Washington Mutual (NYSE:WM) shares fell again today after the company announced new measures aimed at curbing subprime and credit losses while preserving liquidity. The measures include widespread job cuts, a dividend cut, and more preferred shares to raise capital. Many are now questioning whether the company will be able to pull itself out of the mess with Banc of America Securities cutting its rating to "sell" with a $13 target.

WaMu announced that it would be cutting 3,000 jobs to cut its costs and issue $2.9 billion in convertible preferred stock to boost its capital. Meanwhile, shareholders will only be receiving 15 cents instead of 56 cents per share in dividends as the company works to set aside an additional $1.6 billion to cover loan losses in the fourth quarter. And with no end to the subprime and credit mess in sight, there is no saying whether or not there will be additional writedowns.

Many analysts have suggested that WaMu could lose as much as $2.54 per share in the fourth quarter of this year and $1.01 per share in 2008. Meanwhile, options in the company continue to trade at record volatility as shares come close to hitting their eleven-year lows. The company is hoping that the lack of liquidity in the credit markets will resolve itself soon as there is limited funding to go around to the various banks looking to raise loss provisions.

So, when will this problem end? Well, subprime and credit market concerns are only growing after many are concerned that coordinated efforts by central banks in North America and Europe to relieve the gridlock in the credit markets will fail. This lack of confidence stemmed from record borrowing costs in euros, signaling that the plan by the Federal Reserve and European central banks to inject funds into the financial system wasn't lowering borrowing costs and boosting lending. This is a problem...

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Yum Brands (NYSE:YUM) announced that it would be following McDonald's lead by instituting a broad turnaround effort aimed at improving its margins and sending more money to its bottom line. Shareholders are hoping that the new measures can help keep up the company's historical growth rate, which has returned an impressive 30 percent since 2006. But will the strategy work?

Chief executive David Novak told a group of investors and analysts Wednesday that the restaurant chain would introduce new products, including beverages and breakfast meals, expand its value menus and offer healthier options at all three of its major US brands - KFC, Taco Bell and Pizza Hut. The initiative mirrors that of McDonald's, which experienced great success introducing healthier options, better food and more beverage choices.

Yum Brands also wants to increase its franchise locations by reducing its ownership of restaurants to below 10 percent by 2010. That would represent a substantial drop from the approximately 20 percent that it owns today. The company, like many others, has found that franchise locations have higher margins that owned operations. Combined, the company believes that all of these efforts could generate EPS growth of at least 10 percent in 2008.

"We know this works," said Novak during a meeting with a group of investors. "We're going to build a business we're proud of. We can do a lot better. Frankly, we're mad as hell that we haven't done better."

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The Blackstone Group (NYSE:BX) announced this morning that it has closed the Blackstone Credit Liquidity Partners to new investments after securing more than $1.3 billion in capital. The vulture fund was created to capitalize on the recent dislocations in the credit markets by investing in a broad range of debt and debt-related securities. The move comes amid the mortgage and credit crisis that has crippled the economy of the past few months.

Blackstone said it was considering the purchase of various distressed securities, including bank debt, publicly traded debt securities, bridge financings, securities issued by CDOs and other debt instruments on a global basis. Blackstone has announced plans to do this before and they aren't the only ones - Chimera Investment (NYSE:CIM) also announced its vulture REIT last month, which aims to take advantage of the same opportunities.

Many hedge funds and private equity firms that are well capitalized can take advantage of the situation because they don't have to worry about illiquidity in the short-term. Many of the securities they are purchasing for pennies on the dollar are worth close to face value; however, the firms holding them are losing value so quickly that they cannot afford to own them. As a result, there is a fire sale and many opportunities.

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PDL BioPharma (NDAQ:PDLI) just can't seem to distance itself from the activist crowd. The pharmaceutical company already bent to shareholder pressures earlier this year when it forced its chief executive out of office and agreed to pursue a sale of the company. Now, activists are complaining that the company's financial advisor isn't suited for the job.

Highland Capital Management disclosed a 7 percent stake in the company today and disclosed a letter to the board recommending that the company engage a new financial advisor with substantial experience and competence to maximize the value of the company's pharmaceutical royalties.

"The recent sell down by your most vocal shareholder should not invite the Board of Directors to ignore its fiduciary duty to the company's owners," said Highland, referring to Daniel Loeb's Third Point, which recently sold its entire stake in the company.

Highland believes that Merrill Lynch - the company's current advisor - is not well qualified for the job. The firm said the investment banking firm appears incapable or unwilling to market the royalty stream to all appropriate buyers, which they believe will impair the value of the asset. Highland also provided a list of other firms that should be contacted - including themselves, of course.

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MBIA Inc. (NYSE:MBI) is one of the most popular short sales during the current mortgage crisis, but that may be changing after the company received a $1 billion capital injection from buyout firm Warburg Pincus. The bond insurer is expected to take losses of between $1.97 billion and $3.2 billion from its exposure to home equity lines of credit and second lien loans, while losses from all mortgage-related securities could approach $2.3 billion to $4.2 billion.

Bullish investors were encouraged that an outside party had the chance to comb through the company's books and was willing to make a large common equity investment. However, bearish investors argue that the deal was sweetened with warrants and may not be all that it seems. Moreover, the current numbers may make sense in today's market, but further losses could easily develop as an increasing number of ARM resets hit the market.

The late January reporting period is expected to be an especially rough time period for the company as the sheer size of likely write-downs may surprise the market yet again. This will likely result in spreads widening again a little before any progress is made reining in losses. The company is also likely to pursue additional capital in order to ensure liquidity, which may end up diluting shares at some point.

In the end, the capital injection that took place this week definitely helped MBIA, it is not an end-all solution. The company still faces an uphill battle as an increasing number of ARM resets take place and the credit spreads continue to widen ahead of these steeper losses. Regardless, MBI is definitely a stock worth watching!

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Wachovia Corporation (NYSE:WB) announced today that it would be doubling its expected loan loss provision for the fourth quarter to $1 billion in additional write downs, up from previous estimates of $500 million to $600 million. Difficulties in the California and Florida mortgage markets have caused widespread devaluation in mortgage-backed securities over the past two months.

Bank of America Corporation (NYSE:BAC) also announced an increase in their loan loss provisions, which are now expected to exceed the $3 billion it previously projected. The bank stated that one third of the increase is due to growth and seasoning in their consumer lending portfolios with the remaining two thirds due to deterioration principally in consumer real estate and in some small business.

The mortgage market itself continues to face sharp losses ahead of million of ARM mortgage resets. A fraction of these resets were eliminated due to new government regulations that enable consumers to keep the same introductory interest rates. However, near-prime and prime loans facing similar resets are also likely to have borrowers that will have trouble repaying their loans.

Both banks refused to forecast quarterly earnings, but it is easy to assume that results will again by quite disappointing for both banks. Meanwhile, the final write downs remain uncertain for both banks, but at least Bank of America plans to remain profitable in the fourth quarter. Combined, these factors make BAC and WB stocks worth watching!

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Sharper Image Corporation (NDAQ:SHRP) shares dropped after the company posted wider losses for the third quarter, hurt by a 35 percent drop in sales. The specialty retailer reported a net loss of $1.50 per share compared to analyst estimates of a $1.31 per share loss on sales that actually beat Wall Street expectations of $67.4 million. Shareholders are hoping that one new development, however, will change the trend.

The Clinton Group caught shareholder attention when they disclosed an increased stake, from 157,000 shares to 1.09 million shares, and now controls approximately 7.2% of Sharper Image. The activist hedge fund did not make any specific comments regarding their intentions, but many shareholders are anticipating some kind of action in the near future given the hedge fund's reputation on Wall Street.

Sharper Image still faces an uphill battle, however, with the stock being down 64% so far this year and 82% during the last five years. Moreover, with 31% of its shares shorted, there is a lot of interest in keeping the stock down. However, any significant changes could also force a short squeeze and jump shares of the company in the short-term. Combined, these factors make SHRP a stock worth watching!

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Cadbury Schweppes (NYSE:CSG) shares moved up this week after activist investor Nelson Peltz reported raised his stake in the company from 3.47% to 4.5%, according to a report put out by the company. No official confirmation could be made because Peltz owns less than 5% of the company and is not required to report to the SEC. The move comes amid a split-up that is just now showing signs of success with the company raising its full-year guidance.

Cadbury announced that it would be beating its growth goal of four to six percent; however, analysts were quick to point out that the gains come against a relatively weak quarter last year. Moreover, there are concerns that the company's revenues will be hurt by the currency exchange rate. Remember, the dollar continues to extremely low compared to the euro, which is hurting exports in many European firms.

Cadbury's Americas Beverages unit, which is being spun off, also reported modest year-over-year progress in underlying operating proft. The future of this unit was recently sealed after the firm came under pressure from billionaire investor Nelson Peltz to separate the candy and beverages arms. This split up should unlock substantial value for investors who have dealt with a stagnant share price for some time now.

In the end, this will likely be a great move for the troubled Cadbury, but many feel that it is already reflected in the share price. Investors were encouraged with Peltz increased his holdings, but the stock has since returned to previous levels. Regardless, this is definitely a stock worth watching!

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Royal Philips Electronics (NYSE:PHG) shares jumped today after two activist hedge funds teamed up to confront the company over its results and capital structure. Jana Partners and D.E. Shaw Group announced today that they plan to act together to jointly communicate their views regarding the electronic-maker’s operating performance and capital structure. Shareholders applauded the move as shares rose over four percent on the day.

The move comes after CEO Gerard Kleisterlee sold most of the company’s semiconductor assets and reduced the company’s stake in a flat-panel display venture to focus on medical scanners, appliances and lighting. These actions have provided Philips with around $30 billion in spare cash for purchases, buybacks and dividends over the next three years. Obviously, this has led to speculation that the activists are intent on unlocking this value and distributing the cash to shareholders. However, they may face some problems as Philips has been rather intent on what it plans to do with its cash pile.

The two hedge funds do have a strong track record of success, however, with successes in breaking up or selling ABN Amro – which became the largest bank sale in history after 183 years of independence. In the end, the hedge funds are targeting the cash position while the company likely wants more time to build out its plan. However, given the stagnant shares recently, a success on the part of the hedge funds may be in the cards. Combined, these factors make PHG a stock worth watching!

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Pershing Square Capital Management, the $6 billion activist hedge fund, is reportedly considering a public offering for one of its funds during the next couple of years. Bill Ackman, the famous man behind the fund, said that tapping public markets for funds would give it capacity to make larger investments and have more influence in its activist shareholder campaigns.

The move would follow that of several other hedge funds and private equity firms that have recently gone public. Fortress Investment Group (FIG) and Och-Ziff Capital Management (OZM) are the two most recent such hedge funds that have listed on the New York Stock Exchange; however, shares in both firms have declined since their IPO casting doubt on the viability of public hedge funds.

"The natural evolution at some point is that I believe our fund will be publicly traded," said Ackman, speaking at a New York conference on Wednesday. "It would give us more staying power and credibility with management. If we had permanent capital I think it would be good for investors and good for us."

Many investors have been watching Ackman’s Pershing Square since its successes in McDonalds (MCD) and Ceridian Corp. (CEN) where it won activist campaigns to unlock shareholder value. The famed activist acquired shares in McDonalds at around $28 only to have them rise to their current level around $60 while it has already raked in healthy gains in Ceridian at the same time. Investors are currently watching his long position in Target Corp. (TGT) and his short positions in MBIA Inc. (MBI) and Ambac Financial Group (ABK).

In the end, Bill Ackman is a very successful investor that definitely knows what he is doing. It will be interesting to see if any of his funds end up going public as they could represent great opportunities for investors to latch on to his great success much more easily than following SEC filings. Combined, these factors make Pershing Square a hedge fund worth watching!

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