Today's Top Stories Also Noted: Spotlight On... State Street's Quant Play; Apollo to list shares on Goldman Sachs system; ABN Amro studying both bids; and much more...
1. More credit woes for banks? Mr. Market has been very nervous about banks' exposures to the whole subprime near-implosion all year. This was clear from the earnings of JPMorgan Chase (AP). It thoroughly whipped analysts' estimates--something we've become accustomed to with the premiere banks. But Mr. Market was unimpressed. Indeed, people seized on the tripling of its loan loss provisions, to $1.53 billion in the second quarter. The provision for its investment banking unit rose to $164 million, compared with $62 million last year, a reflection of the subprime mess. The retail credit loss provision rose to $587 million from $100 million. You've got to think that other banks are similarly preparing for what could be a lot of bad news, at the non-retail level. One analyst, the esteemed Richard Bove, has gone so far as to tell clients to sell the top five banks (MarketWatch).
2. Bank of America following JPMorgan mold? Bank of America's earnings will be in the news today. The early take is that it seems to be following the template of sorts set by JPMorgan earlier. (See the previous item.) For one thing, earnings were strong. Net income in the second quarter rose to $1.28 a share from $1.19 a year ago. Analysts were expecting about $1.20. The increase was powered by retail (bank and credit card) fees. But there may well be some lingering uncertainty, despite the solid performance. Credit quality is a huge issue right now. Provisions for credit losses were boosted to $1.81 billion, up from $1.01 billion a year ago. Net charge-offs rose to $1.50 billion from $1.02 billion a year ago. Clearly, the subprime mess is having an effect, even as the bank moves aggressively to win market share in mortgages. For more: 3. Murdoch at the gates Looks like News Corp. will prevail in its lust for the Wall Street Journal. Should you care? Does this matter for the financial service industry? Well, the Journal was a paper of record for all things financial and a pretty darn good one. Like it or not, it was an independent journalistic organization that took on the big issues. News Corp. of course does not have that reputation, and that is not a criticism. It operated in another sphere of the media world. The tension within the entire Dow Jones organization is really high. The journalists feel this is an end of the world kind of moment. Financial journalism, in their view, may never be the same. That may be hyperbole. A lot will ride on the plan to keep News Corp. out of the editorial process. For now, all eyes are on the torn Bancrofts. Stay tuned. For more: 4. More on GLG Partners' route to market GLG Partners did not make a huge stir when it managed to turn itself into a publicly traded stock. In part that was because the world was fixated on the Blackstone Group IPO. So its merger with a blank-check firm flew low. There was a time when reverse merger-type deals were viewed dimly by people. But that has changed recently. The likes of Jonathan Ledecky, Steve Wozniak and Richard Clarke launch so-called special purpose acquisition companies, which raise money for the purpose of finding a legitimate company with which to merge, effectively taking that company public. So some think that we are in the midst of a boomlet in such deals. GLG Partners merged with Freedom Acquisition Holdings, which had raised more than $500 million in its IPO, enough to finance a $3.4 billion deal for GLG. For more: 5. More fallout from Bear Stearns hedge fund woes Where this goes is anyone's guess. But it is fair to say that credit anxiety continues to spread. The issues with Bear Stearns two credit-oriented hedge funds brought to light a host of problems that seem bound to hit other funds. We've noted that collateralized debt obligations (CDOs), especially the low- and mid-tier tranches, have seen prices plunge. Who is going to buy this stuff right now--given the liquidity issues? And given the likelihood that rating agencies will likely be forced to lower ratings even more. Last week, according to The New York Post, Goldman Sachs wrote down $1.5 billion worth of its CDO inventory--the first top investment bank to do so. Others will likely follow. Of course, some made the right bet. MKP Capital Management has fared well shorting subprime mortgage paper. For more: ALSO NOTED TODAY'S SPOTLIGHT... State Street's Quant Play Company News: Industry News: Regulatory News: And Finally... Here's a job interview survival kit.
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