CHICAGO, Jan. 12, 2011 /PRNewswire/ -- Zacks.com Analyst
Blog features: Goldman Sachs (NYSE: GS), JPMorgan
(NYSE: JPM), MBIA (NYSE: MBI), Berkshire Hathaway
(NYSE: BRK.B) and Dollar Financial Corporation
(Nasdaq: DLLR).
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Here are highlights from Tuesday's Analyst Blog:
Are Pensions the Cause of States' Problems?
While clearly there are cases where pensions get inflated by
allowing people to take massive amounts of overtime in the years
just before they retire (and thus increase the base on which the
retirement amounts are based), from reading much of the media one
would think that your average state worker was calling it quits at
age 40 with a secure retirement income well into the six figures.
That really is not the case.
California is often held up as
the poster child of a state where pension costs have spun out of
control and resulted in a nearly bankrupt state government. So what
are the facts about how much California
State and Local government workers get when they retire?
CalPERS is the largest State pension fund in the nation and is
responsible for almost all of the pensions in the State. Here is
what it has to say on the matter:
"About 25,000 CalPERS members retire each year. The average
CalPERS member receives a monthly benefit allowance of $1,881 after retiring at age 60 with 19.9 years
of service (service retirement). The average California Highway Patrol employee receives a
monthly allowance of $4,280 after
retiring at age 55 with 28 years of service. Approximately 41
percent of CalPERS retirees receive $12,000 per year or less in benefits. About 81
percent of retirees receive $36,000
per year or less, with 91 percent of CalPERS retirees receiving
$54,000 or less per year.
"The vast majority of recent State retirement cost increases
are due to market downturn, not to increased benefits. Nearly 80
percent of the increase in employer rates from 2002-04 was due to
the two-year downturn in the economy that produced negative
investment returns. As a percent of payroll, the State pays less
per employee than it did 25 years ago for school employees, state
miscellaneous employees, state industrial workers, state safety
workers and state peace officer and firefighters."
Is There Another Possible Reason?
Perhaps, just perhaps, these workers are being made into
scapegoats for problems they didn't cause. State and Local pension
funds are large institutional investors, and like most large
institutional investors, they lost a lot of money during the
financial meltdown. Some but not all of that has been recovered as
the market has bounced back over the last two years.
However, not all the funds were in equities, and many of the
state funds had large portfolios of the toxic mortgages that Wall
Street was peddling during the housing boom. In 2010, the Wall
Street Bonus pool reached $142
billion, or roughly 1% of GDP. To be fair, that is a
worldwide total and many of the big Wall Street firms like
Goldman Sachs (NYSE: GS) and JPMorgan (NYSE: JPM) are
global operations.
That implies that lots of people on Wall Street are getting
bonuses for a single year that are greater than a retiree in the
10% highest percentile will receive in a lifetime.
I think it is going to be a rough year for the State and Local
governments, especially now that the Federal help that has
sustained them (a big part of the ARRA or Stimulus act) is drying
up. It used to be that many municipal bonds were guaranteed by the
likes of MBIA (NYSE: MBI), but investors should now count
that insurance as worthless -- with the possible exception of
muni's guaranteed by Berkshire Hathaway (NYSE: BRK.B) -- as
the insurance companies are most likely insolvent (Ambac is already
in bankruptcy). I would tend to avoid municipal bonds and stick
instead with dividend-paying stocks for income.
Dollar Financial Plans Stock Split
To infuse greater liquidity and extend share distribution, the
board of directors of Dollar Financial
Corporation (Nasdaq: DLLR) has authorized a stock split of its
common stock.
Accordingly, Dollar Financial has approved a three-for-two
split, which will be carried out through a stock dividend issued by
the company.
Dollar Financial stated that the shareholders as on January 20 will receive one-half additional share
for each share of common stock they hold on that date. Further,
Dollar Financial expects to distribute these additional shares on
February 4.
Additionally, the stock split will result in the increase in the
number of shares of Dollar Financial's common stock outstanding to
about 36.6 million shares from 24.9 million, as reported on
September 30, 2010. In addition, each
fractional share issued will be rounded up to the nearest whole
share.
After the split, the stock price of Dollar Financial will be
reduced since the number of shares outstanding will increase.
Thus, although the number of outstanding shares and the stock price
change, the market capitalization will remain constant after
the split.
Generally, a stock split is usually done by companies that have
seen their share price increase to levels that are either too high
or are beyond the price levels of similar companies in their
sector. However, we believe that the primary motive of Dollar
Financial is to make shares seem more affordable to small
investors, which in turn would end up boosting the demand and drive
up prices.
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