Bank of America Short Term Pref Dividend Shuffle Long Term Pain. $BAC

Bank of America (NYSE:BAC) thinks it will save some $500 million a year when it redeems its prefered shares. Yes cancelling the 8% plus with nose bleed yields will help. The dividends paid on preferreds will drop by one-third and earnings available to common shareholders will increase about 20%. All without changing any risk profile. Nice work.

CFO Bruce Thompson says he has no plans to replace the preferreds at this time. This begs the question. What will become the dividend on the common. They currently yield about 0.34% with the shares trading near the 52 week high. You cannot be a big money center bank and pay a lousy dividend to the common share holders.

If you believe interest rates are artificially low you would want to lock in some long-term capital at advantageous rates. Never mind about the short-term thinking of todays capital adequacy ratio. Banks and their investors need to think in five and ten-year time frames.

Lock up some long-term preferreds at low rates. Lock up some thirty year bonds are very low rates and wait for the economic cycle to make you look like a superstar. Institutions still are and always will be your largest core investors. They will understand the value narrative and buy in.

Then you will move beyond having to make sharp deals with Warren Buffett and concentrate on becoming a powerhouse.

George Gutowski writes from a caveat emptor perspective.

Proctor & Gamble Try Bastard Cash Flow Trick. Now it’s Slow Pay $PG

Proctor & Gamble (NYSE:PG) is trying the olde school trick of slow pay to eek out more cash from operations. Currently they are paying around 45 days and are looking to extend to 75-100 days. According to Morning Ledger at WSJ CFO Journal many other comparable companies are doing it. Expectations are they will free up some $2 Billion in cash.

Why there has to be a reason. The market cap is around $218 Billion. The move may generate about 1% of market cap. Big deal. But is P&G getting a case of the shorts.

Working capital is about 1:1. not outstanding.

Short term debt last report was $9.8 Billion, payables $7.2 billion. If you believe interest rates are going up and you have to figure short-term debt is floating the more you pay down the better. Long term debt clocks in at $23.6 Billion which is 10% of your market cap.

But take a look at the share re-purchase levels. In the past twelve months they have spent billions repurchasing their shares..

The stock is trading near both its 52 week high and five-year high. management wants to do something to break to the upside. The short position is about 0.78% of the float and has seen substantial short covering of late. This bullish catalyst is diminishing.

The dividend has just been increased by 7%. P&G has a 123 year uninterrupted history of dividend payment. The last 57 years have seen constant increases. Everyone who is a dividend oriented investor already owns the shares. No radical new buying demand is expected.

So they have to stick it to their suppliers. Their suppliers may offer terms for early pay which out weigh dragging payments. There is a sanctimonious comment about helping suppliers find financing. Come on if you have Proctor & Gamble on your receivables list the bank has lent you money.

But quite frankly classic financial analysis frowns heavily on companies who drag out their payables. Ultimately its a sign of financial weakness not strength.

Dividend investors are better served with improving margins, improving market shares, new product launches, product extensions, accretive acquisitions, pricing power. You know stuff like that. Sticking it to your suppliers. Meh!

George Gutowski writes from a caveat emptor perspective. I probably use some of their products like soap and don’t even know it.

Coca Cola Growing Foreign Struggling Traditional Olde Directors Need Change $KO

Coca Cola (NYSE:KO) disappointed the market with lower than expected earnings. The same olde story was dragged out. Growing well in developing countries where disposable income is growing. Getting very tired in traditional markets where they are very well-known.

Does Coca-Cola have the stuff to over-come the well identified obstacle or is it over the hill. Check out the board and I’ll have you voting over-the-hill very soon. The board itself is large. Some 17 independent directors. Do you really need such a large group. The average director is 67 years old. Yet you have ten directors over the age of 70. Five of the newer ones are under 60.

The average tenure is 11 years. Three directors have been on the board for over 30 years. 3 more have been on the board over 10 years.

Lets take a look at the over 70 crowd. What do they bring to the table.

Herbert Allen 73. 31 years on the board. Dean of venture capital. Helluva good resume. But what is he doing for Coca Cola and their battle to become dominant with the Western middle class. Way over due for replacement.

Barry Diller 71. 11 years on the board. Chairman of IAC/Interactive Trying to find his way through the digital world. Whats does he bring to the table that Coca Cola needs.

Donald Keough 86 is considered a saint in the world of Coca Cola. But he is retiring. Veteran of cola wars.

James Robinson 77 is the presiding independent director with some 38 years of service. He built his career at American Express finishing as Chairman and CEO in 1993. After 38 years you are well entrenched. His background as an executive does not deal with mass market consumer beverages. It is interesting to note that Warren Buffett is a large core investor in both Coca Cola and American Express.

Donald McHenry 76 32 years on the board is an academic and consultant. Whatever it is that he had is not helping the consumer beverages wars.

Ronald Allen 71 has 22 years on the board. He retired in 1997 as Chairman, President and CEO of Delta Airlines. While he may understand the price of fuel, airport landing slots and the advantages of Boeing over Airbus can he move a few cases of Coca Cola.

James Williams 79 has 34 years of experience on the board. Former Chairman and CEO of Suntrust Bank. He is retiring this year.

The Coca-Cola board is old and tired. They are no longer value added. no insights into the Western consumer. No insights into burgeoning foreign markets. This one group of cronies should go sooner than later.

George Gutowski writes from a caveat emptor perspective.

Citigroup Board Many New Appointees Changing Soon $C

Citigroup (NYSE:C) is coming out with earnings shortly. Check out their board and see if they are buckled up properly for the long-term and for the investor. The average age of the independent director is 66 and the average tenure is four. The tenure is light but then think about all the turmoil and you’ll see why.

I have also tried to calculate which directors will turn over soonest. The problem with Citigroup is they are all in a short time span so the board is in danger of turning quickly which is a danger sign.

The directors line up as follows:

Robert Joss 71. Former dean of stanford University. Professor of finance emeritus. Was a rising star at Wells Fargo where he finished up as the vice chairman. CEO and Managing Director of Westpac after Wells Fargo. you can see the value to Citigroup after all the turmoil. He is plus five on the director best before scale.

Lawrence Ricciardi 71. SVP and general counsel and CFO of IBM at various points. Also was President, CEO, EVP and General Counsel at various points for RJR Nabisco. Through in a tour as EVP and General Counsel at American Express Travel. Nice combination of legal and financial expertise. Plus six on director best before.

Diana Taylor 58 Very travelled resume. Lehman Brothers, Kuhn, Loeb; Smith Barney; Wolfensohn Funds. Political travels include Superintendent of Banks for New York, Deputy Secretary to Governor Pataki and CFO of Long Island Power Authority. Finance and politics secured the directorship for now. As Citigroup marinades out of its former troubles will see be helpful. Negative eight on the director best before.

Robert Ryan 69 started off life as a vice president with Citibank in 1975 after spending five years at McKinsey. VP finance and CFO at Union Texas and SVP and CFO at Medtronics until 2005. Plus four on the director best before.

Joan Spero 68 Economist who became an EVP at American Express for corporate affairs and communications. Under-Secretary of State for Economics, Business and Agriculture. Also spend some time as an Ambassador to United Nations for Economic and Social Affairs. Minus one on the director best before.

Ernesto Zedillo 61 Economist and cabinet level officer in Mexico. Economist and deputy manager of research at Banco de Mexico. Minus six on the director best before.

Judith Rodin 68. President Rockefeller Foundation. Formerly President of University of Pennsylvania and then President Emeritus. Plus seven on the director best before.

William Thompson 67 Salomon Brother 1975 to 1993. Remember those guys. before Goldman Sachs there was Salomon Brothers. Then he went on to be CEO of PIMCO. Plus one on the director best before.

Anthony Santomero 66 Was President of Federal Reserve Bank of Philadelphia then a senior advisor to McKinsey. Has been a Professor of Finance at Wharton School of Business. Ranks at dead even zero on the director best before.

Franz Bernard Humer 66 Chairman of Roche Holdings and has been a senior officer there since 1995. Minus three on the director best before.

George Gutowski writes from a caveat emptor perspective. Check out the Director Best Before Method

Remaining Useful Life of Directors $SPY

How long do directors last on Boards of publicly traded companies. Some stay on for  twenty years and become very entrenched if not irrelevant. I am researching a predictive formula that calculates the remaining useful life of an independent director.

I calculate the average age of the board and the average tenure as a director. Some 59 years olds have been on the board for seven years or more. Some 72 year olds have been recently elected. Add the two averages together. Compare the number to the sum of a directors age and his/her tenure on the board. If they are above or well above the average the clock is ticking and they will be replaced shortly.

With the march of time the oldsters will drop out. With high tenures boards will be looking for a refresh as they need new skills and perspectives.

Not 100% perfect but worth noting.

George Gutowski writes from a caveat emptor perspective.

Infosys Secret Sauce at Board Level. Why did they kick so much ass? $INFY

Infosys (NYSE:INFY) has moved a lot of jobs from high wage to low wage environments. How did a bunch or foreigners do this? Everyone knows the company with the cheapest cost structure has the ultimate financial advantage.

How did they build a company of almost $30 Billion in market cap by destroying good paying blue-collar and pink collar jobs.

The board has thirteen members. Five of whom are active duty senior officers of the company. Eight are independent directors. The average age of the independent director is 59 and average tenure is 8 years. One women who clearly is a westerner. Two other men bring the western count to three. Most global companies are not that well diversified in global perspective.

Therefore you have to conclude that the rest of the board was exceptionally savvy about western economies and how to exploit the cost differential. The independents are:

Deepak Satwalekar 63 is a bank and money man. Managing Director and CEO of HDFC. Formerly with Standard Life Insurance. He has been a consultant to World Bank, Asian Development Bank and has developed an understanding of what have not economies can offer.

R Seshasayee 64 is the Executive Vice Chairman of Ashok Leyland from 1988 to 2011. He joined Ashok Lelyland in 1976 and therefore can be considered a car guy. Cars are global brands which have long been dominated by American Brands until they lost control of labour wages and quality.

Omkar Goswami 55 is a career economist and Chairman of the Investors Grievance Committee. As an economist in the Indian economy the question has been how do we achieve western standards.

Sridau Iyengau 64 was with KPMG from 1978 to 2002. He was a senior partner in both the US and the UK. He was also Chairman and CEO of KPMG India from 1997 to 2000. while at KPMG this man has had the inside seat at numerous western based companies and knew cost structures very well.

Ravi Venkatsen 49 was formerly the chairman of Microsoft India from 2004-2011. Prior he spent 17 years at Cummins Inc the engine people. MBA and Baker Scholar from Harvard B School started his very good appreciation of the western business world.

So while many would look at Infosys and see them as an opportunistic player, their board has an excellent savvy of western business constructs. The average western executive trying to operate in India spends more time stumbling about.

Now through in three western directors and the team becomes very strong.

Ann Fudge 61 the chairman and CEO of Young and Rubican Brands. She had earlier experience at Kraft Foods, General Foods, General Mills and was on the board of Federal Reserve Bank of New York. Harvard MBA to boot. Her consumer products experience rounds the financial operations expertise of her peers.

Jeffrey Sean Lehman 55 is a tax lawyer by profession. Professor of Law and Dean. His understanding of taxes would be key as you transfer cost inputs across political boundaries.

David Boyes 63 is a career IT guy. Formerly Chief Operating Officer of ANZ bank and previously was SVP e-commerce at American Express. Don’t believe he’s a Yank but western oriented does apply with a good understanding of Asia.

So yes it was all about the cheaper labour. But it took a western mind-set to put the game plan into play. This board has no difficulty understanding the West.

George Gutowski writes from a caveat emptor perspective.

$JCP enney shoots the $AAPL guy. Target hires a $YHOO guy. Just what is the fashion in retail?

JCPenney (NYSE:JCP) whacked their Apple executive who was supposed to save them. Ackman cannot pick them. Now everyone is saying Apple executives are not very good outside of the Apple eco-structure.

Take a look at Target (NYSE:TGT) They just added to the board Henrique de Castro 47 who since Nov 2012 has been the chief operating officer of Yahoo (Nasdaq:YHOO) and has been at Google (Nasdaq:GOOG), Dell and McKinsey. Now clearly he is a board member and not the quarterback. But I find the hook up of a very newly minted COO at Yahoo coming on the board of Target.

Lets take a look at the rest of Targets board. Eleven independent directors. Average age of 55 and 7.5 years of tenure.

Gregg Steinhafel 58 is the President, CEO and Chairman. He has been with Target since 1979 when he joined as a merchandising trainee. Way more solid as a quarterback than the JCPenney guy who used to be an Apple guy.

Solomon D Trujillo 60. CEO of Telstra Australian Telecom. Why an Australian?

Mary Minnick 52 Partner with Lion Capital a consumer focused Private Investment Firm. 23 year career with Coca Cola culminating in senior executive positions. Consumer and retail. Got it.

Derica W Rice 47 EVP Global Services and CFO Eli Lilly & Company. Global perspective in a highly regulated drug industry.

Mary N Dillon 50 President and CEO of US Cellular Corp Wireless Telecom. Previously EVP and Chief Marketing Officer of McDonald’s. Burgers, cell phones they’re all consumable right.

Anne Mulcahy 59 Former Chairman and CEO of Xerox. Director of Washington Post and J&J. One of the longest-serving directors. Some logic to replace just to prevent staleness on the board.

Calvin Darden 62. Real Estate Development now. but was SVP of US operations for United Parcel Services. Gets the facilities and logistics for on-line fulfillment.

Roxanne Austin 51 is currently the President of Austin Investment advisors since 2004. Professional investor who can empathize with investor concerns.

James Johnson 68 Vice Chairman of Perseus a Merchant Banking Private equity firm. Also a director of Goldman Sachs Group. At the age of 68 with 13 years of tenure on the board he is probably a candidate for replacement in the near future.

John G Stumpf 58 Chair, President and CEO of Wells Fargo. Full time CEO. Does he really have the time to pay attention to Target.

Douglas Baker 54 24 year veteran of Ecolab where he is now President and CEO.

The board has clear strengths on retail/consumer with a smattering of financial engineering. Three active duty CEO or COO probably find themselves short for time but the CEO is a seasoned merchant.

This group has figured out a way to include the very new Chief Operating Officer of Yahoo onto the board. Very different from the JCPenney experience.

George Gutowski writes from a caveat emptor perspective.



IBM Board of Directors CEO Driven One Employer Focus

IBM (NYSE:IBM) has a very unique board of directors. Not only are most of them either serving or retired CEO’s but they did not job hop as they climbed the rungs of corporate power. Most of the job changes were from one CEO position to another.

Several are still serving and much has been made if a serving CEO has the time to be a good director somewhere else. Be that as it may lets take a look at the current team:

Sidney Taurel 64 a career Eli Lilly executive culminating as CEO and Chair before retiring.

Ken Chenault 61 a career American Express executive culminating in CEO and Chair before retiring.

David Farr 58 a career Emerson Electric executive culminating in CEO and Chair before retiring.

James Owens 67 career Caterpillar executive culminating in CEO and chair before retiring.

Joan Spero 68 Former Ambassador to the United Nations for Economic and Social Affairs. Started off as a career American Express executive and was the US Under-Secretary of State for Economic, Business and Agricultural Affairs. clearly brings a geo-political slant which IBM finds valuable.

Andrew Liveris 58 career Dow Chemical and now Chair, President and CEO of Dow. does he have the quality time.

W James McNerney 63  career General Electric executive heading up GE Aircraft Engines. Was Chair and CEO of 3M before he snagged the big job at Boeing where he is now Chair, President and CEO.

Shirley Ann Jackson 66 Theoretical Physicist. Formerly at AT&T Bell Labs and former Chair of US Nuclear Regulatory Commission.  Provides a perspective on technology and how it can be regulated.

Alain JP Belda 69 career Alcoa executive until 2010 retirement as chairman. currently a managing director of Warburg Pincus.

William Brody 69 scientist, radiologist, professor of bio-medical engineering. President of Salk Institute. Second prominent scientist on board.

Michael Eskew 63 career executive with United Parcel Services retiring as Chair and CEO.

Lorenzo H Zambrano 68 a career executive with CEMEX and currently the Chair and CEO.

So have we made it clear. Big Blue board of directors is all about the guys who clawed their way to the top as CEO’s. They may understand what it takes to win at the CEO game but do they understand the process of shareholder wealth creation. The perspective while very powerful is very narrow.

George Gutowski writes from a caveat emptor perspective.

Alcoa’s Board is it Still Up To Challenge? $AA

Alcoa (NYSE:AA) is coming out with earnings soon. Does their board of directors still have what it takes. The average age of the independent director is 66. Average tenure is 8.3 years. Three women out of ten independent directors.

The lead director is Dr Judith Gueron age 71 who has been on the board since 1988 and is a highly respected economist. We could not identify any other board memberships either past or present.

The most interesting or should I say Machiavellian member is Ratan Naval Tata of the Tata Group from India. A global company if there ever was one. Mr. Tata is also on the international advisory boards of Mitsubishi Corporation, JP Morgan Chase, Rolls-Royce, Temasek Holdings and the Monetary Authority of Singapore.

Will the interests of Alcoa shareholders align with those of Tata? Will a lead director with about 25 years at the table be the right person for the job?

George Gutowski writes from a caveat emptor perspective.

Ding Dong Avon Leaving Ireland. Is that It? $AVP

Avon Products (NYSE:AVP) announced further head count reductions to achieve their cost cutting which had also been previously announced. The plan is to whack another 400 and leave Ireland. The plan is to exit small markets and concentrate on big ones.

Yeah OK big markets, big bucks and hopefully big rewards. So why even announce anything for Ireland was it really that big? Sure some employees are out of a job. But Ireland had only a population of just under 5 million. (Ex Northern Ireland) so how big of a savings are we going to see.

Ireland has had a recent history of some very interesting tax laws. The Irish allowed you to shelter much income from the revenuers from many a far-a-way land. As they beat the drums of retreat the Irish advantages are not as attractive. the losses need to be taken where they can be maximized in high tax jurisdictions such as the United States.

So in a little while bye and bye do not be surprised if the IRS suddenly decides to challenge some of the consolidations and tax losses. Fair is fair.

In the mean time lets take a quick look at the board. 9 independent directors, 4 women, average age 65. Average tenure 9.7 years although new blood has been coming on recently.

Ann Moore 62 formerly Chair and CEO of Time. a career time-life executive.

Maria Elena Lagomasino 64 A career private wealth banker from Sun Trust, JP Morgan Private Bank, Chase Manhattan Bank.Would have understood the advantages of Ireland’s tax code very well.

Paula Stern 68. Former Commissioner of US International Trade Commission. Expert understanding of international structures and how to leverage them.

Laurence Weinbach 73 was chairman of Unisys until 2006. Previously managing director – chief executive officer Andersen World Wide. Retiring in a few weeks but with that level of accounting expertise he would have a very good handle on taxes and structuring.

Gary Rodkin 60. CEO of Conagra Foods. Prior was Chair and CEO of Pepsico Beverages and Food. Significant experience at Tropicana, General Mills and Yoplait Yogurt. Food is an international commodity which is usually structured to be tax effective.

Don Cornwell 65 Chairman of Granite Broadcasting 1988-2009. COO Corporate Finance Dep’t Goldman Sachs 1980-88. Vice President at Investment Banking Goldman Sachs from 1976. This guy is all about financial engineering.

Charles Noski 60 former vice chair of Bank of America. Former CFO of Northrop Grumman, ATT, Hughes Electronics and formerly partner of Deloitte & Touche. Financial engineer extraordinaire.

So the board with a very strong financial engineering background decides to get out of Ireland because its a small market and they can fire a few guy’s. They even press release it.


Double Hmmm.

George Gutowski writes from a caveat emptor perspective.

Douglas Connant