September 30, 2023

Facebook Shares Touch a Symbolic Threshold

On Wednesday morning, the company’s stock crossed an important psychological barrier, trading above $38 a share, the price at which Facebook, the world’s leading social network, first sold shares to the public in May 2012.

The catalyst for the rise was the company’s surprisingly strong second-quarter earnings report last Wednesday, which quelled many investors’ doubts about Facebook’s ability to make money from its legions of mobile users and suggested that the company’s profit stream would continue growing.

Since last week’s report, shares have risen about 34 percent. Early Wednesday, they briefly touched $38.31 a share, although they pulled back to end at $36.80 a share at the time the market closed.

The company’s shares hit a low of $17.55 last fall. Since then, investors have warmed to the company as its management demonstrated that it can increase profits and not just users.

“There was a perception that they hadn’t monetized the users they have,” said Aaron Kessler, an analyst at the Raymond James brokerage firm, referring to last summer, when the Facebook’s stock was trading at half the current level.

These days, Wall Street sees revenue potential everywhere — from soon-to-come video ads in the Facebook news feed to the expansion of high-dollar ads targeted to specific swaths of Facebook users.

“Facebook was caught flat-footed by the shift to mobile,” said Mark S. Mahaney, an analyst with RBC Capital Markets. Now, he said, “they appear to be set up as a sustainable, high-growth business.”

Still, there are reasons to be concerned. Mobile messaging platforms like Snapchat and WhatsApp are grabbing the attention of many of Facebook’s younger users. Twitter is mounting a major effort to go after marketers, especially brands that typically advertise on television, as it prepares for its own likely public offering.

And Facebook risks turning off users with too many ads. About 1 in 20 items in the news feed, the main flow of items that a Facebook user sees, is an ad. During the company’s quarterly conference call with analysts, Facebook’s co-founder and chief executive, Mark Zuckerberg, said that users were beginning to notice the number of ads, suggesting that the company could not greatly increase their frequency without losing some users.

Nate Elliott, a principal analyst with Forrester Research, said Facebook users who visit the site on a computer’s browser still see too many cheap, poorly targeted ads on the right side of the page. “They’ve got to get much better at targeting,” he said.

Despite these worries, investors’ views of the company’s prospects have clearly changed.

Mr. Mahaney, whose firm has a $40 price target on the Facebook stock, said that analysts across Wall Street had increased their projections of the company’s financial performance. Analysts now expect Facebook to increase its profits 30 to 35 percent a year through 2015.

Because stocks tend to trade as a multiple of a company’s future profits, those upgrades last week sent Facebook’s stock soaring.

Facebook officials declined to comment on the stock rise on Wednesday. But for the company’s executives, who had urged investors to be patient as their strategy played out, the surge surely offers some vindication.

The company raised $16 billion from the initial public offering on May 18, 2012, vaulting it into the big leagues of American stocks, but problems struck immediately. The Nasdaq stock exchange botched the handling of buy and sell orders on the first day of trading — so badly, in fact, that regulators eventually fined Nasdaq $10 million for the fiasco.

In ensuing weeks, Facebook shares continued to fall. Instead of pouring into the stock, as they did a decade earlier with Google, many investors questioned whether Facebook’s stock was overpriced at $38 a share.

Particularly worrisome was Facebook’s seemingly nonexistent mobile strategy just as Internet users were abandoning PCs for their smartphones. The company’s smartphone and iPad applications were clunky, and it was generating no revenue from mobile ads.

Facebook’s management, including Mr. Zuckerberg, recognized the problem and began a crash course to revamp the company’s approach to mobile and better position the company for fast-growing emerging markets.

The company overhauled its apps, introduced ads into its users’ news feeds, and created a new category of revenue called app-install ads. With the app-install ads, a game maker, for example, can promote its new game in Facebook’s mobile software and give users an easy way to install the app with just a couple of clicks.

Facebook also introduced new advertising products meant to give marketers more ways to target specific groups of customers, which allowed the service to charge higher advertising rates.

While mobile advertising continues to grow, and was about 41 percent of Facebook’s ad revenue in the second quarter, investors are also looking to new areas of potential profit growth. Those include video advertising in the news feed, which is expected to begin later this year, and the possible sale of ads in Instagram, the fast-growing photo and video-sharing app that Facebook bought in 2012.

“All of those seem like relatively large low-hanging fruit, and they are starting to go after them,” Mr. Mahaney said.

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Earnings Reports Offer No Clear Signals, So Markets Meander

The stock market lacked direction on Tuesday following some uneven corporate earnings news.

Most major indexes closed slightly lower, except for the Dow Jones industrial average. Yet even the Dow’s modest gain was a result of a 3 percent increase in one stock, United Technologies.

Better earnings from big banks, health insurers and other companies have helped drive the stock market higher this month. On Tuesday, however, the encouraging and the discouraging seemed evenly matched. Wendy’s and United Technologies surged after posting stronger results than financial analysts had expected. Netflix and the Altria Group, maker of Marlboro cigarettes, sank after their results fell short.

“In the absence of major economic news, the focus is on earnings this week,” said David Joy, chief market strategist at Ameriprise Financial. “And there’s nothing today to drive the market dramatically one way or another.”

The Dow industrials rose 22.19 points, or 0.14 percent, to 15,567.74. If not for the gain in United Technologies stock, the Dow would have closed down a point.

United Technologies jumped $3.01, to $105.12, after the conglomerate said strong orders for commercial airline parts and elevators helped lift its profit.

The Standard Poor’s 500-stock index fell 3.14 points, or 0.19 percent, to 1,692.39, backing off the nominal record closing high it set Monday. The Nasdaq composite index fell 21.11 points, or 0.59 percent, to 3,579.27.

It was a busy day for earnings as 35 companies in the S. P. 500 were scheduled to turn in results. The second-quarter scorecard looks good so far. More than six out of every 10 companies have posted earnings that surpassed Wall Street’s expectations, according to SP Capital IQ.

Analysts forecast that second-quarter earnings for companies in the S. P. 500 increased 3.8 percent over the same period last year.

“The bar has been set pretty low,” said Joel Huffman, senior portfolio manager at U.S. Bank Wealth Management. So it’s hardly a surprise that many companies are able to jump over it, he said.

Sales are another story. Analysts expect revenue to shrink 0.7 percent in the second quarter. Mr. Huffman said he was encouraged that many banks and makers of consumer-discretionary goods had reported stronger American sales. “It’s an indication of the underlying growth in the U.S. economy versus other parts of the world,” he said.

Apple shares rose 4 percent in after-hours trading, when the company reported earnings and revenue that beat Wall Street’s forecasts.

Among the stocks on the move, Wendy’s jumped 55 cents, or 8.2 percent, to $7.23. The fast-food company’s net income came in above Wall Street’s expectations. Wendy’s also announced plans to sell 425 restaurants as franchises and raised its quarterly dividend by a penny, to 5 cents.

The Altria Group said its quarterly results fell short of analysts’ expectations. Altria’s stock sank 89 cents, or 2.4 percent, to $35.99.

Netflix shares dropped $11.70, or 4.5 percent, to $250.26. The company said late Monday that it signed up fewer subscribers than financial analysts had projected. Big expectations have propelled Netflix’s stock up 170 percent since the start of the year, putting more pressure on the company to deliver amazing numbers.

In the bond market, interest rates moved higher. The price of the 10-year Treasury note dropped 6/32, to 93 15/32, while its yield rose to 2.51 percent from 2.48 percent late Monday.

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Economix Blog: What Went Wrong in Detroit, and the Road Ahead

Jared Bernstein is a senior fellow at the Center on Budget and Policy Priorities in Washington and a former chief economist to Vice President Joseph R. Biden Jr.

Today’s Economist

Perspectives from expert contributors.

According to various second-quarter earnings reports, Citigroup’s profits were up 40 percent in the quarter, Bank of America’s were up 60 percent, and Goldman Sachs profits doubled.

In other news, Detroit just declared bankruptcy.

Talk about a tale of two cities.

Of course, there’s a lot going on in these different stories.  Detroit, in particular, faces a complex skein of challenges, as The New York Times noted:

“…numerous factors over many years have brought Detroit to this point, including a shrunken tax base but still a huge, 139-square-mile city to maintain; overwhelming health care and pension costs; repeated efforts to manage mounting debts with still more borrowing; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction.”

In Detroit, as various news reports have cited, it takes the police an hour to respond to an emergency call; the average for the nation is 11 minutes.

The city is estimated to owe as much as $18 billion to $20 billion to its creditors. For a sense of that magnitude, consider that the next largest municipal bankruptcy in United States history involved $4 billion in debt.

Unemployment is almost 19 percent in the city, poverty around 40 percent.  The figure below shows the latest job creation numbers by city, with Detroit at the end of the graph.

Over-the-Year Change in Employment, March 2013

Source: Bureau of Labor Statistics

So in a statistical and fiscal sense, it’s a failed city, and there is a reasonable chance that a Chapter 9 bankruptcy, which in important ways is milder than the chapter of the code that applies to businesses (Chapter 11), will help it start over.  But despite some sunny comments to that effect in Friday’s newspapers, there’s a lot of personal pain for retirees, pensioners, union members and city workers between here and there.

What happened, and where does the city go from here?

It’s obviously been a long way down for Detroit, and it will take dedicated urban historians to provide the full story.  But a brief word about the economics.

Despite the fact that the distorted American debate claims that everybody wins, in fact, globalization creates winners and losers.  That’s not at all an endorsement of protectionism.  It’s saying that policy makers have to work hard, much harder than ours have, to create an environment where citizens benefit from expanded global trade not just as consumers seeking lower prices but as workers needing rising wages.

That means states and cities with industrial bases need to diversify, retrain their work forces, and look around corners to see what’s coming.  I’m not saying it’s easy, and again, there will be be winners and losers.  But you’ve got to try.

Second, national leaders have to recognize that there is simply no such thing as pristine “free trade.”  Every country, including our own (though we tend to do so weakly), goes after export markets and tries to position itself to be internationally competitive.  And some countries go further, managing their currency values to gain a price advantage and forcing excess national savings leading to large global trade imbalances.  The United States has been hurt by those imbalances for decades, as our large trade deficits have exported labor demand, particularly in manufacturing, abroad.  Moreover, we’ve done little to push back against these practices.

Detroit, along many other former manufacturing giants, has been hurt by the neglect of United States policy makers and the economists who advise them to rise to this challenge.  Too often — and I’ve heard economists at the highest levels of power make this case — there’s an assumption that this is all the free hand of the global marketplace at work, and that we’ll rebalance our trade accounts by selling services to the rest of the world while we buy their goods.

Maybe someday that’s where things will settle, but a glance at the magnitudes — as in the figure below — should give one pause concerning that facile solution.  Our trade deficits in goods are large multiples of our surpluses in services, and that’s not changing any time soon.

Source: Census Bureau

No, the vision that we can be a successful nation based on global finance returning profits like those above while the broad middle class falls behind, and a major city fails, is not one that most Americans would or should support.

As far as next steps for Detroit, that’s worth watching closely, as the terms of the bankruptcy are decided.  The central questions will be how the pain is divided up between creditors who are fighting to resist haircuts on their loans to the city and the stakeholders noted above.

The other thing we’re about to see is a big push by conservatives to blame public unions and big government.  As I’ve noted, bad governance is surely in play in Detroit, but there are lots of American cities with large public unions and active governments, and they’re not bankrupt.  You simply cannot understand Detroit’s fall without considering the role of globalization and the city’s failure to diversify out of autos.

At any rate, as the tale of two cities reminds us, this is economically the best of times and the worst of times.  The problem is that it’s the best of times for too small a share of us.

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Earnings Throw Water on S.&P. 500’s Party

A string of lackluster earnings reports weighed on the stock market on Tuesday, ending an eight-day winning streak for the Standard Poor’s 500-stock index.

Coca-Cola, the world’s largest beverage maker, fell after the company said it sold less soda in its home market of North America and its earnings declined 4 percent. Charles Schwab, the retail brokerage firm, dropped after it reported disappointing second-quarter earnings. And Marathon Petroleum, the fuel refiner, declined after it forecast weak earnings and said its business was being hurt by renewable-fuels laws.

“The expectations out there for earnings over all, they’re pretty modest,” said Scott Wren, a senior equity strategist at Wells Fargo. “Earnings season is not going to be what drives the market from here.”

The Dow Jones industrial average fell 32.41 points, or 0.2 percent, to close at 15,451.85. The S. P. 500 declined 6.24 points, or 0.4 percent, to 1,676.26. The Nasdaq composite dropped 8.99 points, or 0.3 percent, to 3,598.50.

Eight of the 10 industry groups in the S. P. 500 fell. The declines were led by materials companies. Phone and technology companies were the two groups that gained.

Coke dropped 78 cents, or 1.9 percent, to $40.23 after the company reported that its second-quarter profit fell 4 percent. Charles Schwab fell 71 cents, or 3.3 percent, to $21 after its earnings came in short of analysts’ expectations as expenses rose and its interest margins fell. Marathon Petroleum fell $3.17, or 4.3 percent, to $69.93.

“Expectations for earnings growth this quarter are fairly subdued,” said Michael Sheldon, chief market strategist for the RDM Financial Group. “However, the important thing for investors is to look ahead to the second half of the year, where earnings are supposed to pick up significantly.”

Overall S. P. 500 earnings are expected to grow by 3.4 percent in the second quarter from the same period a year ago, according to data from SP Capital IQ. The rate of earnings growth is predicted to rise in the third and fourth quarters, reaching 11.6 percent in the final three months of the year.

The stock market has climbed back to record levels after a brief slump in June, when the S. P. 500 logged its first monthly decline since October on concerns that the Federal Reserve would ease back on its economic stimulus too quickly. The S. P. 500 rose for eight consecutive trading sessions through Monday, its longest winning streak since January. The index is up 4.4 percent in July, putting it on track to log its biggest monthly gain since January, when it rose 5 percent.

Stocks rose last week when Ben S. Bernanke, the Fed’s chairman, said the central bank would not ease its stimulus efforts before the economy was ready. On Wednesday, Mr. Bernanke is scheduled to give his semiannual testimony to Congress on the economy.

Esther L. George, president of the Federal Reserve Bank of Kansas City and a voting member of the Fed’s monetary policy committee, said on Tuesday that the central bank should cut back on its stimulus as the labor market begins to recover. The central bank is currently buying $85 billion of Treasury and mortgage securities a month to keep interest rates low and to encourage borrowing and hiring.

“It is time to adjust those purchases,” Ms. George told Fox Business Network.

In government bond trading, the 10-year Treasury note rose 3/32, to 93 8/32, while its yield slipped to 2.53 percent, from 2.54 percent late Monday. The 10-year Treasury yield has retreated since surging as high as 2.74 percent on July 5.

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DealBook: Citigroup Profit Climbs 42%

Citibank's earnings report said that the bank was helped by bond and stock trading revenue.Mario Tama/Getty ImagesCitibank’s earnings report said that the bank was helped by bond and stock trading revenue.

Citigroup posted a 42 percent rise in second-quarter earnings on Monday, handily beating expectations, as the sprawling bank worked to cut costs and expand its international lending operations.

The bank, which has hitched much of its hopes for growth to emerging markets, reported a profit of $4.18 billion, or $1.34 a share, compared with $2.94 billion, or $1 a share, in the period a year earlier. Citigroup, the nation’s third-largest bank by assets, reported revenue of $20.5 billion, up 12 percent from the period a year earlier.

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Excluding a $477 million gain from a valuation adjustment on Citigroup’s debt, the bank reported earnings of $1.25 a share. The results were bolstered by strong gains in trading revenue.

The performance exceeded analysts’ profit expectations of $3.55 billion, or $1.19 a share. Citibank was expected to report revenue of $19.76 billion, up from $18.64 billion in the period a year earlier.

“Our businesses performed well during the quarter and these results are well balanced through our products and geographies, especially in the emerging markets, where growth is being challenged,” Michael L. Corbat, the chief executive of Citigroup, said in the bank’s earnings release on Monday.

Under Mr. Corbat’s leadership, Citigroup is continuing to refocus on businesses that fit within its core strategy. As part of that push, the bank has shed $18 billion worth of assets. Citigroup also sold the remainder of its stake in the Morgan Stanley Smith Barney brokerage joint venture. Mr. Corbat also reached deals during the second quarter to sell the bank’s consumer lending units in Turkey and Uruguay.

With international lending operations that dwarf those of many of its United States rivals, Citigroup’s opportunities for growth rise and fall with the fate of emerging markets. Any sluggishness overseas, particularly in Mexico where the bank has a large presence, always lurks as an issue that could undercut earnings.

More than 50 percent of Citigroup’s revenue comes from outside of North America. While the growth in emerging markets has certainly exceeded that in the the United States, it is still producing a dispirited response from Citigroup’s top banking executives. In Mexico, for example, economic growth was not as robust as expected, Citigroup said on Monday. “Mexico shocked everyone,” John Gerspach, the bank’s chief financial officer, said on a conference call on Monday.

As growth cools in China — it reported a slowdown in second-quarter gross domestic product on Monday — other Asian economies could be damped as well.

Emerging markets were hit, as well, when Ben Bernanke, the chairman of the Federal Reserve, said in Congressional testimony in May that the government was considering whether to scale back its bond-buying program if the American economy shows signs of improvement.

During a conference call on Friday, Jamie Dimon, the brash chairman and chief executive of JPMorgan Chase, commented on the strength of emerging markets when the bank reported its earnings, suggesting that some banks capitalized on the ensuing volatility while others missed out. “Our folks in emerging markets did a particularly good job, which might not be the same for some others reporting,” he said.

On Monday, Mr. Gerspach said that the bank “did a very good job of managing our business in the emerging market this quarter.”

And despite mercurial emerging markets, Citigroup registered gains abroad. Revenue from consumer banking abroad rose 6 percent, to $4.7 billion, compared with figures in the period a year earlier. Adding to the uncertainty for Citigroup is the mercurial regulatory challenges abroad. Profits from those units grew by 4 percent, to $826 million.

Still, Citigroup’s quarterly earnings point to broader challenges facing the United States banking industry. On Friday, JPMorgan Chase and Wells Fargo reported declines in mortgage banking revenue, eroded in part by refinancing machines that were beginning to slow. A sharp uptick in interest rates has caused the refinancing boom to sputter.

Continually rising rates could damp borrowers’ appetite for refinancing existing mortgages or buying a house. Within Citigroup’s consumer banking unit, profit fell slightly by 1 percent, to $1.95 billion. As fewer consumers fall behind on their bills, Citigroup was able to empty some of the reserves — approximately $228 million — for the losses. While it receives a boost from an improvement in credit quality, Citigroup is still grappling, like many of its large peers, with skittish American consumers who remain skeptical of taking on new debt.

The wariness was clear in Citigroup’s American lending operations. “The U.S. consumer is still going through a period of deleveraging,” Mr. Gerspach said on Monday.

Adding to the uncertainty in the United States are fresh capital rules introduced by regulators last week. Since the financial crisis of 2008, regulators have been steadily introducing new requirements aimed at bolstering capital levels that could help Wall Street withstand market turbulence.

Under the new rules, regulators are pushing for banks to hold more capital as a percentage of their assets. Banks have two months to comment on the rules. On Monday, Mr. Gerspach cautioned that the requirements could undercut the bank’s ability to compete with its international rivals.

“We would all be better if there was a level playing field around the world,” he said on Monday. Like its large peers, Citigroup is wrestling with how to offset income siphoned by new financial regulation and the lackluster American economy.

A bright spot for Citigroup was its securities and investment banking business. Within fixed income, revenue swelled by 18 percent, to $3.37 billion. Revenue from stock trading rose 68 percent, to $942 million, in the second quarter.

Investors are closely watching the bank’s quarterly reports during the first year under the leadership of Mr. Corbat, who took the reins after the ouster of Vikram S. Pandit. In October, Michael E. O’Neill, the bank’s forceful chairman, pushed Mr. Pandit out in favor of Mr. Corbat.

Building on the path outlined by Mr. Pandit, Mr. Corbat has promised to continue cutting costs. Toward that goal, Citigroup reduced assets in its Citi Holdings unit by 31 percent in second quarter, to $131 billion. In an encouraging sign for Citigroup, losses within the unit that houses a glut of unwanted assets fell to $570 million from $910 million in the period a year earlier. In the aftermath of the financial crisis, Citigroup created the unit in 2009 to house a morass of soured assets. Losses on that unit were the lowest since its creation.

Even as Mr. Corbat has aggressively moved to reduce the bank’s costs, operating expenses rose 1 percent, to $12.1 billion, from the period a year earlier. Last year, as one of his first initiatives after taking over as chief executive, Mr. Corbat announced plans to eliminate 11,000 jobs.

As the bank seeks to move beyond the specter of its mortgage woes, Citigroup agreed in June to pay $968 million to settle claims that it had sold shaky mortgage loans to Fannie Mae. Before the bank empties its reserves to cushion against mortgage losses, Citibank has said it will be conservative, waiting for substantial improvement in the housing market and overall economy.

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Stocks End Down After Jobs Report

Stocks fell on Friday, giving the Standard Poor’s 500-stock index its worst weekly performance of the year, after a weaker-than-expected report on American employment, the latest in a series of data to indicate economic growth may be losing momentum.

The S.P. 500 fell 0.4 percent by the end of trading, while the Dow Jones industrial average lost 0.3 percent and the Nasdaq composite index slipped 0.7 percent.

All three indexes had improved from a loss of about 1 percent earlier in the day after the jobs report. About 88,000 jobs were added in March, less than half the forecast of 200,000, though the unemployment rate dipped to 7.6 percent from 7.7 percent. The report follows similarly disappointing reads on the manufacturing and services sector, as well as other poor labor market data.

“The numbers were certainly disappointing, but it has only been a week of some bad data points,” said JJ Kinahan, Chicago-based chief derivatives strategist at TD Ameritrade. “We will have to see a steady continuation of this to say it is becoming a trend.”

F5 Networks was the S.P.’s biggest percentage loser, dropping nearly 20, a day after forecasting second-quarter earnings and revenue that were well below expectations.

Several of F5’s peers were also sharply lower, with Juniper Networks off 3.5 percent and Citrix Systems down 1.5 percent.

Airline stocks were hit after J.P. Morgan Securities cut its revenue expectations for United States airlines by 2 to 3 percent for 2013 and 2014 and said it expected monthly revenue per available seat mile to turn negative for some airlines, hurt by federal budget cutbacks.

Delta Airlines fell 2.3 percent and United Continental Holdings was off 1.2 percent.

The S.P. 500 was down about 1 percent for the week, only its third weekly loss this year It has gained about 9 percent this year without a significant pullback.

Equity market gains have been partly fueled by a bond-buying program by the Federal Reserve. Measures from central banks around the world have also helped, and on Thursday, Wall Street rose after the Bank of Japan announced aggressive policies to jump-start its economy.

Friday’s payroll report “should reinforce the Fed’s recent bond-buying activity, but that may not be enough to turn today’s bearish feelings in the markets,” said Todd Schoenberger, managing partner at LandColt Capital in New York.

Energy shares were pressured, as the group is closely tied to economic growth expectations. Crude oil fell for a third day, dropping 0.6 percent and extending its decline for the week to more than 5 percent. Chevron fell 0.7 percent.

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DealBook: Goldman Sachs Cuts a Little Deeper

It isn’t getting better out there.

Wall Street, which has been paring its ranks over the last year as it struggles with lackluster markets and new regulations, is cutting deeper as it heads into what is expected to be a rough summer.

Goldman Sachs laid off roughly 50 people last week, according to people briefed on the matter but not authorized to speak on the record. The cutbacks have rattled some people in the firm, in part because a number of the employees were managing directors and on the higher end of Goldman’s pay scale. Managing directors make a base of $500,000 and receive an annual bonus that can climb into the millions of dollars.

Last week’s layoffs are seen as a sign that Goldman is looking further up the food chain for additional cuts after already slashing 8.5 percent of its work force, or 3,000 people, in the last year. In addition it has cut more than $1.4 billion in noncompensation expenses from its operations over the last year or so.

A Goldman spokesman declined to comment.

The layoffs are largely economic; the firm like the rest of Wall Street is confronting a number of challenges to growth, in part because of Europe’s debt woes. Already, analysts have begun ratcheting down their second-quarter earnings estimates for the banks.

Yet, Goldman has also named new managers in some crucial divisions recently, which has led to some staffing cuts, whether for strategic or budgetary reasons. If markets don’t pick up, it is almost certain that the firm will make additional cuts later this year.

And Goldman isn’t the only firm cutting staff. Morgan Stanley reduced its work force by 2,935 during the 12 months that ended March 31. While it is a similar number to Goldman’s, this represents just 4.7 percent of its work force. If markets continue to deteriorate this summer, Morgan Stanley is likely to make additional small cuts.

Other firms have been cutting aggressively. Credit Suisse, for instance, had laid off people and earlier this year filed filed a notice with the New York Department of Labor, saying that it planned to lay off 109 people in the state before May 1.

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Olympus Delisting Decision Could Go Either Way

On Wednesday, the Japanese company is expected to file its second-quarter earnings, meeting the Dec. 14 deadline the Tokyo exchange had set to keep Olympus shares trading. But the Olympus stock will remain in critical condition, exchange officials say, as long as public investigators are looking into the company’s decades-long cover-up of more than $1 billion in losses.

The stakes are high. A delisting, if it happened, would be preceded by a one-month warning to investors, during which Olympus’s share price would probably be decimated as shareholders dumped the stock. Few might want to be left holding them because, once delisted, the shares would be difficult for most investors to buy or sell. Analysts say delisting could also make the company, a producer of cameras and medical scopes, vulnerable to being dismantled and sold for its parts.

But handicapping the eventual fate of Olympus’s stock is hard to do, because of the inconsistent way that Japanese authorities have policed and censured white-collar crime in recent years. What’s more, the powerful Tokyo Stock Exchange wields considerable discretion in deciding whether to delist, which experts say can make its decisions on such matters seem arbitrary or politically biased.

“Japanese regulators aren’t consistent; they seem to make calls based on political motive,” said Tadashi Kageyama, senior managing director and head of Asia and Japan for Kroll, a global risk consulting company. “These inconsistencies are confusing foreign investors.”

Two cases in the past decade illustrate the discrepancies — or, in critics’ view, the political biases — in the way companies are punished in Japan.

When the Internet start-up Livedoor was accused in 2005 of manipulating its earnings to appear to be more than $40 million, its offices were raided, its stock delisted and its top executives jailed.

But the next year, Nikko Cordial, a prominent Japanese brokerage firm, was accused by financial regulators of padding its books by almost $350 million. Nikko was forced to pay a modest financial penalty. But there was no raid, no delisting and no jail time.

“Japan is still haunted by the Livedoor case; they went after that company like beating up on a drowning puppy in a pond,” said Kenichi Osugi, a professor in corporate governance and restructuring law at Chuo University in central Japan. “It was seen as politics, not justice.”

And so the eventual outcome of the Olympus investigation by police officials, and the company’s treatment by regulators and the Tokyo Stock Exchange, will be seen as the latest indication of which way the corporate winds are blowing in Japan.

Keeping Olympus a listed company would add fuel to accusations that Japan Inc. coddles established players while punishing newcomers like Livedoor, which had dared to rock the boat with a series of ambitious takeover bids before the scandal caused the company to implode. An Olympus delisting, though, would probably incite a furor from those who argue that shareholders should not be unfairly punished for acts by corrupt executives.

Even Michael C. Woodford, Olympus’s ousted president, has said he hopes company shares remain listed for the sake of company investors and employees, even as he calls for a thorough investigation. It was Mr. Woodford who drew attention to the cover-up, first within the company and then publicly after he was fired on Oct. 14.

Mr. Woodford arrived in Japan on Tuesday, his second visit to the country since his dismissal, where he hopes to persuade investors and employees to support his return to the helm of Olympus. The current Olympus board has said it will step down as early as February, but it has not agreed to welcome back Mr. Woodford.

Noriko Takata contributed research.

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