Newspaper Bankruptcy Watch: Gannett Co.

The short-sellers are smelling blood at Gannett, which was No. 16 on the list of their favorite stocks (as of Feb. 25). More than 30 percent of oustanding shares were being shorted.

Shares of the nation’s largest newspaper chain fell below $3 today, meaning the company can be had for $666M. Driving the stock lower was  news that S&P had joined Moody’s in junking Gannett’s debt.

Revenues are plunging and Gannett is being squeezed for the cash it needs to pay the bank. At the end of 2008, Gannett had approximately $3.8 billion in long-term debt. The company had approximately $1.2 billion of additional borrowing capacity to repay debt maturing in 2009 and beyond.

All this debt financed the purchase of newspapers that are worth much less than the company paid for them. In 2008, Gannett took a goodwill charge (writedown of assets) of $8.3 billion (!), almost all of it in its publishing division.

Now I am become debt, the destroyer of newspapers.

Buffett on derivatives: "it's not just whom you sleep with…"

From the 2008 letter to shareholders:

Derivatives contracts, in contrast, often go unsettled for years, or even decades, with counterparties building up huge claims against each other. “Paper” assets and liabilities – often hard to quantify – become important parts of financial statements though these items will not be validated for many years. Additionally, a frightening web of mutual dependence develops among huge financial institutions. Receivables and payables by  the billions become concentrated in the hands of a few large dealers who are apt to be highly-leveraged in other ways as well. Participants seeking to dodge troubles face the same problem as someone seeking to avoid venereal disease: It’s not just whom you sleep with, but also whom they are sleeping with.

Sleeping around, to continue our metaphor, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits. In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required.

Foggo & Wilkes, Jerry Lewis & Tom DeLay

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Sharp-eyed reader Oskar points out a little nugget buried in the Foggo documents:

I was reading the Foggo appendix and found something pretty interesting. Om page 60, we learn that Wilkes and Foggo apparently dined with Lewis and DeLay(!). Of course, a dinner is just a dinner and doesn’t prove anything. But, still, it’s pretty interesting given Lewis’ claim that he had not seen Wilkes for 10 years or so…

This blog is lucky to have such astute readers.

The dinner for four at the Capital Grille that Oskar is referring to took place on Monday, May 16, 2005. Foggo, then the CIA’s executive director, and his old friend, defense contractor Brent Wilkes, had two impressive guests. The government’s appendix  states: “Assumes DeLay and Lewis also dined on the bill,” which came to $1,423. Wilkes, as always, picked up the tab.

Fast-forward to today. Wilkes has been sentenced to 12 years prison for bribing former Rep. Randy “Duke” Cunningham with cash and hookers. (He’s out on appeal) Foggo was sentenced to more than three years for illegally steering CIA contracts to Wilkes.

At the time, Reps. Jerry Lewis and Tom DeLay were two of the most powerful members of the House of Representatives. Lewis was chairman of the House Appropriations Committee and the House was set to take up its annual appropriations bills.  DeLay, of course, was the majority leader.

One year later, Lewis was apparently suffering from memory loss, according to this 2006 story in The New York Times:

In recent months, Mr. Lewis has said that he barely knew Mr. Wilkes and that he did not remember seeing him in nearly a decade. But Mr. Wilkes says their relationship was closer than that. (emphasis added)

Ever since they went on a scuba-diving trip together in 1993, he said, Mr. Lewis had referred to him as his “diving buddy.” They occasionally dined together or met at political functions, Mr. Wilkes said. At a Las Vegas fund-raiser in April 2005, Mr. Wilkes said, Mr. Lewis greeted him as “Brento” and hugged him as Mr. Wilkes surprised the lawmaker with $25,000 in campaign contributions.

As for DeLay, he had flown three times on a jet owned by one Wilkes’ company. Another Wilkes company gave $15,000 to TRMPAC, a political action committee DeLay founded to establish a Republican majority in the Texas legislature. (See my AP story here for more.)

Wilkes and Foggo were regulars at the Capital Grille and shared a well-stocked wine locker there. In 2005, documents show the two old high school buddies dined together at the pricey D.C. steakhouse about once a month.

Porter Goss on Foggo and the CIA

ProPublica’s Marcus Stern has unearthed a trove of documents filed in the case against Kyle “Dusty” Foggo.

For those of you who don’t know, Foggo is the former No.3 man at the CIA who has pleaded guilty and is scheduled to be sentenced Thursday for steering agency contracts to his childhood friend, Brent Wilkes.

Reading the documents about this lothario of a man with a nasty temper, I came away with the same impression as one of Foggo’s former bosses at the spy agency who stated that he was “flabbergasted” when then-CIA director Porter Goss tapped Foggo in November 2004 as his executive director.

“I found Director Goss’s selection to be quite revealing, that Mr. Goss would be taken in by a ‘con man’ like Mr. Foggo,” wrote agency veteran described only as John Doe No. 2, who was Foggo’s supervisor at an overseas CIA station in 1989, when local police filed a diplomatic protest against  Dusty for assaulting a bicyclist.

So how did Foggo come to be selected as Goss’ No. 3? Goss refused to comment when I called him while reporting my book, but the question has always nagged at me.

Porter Goss answers those questions for the first time in a sworn declaration filed in an appendix to the memorandum, which you can read here.

Goss says Foggo’s name was suggested by members of his senior staff. Although Goss doesn’t say this, I’ve heard that Foggo was recommended by Patrick Murray. Murray was chief counsel on the House Permanent Select Committee on Intelligence, which Goss chaired, and he served as chief of staff at the spy agency during Goss’ stormy tenure there.

Goss says he directly asked Foggo whether there was anything he needed to know that would “reflect poorly” on the Director’s office or the CIA.  Foggo denied there was. Had he known what Foggo was up to with Wilkes, Goss says he would have fired him on the spot.

When press reports linked his executive director to Brent Wilkes, “I learned from my public relations staff that Foggo had been less than candid.” Ultimately he lost confidence in Foggo and asked him to resign. In May 2006, less than two years after he was sworn in as CIA director, the White House fired Goss and replaced him with Gen. Michael Hayden.

“I felt deceived and betrayed by Mr. Foggo,” Goss concludes.

A source tells Laura Rozen that Goss is lying, but I’m taking Goss at his word. He’s out of public life now, and I don’t think he would expose himself to perjury charges. At any rate, it’s more than apparent that he was absolutely the wrong man for the job of CIA director.

How out of the loop was Goss if it fell to public affairs to inform him of the problems with Foggo? As  the documents make clear, were already well known to his supervisors and were included in his agency file.

Foggo was not the only staff member who was unworthy of Goss’ trust. Equally suspect was Goss’ choice of Murray and the other “Gosslings” he brought over from Capitol Hill. As Ken Silverstein noted back in 2006, the Gosslings arrived at Langley with a “lengthy list of names of people to be purged and went about removing them.” One was Stephen Kappes, who eventually returned to the agency and is now serving as deputy director under President Obama.

A man who can’t tell the difference between the Foggos and the Kappeses shouldn’t be in charge of the Central Intelligence Agency. Period.

Update from CQ’s Jeff Klein:

Kyle “Dusty” Foggo’s CIA dossier included allegations that he was sharing a woman with a suspected Russian mole, according to a top former spy agency official and other sources.

CIA Director Porter J. Goss knew about the allegation when he hired Foggo to be the agency’s executive director, its third highest official, an aide said today.

But Merrell Moorhead, an aide to Goss at the CIA from 2004 to 2006, said CIA security officials later withdrew that and other serious allegations about Foggo’s record and “gave him a clean bill of health.”

Second Update: Klein updated his post to quote Moorhead as saying that Bassett “recommended” Foggo. Laura Rozen agrees. Ken Silverstein has reported that Bassett “positioned” Foggo for the job of executive director.

I’m not convinced. Bassett was a consultant to the agency. Maybe that makes him part of the “senior staff” Goss alludes to in his statement. I’m not so sure.

It seems there are still some hard feelings over Foggo and the blame game goes on.

The Citigroup "Death Star"

From the WSJ:

Former federal officials have dubbed Citigroup the “Death Star,” comparing the bank’s threat to the financial system with the planet-destroying super weapon in the “Star Wars” movies. Privately, in the words of one official, they regard the banking giant as “unmanageable.”