Three Zeros: Circuit City, GM, Fannie Mae

Circuit City (CC) is now trading at 11 cents. CC beat the Christmas rush by filing Chapter 11.

Circuit City Stores Inc. filed for bankruptcy amid rising competition from Best Buy Co., Wal-Mart Stores Inc. and online electronics retailers.

The petition for Chapter 11 protection in U.S. Bankruptcy Court in Richmond, Virginia, listed $3.4 billion in assets and $2.32 billion in liabilities, driving the shares down 56 percent before the New York Stock Exchange halted trading. The company said it is entering court protection owing Hewlett-Packard Co. $119 million and Samsung Electronics Co. $116 million.

"It's very incongruent for retailers to file bankruptcy before Christmas," Burt Flickinger, managing director of consultant Strategic Resource Group in New York, said in a Bloomberg Television interview. "You're going to see a record number of retailer bankruptcies and closings."

Concerns among vendors that Circuit City wouldn't be able to pay for the merchandise it sells "escalated considerably" in the past week, the company said in the filing.

Fannie Mae Posts $29 billion, $13 a share Loss

Bloomberg is reporting Fannie Mae Reports Record Loss After Asset Writedowns.

Fannie Mae posted a record quarterly loss as new Chief Executive Officer Herbert Allison slashed the value of the mortgage-finance provider's assets by at least $21.4 billion and said it may need to tap federal funds next year.

In its first report since being seized by the U.S. government in September, Washington-based Fannie said its third- quarter net loss widened to $29 billion, or $13 a share, the largest for any U.S. company this year.

Allison, the former head of TIAA-CREF who was hired when the government took over Fannie and Freddie Mac, reduced most of Fannie's deferred tax credits, increased default estimates and raised credit loss estimates. The decisions cut Fannie's net worth by 79 percent and shows the new management is taking a dimmer view of the company's financial future than the team under former CEO Daniel Mudd.

Fannie, which traded at almost $50 a share a year ago, rose 1 cent to 75 cents at 11:11 a.m. in New York Stock Exchange composite trading. Fannie's stock market value slumped from $39 billion at the beginning of the year to about $4 billion as of Nov. 7, including the government's 79 percent stake.

Fannie slashed its net worth, or the difference between assets and liabilities, to $9.4 billion on Sept. 30 from $44.1 billion at Dec. 31. The company said today it may fall to negative net worth by the end of next quarter, requiring it to seek government funding. Fannie said today that it hadn't tapped any federal aid through Nov. 7.

Fannie Mae Negative Net Worth

Negative net worth is correct. And taxpayers will foot the bill for the difference. That difference will amount to the tune of tens of billions of dollars if not hundreds of billions of dollars.

And speaking of negative net worth that is the value I place on GM as well. Analysts are finally starting to figure it out.

Analyst Sets GM Price Target To Zero

GM fell to a new all time low today of $3.02 after an Analyst Cuts Price Target to Zero.

General Motors Corp. plummeted as much as 31 percent after a Deutsche Bank AG analyst downgraded the shares and cut the price target to zero.

GM lost $1.03 to $3.33 at 11:05 a.m. in New York Stock Exchange composite trading, after falling as low as $3.02. Ford Motor Co. dropped 11 cents to $1.91. Detroit-based GM said Nov. 7 it may not have enough cash to operate this year.

"Even if GM succeeds in averting a bankruptcy, we believe that the company's future path is likely to be bankruptcy- like," Deutsche Bank's Rod Lache wrote today in a research note. The New York analyst lowered his recommendation on the shares to "sell" from "hold."

The decline shows mounting pessimism that a turnaround will succeed at the largest U.S. automaker amid the credit crisis and the worst sales market in at least 15 years. GM is petitioning the U.S. government for funds after reporting a cash burn last quarter almost twice as large as in the second quarter.

Barclays Capital cut GM to "underweight" from "equal weight" in a note today. "We believe any government assistance would likely significantly dilute GM's equity," said analyst Brian Johnson, who set a share-price target of $1.

Warnings Too Late

These warnings are pathetic. Barclays in particular should be ashamed. Having GM at equal weight until now is ridiculous. Here is a bonus 4th zero. I assign that zero to Brian Johnson at Barclays.

Unimaginable Consequences




Click Here To Play Video

Wagoner states that a GM bankruptcy would have "unimaginable consequences". Here is my translation "Wagoner Admits He Has No Imagination". Of course with GM shares at $3, that should be readily apparent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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