|
|
|
MarketView
Events defining the day's trading activity on Wall Street
Lauren Rudd
Monday, April 21, 2008
Summary
Stock prices were somewhat lower on Monday weak quarterly results from Bank of
America rekindled concerns regarding the credit crisis and the depreciating
effect it has had on the earnings and capitalization of the country’s banks,
both large and small. The decline came in spite of rising energy shares as the
price of crude oil once again closed at a record high. Bank of America ended the
regular trading day down $0.95, or 2.46 percent, to close at $37.61.
After the Dow closed out its strongest week in two months on Friday, blue chips
retreated on news of a 77 percent decline in the first quarter earnings posted
by Bank of America. At the same time, an index of financial stocks fell 1.7
percent, giving back gains made on Friday when Citigroup stoked optimism that
the banking sector was taking steps to work its way through the credit crunch.
Shares of Citigroup ended the day down $0.08, or 0.32 percent, to close at
$25.03, after Meredith Whitney, an influential bank analyst at Oppenheimer
forecast a wider 2008 loss for the largest domestic bank.
Adding to the day’s difficulties was the news that National City Bank was forced
to raise additional capital at the expense of its existing shareholders. Shares
of
The Street is concerned that banks could be in for a prolonged period of lower
earnings as the housing slump and credit market turmoil take their toll and the
Street’s concerns persist regarding the health of the economy.
To its credit, the NASDAQ managed to eke out a small gain after Citigroup raised
its earnings estimate on Apple two days ahead of Apple's quarterly earnings
report. In addition to technology, energy was another pocket of strength after
oil prices reached a record high that was above $117 per barrel on supply
worries. Shares of oil services company Schlumberger ended the day up $5.06, or
4.97 percent, to close at $106.91.
Both the Dow and the S&P 500 ended a four consecutive trading day winning
streak.
After the closing bell, shares of Texas Instruments fell sharply after the
company forecast second quarter earnings that were short of expectations. Texas
Instruments ended the regular trading day up $0.99, or 3.34 percent, to close at
$30.59.
In other earnings news, Eli Lilly posted lower-than-expected quarterly earnings,
due to disappointing sales of its diabetes drug, Byetta. Lilly’s shares ended
the regular trading day down $2.48, or 4.76 percent, to close at $49.59.
Shares of Sears Holdings ended the regular trading day down $7.24, or 6.91
percent, to close at $97.48 after the retailer announced late Friday it had been
advised that its secured credit facility with Bank of America will end in July.
Crude Prices Continue Their March Upward
The price of crude oil continued its relentless march upward for the sixth
consecutive day on Monday, taking gasoline prices along for the ride. The price
of gasoline hit a record average of $3.50 per gallon with no sign of relief in
sight.
At the same time, light domestic sweet crude settled for May delivery settled up
79 cents per barrel at $117.48, a gain of 79 cents over Friday’s close. The high
for the day was $117.76 per barrel.
Diesel prices at the pump also reached a record high of $4.20 per gallon,
according to AAA and the Oil Price Information Service. That will add to
truckers' costs and drive up the price of food, clothing and other goods shipped
by truck.
Gasoline and diesel prices are expected to keep climbing as they trace the path
of crude. Oil prices are charging ahead along with a host of commodities that
are enticing speculators seeking hedges against a weakening dollar.
The Energy Department’s data indicates that the domestic consumption of gasoline
declined by about 1 percent during the four weeks ended April 11 when compared
to the same period a year ago.
While not a drastic decline, it is significant in that you can look for higher
prices and lower demand for consumer goods across the board as fuel costs divert
dollars away from what might otherwise be the additional consumption of a basket
of consumer goods and services.
Difficult Times Catch Up To Bank of
Bank of America reported a 77 percent drop in quarterly earnings on Monday, as
defaults take their toll. It was the third consecutive quarter of lower earnings
that were dragged down by what Chief Executive Kenneth Lewis called a "litany of
negative issues," including more than $5 billion of write-downs and
credit-related costs.
The $6.01 billion set aside for bad loans stemmed in significant part from
credit costs in home equity, small business and home builder portfolios.
Bank of America added $3.29 billion to its reserves for credit losses. Net
charge-offs nearly doubled to $2.72 billion and nonperforming assets nearly
quadrupled to $7.83 billion.
Bank of America said the housing market will remain weak all year, as credit
problems once concentrated there spread into other areas such as credit cards.
The bank also quintupled the amount it set aside for bad loans to $6.01 billion
and said the economy might grow little or shrink this quarter.
"It would be too early to strike up the band and sing 'Happy Days Are Here
Again,'" Chief Executive Kenneth Lewis said on a conference call.
First-quarter net income fell to $1.21 billion, or 23 cents per share, from
$5.26 billion, or $1.16, a year earlier. Results included a $776 million pre-tax
gain from credit card network Visa's initial public offering last month. If you
exclude merger costs, earnings were 26 cents per share. Net revenue fell 6
percent to $17 billion.
Nonetheless, Bank of America made it clear that it still expects to complete the
$4.1 billion purchase of Countrywide Financial during the third quarter.
The bank said credit card losses in particular were rising in areas hit hard by
housing troubles, including
Results also included write-downs of $1.47 billion for collateralized debt
obligations and $439 million for loans to fund leveraged buyouts. Trading losses
declined to $1.31 billion from $5.15 billion from the fourth quarter.
Bank of America's Tier-1 capital ratio, a measure of its ability to cover
losses, rose to 7.51 percent from the fourth quarter's 6.87 percent after the
bank sold $12.9 billion of preferred stock last quarter. Regulators say 6
percent signals a "well-capitalized" bank.
Moody's Investors Service downgraded Bank of America debt to "Aa2" from "Aa1"
and assigned a "negative" outlook. It cited the bank's "relatively weak capital
position" and risks tied to Countrywide, mortgage and home equity exposure, and
CDOs.
"We have not changed our philosophy" about the bank's $2.56 per-share annual
dividend, but could review it if the environment got "noticeably worse," Lewis
said. The bank has raised its dividend for 30 straight years.
Profit in consumer and small business banking fell 59 percent to $1.09 billion.
The corporate and investment bank saw profit fall 92 percent to $115 million.
In wealth and investment management, earnings fell 54 percent to $228 million,
hurt by a $220 million loss to prop up some money market funds in its Columbia
Management unit.
Results also reflected the bank's $21 billion purchase of ABN AMRO Holding NV's
LaSalle Bank on October 1.
Bank of America ended the quarter with 6,148 branches in the
Texas Instruments told Wall Street that its quarterly earnings rose but forecast
results below Street estimates, citing caution among a broad customer base as
well as weak demand for high-end cell phones. The company also said on Monday
its second quarter would be weaker than expected due to an uncertain economic
situation.
Wall Street was of the opinion that the order weakness was mainly in wireless
even though TI did not say how much was in the rest of its business, which
includes analog chips used in various markets including consumer electronics and
industrial products.
TI forecast second-quarter earnings per share of 42 to 48 cents on revenue of
$3.24 billion to $3.5 billion.
Higher Earnings at Novartis
Novartis, which is digesting the $39 billion acquisition of eye-care company
Alcon confirmed its full-year forecast on Monday.
But Novartis benefited from the weak dollar with nearly a third of its sales in
the
The company had savings of $160 million in the first quarter from its
restructuring program, which aims to save $1.6 billion to combat increased
competition and tighter regulations, helping to boost profitability at its core
pharmaceuticals unit in the first quarter.
Revenue from its stable of pharmaceuticals was up 6 percent at $6.26 billion,
despite generic competition to blood pressure tablet Lotrel and epilepsy
medicine Trileptal, and fell 3 percent in local currencies, at the top end of
the company's previous forecast.
Novartis trades at about 11 times future 2009 earnings, a premium to other
European large-cap drug manufacturers such as GlaxoSmithKline and
Sanofi-Aventis, due to its greater diversity and longer exclusivity on key
products.
But Novartis is cheaper than its local rival Roche, with a 2009 multiple of 13
thanks to its promising new drugs and limited exposure to copy-cat generic
competition.
Novartis reported mixed fortunes on its new drugs, saying it did not expect to
resubmit diabetes treatment Galvus, once seen as a major growth driver but which
has suffered delays because of safety problems. The drug is not expected to be
approved until 2010.
Zelnorm, an irritable bowel syndrome treatment that ran into concerns of a
possible link to heart attack and strokes, will not be resubmitted for FDA
approval.
But Novartis did say that Extavia, for multiple sclerosis, would be filed with
the FDA soon and launches on both side of the
|
|
|
MarketView for April 21, 2008
MarketView for April 21, 2008
 |
 |
 |
