Contrarians May Rise to Top as Markets Struggle
- Mar 17, 2008
Between the Federal Reserve’s efforts to bolster market liquidity, the President’s acknowledgement that the economy is in the midst of “challenging times” and the acquisition by JPMorgan Chase & Co. of The Bear Stearns Cos. on the cheap, the recent news out of the business world has been bleak. However, if you’re a contrarian, like Houston’s Oxford Funding Corp., then all those things may be good news. On Sunday, the Federal Reserve Board authorized the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. The Fed also approved decreasing the primary credit rate from 3.5 percent to 3.25 percent, effective immediately. “We’re expecting the Fed to continue its aggressive program to ease the economic slowdown,” Robert Dunn, president of Oxford Funding said in a prepared statement. “The government is sending very clear signals that it intends to keep the credit markets stable and the economy functioning. That’s good for Oxford Funding. OXFD is the contrarian stock investment in the mortgage industry.” “Companies like Citigroup, Freddie Mac, Fannie Mae and Fidelity National have all seen their stock prices fall from the $50’s and $60s to the $20’s and $30’s in the last year on news on millions in write downs. Oxford Funding is proving that we are on the right side of the equation with profits and strong annualized returns,” Dunn said. The Fed said the lending facility will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York. The JP Morgan Chase and Bear Stearns transaction will be a stock-for-stock exchange. JPMorgan Chase will exchange 0.05473 shares of its own common stock per one share of Bear Stearns stock. Based on the closing price of March 14, the transaction would have a value of approximately $2 per share. Effective immediately, JPMorgan Chase is guaranteeing the trading obligations of Bear Stearns and its subsidiaries and is providing management oversight for its operations. In addition to the financing the Federal Reserve ordinarily provides through its discount window, the Fed will provide special financing in connection with this transaction. The Fed has agreed to fund up to $30 billion of Bear Stearns’ less liquid assets. “We obviously will continue to monitor the situation and, when need be, will act decisively, in a way that continues to bring order to the financial markets,” President George W. Bush said today. “In the long run, our economy is going to be fine. Right now we’re dealing with a difficult situation.” Oxford Funding Corp. is a publicly traded asset resolution company specializing in the purchase and management of bulk mortgage loan portfolios. Senior management at Oxford has facilitated rehabilitated loan sales in excess of $1 billion.