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Holy share dilution Batman!, Argentine strike to resume?, & an interesting ethanol buy (huh?)



April 21, 2008 – Comments (4) | RELATED TICKERS: PBR

I try to think of something interesting to write or rant about in my blog just about every day.  I haven't been having much trouble thinking of new ideas, but I'm just stuck today.  Perhaps it is the Azithromycin that I'm on and the tetanus shot that I had to get this morning as a result of getting a vampire-stake-like shard of wood stuck in the back of my leg this weekend (the word "splinter" doesn't do it justice).  Let's give it a shot so to speak (ouch).

One thing that caught my eye today is the thumping that National City (NCC) is getting this morning.  Man, talk about share dilution, the company announced that it has decided to sell $7 billion worth of new shares for the equivalent of $5 per share, which is approximately 40% less than the company's Friday close of $8.33 (see article National City raising $7 billion in capital).  We're talking about a company that has a market cap of $3.82 billion :0.  It also stated that it is cutting its dividend from $0.21 to $0.01.  Why even bother continuing to pay a one cent dividend?  If I was a shareholder I'd tell them to shove their penny.  Yuck!   As I write this NCC is still trading over $6.00 per share.  Why?  It would be a cold day in heck before I gave anyone six bucks a share for this stock.  The only silver lining here is that once the dilution takes effect, the company's losses won't look nearly as large as they do today.  I guess that this deal is better than bankruptcy if that was the only alternative, but it would still make me absolutely sick if I was a shareholder, which thank goodness I'm not.

Another interesting development that is goin on fairly under the radar right now, but could become big news again is the fact that negotiations between Argentina's government and the country's farmers have reached a standstill.  The farmers insist that they will resume their strike, which previously put a halt to just about all of the country's grain exports, in ten days if an agreement with the government about the reduction of taxes on crops cannot be reached.  If the strike resumes, expect another spike in grain prices.

As I mentioned in my previous blog post (If you think ethanol stocks are bad now...) the outcry against the government's ethanol requirements, subsidities, and import tariffs is growing.  One thing that I haven't seen mentioned as a possibility yet, but popped into my head this morning is what if the government were to keep its ethanol blending requirement and but eliminate the $0.54 per gallon import tax that it is currently imposing.  This tax is scheduled to expire in January 2009.  The next President will not take office until January 20th, so the extension of the tax will be completely up to the Bush administration.  As a lame duck, perhaps Bush will say to heck with this, and just let the tax expire without extending it.  If this happens it could be a tremendous opportunity for foreign ethanol producers, such as the Brazilian oil giant Petrobras (PBR) which is a world leader in the production of ethanol (from the more efficient source of sugarcane).  I have no idea if this would ever happen, but it is food for thought at a time when food is becoming increasingly expensive.  It always pays to think ahead about how political decisions might impact investments.

Ahhhh, that actually wasn't too bad once I got on a roll.


Long PBR

4 Comments – Post Your Own

#1) On April 21, 2008 at 3:16 PM, Tastylunch (28.76) wrote:

What's happened to National City in the past few years is a disgrace to all us Ohioans. Once upon a time National City was a very well run bank and a source of pride for us. 

Honestly I don't know what other optionsNCC had, nobody at all wanted them, their real estate exposure is atrocious. The one cent dividend I think is more due NCC's pride in their past than anything else. They should just cut it out altogether and be done with it. You can't afford pride when stock declines 80 some % in little over year. 

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#2) On April 21, 2008 at 3:29 PM, mandrake66 (45.98) wrote:

They are keeping the dividend at 1c per share so as to allow mutual funds that only invest in dividend stocks to continue to hold NCC shares. Otherwise a lot of institutions would have to dump it. Which they should do for plenty of other good reasons.

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#3) On April 21, 2008 at 3:36 PM, Tastylunch (28.76) wrote:

ah good point, didn't think about that.

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#4) On April 21, 2008 at 6:40 PM, wolfhounds (32.84) wrote:

Good info about PBR. Bush seems to come full circle on some popular issues and allowing the tax to expire would give him some populist legacy.

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