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Bove Says Sell Bank Stocks – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 19:46:36 +0000

Dick Bove, vice president of equity research at Rochdale Research, thinks the banking industry is an attractive long-term investment, but for now he believes bank stocks are running on fumes and recommends investors take short-term profits.”The issue as I see it is that bank earnings will not improve in the third or even fourth quarter this year,” Bove said. “Many of these companies will show losses. The rational investor would step away from psychology at this point and take some profits. I suggest this even though I am not changing the long-term buy ratings on my favorite stocks.” In May, Bove said that the combination of more traditional banking operations with the economic recovery will lead to explosive earnings growth and unusually strong stock price performance. The banking industry, as measured by the SPDR KBW Bank
exchange-traded fund, fell 3.8%, in afternoon trading on Tuesday, while the broader-based Financial Select Sector SPDR
ETF slid 3.0%. Regional banks were especially hurt Tuesday, as the SPDR KBW Regional Banking
ETF fell 5.0%. Individual companies like Citigroup
fell 5.8%, while Bank of America
dropped 3.9%”Psychology toward the banking group had moved dramatically along with earnings,” Bove said. “Each shift in psychology carried with it change in how investors believed they should value banks.” Currently, the recent rise in the stocks does not appear to be driven by a change in the near-term earnings outlook, Bove asserted, but instead has been driven by a change in expectations: “Thus, it is our belief that these stocks are trading on fumes and not reality,” Bove said.
Though financials still make a good long-term investment, they’re probably not, if Roche is right, the place to keep money that will be needed soon. Now’s a good time for investors who don’t have three to five years to wait to take profits off the table.

Profit Potential – US-FOREX.US

Forex-Publisher — Tue, 11 Aug 2009 16:46:18 +0000

A surge in earnings among S&P 500 companies may keep the stock rally going into the fall. That’s what economist Steven Wieting of Citigroup believes could happen as industrial companies ramp up production to meet a rebound in demand. The S&P 500 is up 15% in the last four weeks and nearly 50% from its March low point. Much of that increase has come from a stabilization in the credit markets following the financial crisis, writes Wieting. Earnings season and accompanying data on unemployment and economic growth have also led many investors to conclude the worst of the recession is in the past. That still leaves most of them wondering how long a recovery will take and how fast corporations can get back to selling, and earning, what they were before the financial crisis.For the largest U.S. firms, says Wieting, a recovery in profits is now likely to come this year or next, rather than dragging on as some have speculated. He recently raised his estimates of what the S&P 500 companies will earn this year to 60 a share from 56. Next year they should turn a per-share profit of 68, up from his prior forecast of 62. Certain industries, like energy and information technology, could see even faster growth.Behind the rebound Wieting sees an industrial economy that cut too far, too fast, as the credit crisis turned into an all-out global recession. “Production declines were far more profound than the consumer downturn,” he says. So while demand for goods was coming back last quarter, production rates and capital expenditures were plummeting. In other words, companies were making fewer widgets than they were selling. Wieting points to the auto industry as an example. At the end of June, U.S. car companies were making one new car for every two being sold as managers slashed production ahead of falling sales. Now that GM and Chrysler have declared bankruptcy and moved to reorganizing, companies are planning to boost vehicle manufacturing by half this quarter. That will still leave them making fewer cars than are being sold, Wieting predicts.So how should investors react? Wieting notes that economic conditions are still dire in many ways. Unemployment is high, sales are way down and the financial system could still relapse into a volatile mess. Wieting thinks profits are coming back soon, and so he’s lowered the index’s earnings growth rate over the next four years to 10% from 12%.
The markets will likely get more clues on the economy’s direction when the Federal Reserve ends its two-day policy meeting on Wednesday. Don’t expect a change in interest rates, but investors will be interested to know if the Fed’s economists share Wieting’s views on a quick profit rebound.
Thomson Reuters contributed to this report.

Friends Forever – US-FOREX.US

Forex-Publisher — Mon, 10 Aug 2009 11:46:23 +0000

Like they say, fourth time’s a charm. The British investment firm Resolution has made another attempt to bid for the money-losing insurer Friends Provident, and this time a deal just might happen. The new terms stipulate that investors in Friends could receive 0.9 Resolution shares for each of their own; alternatively, the insurer’s 750,000 retail investors, who own 20% of the firm, could get up to 500 million pounds in cash. The bid represents a 13.3% premium to Friends’ closing price on Friday in London and values Friends at 1.9 billion pounds based on the price of Resolution’s shares on Monday morning. It is likely that the two sides want to reach an agreement before Friends announces its interim results on Tuesday. Shares of Friends Provident
, which was founded in 1832 and demutualized in 2001, shot up by 7.7%, or 5.4 pence to 75.5 pence on Monday morning in London. With the stock hovering just under the bid price, it appears that investors are not holding out for a higher offer. Resolution floated on the stock market last December and raised 660 million pounds to be spent on vacuuming up undervalued insurance and asset management firms in the United Kingdom. Its speciality is “zombie” insurance funds that no longer accept new business. The company, founded by insurance tycoon Clive Cowdery and domiciled in the British tax haven of Guernsey, intends to raise 3-5 billion pounds over an 18 month period for more acquisitions. Its biggest shareholder, with just under 9% of equity, is Scottish Widows, a subsidary of Lloyds Banking Group
, and the rest are other institutional investors like Aviva and Standard Life.
A source close to the situation said Friends Provident was at the “smaller end of the spectrum” for deals, and that Resolution could buy three or four more firms, including privately-owned assets and subsidiaries of banks. Resolution has been in talks with a number of vendors of insurance assets but Friends is the first one to go into the public domain because it is a listed company. One rumored acquisition target for Resolution is a division of Lloyds, possibly asset management.Barrie Cornes, a banking analyst at Panmure Gordon who has a “buy” rating on Friends Provident, calculates the insurer’s underlying embedded value at 108 pence a share, suggesting Resolution is acquiring the company at a 25% discount. Friends and Resolution had come close to a merger in 2007, but the deal collapsed when an earlier incarnation of the firm, Resolution Plc was itself taken over in November 2007 by insurance rival Pearl Assurance, for 5 billion pounds . But Cowdery later formed Resolution Ltd.andJuly 2009 saw it and Friends go back in forth with bids and counter bids, first with Resolution offering 0.8 of its shares for every Friends share, then Friends making a counter-bid, then Resolution trying again with 0.82 of its shares. All three offers were rejected. Now the board of Friends has said it believes the revised proposal has been “sufficiently improved” to justify talking with Resolution again. Friends has been losing money for the last two years, and posted an annual loss of 489 million pounds for fiscal 2008. But the total value of its assets has stayed fairly resilient, slipping by just 1% to 56.4 million pounds in 2008. Also, the company’s chief executive and chief financial officer, Trevor Matthews and Evelyn Bourke, are well-regarded by the market. Having both been in their respective positions for less than a year, Panmure’s Cornes thinks it unlikely that Resolution will push them out.

Stock Rally Boosts Insurers Earnings – US-FOREX.US

Forex-Publisher — Fri, 07 Aug 2009 19:46:14 +0000

Few industries benefit from rising stock and bond markets like insurance. Firms take in premiums from customers and pay most of that out as claims eventually. But until your home burns down, or your car gets sideswiped, the insurance company invests that money to earn a profit and most of it goes into stocks and bonds. So it’s no surprise that with the S&P 500 up nearly 50% since its March low, and an accompanying rally in corporate bonds, the insurance industry is posting better results at a time when many companies are struggling to hang on to customers.Overall, non-life insurance companies have surprised Wall Street with robust earnings in the second quarter, writes Jay Gelb, analyst with Barclays Capital. These firms, and the brokers that distribute their policies, have seen earnings fall only 3% from last year, on average. Thanks largely to the stock market rally, insurance firms added 11% to their net worths in the last quarter, a huge boost from the first quarter’s 3% increase. On top of that, recent losses turned out to be well below what many firms had anticipated, allowing them to take back money they had set aside for reserves, writes Gelb.Insurance firms aren’t out of the woods yet though. Prices had risen following the financial crisis as customers sought insurance to limit their risks. Once the worst of the crisis passed, prices began falling and although they’ve recently stabilized, Gelb says they could well resume their declines. He likens the situation to the pricing for catastrophe insurance after Hurricane Katrina, when premiums shot up only to fall back down once people realized the likelihood of another Katrina happening soon was remote.Investors seem to be aware of what lies ahead. Despite the sunny second-quarter numbers, Gelb notes the group trades for less than its recently-inflated net worth. He recommends shares of commercial insurers Travelers Companies
, ACE Limited
, PartnerRe
and Arch Capital Group
. Among insurers that cover individuals, he likes The Hanover Insurance Group
. Among brokers, Gelb thinks investors could mostly do better elsewhere. He recommends selling Willis Group Holdings
, Arthur J. Gallagher & Co.
and Brown & Brown
.

Blackstone Back In Black – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 22:46:17 +0000

Wall Street analysts expect the Blackstone Group’s second-quarter earnings to reach 9 cents per share, but investors are hoping for something more from billionaireSteve Schwarzman’s publicly-traded private-equity firm.Investors appear to be confident about the Blackstone Group
‘s quarterly report due Thursday. On Wednesday its stock rose 15.7%, a gain that followed Monday’s increase of 21.1%. William Lefkowitz, an options strategist at vFinance Investments, speculated Monday’s jump was fueled by a number of factors, including technical factors, and hopes for better-than-expected results. Since January Blackstone’s market value has risen 129.1%. Its peers like Fortress Investment Group
and Och-Ziff Capital Management
have also made extreeme turnarounds. The Financial Select Sector SPDR
exchange-traded fund meanwhile has only risen 12.5%.Even meeting Wall Street expectations would mark first time the company has mustered a quarterly profit in a year. Blackstone’s initial public offering in June of 2007 is widely seen as the pinnacle-and the beginning of the end-of the leveraged buyout boom. Despite this week’s surges, Blackstone’s stock is still less than half of the 31 it Blackstone went public at.In February, Blackstone said it will not pay out a quarterly dividend to investors. The announcement came after it posted a deeper-than-expected fourth-quarter loss as the credit crisis squeezed the value of its investments.
Thomson Reuters contributed to this article

MBIAs Split – US-FOREX.US

Forex-Publisher — Wed, 05 Aug 2009 22:46:13 +0000

The housing industry appears to be working its way back to health, and investors will find out Thursday if the same can be said for bond insurer MBIA.Wall Street expects MBIA
to report a loss of 92 cents per share on Thursday. MBIA’s report will be followed Friday by fellow bond insurer Ambac Financial
which is expected to record a loss of 1.04. During the hay-day of the 2000s, MBIA’s stock traded around the high 50s and low 60s. All that changed in the fall of 2007 when the walls came tumbling down, leaving MBIA and other bond insurers like Ambac struggling to maintain their investment-grade rating. They weren’t successful, which was a major blow as the purpose of bond insurance is to enable municipalities with lower credit ratings to ride on the higher rating of the insurer, thereby lowering their borrowing costs.The industry owes much of its problems to the ill-fated ploy to boost profits earlier this decade when it diversified into backing mortgage-backed securities, from the relatively safe but lower-margin business of guaranteeing municipal bond payments. Municipal bonds rarely default, whereas over-extended homeowners often do.By February of 2009, the company opted to split itself into two parts, with one focusing on international and structured finance, while the other covers public finance. ;”>”MBIA Splitting Itself Up.” and “Can MBIA Save its Bond Business?”) Since the beginning of the year MBIA’s stock has mounted something of a comeback, rising 31.5% to 5.35. In contrast, its chief rival Ambac Financial has faltered 10.8% since January. The industry is still experiencing problems, and the past week was particularly tumultuous. Last week Standard and Poor’s cut its rating on Ambac and its insurance arm to a very speculative level. The rating cut was quickly followed by Moody’s which said Ambac’s insurance arm is at high risk of regulatory intervention, thus increasing the likelihood that counterparties to the insurer will have to toss contracts they hold with the firm at a large loss.

The Bank Killer – US-FOREX.US

Forex-Publisher — Mon, 03 Aug 2009 20:46:19 +0000

It’s been on the lips of analysts, investors and bankers for months: commercial real estate. While the second wave of delinquencies, defaults and foreclosures could further harm the beleaguered banking industry, commercial loans are more complicated than home mortgages and some institutions will fare better than others, says Deutsche Bank analyst Richard Parkus.First, the bad news. There are more than 2 trillion in commercial mortgages coming due before the end of 2013, most of them owned by banks and insurance companies, says Parkus, who follows commercial mortgages for Deutsche. Property values are falling and credit is tight, so the prospects of refinancing are slim for many loans. Defaults are currently rising at an alarming pace.In June, one in every 25 commercial mortgages was delinquent in the U.S., more than twice the level of March. By the end of the year, that number will be one in every 14 mortgages, says Parkus, and the next two years will be particularly unkind as untraditional loans—similar to the exotic mortgages sold to home buyers—reset to higher rates or come due.The collapse will put further strain on U.S. banks already suffering write-downs on their home mortgages and other bad debts they acquired during the bull market. Collectively, the banks hold 1 trillion of basic commercial mortgages and 530 billion of construction loans. Construction loans are the riskier group, because they are backed by new developments. Many of these new developments, especially residential ones, suffer from high vacancies. That could mean one in every two construction loans goes into default, predicts Parkus. Further, vacant tract-home subdivisions have lost much of their value in the bust, so banks could lose 50% on properties they do foreclose on. All told, that could mean a loss of 25%, or 133 billion for the banks.Small banks, which hold a disproportionate amount of construction loans, will get hurt the most, says Parkus. The big national banks have less than 1% of their assets in construction loans but small, regional and local firms nearly doubled their exposure to construction loans between 2004 and this year. Among those banks, borrowers are late on 15% of construction loans right now. That will increase, says Parkus, as reserves that often accompany such loans are exhausted.

Nomura Profit Vindicates Lehman Gambit – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 09:45:59 +0000

Nomura Holdings returned to profit for the first time in six quarters, helping Japan’s leading brokerage vindicate its decision to buy the Asian and European operations of failed U.S. investment bank Lehman Brothers.
In the three months ended June 30, Nomura Holdings
earned 118 million. Net revenue more than doubled to 3.1 billion.
Nomura last year snapped up its chunks of Lehman for a reported 200 million, a purchase that CEO Kenichi Watanabe at the time described as a “once in a lifetime opportunity.’’ Watanabe, a 33-year veteran at the Japanese brokerage, was gambling that the injection of Wall Street mettle will help transform his more conservative company into a global financial powerhouse.
Until the Lehman acquisition, almost all of Nomura’s equity underwriting business and fees from merger and acquisition deals came from clients in Japan. Adding Lehman also allowed it to snag a trove of hedge fund clients in Asia.
That Nomura is making money again will be a relief to Watanabe, who has given himself three years to integrate 8,000 former Lehman workers into Nomura’s workforce. It will help him convince investors that his decision to buy parts of the failed American brokerage was a savvy move rather than the folly that at times it seemed to investors.
Nomura lost more than 7 billion in its last business year, shrinking the cash cushion that was helping the company weather the credit crisis roiling global financial markets. An embarrassed Watanabe had to apologize to shareholders for the loss.
To make the marriage of disparate corporate cultures work, the Nomura boss is trying to forge a hybrid firm that encompasses both highly-paid, easy-to-fire staff and workers who accept a smaller pay packet in return for a guarantee they won’t be laid off when business turns sour.
To stem any exodus from the former Lehman offices, Watanabe also promised many of his new workers that he would for two years pay the bonus they could have expected at their former employer. Personnel costs at Nomura in the first quarter jumped by more than 500 million.
Nomura, however, isn’t the only broker to see earnings surge. Goldman Sachs
posted a profit of 3.4 billion in its latest quarter. A recovery in the securities industry will likely mean in an increase in new hiring, and for Watanabe, that means he may have to think of new ways to stop his star earners from taking Nomura’s money and jumping ship.

Stocks Finish Week With Strong Gains – US-FOREX.US

Forex-Publisher — Fri, 24 Jul 2009 21:46:09 +0000

Stocks took another breather on Friday, pausing amid a broad rally that has seen the major indexes gain 11% in the last two weeks. Many U.S. companies have posted better-than-expected second-quarter earnings reports so far. The week’s final session saw drug and energy stocks rise, countered by disappointing results from tech giants like Microsoft and Amazon.com.The Dow Jones industrial average gained 24 points, or 0.3%, to close at 9,093. The S&P 500 was up three points, or 0.3%, to end at 979; and the Nasdaq lost eight points, or 0.4%, to finish at 1,966. That left all three averages with strong gains for the week: The Dow rose 4%, the S&P 500 was up 4.1% and the Nasdaq posted a gain of 4.2%.Solar power company SunPower
beat analysts’ estimates and boosted its year-end forecast, sending shares up 29% on Friday. Shares of cellphone company Sprint
fell 3% after the firm’s chief said it was too soon to tell if the new Pre phone from Palm would be a hit for the third-largest carrier in the U.S. The new Pre phone is Palm’s attempt to reclaim the smart-phone market from BlackBerry maker Reasearch In Motion and Apple’s popular iPhone. Sprint also announced it would sell a phone based on Google’s Android operating system by the end of the year. Palm shares gained 2.2% on Friday.Troubled lender CIT Group
was again in the news as it tried to convince its creditors to accept 83 cents on the dollar for their bonds to help keep the firm, which lends to millions of small businesses, out of bankruptcy. Shares gained a penny, or 1.4%, to 75 cents. Commodity markets were quiet Friday, taking their cues from stocks, after joining equities in a solid rally over the past two weeks. Gold fell slightly to around 953 an ounce while copper was flat for the day. In the past two weeks, copper was up 14%, aluminum gained 14.8% and gold jumped 4.4%.
Crude oil gained modestly to close just over 68 a barrel after a strong week backed by corporate earnings and refinery outages. The U.S. Oil Fund
, an ETF that tracks oil pries, was up 43 cents, or 1.2%, to 36.22.Thomson Reuters and the Associated Press contributed to this report.

How Ben Will Free The Banks – US-FOREX.US

Forex-Publisher — Wed, 22 Jul 2009 19:45:57 +0000

Federal Reserve Chairman Ben Bernanke has tended to the largest banks in the U.S. the way a park ranger deals with an endangered species. He caught them, took them in and nursed them back to health. Now he has to release them back into the wild. He’s hoping for an easy transition.There are more than a dozen different programs established by the Fed and Treasury Department to confront the crisis in the banking industry, and there is no one way the government plans on working out of them. Yet, the government isn’t interested in making abrupt movements, which would disrupt the still fragile sector. For example, the Fed and the Treasury have made banks less willing to use the Temporary Liquidity Guarantee Program by indicating that firms will be more highly regarded if they issue debt that isn’t guaranteed through the program. The method appears to be working. Though the program is still in effect, there has been a greater hesitancy to use it.Banks like Citigroup
, Wells Fargo
and Bank of America
flocked to these programs during the financial crisis, even though some claimed at the time that it wasn’t entirely necessary – now the banks are being weaned off. Brokerage firms such as Goldman Sachs
and Morgan Stanley
went so far as to change their status to a “bank-holding company” to ensure their eligibility. General Electric
‘s financial arm GE Capital was granted exemption, and actually became the largest recipient of the TLGP program, though was not given additional oversight. When the Fed does finally release the banks, investors should focus on credit quality first and then earnings. Most of the Fed’s actions have been credit-centric, after all. Banks with the most credit risk on their balance sheets will have the most difficult time adjusting as the Fed returns to normalcy.Bernanke’s semi-annual monetary policy report to Congress was atypical. The minutes from the June Federal Open Market Committee meeting were released beforehand, and the chairman beat committee members to a discussion on an “exit strategy” as well by publishing an op-ed on the matter in the Wall Street Journal.
Bernanke stressed that the central bank’s extraordinary measures will remain in place for the foreseeable future. Though, when the time comes, the exit strategy will focus on the Fed’s balance sheet, which has grown to massive proportions. The primary tool used be interest on reserves. Bernanke also mentioned a number of measures to reduce the level of reserve balances, including draining reserves through reverse repos. The Fed could also offer term deposits on banks, said Mike Feroli, a senior economist at JPMorgan Chase, which would function like certificates of deposits do for retail savers.Bernanke avoided discussion of the federal-funds rate, as well as whether the Fed would extend its Treasury purchase program when the 300 billion of purchases is completed in September. Joe LaVorgna, chief U.S. economist at Deutsche Bank, believes the Fed will not raise the federal funds rate until unemployment begins to substantially decrease, adding that before that happens, the balance sheet will be in “runoff mode”.