Breaking News. CNBC is reporting that Massachusetts is charging Wall Street giant Merrill Lynch with fraud relating to their collateralized debt obligation (CDO) issuances.

More as it develops. And oh yeah, we all saw this coming, didn’t we?

Update 1:

From Market Watch and the coverage on the Massachusetts CDO fraud lawsuit:

Massachusetts state authorities on Friday charged Merrill Lynch and Co Inc Friday with fraud and misrepresentation related to about $14 million worth of subprime securities it sold to the city of Springfield.

The complaint also charges Merrill agents Carl Kipper and Manuel Choy.

“This complaint is focused on Merrill Lynch’s sale, through agents Kipper and Choy, of certain esoteric financial instruments known as collateralized debt obligations (CDOs) to the City of Springfield Massachusetts, which were unsuitable for the city and which, within months after the sale, became illiquid and lost almost all of their market value,” the state said in its complaint.

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SunTrust is planning on closing their Denver, Dallas and Richmond wholesale branches within the next 60 days according to a highly reliable source.

From the SunTrust Web site:

SunTrust Mortgage, Inc. is a wholly-owned subsidiary of SunTrust Bank - a $180.3 billion financial institution operating in Virginia, the District of Columbia, Maryland, North Carolina, South Carolina, Georgia, Alabama, Tennessee and Florida. Currently, SunTrust Mortgage, Inc. originates loans through 214 locations in SunTrust markets and adjacent states, maintains correspondent and broker relationships in 49 states and services loans in 50 states and the District of Columbia.

We’ll provide more details as they come available; but for now just more of the same. Wholesale branches seem to be the first on the chopping block for any lender looking to weather the storm.

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Filed under: Major movement, International markets, Forecasts, Blogs, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Stocks to Buy

With Microsoft Corporation (NASDAQ: MSFT) bidding $44.5 billion for Yahoo, Inc. (NASDAQ: YHOO) one would instantly think that Microsoft is the winner — and they could be — in about a year or so… maybe. In the meantime, Google Inc. (NASDAQ: GOOG) will benefit immediately. The deck chairs are being re-arranged and there will be one less player. But before everyone thinks Microsoft is going to walk away the big winner, think again.

The game changer right now is Google. With 76% search engine market share, it will still be 4X the size of Microsoft after the Yahoo transaction is closed. Google has been successfully expanding its presence globally, and not in just the usual countries, but in the Brazils, the Portugals, the Argentina’s, the Australias, etc. Seeding these remote, but lucrative locations is done and Google is now reaping the rewards.

Google can now capitalize domestically with its customers and Yahoo’s/ Microsoft’s customers as well by playing the disruption card. Basically, when a technology company is about to be acquired a lot of potentially negative things can and do happen: employees and customer relationships are disrupted. Google can unequivocally claim to customers that they are indeed “the” priority right now and that smooth media/advertising projects are awaiting their approval. Yahoo/Microsoft aren’t sure which players are staying or leaving yet. Customers don’t like that!!

Google can also emphasize that a disjointed headquarters status of Seattle or Sunnyvale can also lead to confusion and levels of customer service declining. Google has to take its game up a notch in the next 12 months and capture even more share.

Google’s quarter was viewed by many as a disappointment. It’s a buying opportunity the same as we witnessed from last July. Google reported a “disappointing” June 30th, 2007 quarter, saw its stock fall from $550 to $500, to only rebound and soar up to $747. That same opportunity is staring us in the face again. Remember, this company does not give earnings or revenue guidance to the Street. The so-called disappointment was solely in the eyes of analysts. I estimate Google will earn $20 per share in 2008, up from $15.58 in 2007.

Has the industry growth rate slowed down? Perhaps, but only temporarily in the United States. The analogy I would use is the Boston Red Sox won 96 games to win the Major League Baseball Eastern Division in 2007. It may only take 94 wins in 2008, but still win the division. In 2009, it make take 98 games, but still, they are the winner. Google dominates its sector without question and it will grow faster than the industry or any major competitor. Bottom line is whatever slowdown there may be…it’s in the price!! Google should double in the next two years in value.

Google’s overseas revenues are still under 50% of total revenues, yet international growth is 80%+. Also, Google may expand its incredible market dominance as it bids for the “airspace” from the FTC. This new line for Google would be complimentary to its core search engine and advertising business.

So yes, Microhoo or Yasoft will be the clear number 2 player, but Google has a 12 month window to accelerate its position and its terrific profitability. Google has a game changing situation right here, right now.

Georges Yared writes about finding great growth stocks today in GameOn Investing.

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Filed under: Deals, Conventions and conferences, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

Yahoo! Inc. (NASDAQ: YHOO) co-founders Jerry Yang, also the company’s chief executive, and David Filo, the less visible of the two, should take Microsoft Corp.’s (NASDAQ: MSFT) $44.6 billion offer before the world’s largest software company realizes how much it is overpaying for the company.

Better yet, Yang and Filo should “reject” Microsoft’s initial offer because — at least according to CNBC — Microsoft may be willing to up its bid. That seems to be the market’s expectation given that shares of Sunnyvale, Calif.-based Yahoo haven’t hit the $31 offer level.

The Yahoo twosome need to get while the getting is good. As The Wall Street Journal notes, “If the deal goes through as presently constituted, Mr. Filo’s stake would be worth more than $2.4 billion - not counting his options and other shares..Mr. Yang’s stake would be worth more than $1.64 billion - again, not counting options and so forth.”

During the height of the Internet bubble, both were worth more than $6 billion, the paper said.

The forays of Yahoo and Microsoft’s MSN into original content already spooks content companies, so I bet if the deal through it will lead to a rash of mergers between old and new media companies. A combined company would likely do more original fare to attract advertisers and users.

This raises the question of whether Google Inc. (NASDAQ: GOOG) will start developing its own content given the likely merger and its recent disappointing results. Thoughts?

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Filed under: Deals, Rants and raves, Competitive strategy, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Headline news

The BIG news this morning about Microsofts (NASDAQ: MSFT) offer to buy Yahoo Inc. (NASDAQ: YHOO) for $44.6 billion has been thoroughly covered all over the media including numerous posts on our site, so I will not pile on or repeat what you can find elsewhere.

Short and sweet: My view is the perfect timing of the offer, not the offer itself, is the news. Microsoft has been rumored to be chasing Yahoo for quite some time and apparently from the substantial offer it made today (60% over yesterdays closing price) money has not been the issue. Obviously Steve Balmer and friends are willing to pay up — way up!

The timing of the offer hits Google Inc. (NASDAQ: GOOG) when they are down - way down! Google has lost a third of its value over the last month and it has lost its momentum going forward. The stock is down substantially today even though the company reported solid growth. That is a significant change in the playing field. Balmer, a very aggressive businessman has decided to make his move now, potentially stealing the momentum on Wall Street.

Two points:

1) MSFT has to do this deal now because there is an outside chance that Google’s market share might go down just enough to make the combined MSFT / YHOO market share equal or larger to them. If that were to happen the anti-trust machine might swing into action again, so the time is now while the combined company could claim to be the good guys still lagging GOOG by 5% to 6% in market share, improving competition and not thwarting it.

2) MSFT, by making a bold move against Google, now is a real threat because Google has been spending billions to build other revenue streams — so far unsuccessfully. Revenue streams that are substantial and running on all cylinders at MSFT. Consider that GOOG has been adding free software to dilute MSFT unsuccessfully. GOOG can’t make a dent in Vista but MSFT can weaken GOOG search and advertising plenty by adding Yahoo.

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture & planning firm. He owns shares of ISRG. To find potential opportunities and verify my track record read Chasing Value or Serious Money. Disclosure: I do not own shares of GOOG or MSFT.

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Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Time Warner (TWX)

With Microsoft Corp.’s (NASDAQ: MSFT) $44.6 billion bid for Yahoo (NASDAQ: YHOO), DealBook asks whether Google (NASDAQ: GOOG) will acquire AOL, whose parent is Time Warner Inc. (NYSE: TWX), the parent of BloggingStocks.

Google, whose businesses include an advertising platform as well as an Internet service and a web site, already owns 5% of AOL, and it may feel compelled to bulk up by buying AOL so it can keep up with Microsoft and Yahoo — should they merge.

I’m not sure how much AOL would go for, but my hunch is that Google — whose stock is down almost 10% today — can find better uses for its capital. How so? If Google bought the remaining 95% of AOL it does not already own, it would get access to the following assets:

• AOL Finance’s leading market share. which, according to comScore, has passed both Yahoo and Microsoft to take the top spot in terms of unique visitors. AOL rose from 12.2 million unique visitors in November to 13.5 million in December, a 10% increase. This is much better than GoogleFinance’s much smaller market share. And according to paidcontent, a full acquisition would aid Google on the advertising side as well as with traction and traffic in portal areas it has yet to conquer such as finance and sports.

• AOL’s very low search market share. According to compete.com, AOL’s search engine market share was a mere 1.7% in December compared to 68.1% for Google. Google would not be getting much here.
• Considerable cash flows. For the nine months ended September 30, 2007, AOL reported total revenues of $3.930 billion, and had $2.120 billion in operating Income before depreciation and amortization (OIBDA) and $1.739 billion in operating income. Both of these include $668 million related to the sale of AOL’s German access business.

So how much would a 95% stake in AOL cost? Well, applying the ratio of Yahoo’s current price to its cash flow — 23.9 x cash flow — the 95% share of AOL would cost Google $39.6 billion — or 24% of its market capitalization. (To calculate this, I annualized AOL’s $2.12 billion worth of OIBDA — a cash flow proxy — and subtracted off the $668 million one-time gain to get $1.74 billion, multiplied it by 23.9 and took 95% of that amount).

This calculation includes subscription revenue, which is declining, so it is arguably on the high side. Still, even if you shave off a few billion from my figure, AOL hardly seems worth the money for Google, despite some of the assets outlined above.

With Time Warner shares up only 1% this afternoon, this idea may be no more than a good headline.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.

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Filed under: Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

Microsoft (NASDAQ: MSFT) is forgetting what has worked for it in recent years: lavishing cash on its shareholders.

The stock lost more than half its value between December 1999 and summer 2006, but has since easily outperformed the broad market. That’s partly because of brisk sales. PC unit shipments have increased 10% a year for three years. Microsoft has a fresh operating system on the shelves in Vista, barely a year old. And while Apple’s (NASDAQ: AAPL) clever “I’m a Mac” commercials have won many of us over, Microsoft still has a 90% share of the market. Also, the company has done a much better job of late protecting against overseas piracy. So sales for its fiscal year ending June 30 are expected to swell 18%.

But much of the stock’s success is owed to a plan announced in summer 2004. It called for stuffing $75 billion in cash into the pockets of shareholders through dividends (including a plump $3 a share paid one time) and share repurchases. Repurchases, of course, increase earnings per share and tend to make remaining shares more valuable.

Apart from the rekindled growth, the two main things to like about Microsoft today are that it still produces heaps of cash and that its stock is still reasonably priced. The company’s cash on hand has recently grown to $19 billion or $2 a share. Shares finished trading Thursday at around 18 times trailing earnings, a slight premium to the broad market’s 16 times earnings, but one that’s warranted considering the growth spurt.

Now seems like a good time for Microsoft to retire more shares or create another shareholder stimulus package. But it has other plans. Today, it offered $44.6 billion for Yahoo (NASDAQ: YHOO). It will use all its cash and then some for half the purchase and pay for the other half with newly issued shares–the opposite of a repurchase.

I know: Think of the “synergies.” I would, but I’d rather think of the math. Yahoo at Thursday’s close was more than twice as expensive as Microsoft at 41 times trailing earnings. The price Microsoft is offering works out to 66 times earnings. And while Microsoft’s earnings are seen increasing 26% this fiscal year (or were, until the deal’s announcement), those for Yahoo are expected to shrink by a whisker.

Personally, I like Yahoo. I use its finance and movie pages often but I switched from its email a year ago. I was getting so many offers to refinance or enlarge things that I started to develop a complex. (And I don’t have a mortgage.) Just sticking to the numbers, though, this seems like a case of what finance academics call “empire building.” That’s when companies spend shareholder cash on things that expand their influence but not their stock price. The preventative treatment for empire building is a generous dividend. If this deal falls through, Microsoft should up its payments.

Jack Hough is associate editor at SmartMoney and author of Your Next Great Stock

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Filed under: Insiders, Google (GOOG), Yahoo! (YHOO)

The day after former Yahoo, Inc. (NASDAQ: YHOO) CEO Terry Semel severed his ties with the company, Yahoo! gets an official bid from Microsoft Corp. (NASDAQ: MSFT) for over $44 billion. Just this week, Yahoo!’s Jerry Yang gave a bleak outlook for the company and shares nosedived. Could Yahoo! possibly have any more news this week? Sheesh.

Let’s stick to Semel. The former Warner Bros. star took Yahoo! under his wing back in 2002 and for all intents and purposes, guided the company from the bust days of the dot-com implosion to a business based on display advertising and paid services.

Too bad Google, Inc. (NASDAQ: GOOG) came along and soundly thrashed Yahoo! in every possible way, which lead to Semel’s ouster in 2007 and what could be considered corporate theft with his preposterous exit package. Even Yahoo! co-founder Jerry Yang’s return to the CEO spot can’t stop this company from floundering, while Google continues to thrive.

So, it comes as no surprise that Semel, who did not leave his board of directors position when he stepped down (er, was pushed down) from the CEO spot, finally left his board seat yesterday and severed ties with Yahoo! If someone else hires Semel because of some alleged starpower, they’ll be getting a CEO who didn’t do much in his 5+ year tenure at the former largest web property on the planet. Perhaps Microsoft can hire him as an adviser to its proposed acquisition?

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Filed under: Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

I don’t understand what Microsoft (NASDAQ: MSFT) is doing. Last week at this time, investors were celebrating a very nice earnings report, and after years of watching the stock go nowhere, investors had some hope for the rest of ‘08. Now comes today’s announcement that the software maker wants to buy struggling internet search firm Yahoo (NASDAQ: YHOO), for a 60% premium to where Yahoo stock was trading.

I know that Microsoft wants to go after Google (NASDAQ: GOOG). I also know that I have an egg on my face for a “buy Google into earnings” post that I wrote yesterday. But why pay 60% more than the market price for a company that admittedly has all kinds of problems and no one else wants?

Just when investors had thought they may just make some money with their Microsoft stock, this news comes along and now, I’m afraid it will be many more years until they see their stock move up.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no positions in any stock mentioned as of 2/1/08

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Filed under: Earnings reports, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), Amazon.com (AMZN), MasterCard Inc’A’ (MA), Broadcom Corp’A’ (BRCM), Stock screen, Intuitive Surgical Inc (ISRG)

Each quarter brings a new batch of earnings plays, so which ones should you trade?

I’ve had my fair share of successful calls, but I’ve also been burned badly before. One time, I put in a solid week’s worth of research (pdf) to pick Vasco Data Systems (NASDAQ: VDSI) right before earnings, and what happened, they totally blew it. A 30% drop. It still stings. This is just the latest reminder that you can’t trust companies, analysts or really anyone on Wall Street.

So far, in this latest round, Intuitive Surgical (NASDAQ: ISRG), E*Trade (NASDAQ: ETFC), Mastercard (NYSE: MA), VistaPrint (NASDAQ: VPRT) and Concur Technologies (NASDAQ: CNQR) have performed well while Google (NASDAQ: GOOG), Accuray (NASDAQ: ARAY), Cadence Design Systems (NASDAQ: CDNS), Yahoo! (NASDAQ: YHOO) [editor’s note - this was written prior to today’s news], VMware (NYSE: VMW), Apple (NASDAQ: AAPL) and Synaptics (NASDAQ: SYNA) have all bombed.

Amazon.com (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT) and Broadcom (NASDAQ: BRCM) all had very solid quarters, but where did it get investors? Nowhere — all three stocks are flat since then.

This all leads me to one inevitable conclusion: don’t play the earnings guessing game!

No matter how much research time you put in, no matter how many analyst reports you dig through, no matter how well or not well the stock has held up going into earnings, it’s impossible to predict which companies will fail, meet or beat expectations. It’s all just one big guessing game that brokers wants you to play because they want their commissions. Some would argue that this sums up the stock market as a whole, but I believe there are distinct times when your odds are better than the rest, and in the coming years, I’ll be sure to write about each one.

But this is definitely not one of those times, so please don’t play the earnings guessing game. That’s why while I have a list of stocks with upcoming earnings that I’m interested in, I’m not going to write about them just yet. If you must trade within the next few weeks, wait a week after a company’s earnings are announced, because by then, the earnings-influenced trend, whether up or down, will be much more apparent.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund

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