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Still Some Life! Microsoft Boosts Stock Buybacks
Microsoft CEO Steve Ballmer has continued investing in online services despite the failed Yahoo bid, but the stock buyback signals the software maker isn't planning any big acquisitions.
Microsoft Corp.'s board authorized the repurchase of $40 billion in stock and an 18% dividend increase as personal-computer giant Hewlett-Packard Co. announced another $8 billion buyback. The moves by the two technology titans, coupled with Microsoft's plans to tap the debt market for the first time -- show that they aren't concerned about the turmoil roiling the financial markets.
Microsoft's latest buyback effort also signals no big acquisition plans on the horizon -- such as its effort earlier this year to acquire Yahoo Inc. -- and comes after Microsoft said in 2004 that it would repurchase up to $30 billion in stock over the next four years. That plan ultimately grew to $40 billion and has been completed. The next $40 billion is set to be purchased over the next five years. Microsoft's market capitalization is about $230 billion.
The company noted Monday that in the past five years, it has returned about $115 billion to shareholders through buybacks and dividends. That is solace to longtime shareholders who own a stock that has traded below $30 for essentially all of the past 6 1/2 years. Microsoft's board also approved taking out up to $6 billion in debt and the establishment of a $2 billion commercial paper program. Microsoft will use the proceeds from any debt financing for general purposes, including the stock buybacks. The company has no debt.
Also Monday, Standard & Poor's and Moody's bestowed Microsoft with AAA, their highest rating. It's S&P's first new AAA rating in a decade and Moody's first since 2002. Microsoft is one of only six nonfinancial companies to receive an AAA rating from the firms. S&P said Microsoft's size, scope and low risk contributed to its rating, adding that the AAA category would likely continue to get smaller as part of the "expected ongoing trend toward reduced credit quality."
Meanwhile, H-P's $8 billion buyback plan is intended to manage dilution created by shares under employee stock plans. The amount is in addition to the nearly $3 billion that can be repurchased under the $8 billion stock-repurchase program approved in November. The company's market value is just short of $120 billion.
Let me know if you have any comments, question or suggestions.
Write David W. Weatherholt at david@bnewsviews.com
Reprinted by permission of Wall Street Journal, Copyright © 2008 Dow Jones & Company, Inc. All Rights Reserved Worldwide
The Bakken Oil Formation:
Welcome to the Next Oil Boom
The U.S. Geological Survey just published its official results of a groundbreaking study. Its report confirmed a massive oil reserve in an area the locals have nicknamed the "Bakken," which stretches across North Dakota, Montana and southeastern Saskatchewan. The new USGS study estimates a whopping 3.65 billion barrels of oil in the Bakken... but here's what they didn't mention:
The reported 3.65 billion barrels of oil mean estimate is for 'undiscovered' oil only, and doesn't include known oil, such as reserves.
In fact, the study reports a 25-fold increase in the amount of oil that can be recovered... compared to the agency's estimate back in 1995.
Discovered over 50 years ago, the Bakken deposit--once impossible to extract--is now being hailed as the single largest oil find in US history.
That's because, today, thanks to breakthrough drilling techniques like horizontal drilling, the Bakken's oil shales can be extracted relatively cheaply. When that happens, this light, sweet oil will cost Americans just $16 per barrel!
The next oil boom is already upon us.
And, considering that oil prices are likely to remain above $100 a barrel, the time for shock is over. Investors are now faced with an unprecedented opportunity to play the U.S. and Canada's new hottest oil stocks... several of which are poised to make 300% gains during 2008.
To get the full details on the Bakken and the leading stocks behind it--before the story goes mainstream--simply sign up for the free Energy and Capital e-Letter, a daily advisory on the fast-moving profits in the energy stock sector, written and edited by energy and natural resources investing experts Chris Nelder and Keith Kohl.
Let me know if you have any comments, question or suggestions.
Write David W. Weatherholt at david@bnewsviews.com
U.S. Banks May Cut Lending By $114 Billion on Fannie, ABA Says
By Kevin Crowley
Sept. 23 (Bloomberg) -- U.S. banks may curb lending by as much as $114 billion as a result of investment losses related to the federal government's nationalization of Fannie Mae and Freddie Mac, the American Bankers Association said.
About a quarter of the country's banks may rack up losses of as much as $15 billion on Fannie Mae and Freddie Mac, the lobby group said in a letter to Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke. For every $1 of capital, banks lend about $7.60, magnifying the impact of the exposure to Fannie Mae and Freddie Mac, the group said.
The U.S. government nationalized Fannie Mae and Freddie Mac Sept. 7 after the biggest surge in mortgage defaults in at least three decades threatened to topple the companies which make up almost half the U.S. home-loan market. Banks were encouraged to buy Fannie Mae and Freddie Mac securities because they were considered low-risk, the Washington-based lobby group said today.
"The elimination of all dividends on preferred shares is reducing bank capital and impeding the ability of banks to make new loans and renew existing ones that are so critical to our nation's economic recovery,'' Edward Yingling, the ABA's chief executive officer, wrote in the letter dated yesterday. ``The negative impact on banks, particularly Main Street community banks, is far greater than the regulators first thought.''
About 85 percent of the banks that had investments in government-sponsored entities were community banks, with less than $1 billion in assets, according to the ABA survey. Banks in every U.S. state are affected by the mortgage companies' takeover, the ABA added, with the worst hit in Massachusetts, Illinois, Connecticut, South Carolina and Virginia. The Wall Street Journal reported the letter yesterday.
To contact the reporter on this story: Kevin Crowley in London at kcrowley1@bloomberg.net
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First Trade Publishing: October 2008
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