Filed under: Deals, Bad news, Industry, Citigroup Inc. (C), Merrill Lynch (MER), Housing

After Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER) reported earnings, there was at least some hope that the worst was behind the banking and brokerage industries. But that might not be true. Over the weekend Royal Bank of Scotland (NYSE: RBS) said it might have to raise $12 billion. Then there’s today’s news from large Midwestern bank National City Corp. (NYSE: NCC).

NCC will probably announce that it has raised over $6 billion. According to The Wall Street Journal, “the Cleveland-based regional bank was hammering out final terms of the transaction with a group of investors led by Corsair Capital LLC, a New York private-equity group.”

Current NCC stockholders will be beaten to death. The new capital will come in at $5 a share. The stock trades at over $8 now. NCC’s 52-week high is over $38.

The news is another example of how management at banks doomed their shareholders. Financial companies took on huge amounts of subprime-backed paper. The investments looked safe, but, on closer examination, they carried great risks if the housing market began to falter. The underlying assumption was that home prices would move up forever and that mortgages had been allowed to consumers at reasonable rates. Both of those assumptions were wrong.

When something looks too good to be true, it usually is.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Industry, Competitive strategy, Viacom (VIA), CBS Corp ‘B’ (CBS)

Viacom’s (NYSE: VIA) Paramount studio, MGM, and Lionsgate (NYSE: LGF) want their own pay Television channel. That means Viacom will cut ties with Showtime, owned by CBS (NYSE: CBS). MGM and Lionsgate will also break with the CBS property. The deal is more interesting since Sumner Redstone is chairman of both CBS and Viacom.

According to The New York Times, “The deal raises the question of how Showtime will fill the feature film portion of its programming slate. Showtime pays more than $100 million a year to the studios to show their movies.”

The new channel could end up ruining Showtime, hurting the CBS financials, and setting up new competition for HBO, but it is a sign of the times. Studios are seeing more and more premium video going to the internet. Some of that content is pirated. It is a cinch the new channel will be a superior economic deal for the studios involved. They need the money.

The $100 million budget film used to be uncommon. Now it seems to be the norm. Studios which can’t bring in more revenue though new distribution deals may see their P&L’s falter, so they’re aggressively changing their revenue models, even if it means cutting the throats of old friends.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Deals, Blockbuster Inc ‘A’ (BBI), Circuit City Stores (CC)

When Blockbuster (NYSE:BBI) said it would purchase Circuit City (NYSE:CC), it might not have occurred to many on Wall Street that the movie rental company did not have the money to do the deal.

Surprise.

According to The Wall Street Journal, “Concerns about Blockbuster’s methods for financing a bid contributed to a sharp fall in the company’s shares when it announced its move last week.” Blockbuster investor Carl Icahn may help put up some of the capital and there is cash on the Circuit City balance sheet.

Part of the argument for Circuit City being a good buyout target is because its shares are down more than 40% in the last six months. Those who bother to look at a stock chart will see that Blockbuster shares are down by the same amount during that period. Circuit City now has a market cap of $740 million. Blockbuster’s is only $605 million.

All of this data is simply data. The biggest reason for Blockbuster to drop its bid is that, if it has not been able to fix its own company, how does it anticipate to fix Circuit City?

Douglas A. McIntyre is an editor at 247wallst.com.

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