1 billion

Trade Deficit Narrows as Exports Increase

April 6, 2013 by NewsMaker Leave a Comment

The gap between exports and imports shrank to $43 billion in February, down 3.4 percent from a revised $44.5 billion in January, the Commerce Department said on Friday. It was the smallest trade imbalance since December, when the gap had declined to $38.1 billion, the lowest point in nearly three years.

Exports rose 0.8 percent, to $186 billion, close to the record set in December. Stronger exports of energy products and autos offset declines in sales of airplanes and farm equipment.

Imports were flat at $228.9 billion, with the volume of crude oil falling to the lowest point since March 1996.

The deficit with China shrank to $23.4 billion, the lowest point in 11 months. Exports to the European Union were down 0.9 percent in February, compared with January.

Through the first two months of this year, the United States deficit is running at an annual rate of $524.5 billion, down slightly from the $539.5 billion imbalance last year.

Economists expect the deficit this year will narrow slightly, in part because of continued gains in energy exports. A narrower trade gap lifts growth because it means American companies are earning more from overseas sales while domestic consumers and businesses are spending less on foreign products.

The economy as measured by the gross domestic product grew at an annual rate of 0.4 percent in the October-December quarter. Economists say they believe economic growth strengthened in the January-March quarter to around 3 percent.

In addition to increases in energy exports, economists are hopeful that exports of other products will rise this year as well, helped by stronger growth in some major export markets.

That forecast is based on an assumption that the European debt crisis will stabilize, helping lift exports to that region, and that growth in Asia will rebound further. The outlook for Europe has been clouded recently by problems in Cyprus and new worries that the debt troubles could destabilize more countries.

Article source: http://www.nytimes.com/2013/04/06/business/economy/trade-deficit-narrows-as-exports-increase.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: 1 billion, debt crisis, united states deficit

Royal Dutch Shell Posts $5.6 Billion Profit

January 31, 2013 by NewsMaker Leave a Comment

The results were 15 percent above the previous year but well below analysts’ expectation of around $6.3 billion.

Stuart Joyner, an analyst at Investec Securities in London, described the results as “a substantial miss.” Shell’s stock price was down about 1 percent in morning trading in London.

The company’s earnings for the year were $25.1 billion, up 2 percent over 2011.

The disappointment was largely due to lower earnings in Shell’s core exploration and production business, mainly because of weak performance in the Americas, where Shell’s multibillion Alaska drilling program has encountered multiple snafus and delays.

Exploration and production earnings were $4.4 billion compared to $5.1 billion the previous year, with the U.S. exploration and production business reporting a $69 million loss, partly due to low natural gas prices.

In another disappointment Shell estimated that it only replaced 44 percent of the reserves of oil and gas that it produced in 2012. That indicated that the company’s exploration effort, despite increased emphasis and spending in recent years, is still not performing well.

The capital investment forecast for 2013 was increased by 10 percent to $33 billion — another worry for the markets, as it suggests that Shell may be having trouble controlling costs.

On the positive side, Shell’s huge Pearl gas-to-liquids plant in Qatar is now fully operational and adding a hefty 235,000 barrels per day of oil equivalent to Shell’s production for the quarter.

Shell said that it was likely to increase its dividend in the first quarter of 2013 to 45 cents a share, a 4.7 percent increase over the first quarter of 2012.

“Shell is competitive and innovative,” the company’s chief executive, Peter Voser, said in a statement. “We are delivering on a strategy that others can’t easily repeat.”

Shell also had cause for relief on Wednesday when a court in The Hague dismissed most aspects of lawsuits brought against it by Nigerian farmers and fishermen seeking damages for pollution from oil spills in the Niger Delta.

Article source: http://www.nytimes.com/2013/02/01/business/global/royal-dutch-shell-posts-5-6-billion-profit.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: 1 billion, oil equivalent, production business

FedEx Profit Drops 12%, Not as Much as Expected

December 20, 2012 by NewsMaker Leave a Comment

Demand for air express shipments has fallen as customers turn to slower, less costly methods of delivering goods. Those declines were partly offset by strong growth at the company’s unit that ships goods by truck.

FedEx reported fiscal second-quarter earnings of $438 million, or $1.39 a share, on Wednesday, compared with $497 million, or $1.57 a share, a year earlier.

Disruptions relating to Hurricane Sandy, which walloped the East Coast late in October and killed more than 130 people, reduced earnings by about 11 cents a share.

Factoring out those charges, profit was $1.50 a share, more than the $1.41 analysts had forecast, according to Thomson Reuters.

FedEx shares closed at $93.20, up almost 1 percent.

As part of its plan to revamp the company, which was announced in October, FedEx plans to reduce its staff. It has extended a buyout offer that it expects thousands of workers in the United States to accept.

The company is aiming to trim costs, particularly at the air express unit, where profit slumped about 33 percent.

The company’s ground business is taking market share from its larger rival, United Parcel Service, a FedEx executive said.

“There is no question that with our value proposition that we are taking some level of share,” said David F. Rebholz, who heads the company’s ground operation, which generates about a quarter of FedEx’s sales. “We’re absolutely winning the game over the long run.”

Revenue rose 4.7 percent to $11.1 billion from $10.6 billion a year earlier.

The company held steady its profit forecast for 2013, saying it expects to earn $6.20 a share to $6.60 a share for the fiscal year through May. In September, FedEx cut that forecast by about 10 percent.

That forecast does not account for the costs of buying out thousands of workers, which could total $550 million to $650 million, the company said.

At the end of its last fiscal year, FedEx employed about 300,000 people worldwide, according to a filing with the Securities and Exchange Commission.

FedEx said shipments relating to the holiday shopping season were on track to set a record.

Article source: http://www.nytimes.com/2012/12/20/business/fedex-profit-drops-12-not-as-steep-as-analysts-expected.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: 1 billion, declines, ships

U.S. Current-Account Deficit Narrows for Third Quarter

December 18, 2012 by NewsMaker Leave a Comment

WASHINGTON (AP) — The nation’s trade deficit narrowed in the July-September quarter to the smallest level since late 2010, the Commerce Department said on Tuesday.

The deficit fell to $107.5 billion in the third quarter, down 9 percent from the second-quarter imbalance of $118.1 billion, the agency said. It was the lowest trade gap since the final three months of 2010.

The current account reported on Tuesday is the broadest measure of trade. It tracks the sale of merchandise and services between nations as well as investment flows. Economists watch the current account as a sign of how much the United States needs to borrow from abroad.

Many economists predict that the deficit will widen in coming quarters, in part because a global slowdown is limiting demand for American exports.

A debt crisis has pushed much of Europe into recession. The region accounts for about one-fifth of export sales from the United States. Other major export markets, including China, India and Brazil, have experienced slower growth.

The current-account deficit reached a record high of $800.6 billion in 2006. It then shrank after a deep recession cut into United States demand for foreign goods by a greater amount than American export sales diminished. The trade gap began widening again after the recession ended in June 2009.

The improvement in the current account in the third quarter reflected a decline in the deficit on goods and a small increase in the surplus on services, led by a gain in foreign earnings made by financial services, insurance and professional services provided by companies in the United States. The surplus on investment earnings narrowed to $50.8 billion, down from $52.1 billion in the second quarter.

The narrowing of the deficit in the third quarter left it at a level equivalent to 2.7 percent of the total economy, down from 3 percent in the second quarter. The third-quarter deficit represented the smallest percentage of the economy since the spring of 2009.

Paul Ashworth, the chief United States economist at Capital Economics, said that most of the improvement reflected a decline in America’s foreign oil bill. He predicted that the deficit would remain close to 3 percent of the total economy or slightly below through all of next year.

The deficit in the monthly trade report, which tracks only merchandise and services, increased in October as United States exports fell by a larger margin than imports, a development that was seen as a sign that slower global growth was beginning to weigh on the nation’s economy.

The overall economy grew at an annual rate of 2.7 percent in the July-September quarter, but many economists say they believe that growth has slowed to less than 2 percent in the current quarter. They say consumers and businesses have become more cautious about spending and investing because of the uncertainty over what Congress will do about the tax increases and spending cuts that will occur automatically in January unless Congress and President Obama reach a budget deal to avert them. Economists have warned that the harm to the economy could be great enough to push the country back into a recession.

Article source: http://www.nytimes.com/2012/12/19/business/economy/us-current-account-deficit-narrows-for-third-quarter.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: 1 billion, american export, level equivalent

DealBook: Sprint Nextel Reaches a Deal to Buy Rest of Clearwire

December 18, 2012 by NewsMaker Leave a Comment

Joe Raedle/Getty ImagesSprint is to expand its Long-Term Evolution network.

7:07 p.m. | Updated

Sprint Nextel agreed Monday to buy all of the wireless network operator Clearwire, an important step for the cellphone service provider as it continues its big turnaround campaign.

Under the terms of the bid, Sprint will pay $2.97 a share for the nearly 50 percent stake in Clearwire that it did not already own for a total of about $2.2 billion.

The two companies must still convince restive Clearwire shareholders that they should accept a bid only modestly raised from last week and that some have called too low.

The price is a bump up from the $2.90 a share that it offered last Thursday, and represents a premium of 128 percent over Clearwire’s stock price in early October, before speculation emerged that Sprint would seek to buy the wireless network operator. Sprint’s first proposal to Clearwire, made around Nov. 21, was worth about $2.60 a share.

Deal Professor: In Netflix Case, a Chance to Re-examine Old Rules

December 12, 2012 by NewsMaker Leave a Comment

Harry Campbell

Netflix is in the Securities and Exchange Commission’s sights over a post on Facebook by Reed Hastings, its chief executive, saying that the video streaming company’s monthly viewing had reached a billion hours. Yet, the case is more convincing as an illustration of how the regulator clings to outdated notions of how markets work.

In July, Mr. Hastings posted three lines stating that “Netflix monthly viewing exceeded 1 billion hours for the first time ever in June.”

While his comments may have seemed as innocuous as yet another Facebook post about cats, for the S.E.C., it was something more sinister, a violation of Regulation FD.

Regulation FD was the brainchild of Arthur Levitt, a former chairman of the commission. During Mr. Levitt’s time, companies would often disclose earnings estimates and other important information not to the markets but to select analysts. Companies did so to preserve confidentiality and drip out earnings information gently to the markets, and in that way avoid the volatility associated with a single announcement.

For Mr. Levitt, this was heresy. He believed not only in disclosure, but in the principle that all investors should have equal access to company information. Regulation FD was the answer.

Deal Professor

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In general, Regulation FD says that when a public company gives material nonpublic information to anyone, the company must also publicly disclose that information to all investors. Regulation FD in that way prevents selective leaks and, according to the S.E.C., promotes “full and fair disclosure.”

It seems so simple. How can more disclosure be bad? But both public companies and investment banks argued that the rule would actually reduce the flow information, as companies, now forbidden from disclosing only to analysts, would simply choose not to release the information. And because analysts would no longer have that advantage in knowledge, their value would be harder to justify, resulting in fewer analysts. Stockholders would be worse off as less information was in the market.

The S.E.C. disputed these arguments, and Regulation FD went into effect over a decade ago.

Subsequent studies of Regulation FD’s effects have shown that the critics may have been right. One of the most-cited studies found that analyst coverage of smaller companies dropped. And since there was now less information in the market about these smaller companies, investors subsequently demanded a bigger premium to invest, increasing financing costs. Another study found that the introduction of Regulation FD increased market volatility because information was no longer informally spread. In fairness, some studies found different results, but the bulk of findings are that Regulation FD is at best unhelpful.

Despite these studies and companies’ complaints about the costs of compliance, the S.E.C. has stuck to the rule. Until the Netflix case, however, the agency appeared to try to keep the peace by seeking redress in only the most egregious cases.

In all, there have been only about a dozen Regulation FD cases since its adoption, including one against Office Depot in 2010, for which it was fined $1 million for hinting its earnings estimates to analysts. But while enforcement actions have been rare, it has required that companies fundamentally change the way they disclose information.

Then Netflix came along.

The S.E.C.’s case appears to be rest on much weaker grounds than previous ones involving Regulation FD. To make a Regulation FD claim, the agency must show the information was released privately and that it was material. But neither element seems certain here.

Mr. Hastings’s announcement that the milestone of one billion hours was achieved seems more like a public relations stunt than a disclosure of material information. And Netflix had previously said that it was close to this milestone, so followers knew it was coming.

But while it seems like this information was a nonevent, this post occurred as Netflix’s stock was beginning to rise, and by two trading days later, it had jumped almost 20 percent. While some may view this as proof of the post’s materiality, it is hard to read too much; Netflix shares can be volatile, and a Citigroup analysts’ report released during that time could have also moved the stock.

Then there is the issue of whether this was privately disclosed information.

Some have seized on this requirement to claim that the S.E.C. is in essence saying that Facebook is not a “public” Web site. This is laughable; after all, Mr. Hastings is popular — he has more than 200,000 subscribers to his Facebook account. It is certain that more people read this comment on Facebook than if it had been in an S.E.C. filing.

But the S.E.C.’s argument is likely to be more technical than saying Facebook is private. In a 2008 release on Web site disclosure, the S.E.C. asserted that a Web site or a blog could be public for Regulation FD purposes but only if it was a “recognized channel of distribution of information. ”

In other words, a public disclosure is not about being public but about being made where investors knew the company regularly released investor information.

So the S.E.C. is likely to sidestep the issue of Facebook’s “public” nature and simply argue that Netflix never alerted investors that Facebook was the place to find Netflix’s investor information. Mr. Hastings appeared to concede this, and in a Facebook post last week, he argued that while Facebook was “very public,” it was not where the company regularly released information. If this dispute goes forward, expect the parties to spend thousands of hours arguing about whether the post contained material information rather than whether Facebook is public.

But it all seems so silly and technical and shows the S.E.C.’s fetish of trying to control company disclosure to the nth degree. It’s easy to criticize the agency for not understanding social media, but I would argue that in trying to bring a rare Regulation FD enforcement action, it truly missed an opportunity. Rather than focus on technicalities that few people understand, it could have used this case to examine what it means to be public and how social media results in more, not less, disclosure.

If the idea behind Regulation FD is to encourage disclosure, then allowing executives to comment freely on Facebook and Twitter, recognizing them as a public space akin to a news release, is almost certain to result in more disclosure, not less, and reach many more people than an S.E.C. filing would. The agency’s position will only force executives to check with lawyers and avoid social media, chilling disclosure.

And this leads to the bigger issue. Regulation FD was always about principles of fairness that belied the economics of the rule. If the S.E.C. really wanted to encourage disclosure, then it might want to take a step back and consider whether after a decade, Regulation FD is worth all the costs. Perhaps shareholders would even prefer more disclosure on Facebook and fewer regulatory filings. I suspect they might, if it meant more information and generally higher share prices.

In any event, this case still has a way to go. Netflix disclosed only the receipt of a Wells notice, which meant the S.E.C. staff was recommending to the commissioners that an enforcement action be brought. It is now up to the commissioners to decide. Given the issues with this case, they may decide it isn’t worth it. It would still leave Netflix with substantial legal fees, but perhaps save the agency from another embarrassing defeat.

But while that may end the matter, it shouldn’t. The regulator could use the Netflix case to rethink its disclosure policies in light of not only the rise of social media but how the market actually works. After all, even the S.E.C. has a Twitter account these days.

Article source: http://dealbook.nytimes.com/2012/12/11/in-netflix-case-a-chance-for-the-s-e-c-to-re-examine-old-regulation/?partner=rss&emc=rss

Filed Under: Media Business Tagged With: 1 billion, arthur levitt, reed hastings

Olympus Restates Earnings, Showing Loss

December 14, 2011 by NewsMaker Leave a Comment

TOKYO — Just hours before a critical deadline Wednesday, Olympus, Japan’s disgraced camera maker, announced revised earnings results, owning up to $1.1 billion in losses it hid for more than a decade but ensuring — for now — that its shares will avoid a delisting that would decimate shareholder value.

Providing some added relief to investors, Olympus’s restated numbers, spanning five years, showed that it remained solvent despite the losses the company now acknowledges it kept off its balance sheet. The filing had been widely expected after the company said Monday that it expected to meet a deadline set by the Tokyo Stock Exchange to ensure its shares stayed listed on the bourse.

But the outlook remains precarious for the Tokyo-based manufacturer of endoscopes and cameras: it disclosed an 84 billion yen reduction in net assets through June 2011, and its net assets were just 46 billion yen at the end of September, according to filings made Wednesday.

Olympus also booked a net loss of 32.33 billion yen for the six months through September, highlighting the need for the company to bolster its finances amid heightened speculation that it may be forced to sell off assets or become the target of a takeover.

Some of the statements came with qualified opinions from the company’s auditors. KPMG AZSA said it had been unable to confirm all the money flows involved in the cover-up, which Olympus has admitted began in the 1990s.

“We were unable to get sufficient and appropriate proof for auditing on specific assets and amounts,” KPMG AZSA wrote.

The Tokyo Stock Exchange could still delist Olympus if it deems its past financial transgressions a serious offense
. The bourse said after Olympus’s announcement that the company’s shares would remain on a watchlist for possible delisting.

Reflecting the uncertainties ahead, Olympus shares fell 4 percent on Wednesday to 1,314 yen. The company’s share price has lost about half its value since the scandal broke in mid-October after Michael C. Woodford, its then president, was abruptly sacked.

The company insisted that the aggressive, Western management style of Mr. Woodford, a British national and one of a handful of foreign chief executives in Japan, had not been a good fit for the 92-year-old Japanese manufacturer. But Mr. Woodford immediately blew the whistle on a series of large acquisitions payouts that the company later admitted were part of a scheme to obscure past investment losses.

A third-party panel of legal experts appointed by Olympus, which presented its findings last week, laid the blame on top executives and called the company’s management “rotten to the core.”

Mr. Woodford has now begun a highly public campaign to win back his old job, rallying shareholders behind a plan to appoint a fresh board to lead the company. Olympus’s current board members have said they will step down as early as February, but intend to appoint their own successors – something Mr. Woodford has said is unacceptable.

It is still unclear how much support Mr. Woodford can ultimately garner among Olympus’s shareholders, which include foreign investors who have been receptive to the idea of his return. But Olympus also has large institutional investors in Japan who are more skeptical of whether Mr. Woodford can unify the company and lead a turnaround after a potentially contentious return.

There are also fears in Japan that Mr. Woodford might assist in the sale of Olympus to overseas buyers. But Mr. Woodford dismissed those concerns Wednesday.

“I would have no part at all in selling Olympus or breaking up Olympus. It’s important that Olympus remains a listed company in Japan,” Mr. Woodford said on a live program streamed on a local Internet news and entertainment site, stepping up a bid to appeal directly to Olympus employees, investors and the wider Japanese public.

He said that if he returned as president, he would work swiftly to strengthen the company’s balance sheet, perhaps by tapping private equity or through a rights issue. He would also refocus the company on its core businesses, after a flurry of acquisitions made in the last decade, some of which have been linked to Olympus’s cover-up scheme.

“Because of what’s happened, the company’s balance sheet is in a very poor position,” he said. “We have to stabilize the company. We have to restore confidence.”

Article source: http://feeds.nytimes.com/click.phdo?i=f88942ad5dfd7e45fbc80dedf71164c0

Filed Under: Business News Tagged With: 1 billion, net assets, speculation

Boeing Posts Higher Profit, but Cuts Delivery Forecast

October 26, 2011 by NewsMaker Leave a Comment

Boeing now says it will deliver 15 to 20 of its new 787s and 747-8s this year. That’s 10 fewer than Boeing’s previous estimates. It also said that two-thirds of those deliveries will be the 747-8s. It didn’t say why the delivery forecast was cut.

The two jets have been years in the making, and Boeing delivered the first of each of them in recent weeks. The 787 carried its first passengers on Wednesday on a flight by Japan’s All Nippon Airways.

Investors chose to focus on the strong quarterly results. Shares rose nearly 4 percent as Boeing said it earned $1.1 billion for the quarter ended Sept. 30, up 31 percent from its net income of $837 million during the same period last year. The profit of $1.46 per share was far above the $1.10 per share expected by analysts surveyed by FactSet. The company has easily surpassed Wall Street’s profit expectations in each of the first three quarters this year.

Boeing earned $1.12 per share in last year’s third quarter.

Revenue rose 4 percent to $17.73 billion. Analysts had been expecting $17.79 billion.

Boeing raised its full-year guidance to $4.30 to $4.40 per share from $3.90 to $4.10 per share.

Boeing said its initial accounting block for the 787 is 1,100 planes, which is the number it either has sold or expects to sell. It will average out production costs across those 1,100 planes. That avoids a situation where Boeing would have to account for losing money on early, slowly-built planes when it was still learning how to make them efficiently.

Roughly half of Boeing is its commercial airplanes division. The other half is the defense division, which produced much of the third-quarter profit growth. Defense had operating earnings of $824 million, up 20 percent, even though revenue was flat at $8.2 billion.

Boeing Commercial Airplanes saw earnings rise 7 percent to $1.09 billion, with revenue up 9 percent to $9.52 billion.

Boeing shares rose $2.78, or 4.4 percent, to $66.50 in premarket trading.

Article source: http://feeds.nytimes.com/click.phdo?i=a0a614eb63ff6853c906c92e899f5404

Filed Under: Business News Tagged With: 1 billion, boeing, commercial airplanes

Ford Posts 10th Straight Quarterly Profit

October 26, 2011 by NewsMaker Leave a Comment

It was the tenth consecutive profitable quarter for Ford, which last week secured a new labor contract with the United Automobile Workers union and said it was close to restoring a dividend to shareholders.

Nearly all of the profit — $1.6 billion, the same as a year ago — came from North America, while losses in Europe increased 56 percent, to $306 million.

“We delivered solid results for the third quarter despite an uncertain business environment by continuing to serve our customers around the world with best-in-class vehicles,” Ford’s chief executive, Alan R. Mulally, said in a statement.

The overall profit is equal to 41 cents a share and brings the carmaker’s total earnings for 2011 to $6.6 billion, 4 percent more than the first nine months of 2010. Ford earned $1.69 billion, or 43 cents a share, in the third quarter of 2010. Revenue increased 14 percent to $33.1 billion.

The company earned a third-quarter pretax operating profit of $1.94 billion, or 46 cents a share, $111 million less than a year ago. That figure, which excludes special items related to job cuts, the end of the Mercury brand and dealer-related actions, is slightly above the consensus analyst forecast of 44 cents a share.

Operating profit was reduced by a $350 million non-cash charge related to commodity hedges after prices declined significantly at the end of September, Ford said. It projected that structural and commodity costs for all of 2011 would be $3.8 billion higher than 2010, less than its initial forecast of $4 billion.

Ford said it reduced its automotive debt by $1.3 billion in the quarter to $12.7 billion. It reported positive automotive cash flow of $400 million, but automotive gross cash declined by $1.2 billion to $20.8 billion.

Its chief financial officer, Lewis W. K. Booth, said the company is on track to surpass its 2010 full-year operating profit of $8.3 billion, even though its automotive operating margins would be slightly lower. Its operations have earned $7.7 billion so far in 2011.

“The core of the business is very strong,” Mr. Booth told reporters at Ford’s headquarters. “We’re doing all this while we’re investing for the future.”

Ford workers on Oct. 19 ratified a new four-year deal with the United Automobile Workers that the company says will increase its labor costs by less than 1 percent annually. Most of the company’s 41,000 U.A.W. members will get bonuses of $6,000 and profit-sharing checks of about $3,750 this month.

The new contract prompted Standard Poor’s and Fitch Ratings to upgrade Ford’s credit rating two notches, to BB-plus, which is one level below investment grade. Moody’s is considering a similar upgrade.

With the labor issue settled, analysts now say they expect Ford to resume paying a dividend to shareholders as soon as 2012. The company suspended its quarterly dividend in 2006.

Mr. Booth said Ford would restore its dividend “as soon as we think our balance sheet will stand it,” but he declined to give a specific timeframe.

Brian A. Johnson, an analyst with Barclays Capital , predicted in a note to clients this week that Ford would announce a dividend early next year and pay 36 cents for 2012, increasing to 55 cents in 2015.

“The key debate around Ford continues to be the sustainability of — or potential for improvement in — Ford North America pretax profits, especially in light of tailwinds from pricing and what may turn out to be lower than previously guided headwinds from commodities and structural costs,” Mr. Johnson wrote.

Article source: http://feeds.nytimes.com/click.phdo?i=9d7197129eb6e36ea6a22e9fefcb305c

Filed Under: Business News Tagged With: 1 billion, consecutive profitable quarter, workers union

DealBook: Wells Fargo Earnings Rise 21%, to $4.1 Billion

October 17, 2011 by NewsMaker Leave a Comment

Chris Keane/ReutersWorkers removed the last Wachovia sign outside a Wells Fargo bank center in Charlotte, N.C.

Wells Fargo, the nation’s largest consumer lender, reported Monday that its third-quarter earnings rose 21 percent, even as a drop in revenue marked a disappointing sign for the San-Francisco-based bank.

The bank turned a $4.1 billion profit in the third quarter, or 72 cents a share, boosted by gains in its lending and deposit division and its lack of exposure to the volatile investment banking business. That compared with a profit of $3.3 billion, or 60 cents a share, in the same period a year earlier. The figures, also aided by an $800 million release in reserves amid easing loan losses, fell just below the 73-cents-a-share consensus estimate of analysts.

The bottom line improvement was somewhat overshadowed by the lack of top-line growth. The bank’s revenue fell to $19.6 billion, from $20.9 billion, reflecting the banking industry’s broader struggles generating growth as the economic recovery stalls and the markets wildly fluctuate. Investors frowned on the report, sending the bank’s shares down more than 3 percent to roughly $25.60.

“The economic recovery has been more sluggish and uneven than anyone anticipated,” the bank’s chairman and chief executive, John Stumpf, said in a statement. “We can’t change the economic environment, yet we have worked hard to control the variables we can – making our products and services more relevant to individuals and businesses, focusing on the customer, making as many loans as possible and growing new relationships – as well as fostering longtime ones.”

The strong profit numbers at Wells Fargo bucked the generally grim outlook facing the industry, as big banks struggle to shed the legacy of the mortgage crisis and cope with poor investment banking figures. JPMorgan Chase last week kicked off bank earnings season by reporting a 4 percent drop in profits. Bank of America, which will announce its earnings on Tuesday, has racked up billions of dollars in losses over the last few quarters. And some analysts expect Goldman Sachs, once appearing immune from the industry’s woes, to report a quarterly loss, only the second since the company went public 12 years ago.

While competitors have struggled, Wells Fargo has remained relatively healthy. Profits have grown quarter after quarter. Following the takeover of the Wachovia Corporation at the height of the financial crisis, it established a network of retail branches along both coasts.

Still, Wells is not immune from the industry’s turmoil. The bank reported disappointing revenue numbers across its operation. The massive community banking division, which includes Wells Fargo’s branches and mortgage business, saw revenue drop 7 percent, while revenue declined slightly in the bank’s retail brokerage unit.

While it is no secret the banking industry is struggling, investment banking results have been especially hard hit. Trading revenue, in particular, is hurting from the unnerving volatility in the markets.

Wells does not break out its investment banking results, but the wholesale banking unit, which includes the sales and trading business along with the corporate lending division, had a 4 percent decline in revenue. The bank attributed the drop to weak fixed income sales and trading.

But it could have been worse. Wells Fargo features a far smaller investment bank than most of its big rivals, so it is less exposed to the difficult market conditions that, for instance, caused JPMorgan’s third quarter investment banking profit to tumble 20 percent.

“Investment banking is a boom and bust business, and right now it’s bust,” said Brian Foran, a senior analyst at Nomura Securities International. He noted that it “helps” banks like Wells that are not deeply entrenched in the business.

Wells Fargo’s biggest unit by far is its community-banking arm, which reported a 7 percent drop in revenue, as mortgage banking income slowed and the bank battled the choppy markets.

But the unit saw earnings leap 20 percent compared to the third quarter of 2010. Unlike competitors that had a heavy hand in the mortgage business during the toxic suprime boom, Wells enforced tougher standards for borrowers and only revved up its lending following the 2008 takeover of Wachovia. Wells has since quietly emerged from the mortgage mess as one of the nation’s largest and strongest lenders.

On Monday, the bank reported that its overall loan portfolio jumped to $760 billion, up $8.2 billion from the prior quarter. The bank’s deposits soared, too, up 8 percent from a year ago to nearly $837 billion. The bank also saw an improvement in credit quality, as nonperforming assets declined $7.6 billion from the prior year and net loan charge-offs dropped $1.5 billion. It also recorded the $800 million release in reserves, a nod to the improving loan portfolio.

“There are winners and losers in the mortgage market right now,” said Mr. Foran. “Wells has won this equation.”

Article source: http://feeds.nytimes.com/click.phdo?i=e21ee7c33bd12ad511f2f20c6a59889f

Filed Under: Business News Tagged With: 1 billion, chris keane, economic recovery