An amusing reminder of just how different opinions can be among (conflicted) finance professionals, was today's disclosure by risk evaluator Audit Integrity, which has put together a list of the twenty companies with a market cap over $1 billion most likely to file for bankruptcy. The full list is presented below:
- Advanced Micro Devices, Inc.
- Amkor Technology, Inc.
- AMR Corporation
- Apartment Investment and Management Co.
- CBS Corporation
- Continental Airlines, Inc.
- Federal-Mogul Corporation
- Hertz Global Holdings, Inc.
- Interpublic Group of Companies, Inc.
- Las Vegas Sands Corp.
- Liberty Media Corporation (Capital)
- Macy's, Inc.
- Mylan Inc.
- Oshkosh Corporation
- Redwood Trust, Inc.
- Rite Aid Corporation
- Sirius XM Radio Inc.
- Sprint Nextel Corporation
- Textron Inc.
- The Goodyear Tire & Rubber Company
Most notable in this list is the presence of recently promoted to Goldman's Conviction Buy list Cessna maker Textron, Inc. Thus while one Audit Integrity, which has not a single conflict of interest regarding Textron believes that the firm is among the 20 riskiest companies in America, Goldman, whose disclosure list has about 10 items in it, believes the stock is headed to the stratosphere.
This once again begs the question: is Goldman's analyst team actually working on behalf of Goldman's clients, and providing careful recommendations which have evaluated all possible downside risks, or is it blindly steamrolling ever higher with its barrage of upgrades, in a repeat of Wall Street's melt up actions from late 2006 and early 2007? And since actions speak louder than words, here are Goldman's several most recent report titles with dates.
- 09-10-2009 Textron Inc. (OP): Business update reinforces improved liquidity; maintain Outperform
- 07-28-2009 Textron Inc. (OP): 2Q liquidity solid; reiterate Outperform on TXT and TXT Financial
- 04-29-2009 Textron Inc. (OP): Upgrading Textron and Textron Financial to Outperform
- 02-05-2009 Textron Inc. (IL/U): Revolver drawdown highlights funding shortfall at finance business
- 12-23-2008 Textron Inc. (IL/U): Textron’s finance unit to exit non-captive business
- 11-25-2008 Machinery & Diversified Industrials: 2009 Outlook: Avoid cyclicals that have refinancing risk
- 10-16-2008 Textron Inc. (IL/U): Finance business drags down 3Q and has funding needs ahead
Let's recap, in February the firm has a funding shortfall in Textron Financial. Specifically, in the report, analyst Brian Jacoby, CFA, highlighted that absent an estimated $500 million in asset sales at Textron Inc., (a divestiture process which, according to DebtWire, Goldman itself was in charge of in Q1, yet failed to obtain a buyer for any of Textron's assets), the Textron Financial subsidiary would likely have a ($500) million cash balance shortfall in 2010, as parent would not be able to satisfy the capital contribution needs to TXT-FIN.
Yet somehow, mysteriously, in less than two months, with a very credit constrained environment still prevalent, and Textron's liquidity situation not at all better (and if its allegedly fraudulent backlog misrepresentation is any indication, with a core business that is suffering even worse), Jacoby issues this: "04-29-2009 Textron Inc. (OP): Upgrading Textron and Textron Financial to Outperform." So what exactly changed?
Maybe this had something to do with it. Indeed, the day before the upgrade, Goldman was a book runner for a stock and convertible bond offering for Textron. Basically, Goldman priced 23.8 million TXT shares at $10.50 (a price that is roughly 50% below where the stock is trading today). One wonders, if, in addition to the shares that Goldman Prop parked in its account, whether Goldman had tipped off clients that immediately after the follow on, Goldman's analysts may suddenly become substantially bullish on the company. We would not be so naive to assume that Goldman respects any black out periods. After all, as we noted yesterday, Finra itself allowed firms to participate in just such a pump and dump, after it decided to get rid of any pretence of pursuing analyst integrity altogether.
But one incident does not make a pattern. Then how about two: The September 10th upgrade by Jacoby, claiming "Business update reinforces improved liquidity", was followed promptly by a Goldman underwritten issuance of $600 million in Textron bonds. Between the two offerings, Goldman has likely made over $10 million in corporate advisory fees. Yet what is the real status of the company, absent the repeated barrage of Goldman's rose-colored glasses tirade?
Not only is the Goldman Conviction Buy candidate a Top 20 bankruptcy candidate, but according to Audit Integrity, its Accounting and Governance risk is higher than 93% of companies.
Yet you would never find that reading a Goldman report. After all, as we have pointed out many times, the firm is a corporate finance Gold Mine for Goldman (no pun intended). And, as everyone knows, once Textron is bled dry, Goldman's own portfolio company Hawker Beechcraft will likely end up being the Stalking Horse bid in something reminiscent a Chrysler "National Interest" accelerated 363 sale. After all Hawker's parent is the world's biggest hedge fund whose balance sheet is the collective pocket of the entire US (if not global) population. As the 85 Broad firm knows all too well, when the shit really hits the fan, it will need every private jet in its disposal to get the hell out of Dodge, post haste.