Digging out of a 504-point Dow drop
Wake up and good morning ... I think. What do you say in an early morning missive a day after a stunning 504-point drop in the Dow? Hold on to your knickers?
There's a lot of negative vibes out there after the weekend pot-stirring that threw Lehman Brothers on the trash heap of Chapter 11 and handed Bank of America its latest investment toy: Merrill Lynch. The ripples just keep on coming, as suggested by Oppenheimer & Co. banking analyst Meredith Whitney. She says the collapse of Lehman and takeover of Merrill will cause liquidity in the credit market to shrink, resulting -- okay, swig some coffee now -- in lower home prices and fewer mortgages to be available for prospective homeowners. She sees little hope for the return of the mortgage securitization business -- the machinery that gives funding to local banks to make mortgage after mortgage cheaply. "All this creates a recipe for meaningfully lower U.S. house prices," Whitney said. And banks will take it on the chin, too. "The fact that all banks under our coverage have unrealistic HPA (housing price appreciation) assumptions will in our opinion lead to a material and protracted writedown and capital pressure scenario for banks well into 2009," Whitney said. My own take on Hurricane Lehman trumping Hurricane Ike is here.
It's not just housing or banks, either. The state of Florida could lose tens of millions of dollars as Lehman heads into bankruptcy, says a front page St. Petersburg Times story and related pieces here and here in the Miami Herald. Florida owns more half a billion dollars worth of stocks and bonds in Lehman Brothers, spread throughout Citizens Property Insurance Corp. and the Florida Treasury and funds managed by the State Board of Administration, or SBA.
We're just on the front end in deciphering the global and local ripples from this one, folks. Seat belts, everyone.
Well, if a company wanted to pick a day to stay under the radar with news, Monday's 504-point market drop was it. St. Petersburg's Flanders Corp., which makes all kinds of filters -- I just replaced some with new Flanders filters in my home air conditioning that I bought at Home Depot -- is relocating its stand-alone corporate offices from St. Pete to Washington, N.C. Adios to another company headquarters: Maybe that should become a Tampa Bay slogan. Flanders says it's moving to cut overhead. It used to be based in that North Carolina town before it moved to St. Petersburg 10 years ago after buying a local company named Precisionaire Inc. Flanders clearly has been under the financial gun, posting lower revenues and a narrow profit in the second quarter (excluding one-time gains) and announcing some major price hikes to its customers. Here's what company chief operating officer Harry Smith has to say: "The company has been evaluating all operations for the past year. We are striving to develop a company model with the lowest overhead in the air filtration industry."
-- Robert Trigaux, Times Business Columnist