earnings

Four charged in fraudulent trading scheme

Jim Kim — Wed, 19 Nov 2008 11:19:22 -0500

The SEC has charged four in connection with a scheme to fraudulently overvalue Bank of Montreal's commodities portfolio. This was done allegedly by deliberately "mismarking" trading positions for illiquid contracts, resulting in gains of hundreds of millions. The scheme caused the bank to restate earnings by more than $200 million. Article

Och-Ziff: Proxy for industry

Jim Kim — Tue, 04 Nov 2008 19:12:14 -0500

One nice thing about the fact that Och-Ziff trades publicly is that we have a rough proxy for the entire industry. So, the good news is that the alternative investment firm beat analysts' expectations for the third quarter by a penny. (It posted a loss but its "distributable" earnings were positive).

The news wasn't all good. MarketWatch notes that the firm's largest fund, OZ Master, fell 6.63 percent in October and is down 12 percent for the year. Its OZ Europe Master Fund is down 13 percent for this year. And the OZ Asia Master Fund is down a whopping 27 percent. Unsurprisingly, some investors have fled. Redemptions were $719 million in September and $220 million in October. As staying profitable becomes harder for some firms, costs take on more importance, and you have to think that many funds are below the high water mark.

For more:
- here's the article

Another credit crunch victim: analysts' credibility

Jim Kim — Fri, 24 Oct 2008 13:22:53 -0400

A poster on Seeking Alpha takes analysts to task for what he considers really awful performances as of late. There's a been a lot of talk about how inaccurate analysts have been in their forecasts. The post notes that for the second quarter, Wall Street analysts accurately predicted earnings just 6.7 percent of the time. That was the worst showing in 16 years. Merrill Lynch's highly rated Guy Moszkowski was singled out for shifting his stance on Lehman Brothers four times between June 2 and June 11. But these are extraordinary times, especially in financial services, so perhaps we can cut the analysts a break. There were a few who were accurate in some cases, notably Richard Bove and Meredith Whitney. Financial services has always been a tricky industry, in part because the proprietary component was always something of a wild card. As the commercial banking model takes hold, will analysts' performances get better?

For more:
- here's the post

What to make of big bank stocks

Jim Kim — Mon, 20 Oct 2008 20:26:55 -0400

We suggested earlier that some analysts might use the historic TARP to push clients back into the murky world of financial stocks. But so far, it seems that analysts are still wary, and not without reason. Meredith Whitney, Oppenheimer & Co's Delphic analyst, told Fortune, "Solvency concerns are off the table for now, but earnings weakness is not. Stocks are still very expensive on a real earnings basis."

That said, she did suggest that clients buy preferred shares of three big banks as of late. Fortune also notes JPMorgan's stock trades for 18 times trailing earnings, which is hardly a bargain considering all the questions surrounding the banking biz. It should be noted that other large banks thought to be relatively healthy, such as Wells Fargo and Bank of America, sport similarly pricey PEs. So there you have it. It feels like a big turn is coming, but it is a matter of timing.

For more:
- here's the Fortune article

Jury still out on Bank of America

Jim Kim — Mon, 06 Oct 2008 21:44:26 -0400

Bank of America fell well below analysts expectations when it announced earnings of 15 cents a share for the third quarter. The average analyst was predicting an estimate of 62 cents a share. The bank also cut its quarterly dividend in half to 32 cents, and announced an offering of common shares to raise $10 billion. None of this is really all that surprising. It certainly points to the challenges the bank faces as it tries to digest both Countrywide and Merrill Lynch. It's fair to say that CEO Ken Lewis has put it all on the line. The outcome of these deals will be his legacy. The integration must occur in a punishing environment. It's not clear at all that he'll get any help from the economy.

For more:
- here's a Fortune update

Lehman Brothers prime brokerage customers left high and dry

Jim Kim — Wed, 01 Oct 2008 15:01:56 -0400

We may be witnessing a historic shift in the prime brokerage industry. Morgan Stanley's prime brokerage operation has certainly been hit hard. The bank reportedly lost more than one-third of its assets in one week, back when it was perceived--rightly or not--to be on the ropes. Lehman Brothers' prime brokerage operation is now back in the news. Bloomberg reports that some hedge fund clients have had extreme difficulty in getting their funds out. One hedge fund, Oak Group, tells the news service that it will probably have to shutter operations because funds are tied up. One has to wonder how Goldman Sachs' prime brokerage operations are holding up. One also has to wonder if the business model of the big boys, built on leverage, will have to be adjusted. If so, how? It's fair to say that prime brokerage, a bright spot just a few quarters ago, may not be the earnings driver some had hoped.

For more:
- here's the Bloomberg article

Morgan Stanley beats expectations

Jim Kim — Tue, 16 Sep 2008 19:53:50 -0400

Morgan Stanley--one of the two last full-service independent investment banks--reported results a day earlier than scheduled. Thankfully, it did not add to the drumbeat of depressing news. Like Goldman Sachs, it beat expectations for the third quarter. It earned $1.32 a share, compared with expected earnings of 78 cents, so this would appear to be a decisive beat. Unlike Goldman Sachs, Morgan's revenue actually rose. Its core prime brokerage, commodities and equities businesses were generally strong. But the pressure is really on Morgan Stanley to prove that it should remain untethered to a commercial bank. This will not be a case made in one quarter. A deal at some point is not out of the question.

For more:
- here's the AP article

Goldman earnings beat expectations; lots of questions still

Jim Kim — Tue, 16 Sep 2008 13:34:50 -0400

Goldman Sachs earnings in the third quarter fell about 70 percent, but they still topped analysts expectations. Revenues fell 50 percent. Given the industry backdrop, it certainly could have been worse. Still, it's clear that not even Goldman Sachs is immune from the credit contagion. Trading revenues plunged. Investment banking activity was weak. But there was no major writedown of mortgage-related assets, which in a sense is good news. Principal investment, however, which is usually a bright spot, recorded a loss of $453 million. All in all, you have to wonder if the Goldman premium is a thing of the past. Indeed, one of the biggest questions now is whether Goldman Sachs will buy a commercial bank, to gain the benefits of a whole new capital model. For now, the company says it does not intend to make such a deal. It's possible that events may force a new direction.

For more:
- here's the article

What to make of the bidding for Lehman Brothers?

Jim Kim — Fri, 12 Sep 2008 11:07:19 -0400

Few would have guessed this: Bank of America, JC Flowers & Co. and China Investment Company (the Chinese sovereign wealth fund) are considering a possible joint bid for Lehman Brothers, reports the Financial Times. Bank of America seemed intent on exiting investment banking as its earnings suffered, but CEO Ken Lewis has apparently changed his mind. You've got to wonder if the bank can handle yet another integration effort. The real news may be that the feds are not going to be super-involved in such a deal. There will be no government money involved. But some rules regarding private equity and financial firms may be relaxed a bit. It seems like an odd arrangement. Would Bank of America integrate the firm under its own brand and share the upside with JC Flowers, who manages $3.2 billion of CIC money? Would they allow Lehman to exist under it own brand? Lots of questions.

For more:
- here's the article

CDS market: Risk concerns mounting

Jim Kim — Sun, 24 Aug 2008 09:54:29 -0400

Is anyone really afraid of another Bear Stearns? I don't think we'll get another rumor-driven failure. The Fed's new facilities make that much more unlikely, though the rumors can really cause problems for firms. There were lots of rumors about Lehman Brothers
a while back; some people were really nervous about its standing as a counterparty. While another Bear Stearns-like insta-implosion is not likely, there can still be failures. At some point, if earnings sour badly, capital is all too scarce and ratings agencies are forced to act, a bank could be forced into chapter 11. CDS spreads, as measured by Credit Derivatives Research, have actually been ticking up recently, reports Financial News Online. Fortunately, they are no where near the levels they were at in February, when the pyrotechnics were really hot. Stay tuned, though. We could he heading into another rough patch.

For more:
- here's the Financial News Online article