sending the big fat checks.
Dumb-o-Meter score: 88. "AT&T and Yahoo!'s ongoing partnership is rooted in the open and ongoing dialog we maintain about future opportunities," Yahoo! said.
4. Nortel's Dunn Deal
The government is throwing the book at some former
U.S. securities regulators
sued former CEO Frank Dunn and three others who once worked in the Toronto-based company's finance department. A civil suit filed Monday in New York claims the defendants defrauded shareholders by manipulating earnings to score big bonuses.
The charges stem from an April 2003 episode in which Nortel stunned Wall Street by
suddenly swinging to a profit after heavy losses. Dunn said at the time that he expected "more upside surprises than downside surprises" ahead, though he could hardly have been further off base: Nortel has since set plans for a stunning four earnings restatements.
Securities and Exchange Commission
alleges Dunn and his helpers engineered their 2003 bonus coup by stuffing a cookie jar full of profit reserves. They dropped that bundle onto Nortel's bottom line right when they could cash in on millions of dollars of return-to-profit bonuses, the SEC claims.
"The fraudulent conduct at issue here was egregious and long-running," the SEC said in a press release Monday. "Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses."
Job losses followed once the chicanery came to light. Nortel fired Dunn and two others for cause in April 2004. The next year, Dunn sued Nortel right back, "asserting claims for wrongful dismissal, defamation and mental distress."
That case has since been sealed, but Dunn's mental distress was evident in his response Monday. He declined to address the merits of the SEC case, though he eagerly anticipates clearing his name in a parallel case to be heard in May by the Ontario Securities Commission.
"I believe an important outcome of this hearing," Dunn said, "will be the resolution of the negative perception, created through 2004 and 2005, of the commitment, dedication and, above all, the integrity of Nortel employees."
Note that even Dunn won't vouch for their competence.
Dumb-o-Meter score: 85. Dunn, who previously sued to keep the SEC out of the case, also railed that "I hope that, so that the issues can now be fully and fairly explored, they will be dealt with in a hearing in Canada."
5. Vonage Unplugged
disconnect is getting hard to ignore.
Investors fled the struggling Holmdel, N.J., Internet telco anew this past week after Vonage
got docked in a patent dispute with
Jurors found that Vonage infringed three Verizon patents. They ordered Vonage to pay $58 million in damages and a 5.5% royalty on future sales.
Wall Street worried that the judgment would deal a staggering blow to a company whose finances have rarely been envied. Shares have lost three-quarters of their value since Vonage's initial public offering last May. At Sept. 30, the company's accumulated deficit was $604 million.
Still, Vonage continues to emphasize the positive. The company disclosed the Verizon setback in a press release headed, "Vonage Vindicated on Four of Seven Patents."
"We are delighted," Vonage said, "that the jury rejected Verizon's meritless claim that we infringed their two billing patents."
Investors were less delighted. Shares plunged 13% in heavy trading last Friday as Wall Street felt the company's financial pain. The selling was so heavy that Vonage felt compelled to
renew its charm offensive last Friday.
"Vonage is not going out of business," Vonage said reassuringly. "There will be no loss of service to our customers. Our customers will experience no change in their phone service."
That's the good news. Of course, you can't blame investors for being unnerved by another comment in the Friday afternoon release.
"Vonage is equipped to handle these costs," the company said, "while still running our business as we always have."
That's just what everyone was afraid of.
Dumb-o-Meter score: 82. "The jury's damage award represents a 70% reduction" from Verizon's claim, Vonage celebrated.
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