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Audit of TARP Faults U.S. Over Executive Pay

January 24, 2012 by Leave a Comment

Federal auditors said that the government failed to rein in executive compensation at the biggest companies it bailed out during the financial crisis because its main concern was simply getting its money back.

Months after the emergency rescues began in the fall of 2008, the Obama administration announced pay caps of $500,000 for executives of seven companies that received major assistance from the taxpayers. Congress then passed a law requiring the Treasury to establish a special master to administer the cap and other new compensation rules for those that received the most money from the Trouble Asset Relief Program, or TARP.

Though Kenneth Feinberg, the special master, had been appointed to oversee the pay, a report released early Tuesday said that he had been pressured by both the companies and the Treasury to get around the caps.

Forty-nine people received packages worth $5 million or more from 2009 to 2011, according to the report.

Two of the seven companies that were singled out, Bank of America and Citigroup, were so eager to avoid the pay caps that they paid back their bailout money long before anyone expected them to be able to.

The other five companies were the American International Group, Chrysler, Chrysler Financial, General Motors and Ally Financial, which was formerly the General Motors Acceptance Corporation.

Negotiators for the companies told Mr. Feinberg that their top people needed big cash salaries, or at least payment in stock that could be sold right away. Otherwise they would quit, the argument went, harming the companies’ profitability and the likelihood they could ever pay back the government.

In one bargaining session, the chief executive of Ally Financial offered the example of an employee making $1.5 million, with $1 million of it in cash.

“This individual is in their early 40s, with two kids in private school, who is now considered cash poor,” Ally’s chief explained, adding that such people “would not meet their monthly expenses” if the new rules were followed.

A.I.G., G.M. and Ally still collectively owe the taxpayers about $87 billion.

“Under conflicting principles and pressures,” Mr. Feinberg approved multimillion-dollar packages for many executives, the audit said. Mr. Feinberg developed a system for approving or rejecting the requests.

Article source: http://feeds.nytimes.com/click.phdo?i=4937249647560570916dcc2c8cba836f

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Cruise Industry Weighs Effect of Costa Concordia’s Grounding

January 18, 2012 by Leave a Comment

The death toll from the accident on Friday was 11, though at least 24 people were still missing after the ship, carrying 4,200 passengers and crew members, hit rocks and capsized hundreds of feet off Giglio Island, in Italy.

Shares of Carnival fell $4.68, to $29.60 on Tuesday in New York. That followed a similar drop in London the previous day, when markets in the United States were closed for Martin Luther King’s Birthday.

Carnival, which is based in Miami and London, owns 101 cruise ships and has 85,000 employees around the world.

Analysts said the accident could not have happened at a worse time for the industry, which carries more than 13 million passengers each year. January is the beginning of the so-called wave season, a period when cruise lines typically book a third to half of their reservations for the entire year.

Cruise companies were hoping for a rebound this year after a sluggish season last year because of the slow global economy and high fuel prices. Still, the cruise industry was not expecting to see much growth, even before the accident, according to a report Sunday by Standard Poor’s.

Gregory Badishkanian, an analyst at Citigroup, said he had seen indications of a 6 to 10 percent decline in cruise bookings after the tragedy.

“The pictures and the videos from the Costa tragedy are more graphic and widespread than past incidents,” he said in a note to investors. But he added that such volatility was not unexpected.

While cruise operators froze their advertising over the weekend, analysts and travel agents said the industry was not likely to suffer long-term consequences despite the effect of the images.

“There is no major passenger fear of cruising thus far,” Mr. Badishkanian said.

Neil Gorfain, the chief executive of the Cruise Outlet, an online national booking agency that specializes in cruises, said he had not seen any cancellations. “The public has a short memory. We might have some concern for a few weeks. But so far, we have had no fallout.”

The effect on the Carnival Corporation is harder to gauge at this point, although it has the wherewithal to shoulder the financial cost of the accident.

On Monday, Carnival said that its lost earnings this year from the grounding of the Costa Concordia would be $85 million to $95 million. It also anticipated “other costs to the business that are not possible to determine at this time,” which might include future cancellations, for instance, or possible liabilities. In addition, the company said it might have to pay $30 million in deductibles to cover damage to the ship, and a $10 million deductible for personal injury liability and cleanup costs.

The cost to insurers, on the other hand, might be substantial, depending on the vessel’s fate.

One analyst with Numis Securities in London has estimated total liability at $800 million if the ship were scrapped. This would make it the largest marine loss on record, exceeding the $500 million that insurers paid after the 1989 grounding of the Exxon Valdez oil tanker in Alaska, according to a report by Bloomberg News. The ship is insured by a group of firms, including Assicurazioni Generali, the RSA Insurance Group and the XL Group, it said.

Carnival was founded in 1972 by Ted Arison, with a single ship sailing between Miami and San Juan, Puerto Rico. The company is now run by the founder’s son, Mickey Arison, and carries eight million passengers a year, 60 percent of them from the United States, on cruises throughout the world.

Carnival, which has twice as many ships and employees as the second-largest cruise line operator, Royal Caribbean Cruises, reported revenues of $14.5 billion in its 2010 fiscal year.

Under Mickey Arison, the company has been one of the top drivers of the industry’s consolidation in the last decade. It now owns 10 brands, including the Carnival Cruise Lines, its largest subsidiary with 23 ships; Princess Cruises; and the Holland American Line. Its other subsidiaries include PO Cruises and Cunard.

Its Costa Cruises unit has 15 ships that operate mainly in Europe, and account for 16 percent of Carnival’s global capacity. The company has 10 ships on order, including two planned for Costa.

So far, Mr. Arison, who also owns the Miami Heat of the N.B.A., has taken a low-key position, allowing the head of his Italian subsidiary to handle the accident’s fallout. That executive, Pier Luigi Foschi, has blamed the ship’s captain for performing an unauthorized maneuver.

Public comments on cruise-related Web sites offered a mixed picture. One commenter on CruiseCritic.com, Christine Crossingham, said the accident had not dented her enthusiasm to board the MSC Fantasia, of Italy’s MSC Cruises, in March. It is one of the world’s largest ships with nearly 300,000 square feet of public space.

“This is evidently human error,” she wrote. “There are thousands of cruises going every day out somewhere.”

Another, Ralph Summers, said he would not cruise the Mediterranean Sea. “I’ll stick to the Caribbean thank you.”

Article source: http://feeds.nytimes.com/click.phdo?i=6d84b68e9f1cc0a143176ca929a3a5a4

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DealBook: Citigroup Struggles in Weak Quarter

January 18, 2012 by Leave a Comment

Vikram S. Pandit, chief of Citigroup.Andrey Rudakov/Bloomberg NewsVikram S. Pandit, chief of Citigroup.

7:57 p.m. | Updated

Despite signs of life on Main Street, Wall Street is still struggling.

That dichotomy was evident on Tuesday, when Citigroup reported fourth-quarter results that fell far short of what analysts were forecasting, despite a pickup in lending and a drop in losses on bad loans.

The culprit was the banking giant’s capital markets division, where revenue fell 10 percent last quarter as traders headed for the sidelines, hurting businesses like stock and bond trading as well as investment banking. Investors wasted little time in showing their disappointment; even as the market staged a modest rally Tuesday, Citigroup’s shares sank more than 8 percent to $28.22.

More than anything else, Citigroup executives said fears about the European debt crisis made clients increasingly risk-averse during the quarter, which concluded with a “very, very weak December,” according to John C. Gerspach, the bank’s chief financial officer.

“Europe remains the largest overhang on the market at this time,” he added. “There are a lot of dark clouds.”

Over all, earnings dropped 11 percent to $1.16 billion, or 38 cents a share, well below the 50 cents a share Wall Street was looking for, according to Zacks Investment Research. Revenue was also weak, falling 7 percent to $17.2 billion.

Results in the year-ago period, when Citigroup posted profit of $1.3 billion, or 43 cents a share, had been helped by sizable accounting gains on the value of Citigroup debt, which were absent from the fourth-quarter results for 2011.

“It’s just a weak quarter across the board at the investment bank,” said Glenn Schorr, an analyst with Nomura Securities. While some businesses performed well, like international banking and consumer lending, he said, overall revenue was lower than expected while expenses were higher. “Those are difficult things to move at the snap of a finger.”

Mr. Schorr said pressure was mounting on Citigroup’s chief executive, Vikram S. Pandit, to improve results at the investment bank, even if that means deeper job cuts.

“Before today, people would have been O.K. with the job he’s done given the difficult situation he inherited,” Mr. Schorr said. “Still, investors want a more explicit game plan for the investment bank, asking if they are sized the right way for the opportunities going forward.”

Mr. Schorr said the question of how deep to cut was hanging over all of Wall Street, given the drop in trading revenues since mid-2011 and the potential impact of new regulations from Washington that restrict lucrative but risky activities like proprietary trading.

Like other battered financial names, including Bank of America, Citigroup’s shares have been rising recently on hopes that the financial crisis in Europe might be easing and the economic recovery in the United States is gaining steam. Since the end of November, Citigroup shares have rallied 20 percent.

However, with fourth-quarter earnings reports now arriving, it seems that at least some of that optimism might be premature. JPMorgan Chase’s capital markets business also appeared lackluster when the bank announced its latest results last week, and further evidence of this trend is likely to come Wednesday when Goldman Sachs discloses its fourth-quarter earnings, and on Thursday when results from Bank of America are due.

On the other hand, Wells Fargo, which is much less exposed to the ups and downs of Wall Street, reported better than expected earnings on Tuesday. More focused on traditional lending and banking, Wells Fargo reported net income of $4.1 billion and nearly $16 billion for the year. Its shares rose 0.73 percent on Tuesday to $29.83.

For the full year, Citigroup reported net income of $11.3 billion, up 6 percent from 2010, one measure of progress in the company’s slow but steady recovery under Mr. Pandit, who has been trying to transform Citigroup from a sprawling but shaky global banking giant into a stronger, more nimble corporate lender.

After the financial crisis, Citigroup required a $45 billion bailout from Washington, and while that has been paid back, Mr. Pandit is still in the process of shedding assets and lightening the bank’s balance sheet. Citi Holdings, which is made up of businesses the company is trying to exit, showed a 25 percent drop in assets as it lost about $800 million.

Echoing the wary stance of investors, Mr. Pandit sounded a note of caution Tuesday. “The current environment is certainly challenging,” he said in a letter to employees. “We’ve shown that we can weather a tough environment without investors, regulators and other observers questioning our safety and soundness.”

“However, the weak global economy negatively affected market activity, and many of our clients reduced their risk, especially in the fourth quarter,” he said.

Within the capital markets businesses, bond trading was especially weak. Total securities and banking revenues dropped 10 percent to $3.19 billion, but in equity markets, revenues totaled $240 million, a 60 percent drop from the same period in 2010. Investment banking results, which include providing advice on mergers and acquisitions, also suffered, falling 45 percent to $638 million.

Besides the weak trading results, earnings were also hit by several charges, including a $557 million increase in reserves for litigation expenses, and a $400 million restructuring charge resulting from the elimination of 5,000 jobs in the fourth quarter. Much of the litigation charge is linked to the fallout from the mortgage meltdown, a continuing source of red ink for other big banks as well that isn’t likely to subside anytime soon.

One bright spot was a drop in loan losses, which fell 40 percent to $4.1 billion, suggesting that for consumers at least, the economy was becoming more solid. In addition, the bank said that total loans outstanding rose 14 percent to $465.4 billion for the year.

Article source: http://dealbook.nytimes.com/2012/01/17/citigroup-profit-and-revenue-decline-for-quarter/?partner=rss&emc=rss

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DealBook: Citigroup’s Deal to Sell OneMain Collapses

January 6, 2012 by Leave a Comment

Citigroup‘s effort to sell a consumer-lending business has collapsed in recent days, as wobbly markets and a lackluster economy shut down hopes for a deal, a person with knowledge of the matter said.

Last year Citigroup began exclusive talks with a pair of private equity firms and Berkshire Hathaway, Warren E. Buffett‘s conglomerate, to sell OneMain, a lender that offers home equity and personal loans to risky borrowers. The talks coincided with the bank’s broader effort to shed noncore businesses in the aftermath of the financial crisis.

But Citi and its suitors all agreed to abandon the OneMain effort after the bidders, which included the private equity firms Centerbridge Capital Partners and Leucadia National, concluded that it would be difficult to finance the business. To do so, the firms would have had to bundle new loans and sell them as securities to investors. The securitization market for private loans has been scare since the crisis, however, as investors have balked at the risk attached to such products.

Still, Citi has not abandoned plans to sell OneMain, which remains profitable. The bank is likely to put the unit on the block again if the markets regain stability, said the person with knowledge of the matter, who spoke on condition of anonymity. For now, OneMain will remain in the bank’s CitiHoldings division, alongside other businesses it intends to divest over time.

CitiHoldings, created in 2009 as a home for such unwanted and noncore assets, has steadily shrunk over the last two years. In 2010, in perhaps the most significant unloading of CitiHolding assets, the bank sold a student loan business to Discover for $600 million.

“The objective of Citi Holdings is to reduce noncore assets in an economically rational manner that is in the best interests of our stakeholders,” Shannon Bell, a Citigroup spokeswoman, said. She declined to comment on the collapse of the OneMain deal, which was reported earlier by Bloomberg and The Wall Street Journal.

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Citing ‘Legal Error,’ S.E.C. Says It Will Appeal Rejection of Citigroup Settlement

December 16, 2011 by Leave a Comment

In a statement accompanying a filing in Federal District Court in New York, the agency cited “legal error” in the decision in late November and said it would ask the United States Court of Appeals for the Second Circuit to overturn the opinion of Judge Jed S. Rakoff. In the ruling, the judge rejected an agreement for Citigroup to pay $285 million and accept an injunction against future violations of an antifraud provision of federal securities laws.

Judge Rakoff’s ruling shook a central pillar of federal securities law, potentially upending a practice that allows the S.E.C. to settle hundreds of enforcement cases each year. The commission usually settles charges with companies by getting them to pay a fine and agreeing to reimburse investors without making them admit or deny the charges. 

Citigroup was charged by the S.E.C. with fraud for selling a $1 billion fund in 2006 and 2007 that invested in mortgage-related securities without telling investors that the bank was betting against many of the securities. Citigroup, which has said it disagrees with Judge Rakoff’s decision, is expected to support the appeal.

Judge Rakoff dismissed the proposed settlement as “neither fair, nor reasonable, nor adequate, nor in the public interest,” in part because Citigroup did not have to admit or deny the charges. Judge Rakoff said that without an admission or evidence that Citigroup violated the law, he had no way to determine whether the settlement was adequate.

The S.E.C., in a statement issued Thursday, sharply criticized the judge’s decision.

“We believe the district court committed legal error by announcing a new and unprecedented standard that inadvertently harms investors by depriving them of substantial, certain and immediate benefits,” Robert Khuzami, the S.E.C.’s director of enforcement, said in the statement.

“The court’s new standard is at odds with decades of court decisions that have upheld similar settlements by federal and state agencies across the country,” Mr. Khuzami said. “Courts have routinely approved settlements in which a defendant does not admit or even expressly denies liability, exactly because of the benefits that settlements provide.” 

Appealing the judgment carries risk for the S.E.C., because if the ruling is upheld by the circuit court, it would set a precedent that is likely to influence judges hearing similar S.E.C. cases.

The Second Circuit court, located in New York, hears many cases involving financial issues and securities laws; though its decisions are not binding on other circuits, they often influence judges around the country because of the court’s familiarity with securities law, experts say.

Judge Rakoff’s decision also could affect many other types of civil settlements forged by government regulators. Several other agencies, including the Environmental Protection Agency and the Federal Trade Commission, have settled civil cases by letting a defendant avoid having to admit or deny the charges.

Securities law experts say they know of only one previous instance where the S.E.C. appealed a federal judge’s rejection of a commission settlement — and the S.E.C. won that appeal. In 1983, a federal district court judge in San Francisco rejected an insider trading settlement because he thought the penalty was inadequate and did “not appear to be in the public’s best interest.”

The next year, in S.E.C. v. Randolph, the Court of Appeals for the Ninth Circuit reversed the decision, saying “the courts should pay deference to the judgment of the government agency which has negotiated and submitted the proposed settlement.”

While it was correct to consider the public interest, the appeals court said, that does not mean the “best interest” possible. “Compromise is the essence of a settlement,” the court said.

In the Citigroup case, Judge Rakoff said in his decision that investors lost more than $700 million in the transaction, and he criticized the proposed penalty as “pocket change to any entity as large as Citigroup.”

The S.E.C. batted away the importance of Citigroup’s size. “The law does not permit the commission to seek penalties based upon a defendant’s wealth,” Mr. Khuzami said.

There are limits to the size of penalties that the S.E.C. is allowed to assess in such a case. The $285 million settlement, all of which would be returned to investors, includes a $95 million penalty, a $160 million disgorgement of profits and fees earned on the securities offering, and $30 million in prejudgment interest. The S.E.C. recently asked Congress to amend the law to allow it to seek bigger penalties.

Whether the S.E.C. could be hampered in its efforts to settle other fraud cases while the appeal is outstanding is uncertain. Two former S.E.C. enforcement officials, who spoke on the condition of anonymity because they now represent clients facing S.E.C. charges in separate cases, said the commission seemed to have slowed its settlement efforts since Judge Rakoff’s ruling.

A person involved in another S.E.C. settlement matter said there had been no slowdown, in part because commission officials have made clear that they expected Judge Rakoff’s decision to be overturned.

The S.E.C. has long contended that it must settle most cases rather than take them to trial because, with limited resources, it cannot afford much litigation. The commission says it frequently achieves in its settlements much the same result that it could hope to obtain in court, without the expense of a trial.

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Citigroup to Lay Off 4,500 Workers

December 7, 2011 by Leave a Comment

Citi will also take a $400 million charge in the fourth quarter to cover the severance and other costs related to the downsizing effort, which will reduce the bank’s work force by about 2 percent, to 262,500 employees. Citi now has roughly 100,000 fewer employees than it did at the end of 2007, before the worst of the financial crisis.

Most of the job losses will come from Citi’s back-office and investment banking operations. Its Wall Street-related business has been hard hit by a slowdown in trading volume amid the turmoil in Europe. But nearly every part of Citi’s sprawling businesses will face cuts.

Citigroup is the latest big bank to announce extensive layoffs, following similar actions by many of its rivals that have coursed through the industry since last fall. While Citi quietly began pruning its work force this summer, Bank of America, Goldman Sachs, Wells Fargo, Bank of New York Mellon — and almost every large European bank — have announced big job cuts.

Wall Street companies have come under intense pressure as the world economy has slowed in recent months, and their once-lucrative trading businesses have sputtered as investors have parked their cash on the sidelines. More traditional banking has also been hit hard by anemic demand for loans, as well as new regulations and consumer outcry against fees on checking accounts, debit cards and credit cards.

Speaking at the Goldman Sachs financial services conference on Tuesday, Mr. Pandit framed the layoffs as part of his plan to brace the company for an even more difficult road ahead.

“Financial services faces an extremely challenging operating environment,” he said. “These trends will likely significantly affect the competitive landscape in the coming years.”

Ever since taking over the bank almost four years ago, Mr. Pandit has been making steady progress on a plan to transform Citi from a global banking behemoth into a more nimble, corporate lender. He has shed hundreds of billions of dollars in assets to lighten its balance sheet, strengthened the bank’s risk controls and repaid the $45 billion bailout the bank received to prevent its collapse in the fall of 2008.

For his efforts, Mr. Pandit accepted a $1-a-year salary — although Citigroup’s board handed him a retention package worth at least $23.2 million earlier this year.

But as the market turmoil in Europe has rippled around the world, Mr. Pandit’s recovery strategy has lost some steam. While Citigroup has cranked out seven consecutive quarters of profits after it set aside less money to cover bad loans, the bank has struggled to increase its income. Revenue fell 10 percent to about $60 billion in the first nine months of this year, compared with the period a year ago.

In his remarks on Tuesday, Mr. Pandit said Citi’s investment banking and trading performance in the current quarter had thus far been in line with its third-quarter results. Those numbers were solid, but nowhere near the blockbuster performance its traders had turned in earlier in the year.

And he warned that the bank was unlikely to see a repeat of the $2.6 billion paper gain it realized in the third quarter, when it benefited from accounting quirks tied to the valuation of its own debt. Based on Monday’s credit spreads, Mr. Pandit said, Citi is on track to take a $600 million paper loss in the fourth quarter.

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Stocks and Bonds: Wall Street Rises After Europe Rally

October 7, 2011 by Leave a Comment

The Standard and Poor’s 500-stock index rose 20.94 points, or 1.83 percent, to 1,164.97, and has risen 5.9 percent since Monday.

On Friday, the Labor Department is scheduled to release its jobs report for September, one of the most highly anticipated indicators of the economy.

Weekly jobless claims rose 6,000, to 401,000, from a revised level of 395,000 last week, the Labor Department said Thursday. The four-week moving average was 414,000, which was 4,000 lower than the previous month and slightly better than analysts’ expectations.

President Obama held a news conference on Thursday to pressure Congress to pass his jobs legislation, and said he was comfortable with a proposal to place a surtax on income over $1 million to cover the bill’s $445 billion cost.

A report on retail sales for September showed the biggest increase in sales since May at stores open at least a year. The companies tracked by Thomson Reuters posted a 5.1 increase in sales, beating analysts’ estimates.

“Last week, when the market was in free fall, the idea was that a recession was inevitable. We’re clearly not out the woods yet, but I think it’s less likely,” said Byron Wien, the vice chairman of Blackstone Advisory Partners.

The Dow Jones industrial average gained 183.38 points, or 1.68 percent, to 11,123.33. The Nasdaq composite index rose 46.31 points, or 1.88 percent, to 2,506.82.

Financial companies, which have been hit hard during the market’s recent downturn, performed strongly. Bank of America’s shares rose 51 cents, or 8.84 percent, to $6.28. Citigroup jumped $1.31, or 5.3 percent, to $26.02. Wells Fargo gained 87 cents, or 3.55 percent, to $25.37.

The benchmark 10-year Treasury note fell 29/32, to 101 6/32, and its yield rose to 1.99 percent, up from 1.89 percent late Wednesday.

The European Central Bank moved to help European banks that are having trouble raising short-term cash, while the Bank of England decided to resume its bond purchases to help support a slowing British economy. Both central banks left their benchmark rates unchanged, at 1.5 percent for the euro area covered by the European Central Bank and 0.5 percent for Britain.

While most economists did not expect a rate cut, some said they were disappointed with the central bank’s actions, particularly because this was the last policy meeting to be headed by Jean-Claude Trichet, who will be replaced by Mario Draghi, governor of the Bank of Italy, on Nov. 1. Mr. Draghi will face pressure not to cut rates immediately to establish his credentials as an inflation fighter, analysts said.

The Bank of England’s resumption of its bond-buying program was a surprise, said Mark McCormick, a currency strategist at Brown Brothers Harriman, a boutique banking firm in New York.

“Bank of England exceeded the markets’ expectations, the E.C.B., I would say, disappointed. But they’re both trying to ease financial conditions and in turn support economic growth from a monetary perspective,” he said.

The banks’ actions caused European currencies to fall against the dollar.

Longer term, however, the picture remained as murky as ever, and financial markets continued to face what strategists at HSBC, in their latest quarterly assessment, called “an unbearable degree of uncertainty.”

After falling 22 percent from their April highs, global equities are likely to remain tricky,” wrote Garry Evans, head of global equity strategy at HSBC in Hong Kong. “There are few signs of a bold solution to Europe’s sovereign debt issues and the 23 November deadline for U.S. debt negotiations looms.”

David Jolly contributed from Paris.

Article source: http://www.nytimes.com/2011/10/07/business/daily-stock-market-activity.html?partner=rss&emc=rss

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DealBook: Foster’s Moves to Thwart SABMiller’s Hostile Bid

August 23, 2011 by Leave a Comment

LONDON — In a bid to fend off a hostile takeover attempt by SABMiller, the Australian brewer Foster’s said on Tuesday that it would return at least $525 million to investors, potentially through a share buyback.

The news, which came as part of the company’s earnings announcement, pushed Foster’s shares to 4.99 Australian dollars, above SABMiller’s 4.90 a share offer. The move increased the possibility that SABMiller might have to raise its bid.

“Given the strength of Foster’s balance sheet, the board is also reviewing capital management options with a view to returning cash of at least 500 million to shareholders during the next 12 months,” John Pollaers, Foster’s chief executive, said in a statement.

SABMiller, one of the world’s largest brewers whose brands includes Peroni and Castle, said last week that it would take its $10 billion bid for Foster’s directly to shareholders, two months after the Foster’s board rejected the offer as too low. Some analysts said previously that SABMiller would have to raise its offer to at least 5 Australian dollars a share to succeed.

With the plan, Foster’s is looking to win the backing of its own shareholders against SABMiller’s bid. The step is likely to buy Foster’s more time to seek a higher price or take further actions to maintain its independence in an increasingly consolidated industry.

The Foster’s takeover defense strategy “has been revealed and offers few real surprises,” a group of Citigroup analysts wrote in a research note. The company said it planned to reduce costs by 55 million dollars on an annual basis before the end of 2013.

As part of its bid, SABMiller has said it would reduce its offer price by any dividend amount paid by Foster’s, which said on Tuesday that it would pay a second-half dividend of 13.25 Australian cents a share. Shares in SABMiller rose 1.6 percent in London on Tuesday in early afternoon trading.

Foster’s also said on Tuesday that it had a net loss of 89 million dollars in the 12 months that ended in June, in large part as a result of a charge of 1.2 billion dollars linked to the spinoff of its wine business. Operating profit was 817 million dollars, a result that broadly met analysts’ expectations.

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DealBook: The Trouble With Financial Stocks

August 11, 2011 by Leave a Comment

Sell now — ask questions later.

That appears to be the mind-set of many nervous investors when it comes this week to financial stocks, which are down more than the broader market. Goldman Sachs is down almost 12 percent since Monday’s open. Morgan Stanley and Bank of America are both down roughly 17 percent. Citigroup dropped 15 percent and JPMorgan Chase shares sank almost 9 percent.

Some market insiders feel the sell-off is overdone. Bank executives are grumbling about it. There is nothing systemic seemingly going on here, they say. In some cases, banks have record-high capital levels thanks to recent regulatory rules requiring them to put up more capital against riskier businesses. Leverage, or how much money a firm borrows to fund its business, is down significantly since the financial crisis. An optimist may even argue these stocks are a screaming buy right now. All of the country’s biggest financial stocks are trading below book value, or crucial financial measure that refers to the liquidation value of a company’s assets if it were forced to sell everything.

So what gives? No one cares about all that right now.

“What you are seeing is the manic ‘I remember 2008’ selling,” said Glenn Schorr, a banking analyst with Nomura. “And the only thing that worked then was to get out of the way and not come back too early. The more cash they have, the safer people feel right now.”

Holders of financial stocks, burned by what happened in 2008, don’t want to stick around and see how this latest bump in the road ends, especially given the questions surrounding bank exposure to Europe, continued litigation stemming from the credit crisis and the potential impact of a possible recession, which threatens to crimp big money makers for the banks, including M.A., underwriting and beyond.

Mr. Schorr said while most banks have stated they have bought protection to hedge against their exposure in Europe, bank investors are worried it may not matter. “There may be a voluntary restructuring instead of an actual bankruptcy so the protection they have bought might not pay off,” he said.

Richard Bove, an analyst with Rochdale Securities, is downright pessimistic, saying concerns over Europe and litigation are just a symptoms of larger problem, one that is systemic.

“This is a continuation of 2008,” he said. “We are finally coming to grips with the fact we have a massive debt problem that needs to be dealt with. This is not a problem for our grandchildren. It is our problem. We have a financial system structured on a bankrupt currency and that system is now breaking down and a new system will arise to replace it, but we don’t yet anything to replace it. “

Mr. Bove said recently moved all his holdings into cash.

While everyone’s hair seems to be on fire this week, major players including Fidelity, Wellington Management and AllianceBernstein have been big sellers of financial stocks for months now, regulatory filings show. This selling points perhaps to another concern about these stocks. Financial firms, with lower leverage levels and more rigorous capital requirements, simply won’t be able to generate anywhere near the returns they did before the financial crisis. Goldman’s return on equity was just 8 percent in the second half of this year, down from more than 30 percent in 2006.

Banks argue that big shareholders are always selling in and out of their stocks. This week’s hubbub aside, the selling by some of these long-term holders suggests that concerns run deep. And even though the country’s banks are well capitalized and have significantly lowered their leverage levels since the crisis, it may be some time before investors wade in again.

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DealBook: JPMorgan Posts $5.4 Billion Profit, Beating Estimates

July 15, 2011 by Leave a Comment

Jamie Dimon, chief of JP Morgan Chase.Andrew Harrer/Bloomberg NewsJamie Dimon, chief of JPMorgan Chase.

9:25 p.m. | Updated

Although banks have been cranking out big profits for several consecutive quarters as the spill of red ink from bad loans slowed, they have had little to show when it comes to growth.

But on Thursday, robust gains in almost all of JPMorgan Chase’s main businesses offered some hope that the industry’s prospects are not as bad as feared. Over all, the bank said second-quarter revenue climbed 7 percent to $27.4 billion — a strong showing amid a stagnant consumer economy and some of the most challenging trading conditions of the last few years.

That helped JPMorgan handily beat analysts’ consensus estimates with a profit of $5.4 billion, or $1.27 a share. Still, it was not enough to lift beaten-down bank stocks. Shares of Citigroup, Bank of America and Wells Fargo fell slightly on Thursday.

The solid revenue figures fly in the face of the dismal projections by many Wall Street analysts, who have been warning that banking is quickly returning to a boring, low-growth business. The figures also take some of the air out of the financial industry’s arguments that new regulations are depressing revenue and stifling the fragile economic recovery.

Even the chairman and chief executive, Jamie Dimon, who has raised concerns about the cost of the new rules, acknowledged that his bank would be able to make up a big part of the missing revenue. “JPMorgan will be just fine,” he said on Thursday on a conference call with reporters.

Bank officials said the revenue levels largely reflected a modest increase in lending and an uptick in fee income that could be sustained in the months ahead. For example, JPMorgan’s investment bank had a sharp increase in underwriting fees for debt and equity, as well as a big increase in deal advisory income that helped offset weaker trading results.

Its Chase retail banking unit benefited from more profitable home lending and an increase in fee income from checking accounts, debit cards and the sale of investment products. That helped it absorb charges totaling almost $1 billion to cover mortgage losses, and an additional $2.3 billion in charges tied to rising legal and foreclosure costs.

Revenue in its corporate banking, asset management and treasury services units also grew.

Only the bank’s big credit card business, Chase Card Services, had a decline in revenue from a year ago. It fell 7 percent as a result of legislation that eliminated lucrative penalty fees and its decision to shed a risky credit card portfolio it had acquired with Washington Mutual.

The rest of the banking industry has been bracing for lower top-line growth. Besides the impact of the new financial regulations, the weak job and housing markets have curtailed lending. Ultra-low interest rates are putting pressure on profit margins. And Wall Street trading revenue, which helped prop up the banks’ results in wake of the 2008 financial crisis, also has slowed.

All told, revenue for the banking industry is expected to fall more than 5 percent, to about $186 billion in the second quarter, according to Trepp, a financial research firm. That would put it near 2005 levels.

Second-quarter profits, however, are likely to be far more robust than a year ago — about $30.6 billion industrywide, up 41 percent. The reason is that many banks stand to benefit from the reversal of funds they had previously set aside to cover losses or legal claims.

That windfall can help pad bank bottom lines, even if there is little top-line growth. In JPMorgan’s case, a $1 billion benefit from the reversal in credit card loan loss reserves contributed to about 12 percent of its second-quarter, pretax earnings.

For the entire industry in the first quarter, about $12.6 billion, or roughly 43 percent of profits, came from the release of reserves. Analysts expect to see similar trends in the second quarter. Citigroup, which will report on Friday, is expected to show revenue falling about 9 percent from a year ago, according to analysts’ consensus estimates from Thomson Reuters. Net income, the analysts project, will rise about 9 percent amid lower losses on credit card and corporate loans.

At Goldman Sachs, which will report on Tuesday, revenue is expected to fall about 3.5 percent from a year ago, according to analysts’ consensus estimates. Profit could rise sharply from the second quarter of 2010, when the bank took a big charges to cover the British tax on bonuses and resolve allegations by federal securities regulators that it had misled investors on a complex mortgage deal.

Revenue at Bank of America, which also will report on Tuesday, was expected to drop about 15 percent, largely because of $20 billion worth of charges tied to the cleanup of its mortgage troubles, which it announced in late June. As a result, the bank warned that it would lose $8.6 billion to $9.1 billion.

Some analysts suggest that JPMorgan’s strong results could be the exception rather than the rule. Much depends on how banks fare in the most unpredictable of businesses — trading.

“For those who own these stocks, it was a pleasant beginning to the earnings season,” said Frederick Cannon, an analyst at Keefe Bruyette Woods. “But one point doesn’t make a line.”

Article source: http://dealbook.nytimes.com/2011/07/14/jpmorgan-chase-quarterly-profit-rises-13/?partner=rss&emc=rss

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