Best Wall St. Stocks Today: AMR,NWA,DAL,UAUA

In all industries staying out of Chapter 11 is a badge of honor. The sole exception to that is the airline business where bankruptcy is embedded in the culture like ticks are on the hide of a deer.
One of the few large US airlines which stayed out of a significant financial mess over the last decade is AMR (NYSE: AMR), the parent of American Airlines. In the most perverse sort of way, a Chapter 11 filing four or five years ago might have spared AMR from its current perilous state.
One advantage that Northwest (NYSE: NWA), Delta (NYSE: DAL), and United (NASDAQ: UAUA) have in the present difficult economic environment is that they used their trips through the Chapter 11 process to tear away debt as well as employees which they deemed to be redundant. By several accounts, NWA has saved over $2 billion a year because it went through bankruptcy.
All of the large US airlines are at great financial risk now. Ditto for many of their overseas brethren like Alitalia. Fuel costs are up sharply and passenger revenue and revenue miles are likely to fall as the economy keeps people off commercial carriers The very rich can continue to operate their own fleets of private jets.
The present financial trouble does not strike each large US airline equally. Largely because of an advantage of Chapter 11, NWA has $6 billion in debt to its $3 billion in cash. At AMR, long-term debt totals $15.6 billion compared to its $4.6 billion in cash. Last year, AMR’s EBITDA was only about two times it interest expenses. By paying all of its bills, AMR has been placed at a great disadvantage.
AMR had very modest operating income of $965 million last year compared to its $22.9 billion in revenue. The market has figured out the problem. While shares in other national carriers are off about 50% in the last six months, AMR is off 60%. That is a significant negative premium, a vote saying AMR is in a different bucket than its competitors are.
Aloha Air, ATA, ! and SkyB us all went out of business in the last two weeks. Several carriers reported falling traffic for March. At AMR, domestic traffic fell 5.9% for the month.
At some point soon, the dropping revenue effect and rising expenses cross where interest payments matter.
That will be soon at AMR and it puts the company at great peril.
Douglas A. McIntyre

Cash for Keys: Avoid Foreclosure, Pay the Bank Less Than What You Owe… and Get $30,000

U.S. banks have a deal for underwater homeowners: Avoid foreclosure by selling your house for less than what you owe... and they'll pay you $30,000 or more to close the deal.

It's called Cash for Keys, and it's working.

Banks typically hate short sales because they lose money. The alternative, however, is even more costly and time-consuming. It can take thousands of dollars to evict homeowners and years to get through the backlog of paperwork.

Now regulatory investigations could lengthen the foreclosure process even more. Banks have been blamed for robo-signing - approving foreclosure papers without reviewing them - and using faulty documents to seize homes.

So instead of blocking short sales, like they have done in the past, lenders are now encouraging them. Banks don't want to keep these assets on the books, and they're willing to pay to speed up the process.

"You could sell your home, owe nothing more on your mortgage and get $30,000," JPMorgan Chase & Co. (NYSE: JPM) wrote in a letter to an underwater homeowner obtained by Bloomberg News.

Banks Prefer Cash for Keys to Costly Foreclosures

Bloomberg said California homeowner Karen Farley struck a deal with JPMorgan in which she received $30,000 for selling her home for $200,000 less than what she owed.

"I wondered, why would they offer me something, and why wouldn't they just give me the boot?" Farley, 65, told Bloomberg. "Instead, I'm getting money."

U.S. government regulators encouraged the Cash for Keys program in a private meeting with banks in March 2011 to speed up the U.S. housing market recovery.

Banks now encourage short sales by pre-approving deals, simplifying the closing process, and forfeiting their right to purse unpaid debt - in addition ! to payi ng the seller thousands of dollars.

"My guess is they want to get rid of bad loans," Trent Chapman, a realtor who trains brokers and attorneys to negotiate short sales with banks, told Bloomberg. "If they short sale these types of loans, they have less of a headache and have some goodwill with the homeowner."

Lenders ultimately lose about 15% less in short sales than they do on foreclosures, which incur years of taxes and legal costs. Short sales in the United States average about four months to close, according to Bloomberg.

Incentives Boost Short Sales

The incentives are working. Short sale deals accounted for 33% of related transactions in November 2011, up from 24% a year before, according to CoreLogic Inc. (NYSE: CLGX).

JPMorgan is known for the biggest short-sale incentive payout, but according to real estate agents other banks have followed suit.

Wells Fargo & Co. (NYSE: WFC) offers as much as $20,000 in relocation expenses for short sellers. Bank of America Corp. (NYSE: BAC) tried a short sale pilot program with 20,000 Florida homeowners, offering up to $20,000 or 5% of the unpaid loan balance.

Citigroup Inc. (NYSE: C) offers about $3,000, but the amount varies depending on each case.

Banks also fork over thousands of dollars to second-lien owners, who can block short sales because the deal wipes out their loans.

A continued increase in short sale transactions could help the U.S. housing market rebound faster than if all those homes went into foreclosure. There are currently more than 14 million U.S. homeowners with homes in foreclosure, who are behind on mortgages, or who owe more than what their properties are worth, according to RealtyTrac.

Those homes will continue to weigh on home prices and keep them low for years. U.S. home prices showed another decline for November 2011, its third straight mon! thly los s, as the U.S. housing market trends toward a bottom this year.

In addition to banks' Cash for Keys incentives, homeowners also can benefit from the U.S. government's Home Affordable Foreclosure Alternatives program. Started in 2010, it offers up to $3,000 for homeowners who choose short sales.

News and Related Story Links:

• Money Morning: Case-Shiller Home Price Index: U.S. Housing Market Nearing Bottom in 2012
• Money Morning: Romney Avoids Nevada's Housing Market Problems with a Tactic That Could Work – for Now
• Bloomberg News: Banks Paying Cash to Homeowners to Avoid Foreclosures
• The Financial Times:
  US banks in ‘cash for keys’ foreclosure talks