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The Friday Five

Thu, 28 Mar 2013

Five stats from the market and the stories behind them. This week: A 3,000 euro limit in Cyprus, Buffett takes 10 million shares, and BlackBerry 10 hits a respectable 1 million units sold.

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Video Transcript

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to The Friday Five: five stats from the market and the stories behind them. Joining me as always with all the details is Morningstar markets editor Jeremy Glaser. Jeremy, thanks for being here.

Jeremy Glaser: Glad to be here, Jason.

Stipp: So what do you have for The Friday Five this week?

Glaser: Well, we're going to look at the numbers 3,000, 26%, 1 million, 10.1 million, and finally $62 million.

Stipp: 3,000 is the amount of euros you can take out of Cyprus. This is part of some capital controls they've put in place. And it has some implications for the eurozone as a whole and the euro use in Cyprus.

Glaser: We're at a bit of a pause in the Cyprus crisis right now. Cyprus was able to come through a deal with the EU, the IMF, the ECB, the so-called troika, in order to get a bailout. They created a good bank and a bad bank. So within that good bank, they put insured deposits that are under 100,000 euros, and then they're going to take a levy on the deposits that are over 100,000 euros to pay for their share of the bailout. And this gets rid of some of the near-term fears that Cyprus was going to leave the euro.

But in a lot of ways, their membership in the eurozone is incredibly tenuous because of these capital controls. You're not allowed to take more than the equivalent of 3,000 euros out of the country. There are restrictions on foreign credit card transactions and on all sorts of banking transactions that were supposed to be free across the entire eurozone. That was kind of the point at the monetary union, was that you wouldn't have these kind of controls.

So I think it shows that Cyprus really remains in a very precarious position. That if you allow that free flow of capital again, the worry is that all the money would flow out of the Cypriot banks, and they would fail and would need an even larger bailout than they have right now. These capital controls are supposedly temporary. Chances are they're going to be in place for some time until a more permanent solution is reached. This story isn't over yet there. We are really just in a bit of a pause right now.

Stipp: 26% is the percentage of a new combined firm that MetroPCS shareholders will get. That deal is with Deutsche Telekom unit T-Mobile. But will this deal get done?

Glaser: It looked like it was basically a 100% a done deal. The regulators had approved it. They wanted to bulk up some competitors to the biggest wireless carriers out there. But this week, there was a wrench thrown in those plans, when ISS, which is an advisory firm, said that they would recommend their institutional clients vote against the deal.

We had already heard a few hedge fund rumblings about it being underpriced, and this is just another voice out there saying that this deal might not be as attractive to MetroPCS shareholders as it is to T-Mobile, who is looking, Deutsche Telekom has been looking, for some time to unload T-Mobile. If you remember, they tried to merge with AT&T or tried to sell [T-Mobile] to AT&T before; that deal was scuttled by regulators. What actually happens here is likely that the deal will get done. It's possible that the price is going to have to go higher.

Again Deutsche Telekom wants to get rid of T-Mobile. This is one of the more attractive ways for that to happen, and you could see them possibly contributing less debt in the reverse merger or raising the share of the combined company that MetroPCS gets in order to appease some of these shareholders. We could see that happen. It could be that the vote goes through as expected without any changes. But chances are that this combined company will exist.

T-Mobile is still going to have an uphill battle even with this extra spectrum. Just this week, they announced that they are going to start carrying the iPhone, but that they're going to change their plans a little bit, get rid of a contract and instead have installment plans to pay for the phone at full price. ... We will see if it's enough for them to really get into the big leagues of Verizon and AT&T, and Sprint to a lesser extent, and move out of that fourth slot. But they are going to have some work ahead of them when this merger closes, at whatever price it eventually closes at.

Stipp: 1 million is the number of BlackBerry 10 devices that were sold. Jeremy, were you one of those purchasers?

Glaser: I wasn't. But this was actually a better result than maybe some had thought. This is a respectable launch. It's not a spectacular launch of a new device, but it shows that there was consumer interest for BlackBerry 10. That maybe some people were holding off on purchasing devices until they saw what the next generation was going to be.

Brian Colello, who covers BlackBerry for [Morningstar], thinks that when the new Q10 that has the keyboard on it comes out, there will probably be another wave of customers who really like that physical keyboard--that's hard to get elsewhere right now. And potentially that number will really tell us if BlackBerry will be able to survive as kind of this niche player, with a hard-core user base.

It's unlikely that they are going to reclaim the titan status that they may have had at one point, but that niche player could still be a very lucrative. That services revenue that they have, that recurring revenue, is very attractive. It's maybe a little bit too early to write BlackBerry off, but a lot of that good news is already price into the shares.

Stipp: 10.1 million is the number of Goldman shares that Berkshire is going to get. This is the evolution of a deal that happened during the financial crisis, where Buffet helped Goldman out in a big way. What's the rationale here, and is Berkshire going to hold on to those shares?

Glaser: This deal really goes back to the dark days of the financial crisis, when Goldman was desperately looking for some capital and didn't have many options of where to get it. And they turned to Warren Buffett, who said that in exchange for preferred shares with a really hefty dividend and also some warrants, he would lend them his name and credibility and also his money in order to get them through those really dark days.

And it worked. Goldman has obviously seen their business really improve substantially since then and seen their capital position look much better than it did at the height of the financial crisis. They redeemed these preferred shares, and now in a deal with Buffett, they are going to get rid of these warrants and instead replace them with a grant of shares to him. He will own about 2% of Goldman.

I think it's unlikely that he'll sell these anytime soon. Our [Berkshire] analyst Gregg Warren thinks that this will end up being one of [Berkshire's] core top holdings. If [Buffett] was [willing] to lend [Goldman] all that money in the financial crisis, he probably still likes the business today. He's not a man who changes his mind all that rapidly. So I think it seems pretty likely that he's going to hold on to this one, at least for the foreseeable future.

Stipp: $62 million is the size of the Nasdaq settlement in the wake of the Facebook IPO issues. As you remember there were plenty of those when Facebook came public. What is the implication of this deal? Is it going to be enough to appease shareholders that got burned?

Glaser: It probably won't be. The SEC has approved this initial settlement of $62 million, but a lot of those institutional clients who say they lost quite a bit of money on that first day of trading in Facebook, a very hectic day in May, say they are going to keep coming after Nasdaq for more, and the SEC basically said that this is just a down payment; they're not saying that there won't be other regulatory issues or there won't be other private lawsuits filed against Nasdaq.

And this is harmful to Nasdaq, not because the numbers are so unbelievably large compared to the size of the company, but this is what they do. When … companies are thinking of where they want to list their shares, they are thinking about IPOs and particularly high-profile ones, if this is in people's memory, they might be less likely to list with [Nasdaq]. There could be some reputational problems with the business. Gaston Ceron who covers Nasdaq for [Morningstar], thinks that's probably the biggest issue. They'll be able to overcome it eventually. It's not going to be a permanent stain on them, but it could take some time for them to totally shake this Facebook fiasco.

Stipp: Jeremy, five stats, five very interesting stories. Thanks for keeping us in the know.

Glaser: Thanks, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.

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