FE- First Energy

[Gregmal]

London Whale type one off, or doughnut?

 

 

No position as of now, but starting to get interesting.

 

EDIT bought a swing position at $25.7 moments ago.

[lnofeisone]

London Whale type one off, or doughnut?

 

 

No position as of now, but starting to get interesting.

 

EDIT bought a swing position at $25.7 moments ago.

 

I am tracking this one too. Looks like a bribe scandal to a unit they separated a while back. I was going to look more closely over the weekend. These types of white collar crimes rarely get huge fines (ok, maybe $100-500M is huge but not in the context of losing of $10B of market cap in the last 2 days).

[Gregmal]

Yup, governments dont kill businesses. The fines are manageable. Sometimes even tax deductible! I looked briefly, lept a little bit, and will also being doing more work here as on the surface this seems like a textbook case of headline overreaction on a pretty blue chip-ish company/business.

[Spekulatius]

I am looking at this. My read is that the presumed crime ( racketeering and bribery) dates back to 2016 ( pre split from FES) so FE would have to face criminal charges too if Larry starts to sing.

With criminal charges pending and likely to succeed, FE can’t really operate ( raise debt, pay dividends) so they are going to file for the holdco while the regulated subs continue to operate normally more or less.

 

I think the better comp is PCG 2018 or BP in 2010 rather than the JPM London Whale incident.

 

There is also the question if FE @27 ( currently) is cheap enough to compensate for above risk. They made ~$2.5/share before and ~$2.05 after pensions. That’s not cheap enough to compensate for lower future earnings ( taking back the nuclear and coal plants)  and the rail risk, imo.

[Gregmal]

https://seekingalpha.com/news/3594886-firstenergy-ceo-asserts-no-wrongdoing-in-pushing-for-nuke-subsidies

 

So here's "their" side to the situation, from an otherwise normal earnings call.

 

Its starting to get pretty clear that this is more bark than bite. Not a terribly interesting company to me otherwise, but these short term dislocations are always interesting and (usually) profitable..

[JRM]

It sounds like the nuclear plant subsidies hadn't actually kicked in yet, so there's likely no material damage other than bribery and graft.  Some people go to jail, possibly a minimal fine, but probably not for much because no customers were harmed...yet.

 

That leads to the next question; are they going to be shutting down the nuke plants?  Probably not a big deal, but instead of making money with the plants they will be spending money to decommission the plants.  Almost every company has an underfunded decommissioning fund.  30 years ago they thought $50 million was enough to turn a nuclear plant into greenfield. 

 

Although I guess technically First Energy Solutions owns the plants now, I would be shocked it FE got off the hook completely.

[3259]

https://www.morningstar.com/articles/996448/a-scandalous-and-undervalued-stock-pick