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Showing posts with label Bear Stearns. Show all posts
Showing posts with label Bear Stearns. Show all posts

Sunday, April 6, 2008

investors Await 1Q Earnings

The fear of the unknown that has rattled the stock market for months appears to be fading. The question now is whether upcoming corporate financial reports and readings on the housing market will further calm Wall Street's anxieties or rekindle them.

Stocks rose early last week and, despite data showing that U.S. employers are eliminating more jobs than they have in five years, held onto their gains. There was a palpable relief that some banks such as Merrill Lynch & Co. feel they have enough cash, while others in need of capital -- namely Lehman Brothers Holdings Inc. and Switzerland's UBS AG -- are able to sell stock to raise cash.

Now that JPMorgan Chase & Co. has offered to buy Bear Stearns Cos. and the Federal Reserve has lent hundreds of billions of dollars to banks, investors are more confident that the financial system can bounce back from what looked last month like a worst-case scenario: a big bank on the brink of collapse.

Wall Street knows other problems could arise, but at this point the overriding sentiment is that troubles down the road won't pull the whole market and economy down with them.

"There's been so much talk of recession for so long now. If anything, I get the sense that people are looking to get back in," said Brian Gendreau, investment strategist for ING Investment Management. But they're apprehensive, he added. "There's bad economic news still coming in. It takes some pretty steely nerves."

The Dow Jones industrial average finished last week up 3.22 percent, the Standard & Poor's 500 index rose 4.86 percent, and the Nasdaq composite index ended up 4.20 percent.

The stock market's recovery was aided by selling exhaustion among big investors. Although it's impossible to predict the market's direction, it's likely that stocks are going to be driven less by investors' need to cash out, and more by the fundamentals underlying each stock. Those fundamentals will be determined mostly by profit reports.

Alcoa Inc. on Monday reports first-quarter results, and analysts, on average, predict the aluminum company's earnings per share fell 36 percent from where they were last year. Another Dow component, General Electric Co., reports on Friday, and the average analyst estimate is for a 16 percent gain in per-share earnings.

The big headliners, however, are likely to be next week's bank earnings.

Last week, the various banks traded more divergently from one another than they have in months, indicating that there is less fear about the sector as a whole. This is not to say the battered financial sector's troubles are over. Rather, there are winners and losers emerging, and market participants know that buying the winners now could bring huge returns in the months and years to come.

Meanwhile, the Fed on Tuesday is scheduled to release minutes from its March 18 meeting, when it lowered the key interest rate to 2.25 percent. Though the minutes will be regarded to some extent as old news -- they precede the Bear Stearns buyout -- investors will want to see evidence that the Fed remains ready to come to the financial system's rescue if the credit markets deteriorate further.

It's certainly possible the credit markets, though they've loosened up over the past week, could seize up again. The reason is the housing market is anticipated to take at least another year to recover. On Tuesday, economists expect the National Association of Realtors to report that pending sales of homes in February were only slightly higher than in January -- which saw the second-lowest reading on record.

"The core, the kernel, of the credit problems are mortgages," said Quincy Krosby, chief investment strategist at The Hartford. She said defaults in Alt-A mortgages may spike higher since they became popular relatively late in the mortgage boom. Alt-A mortgages are loans to individuals with cleaner credit records than subprime borrowers, but who are not considered prime.

Friday, March 28, 2008

Stocks closed lower Friday

Stocks closed lower Friday after a profit warning from J.C. Penney renewed fears about slower consumer spending. Financials and techs caved in after earlier attempts to rally.








Major U.S. Indexes































A third straight day of declines was enough to erase gains from the rally at the start of the week triggered by JPMorgan's upgrade to $10 a share for Bear Stearns. The Dow Jones Industrial Average and S&P 500 finished down more than 1 percent for the week.

The Nasdaq finished flat for the week but today's losses were enough to push the tech-heavy index back into bear-market territory, down 21 percent from its October high.

Still, all three indexes are up more than 2 percent in the past two weeks since news of the Bear Stearns bailout and extraordinary measures by the Federal Reserve were announced.

The resilience we've seen in March has been an encouraging sign after weakness in January and February. The consensus is that the market has found a bottom and that better times are ahead in the second quarter.

Tech Rally Fizzles

Tech stocks, which are down about 15 percent so far for the quarter, held on longer than most sectors today, but eventually caved in to the selling pressure.

mong the remaining holdouts were BlackBerry maker Research In Motion [RIMM 115.34 3.19 (+2.84%) ], which gained 2.8 percent after RBC Capital raised its price target on the stock, and Apple [AAPL 143.01 2.76 (+1.97%) ], which rose 2 percent after Bank of America said the company is getting ready to roll out iPhones using 3G technology, which uses higher bandwidth and allows for global roaming.

In economic news, consumer confidence fell to a 16-year low at the end of March, according to a report from the University of Michigan.

Analysts pointed out that consumer confidence is clearly in recession mode, though spending isn't. Consumer spending ticked up 0.1 percent in February, a weak reading but still better than the 0.1 percent decline expected.

J.C. Penney

JC Penney Co Inc
JCP
37.48 -3.04 -7.5%
NYSE








[JCP 37.48 -3.04 (-7.5%) ] shares fell 7.5 percent after the mid-tier department store lowered its first-quarter earnings forecast, saying sales through the Easter holiday were "well below expectations."

Competition from lower-priced retailers like Wal-Mart

Wal-Mart Stores Inc
WMT
52.12 -0.25 -0.48%
NYSE








[WMT 52.12 -0.25 (-0.48%) ] spurred JPMorgan to cut its rating on Bed, Bath & Beyond to "underweight" from "neutral."

There's also concern that spending on the high end is slowing. Merrill Lynch cut its rating on Tiffany

Tiffany & Co
TIF
41.15 -2.00 -4.63%
NYSE








[TIF 41.15 -2.00 (-4.63%) ] to "neutral" from "sell," and downgraded online jeweler Blue Nile [NILE 52.99 -2.60 (-4.68%) ] to "sell" from "neutral."

On the inflation front, the government's report on consumer income and spending showed that the core PCE price index, an inflation gauge closely watched by the Fed, rose 2 percent year over year, the top of the Fed's comfort zone. In the Michigan survey, the 12-month inflation forecast climbed to 4.3 percent from 3.6 percent in February, while the projection for inflation in five years dropped to 2.9 percent from 3 percent last month.

Bear Holds Above $10; a Boost for Lehman

In the financial sector, the big buzz was that Bear Stearns CEO Jimmy Cayne is selling his stock in the company. He's getting about $60 million for a stake once valued at closer to $1 billion. Bear Stearns shares

Bear Stearns Cos Inc
BSC
10.78 -0.45 -4.01%
NYSE












[BSC 10.78 -0.45 (-4.01%) ] fell 4 percent to $10.78.

Lehman Brothers

Lehman Brothers Holdings Inc
LEH
37.87 -0.84 -2.17%
NYSE








[LEH 37.87 -0.84 (-2.17%) ] shares declined 2.2 percent even after Citigroup advised clients to start buying shares of the stock, which has been battered by shorts convinced the brokerage is going to be the next to collapse.

"It's tough to have a liquidity-driven meltdown when you're being backed by government entities that have the ability to print money," Citigroup said.

Overall, financials were rattled after Oppenheimer analyst Meredith Whitney said banks such as Citigroup

Citigroup Inc
C
20.83 -0.96 -4.41%
NYSE








[C 20.83 -0.96 (-4.41%) ] and Wachovia [WB 25.99 -1.08 (-3.99%) ] are likely to announce dividend cuts in April as earnings won't support the current level of dividends.

Citigroup, the largest U.S. bank, is also said to be working on hiring an outsider to take over its flagging U.S. consumer business, according to a report in the Wall Street Journal.

Boston Fed President Eric Rosengren called for more detailed reports from banks on how they respond to problems amid concerns that troubles of U.S. banks could grow as the economy slows down.

U.S. money manager Legg Mason

Legg Mason Inc
LM
54.12 -1.80 -3.22%
NYSE








[LM 54.12 -1.80 (-3.22%) ] said Friday that it is mulling options for providing liquidity to holders of auction-rate preferred securities issued by seven closed-end funds of its affiliates.

On the home front, KB Home

KB Home
KBH
24.54 -1.25 -4.85%
NYSE








[KBH 24.54 -1.25 (-4.85%) ] shares dropped nearly 5 percent after the homebuilder reported it swung to a loss amid impairment and abandonment charges and said it didn't expect conditions to improve in the near term.

A day earlier, Lennar

Lennar Corp
LEN
17.94 0.04 +0.22%
NYSE












[LEN 17.94 0.04 (+0.22%) ] posted a quarterly loss but beat estimates. That coupled with a lower-than-expected decline in new-home sales and a slight decline in inventories had offered some hope that a turnaround may be brewing for the housing sector. But both homebuilders stressed that, until prices and consumer confidence rebound, inventory levels are going to remain out of whack with demand.

Responding to a question about a proposal from Democratic presidential contender Hillary Clinton, a housing official said the the idea of freezing mortgage rates for any length of time would be a mistake.

"You'd really cause market dislocations," said James Lockhart, the director of the Office of Federal Housing Enterprise Oversight Director. "I think we're going to let the market work and interest rates have come down dramatically and people are going to be able to refinance," Lockhart said.

Tuesday, March 25, 2008

Home Sales in February

Sales of existing homes increased unexpectedly in February after six months of decline, but private economists said it was too soon to say the prolonged slide in housing is coming to an end.

The National Association of Realtors said sales of existing homes rose by 2.9 percent in February to a seasonally adjusted annual rate of 5.03 million units. It marked the first sales increase since last July, but even with the gain sales were still 23.8 percent below where they were a year ago.

Prices continued to slide. The median sales price for single-family homes and condominiums dropped to $195,900, a fall of 8.2 percent from a year ago, the biggest slide in the current housing slump. The median price for just single-family homes was down 8.7 percent from a year ago, the biggest decline in four decades.

Wall Street, which had been expecting another decline in home sales, was encouraged by the February increase as well as improved terms for Bear Stearns stockholders in the sale of that company to JPMorgan Chase & Co. The Dow Jones industrial average rose 187.32 points Monday to close at 12,548.64.

Economists, however, said they still believed any sustained housing rebound was many months away.

"The hemorrhaging has stopped but the recovery will be long, slow and painful," said Bernard Baumohl, managing director of the Economic Outlook Group. "It's unlikely that we will see any sustained jump in home purchases, must less higher prices, until mid 2009 at the earliest."

Brian Bethune, an economist at Global Insight, said, "A quick bounce-back in the housing markets is simply not in the cards."

White House press secretary Dana Perino said the increase in sales and a decline in the inventory of unsold homes was encouraging but "we can't put a lot of stock in just one report."

Lawrence Yun, chief economist for the Realtors, said that some formerly hot markets in California and Florida were seeing significant price declines now as sellers are cutting prices to attract buyers.

"We are not expecting a notable gain in existing-home sales until the second half of this year," he said.

He said sales should be helped in coming months by recent moves to boost the loan limits on mortgages that can be insured by the Federal Housing Administration and purchased by Fannie Mae and Freddie Mac.

By region of the country, sales surged by 11.3 percent in the Northeast and were up 2.5 percent in the Midwest and 2.1 percent in the South. The only region of the country to see a sales decline was the West, where sales dropped by 1.1 percent.

The inventory of unsold homes dipped to 4.03 million units in February. That meant it would take 9.6 months to exhaust the supply of homes for sale at the February sales pace. That was down from January's level of 10.2 months but still about double what the months' supply had been during the peak of the housing boom.

Sales of existing homes fell by 12.8 percent in 2007, the biggest decline in 25 years, following an 8.5 percent drop in 2006. After a five-year boom, the steep downturn in housing over the past two years has been made worse by a severe credit crunch as financial institutions tightened their lending standards in reaction to multibillion-dollar losses on mortgages that have gone into default.

The steep slump in housing has raised concerns about a possible recession. Democrats are pushing for greater efforts to stem a tidal wave of mortgage foreclosures to keep more unsold homes from being dumped on an already glutted market.

Sen. Hillary Clinton, campaigning for the Democratic presidential nomination in Pennsylvania on Monday, called on President Bush to appoint an emergency working group on foreclosures to recommend new ways to confront the housing crisis.

"Over the past week, we've seen unprecedented action to maintain confidence in our credit markets and head off a crisis for Wall Street banks," Clinton said in a campaign speech. "It's now time for equally aggressive action to help families avoid foreclosure and keep communities across this country from spiraling into recession."

Sunday, March 23, 2008

JPMorgan Could Up Bear Offer

JPMorgan Chase & Co. was discussing a deal that would increase fivefold its offer for Bear Stearns Cos. to $10 a share, The New York Times reported Monday.

The talks Sunday were an attempt to satisfy Bear Stearns stockholders upset over JPMorgan's offer of $2 a share for the struggling investment bank, the newspaper said on its Web site, citing people involved in the negotiations.

The original price for Bear Stearns was part of a deal struck last week at the urging of the Federal Reserve and Treasury Department.

The Fed, which would need to approve any change in the agreement, was balking at the new price, the Times said. Such opposition could postpone the new agreement or derail it entirely.

In an attempt to speed majority shareholder approval, Bears board was trying to authorize the sale of 39.5 percent of the firm to JPMorgan, the Times said. State law in Delaware, where the companies are incorporated, allows a company to sell up to 40 percent without shareholder approval.

A spokeswoman for JPMorgan declined to comment Sunday night, the Times said. A Bear Stearns representative could not be reached.

A spokesman for the Federal Reserve would not comment on the central banks involvement in the negotiations, but denied it had directed the original sale price, the newspaper said.



Monday, March 17, 2008

Wall St sinks as Bear shakes faith in banking

Stocks fell on Monday after JPMorgan Chase (NYSE:JPM - News) bought Bear Stearns (NYSE:BSC - News) at a fire sale price and the Federal Reserve provided emergency cash to Wall Street as the global credit crisis worsened.


But stocks trimmed losses as shares of JPMorgan led advancers, while the Fed's move to cut its discount rate to 3.25 percent and expand lending to a wider range of big financial firms -- the first such move since the Great Depression -- helped Wall Street ease a bit off early lows.

Futures have been pricing in a 100-basis-point cut from the Fed when it meets tomorrow.

JPMorgan is buying Bear Stearns for $236 million, or $2 per share -- one-fifteenth of the price at Friday's close. Shares of Bear, which until recently had ranked as the fifth-largest U.S. investment bank, reached a high of $172.61 last year. Bear's stock plummeted 87.3 percent to $3.91 at midday on Monday.

The financial sector tumbled, as Lehman Brothers (NYSE:LEH - News) sank 23.9 to $29.86 and Citigroup dropped 7.3 percent to $18.35. The Standard & Poor's financial index (^GSPF - News) was down 3.6 percent.

JPMorgan, the top gainer in both the blue-chip Dow average and the S&P 500, climbed 8.3 percent to $39.58, preventing an uglier morning on Wall Street.

"The Fed took very aggressive action over the course of the weekend, and so that's having an impact," said Michael Darda, chief economist at MKM Partners LLC, in Greenwich, Connecticut.

"The problem is that action will have an inflationary price tag. And you can see that in all of the commodity and currency indicators."

The Dow Jones industrial average (DJI:^DJI - News) dropped 114.39 points, or 0.96 percent, to 11,836.70. The Standard & Poor's 500 Index (^SPX - News) shed 23.44 points, or 1.82 percent, to 1,264.70. The Nasdaq Composite Index (Nasdaq:^IXIC - News) tumbled 44.78 points, or 2.02 percent, to 2,167.71.

In a fresh sign of faltering confidence in the U.S. economy and financial system, the dollar sank to its weakest against the yen since 1995 and slumped against the euro.

The "fire sale" of Bear has put U.S. banks at risk as it will result in valuation adjustments that could result in a drop of stock prices by as much as 50 percent, Oppenheimer & Co analyst Meredith Whitney wrote.

Elsewhere in the financial sector, mortgage insurer PMI Group Inc (NYSE:PMI - News) reported its biggest-ever quarterly loss, mainly due to losses on its investment in bond insurer FGIC Corp. It also slashed its dividend by more than 70 percent.

Shares of PMI dropped 11.3 percent to $5.05, after hitting a lifetime low of $4.82 earlier in the session.

The New York Federal Reserve Bank reported an unexpectedly steep drop in its manufacturing survey and a rise in prices paid. It was the worst reading of business conditions in the state of New York since the index was launched in July 2001.

Thursday, March 13, 2008

Investment Banks

Shares of investment banks fell in early Thursday trading after Lehman Brothers analyst Roger Freeman said banks are likely to face widening losses on asset write-downs.

Bear Stearns Cos. shares fell the furthest, declining $7.30, or 12.1 percent, to $54.28, after earlier hitting $52.43, their lowest point since the fall of 2002.

Freeman said any gains Bear Stearns would have received from wider spreads would be offset by write-downs on alt-A mortgage assets. Alt-A mortgages are loans given to customers with minor credit problems or who do not have the documentation to get a traditional, prime loan.

Freeman estimates Bear Stearns will earn 90 cents per share for the quarter ending Feb. 29.

Bear Stearns book value per share was $84.85 at the end of the quarter, Freeman estimated.

Bear Stearns is likely to lose $50 million in its merchant banking division and reduce the value of its alt-A exposure by about 8 percent during the quarter, Freeman wrote in a research note.

Among other investment banks with quarters ending Feb. 29, Freeman estimated Goldman Sachs Group Inc. earnings will likely be hurt by high losses in its investment portfolio. Freeman lowered his first-quarter earnings estimate for Goldman Sachs to $1.95 per share from $2.10 per share.
Shares of Goldman Sachs fell $3
.50, or 2.2 percent, to $159.51.

Morgan Stanley will also be negatively affected by asset write-downs and investment losses, which could be partially offset by some gains in structured debt, Freeman said.
Shares of Morgan Stanley fell 82 cents, or 2 percent, to $40.19.