Via Yahoo
Margin and MRVC
by: wendytruth (37/F/New York, NY)
4/1/00
4:21 pm
Msg:
27760 of 27770
GO to this Bloomberg link. Remember that the steep decline in MRVC started the
Monday after Datek took MRVC off its list (along with 226 other stocks) of stocks that
could
be bought on margin.
This reiterates to me that the last three weeks has been nothing but short sellers and mm
players getting crushed.
Fundamentals HAVE NOT changed.
Happy reading.
bloomberg.com
d4
Technology News
Fri, 31 Mar 2000, 11:47pm EST
Palm, Cobalt Among `Non-Marginables'
Brokers Consider Too Hot to Handle
By Deborah Stern
Investors Can't Buy Palm, Other Hot Stocks on
Credit (Update1)
(Updating to add closing share prices.)
New York, March 31 (Bloomberg) -- Palm Inc. is
almost too hot
to handle at online brokerage DLJDirect.
Palm, maker of the top-selling Palm Pilot personal
organizer,
went public this month and promptly joined DLJ's
list of stocks --
319 and rising -- that the firm thinks are too risky
to be
purchased with borrowed money.
If customers want to buy these shares, they must
use their
own cash, not money borrowed from DLJDirect, a
unit of Donaldson,
Lufkin & Jenrette Inc.
Other brokers have worry lists too. Charles
Schwab Corp.
joins DLJDirect in considering Palm, VA Linux
Systems Inc. and
Cobalt Group Inc. too risky. DLJ's cash-only list
also includes K-
Tel International Inc. and Broadcom Corp.
Schwab's list includes
Ariba Inc., which makes software to handle online
orders.
Brokers are protecting themselves after a boom in
margin
trading, that is, buying on credit, that has
accompanied stocks'
decade-long rise. The swelling ranks of
``non-marginables,' as
brokers call these stocks, suggests Wall Street
firms see growing
risk in the market for Internet and technology
shares.
``You want to buy it, you put up all the money in
cash,'
says David Whitmore, a spokesman for Datek
Online Holdings Corp.,
an online brokerage that keeps its own list of
cash-only stocks.
Brokers have another list of stocks for which
investors must
keep more than the typical 35 percent cash as
collateral in their
accounts. Datek has some 227 shares on this list.
Schwab now
requires customers to keep 70 percent as
collateral for Yahoo!
Inc. and 80 percent for Priceline.com Inc.
By some measures, borrowing for stock
purchases is running at
its highest level since 1974, a situation Federal
Reserve Chairman
Alan Greenspan has warned may prove
dangerous for investors and
the firms lending to them. This week's 7.9 percent
plunge in the
Nasdaq Composite Index through Thursday
underscores the risk.
The amount borrowed from New York Stock
Exchange member firms
rose almost 9 percent in February to $265.2
billion. That is the
equivalent of 1.53 percent of the combined market
value of every
publicly traded company in America.
Off Limits
Given market swings like the one this week, online
brokerages
are cordoning off a growing number of stocks.
Two years ago, No. 1
online brokerage Schwab had earmarked just 25
stocks for cash-only
purchases; today, Schwab refuses to lend money
to customers buying
``hundreds' of stocks, says spokesman Dan
Hubbard, declining to
elaborate.
Online brokerages, whose appeal to individual
investors
helped fuel stocks' rally, have reason to rein in
margin trading.
If stocks decline, investors may be unable or
unwilling to repay
their margin loans. If that were to happen, the
brokerages would
be stuck with slumping stocks worth less than their
original loan.
``The brokers are saying, `We don't want to have
any credit
risk here, so we're going to force our clients to
take on that
risk,' said Courtney Smith, president of New York
money manager
Courtney Smith & Co.
Executives at online brokerages say they are
looking out for
their customers.
``DLJDirect is particularly concerned about margin
trading of
volatile and Internet-related stocks,' Chief
Executive Blake
Darcy says in a letter to investors posted on the
company's web
site. ``In this type of market, the potential for
overextending
yourself through these transactions is very high.'
Many executives concede, though, that they want
to protect
their own firms, too.
Says Datek's Whitmore: ``A lot of these stocks
are trading on
massive expectations.' He points to
MicroStrategy Inc., a maker
of data-delivery software whose stock plunged 56
percent this
month after the company said its 1998 and 1999
revenue was less
than it had originally reported.
``Those are moves that firms like ours don't like to
be in
the way of,' Whitmore says.
Roller Coaster
Many non-marginables have swung wildly of late.
This month,
Cobalt, which provides Internet services to the
car industry and
makes DLJ's list, rose 15 percent and then
tumbled almost 8
percent in the space of three days.
Palm, spun off by 3Com Corp. at $38 per share,
soared as high
as 165 on its first day of trading before closing at
95 1/16. It
closed today at 44 7/8. Back in December,
computer-maker VA Linux
soared as much as 967 percent when it began
trading; it has since
declined to 60 3/8.
``We want to ensure our customers maintain
sufficient equity
to cover the large swings in these securities,'
Schwab's Hubbard
says of the stocks on his firm's cash-only list.
The Federal Reserve doesn't let investors buy
any low-priced
``penny stocks' on margin. Under other Fed rules,
investors must
use their own money for at least half of their initial
stock
purchase through a particular firm. Brokerages
can, at their
discretion, raise that requirement.
Once investors make their first purchase, brokers
require
them to hold collateral in their account, typically
the equivalent
of about 35 percent of the value of their holdings.
This
``maintenance requirement' serves as a cushion
if the investment
goes sour.
Raising the Bar
Schwab keeps a list of higher maintenance
requirements for
about 270 stocks. Biotechnology Company
Immunex Corp. commands a
50 percent maintenance requirement. E*Trade
Group Inc. lists about
500 stocks that carry special margin
requirements, including some
that can only be bought for cash. Among them are
Medarex Inc., a
biotechnology company that fell as much as 29
percent last Monday.
At TD Waterhouse Group Inc., about 300 stocks
carry a 50
percent maintenance requirement. Among them:
Books-a-Million Inc.
and DoubleClick Inc.
Investors may thank brokerages for these tougher
requirements
if their stock winds up tumbling. But there's reason
for
brokerages to be careful too. As Datek's
Whitmore puts it: ``We
become potential part-owners of that security.' |
