Zacks Analyst Blog Highlights: Goldman Sachs, JPMorgan, MBIA, Berkshire Hathaway and Dollar Financial

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Jan 12, 2011, 09:30 ET

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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