March 21, 2023

Bucks Blog: Housing Market Improvements Lessen Consumer Distress

A home for sale in Los Angeles.Associated PressA home for sale in Los Angeles.

Improvement in the nation’s housing markets has helped ease consumer financial woes, according to a quarterly report from a large credit counseling agency.

For the first time in nearly four years, the Consumer Distress Index, published by the nonprofit agency CredAbility, showed that  consumers nationally were inching their way out of financial distress.

The index tracks the financial condition of American households by measuring employment, housing, credit, household budget management and net worth. United States households scored a 71.3 on the 100-point index, an increase of 1.4 points from the first quarter. Scores below 70 indicate financial distress. The last time the index topped 70 was in the third quarter of 2008.

Housing was the main driver of consumers’ improved financial condition this quarter, according to Mark Cole, the agency’s executive vice president and chief operating officer. Late payments on mortgages reached a three-year low, and housing costs dropped as many homeowners cut their payments by refinancing.

The average household also kept a tighter rein on its budget, which helped drive the savings rate to a one-year high in June. Net worth also ticked up.

The index’s unemployment score improved by only a half-point, however, to 59.8 from 59.4, and continued to drag down the index. Although 381,000 jobs were added during the quarter, joblessness remained the same as more people who had given up looking began seeking work again.

Whether the overall gains persist, in light of continued economic uncertainty and the political headwinds of an election year, remains to be seen, Mr. Cole said. “This really is very fragile in nature.”

This quarter’s report also includes information on metropolitan areas. Several large areas remain in distress. Orlando, Fla., suffering from both housing woes and stubborn unemployment, is the most distressed city, followed by Tampa-St. Petersburg in Florida, Riverside-San Bernardino in California, Las Vegas and Miami-Fort Lauderdale. Among the 30 largest metropolitan areas, the healthiest cities are Boston, Washington, D.C., Minneapolis-St. Paul, Dallas-Fort Worth and Denver.

Are you feeling less distressed financially? Why or why not?

Article source: http://bucks.blogs.nytimes.com/2012/08/29/housing-market-improvements-lessen-consumer-distress/?partner=rss&emc=rss

DealBook: Less Trading at Morgan Stanley; Revenue Slips 24%

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Morgan Stanley's headquarters in Manhattan. The bank is transforming into a smaller, safer company that takes fewer risks.Eric Thayer/ReutersMorgan Stanley‘s headquarters in Manhattan. The bank is transforming into a smaller, safer company that takes fewer risks.

5:30 p.m. | Updated

While many banks are getting battered by the trading slump, Morgan Stanley is feeling the pain more acutely.

On Thursday, the bank reported a 24 percent drop in revenue for the second quarter, driven by a significant decline in bond, currency and commodity trading.

Wall Street banks have faced a largely inhospitable environment in recent years, racked by economic uncertainty, the European debt crisis and a new regulatory system. But Morgan Stanley has been trying to navigate the market while also working to transform itself by shedding riskier businesses and building its steadier wealth management arm.

The bank had started to show signs of improvement in previous quarters, but then it got buffeted by the recent trading downdraft. For the quarter, Morgan Stanley reported that earnings came in at 29 cents a share, widely missing the 43 cents a share that analysts had expected. It posted a loss in the same period of 2011.

The bank also faced the repercussions from a recent credit rating downgrade. The bank was forced to post $2.9 billion in additional money to back its trades in the quarter, after Moody’s Investors Service cut its rating by two notches.

The results spooked investors. On a day when the market was up, shares of Morgan Stanley fell as much as 7 percent before recovering slightly to finish the day down 5.3 percent at $13.25.

Glenn Schorr, an analyst at Nomura, wrote in a research note that it was “hard to pick out too many positives” from the firm’s quarterly results.

And Howard Chen of Credit Suisse described the quarter in a report to investors as “weak and disappointing.”

As the bank looks to bolster its profit, Morgan Stanley has taken steps to clamp down on expenses and head count. On Thursday, James P. Gorman, Morgan Stanley’s chairman and chief executive, said that the firm expected to shrink its employee base by 7 percent by the end of the year.

The firm is also seeking to cut other expenses, including by moving some staff to cheaper locations like Baltimore and Glasgow, and being more selective in filling positions.

“Although global economic uncertainty remains a headwind, we are proactively positioning the firm for success,” Mr. Gorman said in a statement. “We continue to be focused on taking the necessary steps to deliver strong returns for our shareholders.”

Even so, the bank faced headwinds, particularly in trading. In fixed income, Morgan Stanley has tried to simply its offerings, moving away from complicated and capital-intensive products that can prove risky in tough environments.

But the “challenging macro backdrop” weighed on profits, Ruth Porat, the bank’s chief financial officer, said in a telephone interview.

With the European debt crisis heating up, investors became increasingly uncertain and trading volume plummeted. Revenue in fixed income fell by 60 percent in the second quarter, to $770 million, a drop that outstrips competitors.

Morgan Stanley is also dealing with the fallout from the credit downgrade. In February, Moody’s put big banks on warning, with Morgan Stanley facing a potential three-notch downgrade.

Some clients pulled back, as they waited for Moody’s to complete its review, Ms. Porat said.

It only added to the bank’s pain that the rating agency delayed the results, she added. In June, Moody’s ended up cutting the firm’s rating by two levels.

“As the month wore on, clients took a wait-and-see attitude,” she said. “Time was not our friend.”

Other businesses suffered as well. Advisory revenue was halved from the year-ago period, to $263 million, as fewer corporations pursued mergers or sales of stocks and bonds.

Still, Mr. Gorman highlighted the division’s performance, pointing to big mandates like leading Facebook’s initial public offering. (The firm has defended its work taking Facebook public, but the social networking company’s stock has fallen 24 percent since the initial public offering in May.)

Morgan Stanley did have one area that posted a gain, the global wealth management group that now includes Morgan Stanley Smith Barney. The unit reported a 23 percent gain in pretax income, to $393 million, although net revenue declined slightly.

The weakness is reducing its profitability. The bank’s return on equity now stands at 3.5 percent, down from 12.2 percent in 2010. Goldman Sachs, one of the firm’s competitors, said this week that its 5.4 percent return on equity was “unacceptable.”

Revenue in Morgan Stanley’s second quarter was $6.95 billion, down from $9.2 billion.


This post has been revised to reflect the following correction:

Correction: July 19, 2012

An earlier version of this post misstated the drop in Morgan Stanley’s revenue as 35 percent, not 24 percent.

Article source: http://dealbook.nytimes.com/2012/07/19/morgan-stanley-swings-to-profit-but-revenue-falls/?partner=rss&emc=rss

Microsoft Income Gains 6%, but Weak PC Sales Continue

Microsoft said its net income rose 6 percent, to $5.74 billion, or 68 cents a share, from $5.41 billion, or 62 cents a share, a year ago. Revenue jumped 7 percent, to $17.37 billion, from $16.2 billion a year ago.

Analysts on average estimated Microsoft would earn 68 cents a share on revenue of $17.24 billion, according to Thomson Reuters.

The PC market, or at least for the vast majority of PCs inside companies running Microsoft’s Windows operating system, have suffered lately as economic uncertainty has crimped spending on information technology. Newer types of devices like tablets and mobile phones have sapped some of the business as well. Microsoft said its revenue from selling Windows rose less than 2 percent during its first quarter, which ended Sept. 30.

Microsoft’s shares fell 1 percent after it released the financial results at the close of normal trading hours.

Shipments of new PCs grew only 3.6 percent globally in the quarter, which ended Sept. 30, according to the research firm IDC. Apple defied the trend, reporting a 26 percent increase in the number of Macs sold during the same period, the company said on Tuesday.

Brendan Barnicle, an analyst at Pacific Crest Securities, said the company’s revenue from Windows sales were weaker than he had expected. “We’ve now had a year where Windows hasn’t come in in-line with analyst expectations,” he said. “It’s less of a miss than in the past.”

One other problem for Microsoft is that some of the stronger sources of growth in the PC business are now in developing markets like China. While that is good news for other players in the PC business, like Intel, that make hardware components, Microsoft has a harder time in those regions because of high software piracy rates and lower average selling prices for its products.

Microsoft’s Windows business is also facing a growing challenger in the iPad. Tech industry executives are divided about the degree to which Apple’s tablet computer is eating away at sales of traditional PCs, but even Microsoft executives concede there has been an impact, especially on low-end notebooks.

Earlier this week, Apple’s chief executive, Tim Cook, said he believed that the iPad was cannibalizing some sales of Macs, but that a “materially larger” number of iPad buyers were choosing the tablet device over a Windows PC. Apple sold 11.1 million iPads in its last quarter. “With cannibalization like this, I hope it continues,” Mr. Cook said.

Microsoft intends to tackle the threat from the iPad with a new version of Windows, known currently as Windows 8, that has been redesigned for the touch screens of tablet devices, but that product is not expected to appear for about another year.

Peter Klein, Microsoft’s chief financial officer, said in a news release that the company’s “product portfolio is performing well, and we’ve got an impressive pipeline of products and services that positions us well for future growth.”

Article source: http://feeds.nytimes.com/click.phdo?i=5b768feda19b585682d1f19a9c32b4e4

Britain May Delay Tighter Regulations on Banks

On Monday, a government-appointed banking commission is expected to present its final recommendations on how to protect taxpayers from bearing the costs of any future bank collapses. The plan aims to separate a bank’s deposit-taking business from the riskier trading and investment banking operations, which would be allowed to fail should they run into trouble.

But at a time of heightened economic uncertainty, the government of Prime Minister David Cameron has grown nervous about the proposed changes, said two government officials who declined to be identified because no final decision has been made.

Mr. Cameron is concerned that the changes will drive up banks’ financing costs and in turn limit their ability to lend to British businesses, which would threaten an already weak economy, the officials said.

So even if the Independent Commission on Banking proposes far-reaching changes, London is likely to delay their implementation until after the next election, planned for 2015, the officials said.

“This is a political and not a financial thing now,” said Simon Gleeson, a partner at the law firm Clifford Chance. “What everybody hoped was that by the time we got to reforming banking regulation we’d have a more stable economy. But we don’t and that’s the biggest challenge.”

The British economy grew just 0.2 percent in the second quarter, and the Bank of England has cut its growth forecast for this year to 1.5 percent from 1.9 percent.

The British proposal would make it considerably more expensive to raise capital for investment banking and would be much more painful for Britain’s banks than the so-called Volcker Rule in the United States.

Under the United States approach, originally advocated in a stronger form by Paul A. Volcker, the former Federal Reserve chairman who served as an adviser to President Obama, banks’ freedom to trade with their own capital and manage hedge funds would be limited. But they would still be able to borrow money economically because their balance sheets would remain unified.

British banking executives, nervous that the new rules would increase their financing costs and threaten their credit ratings, have stepped up lobbying efforts in recent weeks.

Barclays and Royal Bank of Scotland would be the most affected by the new rules because they have large investment banking businesses and could see profit drop by a third, according to a research note by JPMorgan Chase.

The chief executive of Barclays, Robert E. Diamond Jr., and his counterpart at R.B.S., Stephen Hester, have held lengthy discussions with the government, arguing in favor of the universal banking model, that is, leaving consumer and investment banking linked. They claimed this had helped their banks to withstand risks, according to a Treasury official who declined to be identified because the talks were private.

In a preliminary report in April, the Independent Commission on Banking suggested limiting the use of consumer deposits to finance the investment banking operation by setting up a so-called ring fence around the consumer operations. On Monday, the commission is expected to give more detail on exactly which businesses should be “ring-fenced” and how strict the separation should be. As an example, banks could be restricted to using deposits only for personal loans and the purchase of government bonds.

Angela Knight, the head of the British Bankers Association, an industry group, said the commission’s proposals would weaken rather than strengthen the financial sector. “Ring-fencing becomes unattractive to investors of all types as it reduces the benefits of diversification, gives borrowers a worse deal, and is inefficient from a capital, funding and operational perspective,” she said.

Among the biggest fears for banking executives is that the new rules would increase the financing costs of investment banking by implying the business would be allowed to fail. Interbank lenders, the executives argue, would demand higher rates in return for the higher risk. The banks’ total financing costs could rise by about £2 billion a year, according to a report by Citigroup analysts.

Article source: http://feeds.nytimes.com/click.phdo?i=831467389fc9350a49bcde1b58e03c95