Discussion in 'Trading' started by Trend Fader, May 18, 2005.
Is MWD going to blow up?
They owe 1.4bil and they allocated only $350mil for legal fees.
Even if they settle for less.. still a major problem. Wonder how this will play out.
With 70 billion in cash on hand at their last year end, 1.4 is like stopping at the deli for a bag of chips. The louder message is sent to potential and current clients about the firm and will effect them down the road in winning and retaining business.
Given all the other bad pub mwd is getting I guess the hits just keep coming.
What about their $144bil in debt? Cash is relative to debt... fundementals 101
If they had $0 in debt.. like some good growth companies do.. then your analogy would be accurate.. but its far from that.
Unlikely. This verdict had been widely expected. And the firm has a reasonable grounds for appeal.
I wouldn't be surprised to see the stock closer higher tomorrow.
Great managed companies like qcom, rimm, dell, msft.. have virtually $0 in debt... and sit on a ton of cash. They are also generating a yearly and quarterly profit.
This means that if they hit a down cycle and their business softens they can more then whether the storm.. and even put their cash to use and buy some of their competitors when they fail because they are not as well capitalized.
The verdict of this magnitude was not expected.. they reported recently that they put aside $350mil to cover legal.
Stock might not get hit too hard... because its been spiraling down hard last few months.. much of the bad stuff is priced in.. but i think there is plenty room for downside.
I was simply stating cash. if we have to breakdown the whole balance sheet there are plenty of other current assets. you know receivables will pay off most of the payables, short term investments.
More to the point is they'll live. The fact that they lost this over business practices with an investment banking client is far more devasting than the dollar amout. With all the other rocks being hurled at the company, their in trouble. But again $1.4 is nothing in the grand scheme of things.
broker/dealer debt is a little different than that of other companies. they have hundreds of billions of dollars under management, and must borrow (until recently, at 1%) to be able to extend margin to their clients (at 5-8%). they've also been re-investing those 1% short-term monies into longer-term, slightly higher yielding municipal and federal debt instruments for free money carry trades, as well as other equity and real estate investment, and providing loan offerings to other businesses and entities. non-broker dealers couldn't borrow at 1%, and would have to float expensive bonds or secondary stock offerings.
i'm not saying everything's cool at MWD, but the debt they and the other b/d's carry on their books isn't as debilitating as it seems on the surface. they're putting that cheap money to work, and are netting about $1.2 Billion per quarter after servicing that debt.
It really was. Doesn't matter what they set aside, everybody knew they were going to lose. In fact, people should be glad they didn't get fined the entire 2.4 billion that the guy was suing for.
I have bids in at 48.
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