Stocks are rallying big time into the close today with the Dow up 167 points, the Nasdaq is up 41 points and the S&P 500 is up 18 points. Optimism about the U.S. economy and the debt crisis in Europe has sent the Dow well over 13,100. The Fed’s statement today showed no change in policy. They did say however that inflation could see an increase due to higher energy costs. [Read more...]
Las Vegas Sands Corp. (NYSE:LVS) is down 0.37% at $56.64 this morning. LVS has traded 6.7 million shares so far today and trades 9.9 million shares a day on average. March 2 weekly options are seeing a lot of action today especially around strike price $55 and $57.50. Call options at $57.50 are up $0.14 right now at $0.26 with 6,845 contracts traded. Call options at $55 are up $0.36 at $2.21 with 2,790 contracts traded. There’s also a lot of trading for March 9 weekly option at $60 with over 4,500 contracts traded.
Goldman Sachs Group (NYSE:GS) is down 0.54% this morning at $120.48. GS has traded 3 million shares so far today and trades 7.1 million shares a day on average. Weekly options for March 2 at strike price $120 has seen the most volume today with 2,907 contracts traded. Calls at that price are down $0.93 at $0.68. March 2 options at $125 are down $0.11 at $0.01 with over 1,200 contracts traded. April options at $130 are also seeing decent volume today with more than 2,700 contracts traded. Those options are down $0.28 at $1.89. [Read more...]
Financials across the board started the day off in the red as investors worried about rising oil prices affecting the global economic recovery. Traders are also concerned about the ongoing debt crisis in Europe, specifically Greece. These worries were washed away in early trading as pending home sales saw a surprise jump in January. Sales jumped 8% in the month while economists were only expecting a 1% jump. The major indices have given back most of their gains in afternoon trading. The Dow closed down 1 point today, the Nasdaq closed up 2 points and the S&P 500 closed up 1 point.
Bank of America Corporation (NYSE:BAC) is up 1.90% today at $8.03. BAC is trading slightly below average volume today with 226 million shares traded. The stock usually trades 282 million shares a day on average. A U.S. appeals court ruled today that a proposed $8.5 billion settlement between Bank of America and investors in mortgage backed securities should be returned to New York state court for review. The company has a market cap of 84.34 billion. [Read more...]
The world’s largest brokerage, Morgan Stanley (NYSE:MS), announced today they will be limiting cash bonuses to $125,000 for senior executives. This decision comes as the banking sector saw one of the worst fourth quarters when it comes to trading and investments.
Morgan Stanley’s decision will increase the average amount of pay deferred to 75%. In 2009 and 2010, the company deferred 40% and 60% respectively.
The banking sector as a whole has been getting hard in recent days starting with JP Morgan Chase & Co. (NYSE:JPM) last week. Last quarter, JPM saw profits dip 23%. Fast forward to today and Citigroup Inc. (NYSE:C) announced its profits fell 11%. There is some good news though, mainly from Wells Fargo & Co. (NYSE:WFC). Wells Fargo saw fourth quarter earnings jump 20% thanks to increases in commercial loans and mortgage demand in the latter half of 2011.
Investors will have a better feel on the sector later this week when Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) report their earnings. Goldman could get hit the worst since Citigroup and JPMorgan earnings disappointed due to weak investment banking and trading results.
A French newspaper reported today that Standard & Poor’s is downgrading the credit ratings of five euro nations. Italy, Spain and Portugal will be downgraded by two notches while France and Austria will take a one notch hit. The newspaper, Les Echos, also noted that Germany, the Netherlands, Finland and Luxembourg were spared by S&P’s latest downgrade spree.
Les Echos cited no sources but one euro zone source told Reuters, “remain alert tonight when U.S. markets close.”
These rating downgrades should not be that big of a surprise as Standard & Poor’s put 15 euro zone countires on credit watch negative back in December. S&P at the time cited “systemic stresses” were building up in the 17-nation bloc.
It will be interesting to see if other credit ratings agencies such as Fitch and Moody’s will follow suit. This could definitely affect the markets in the near term as it seems like the Europe problem will never go away.
Banking stocks have also taken a hit today on news that JP Morgan Chase & Co. (NYSE:JPM) profits fell 23% last quarter. JPM is trading down nearly 4% right now at $35.41 on heavy volume with 40.5 million shares traded. Other stocks in the sector were also hit hard with Bank of America Corporation (NYSE:BAC) losing 3.09% at $6.58, Citigroup Inc. (NYSE:C) down 3.73% at $30.42 and Morgan Stanley (NYSE:MS) down 3.03% at $16.65.
The other big banks are set to announce earnings next week with Citigroup reporting on Tuesday, Goldman Sachs (NYSE:GS) reporting on Wednesday and Bank of America and Morgan Stanley reporting on Thursday.
As of 1:30 pm EST, the major indices are all down about 1%, but are off their lows. The Dow is down 124.50 points, the Nasdaq is off 26.16 points and the S&P has fallen 14 points.
It looks like a recession in inevitable in the euro zone as the banking sector along with a combination of insufficient action by the regions politicians will continue to deflate European consumer confidence and erode funding for businesses.
Economists at Goldman Sachs (NYSE:GS) are expecting the euro zone to fall into recession in the fourth quarter, on the back of “a negative confidence shock and tighten fiscal policy, combined with private-sector de-leveraging in the periphery.” These economists are predicting overall growth of 0.1% for the single currency region next year, but say that “funding difficulties for banks represent a clear downside risk to this forecast.”
These same economists at Goldman have been preaching these dire warnings for several months now. While emergency measures such as bond buying by the European Central Bank offer a “degree of protection”, it warned that the woes of the banking sector could “at some point lead to a significant worsening of funding conditions for corporates and households, which in turn could turn the moderate recession we are forecasting into something more akin to the 2008-09 experience”.
Goldman added: “We think it reasonable to assume that the longer it takes to stabilize the situation in the banking sector, the greater the risk that bank lending behaviour will at some point lead to a sharp decline in economic activity.”
An economic recession can be avoided in Europe but resources are needed to calm financial markets, Pier Carlo Padoan, the chief economist of the Organization for Economic Cooperation and Development (OECD) was quoted as saying in a newspaper report on Thursday. “No, (a recession) can still be avoided. But at the European level there is a need for sufficient resources to calm markets and governments have to go forward with austerity measures,” Padoan said in the interview. “If this happens, we can not only exit the crisis but start again on a more sustainable and stable growth path,” he said.
A couple of indicators show that the euro zone economy is in deep trouble and that the debt crisis is denting confidence so badly that a recession looks almost inevitable. Figures last week showed that the euro zone narrowly avoided contracting in the third quarter, growing by only 0.2% during the period. Euro zone industrial orders collapsed by a massive 6.4% in September from the previous month.
The Federal Deposit Insurance Corporation (FDIC) reported bank profits rose to $35.3 billion in the third quarter, the highest level since mid-2007, before the financial crisis began, and despite the “Occupy Wall Street” movement. The profit rise was an $11.5 billion improvement from the $23.8 billion in net income the industry reported in the third quarter of 2010. This is the ninth consecutive quarter that earnings registered a year-over-year increase.
“We continue to see income growth that reflects improving asset quality and lower loss provisions,” said FDIC Acting Chairman Martin J. Gruenberg. “U.S. banks have come a long way from the depths of the financial crisis. Bank balance sheets are stronger in a number of ways, and the industry is generally profitable, but the recovery is by no means complete.
“Ongoing distress in real estate markets and slow growth in jobs and incomes continue to pose risks to credit quality,” Acting Chairman Gruenberg added. “The U.S. economic outlook is also clouded by uncertainties in the global economy and by volatility in financial markets. So even as the banking industry recovers, the FDIC remains vigilant for new economic challenges that could lie ahead.”
At least 63% of banking institutions reported improvements in quarterly net income from a year ago. The share of institutions reporting net losses for the quarter fell to 14.3%, down from 19.5% a year earlier. The average return on assets (ROA), a basic yardstick of profitability, rose to 1.03%, from 0.72% a year ago.
Deposits in domestic offices increased by $279.5 billion or 3.4% during the quarter. Almost two-thirds of this increase $183.8 billion or 65.8% consisted of balances in large non interest-bearing transaction accounts that have temporary unlimited deposit coverage. The 10 largest insured banks accounted for 75.7% or $139.1 billion of the growth in these balances.
Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation’s banking system. The FDIC insures deposits at the nation’s 7,437 banks and savings associations, and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars. Insured financial institutions fund the FDIC operations.
Banking stocks to watch are: Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), JPMorgan (NYSE:JPM), Wells Fargo & Company (NYSE:WFC), and Goldman Sachs Group (NYSE:GS).
U.S. property and casualty insurer Alleghany Corp. said it would buy re-insurer Transatlantic Holdings (NYSE:TRH) for $3.4 billion in cash and stock, a day after a source told Reuters News Agency that Alleghany was close to a deal for the company.
“This transaction is an outstanding opportunity to create significant value for Alleghany and Transatlantic stockholders alike, as the unique and complementary strengths of our leading specialty insurance and reinsurance platforms provide all the ingredients necessary for superior performance,” Weston M. Hicks, chief executive of Alleghany, said in a statement.
The agreement puts an end to the months-long buyout battle for Transatlantic, which has been courted by Allied World Holding (NYSE:AWH), Validus Holdings Ltd. (NYSE:VR), National Indemnity, a unit of Warren Buffet’s Berkshire Hathaway (NYSE:BRK) among other suitors. Under the terms of the deal, Transatlantic shareholders will receive $14.22 in cash and 0.145 Alleghany shares for each share, for a total value of $59.79 per share. The price is at a premium of about 10% over Transatlantic’s Friday close of $54.43 on the New York Stock Exchange.
The deal with Allegheny could help Transatlantic (NYSE:TRH) ward off its rival Validus (NYSE:VR) which is trying a hostile takeover.
Transatlantic is one of the cheapest companies in the industry and its long-tail insurance lines, such as medical malpractice and workers’ compensation, are attractive to rivals more exposed to short-tail risks such as hurricane damage.
Shares of Transatlantic closed at $54.43 Friday on the New York Stock Exchange.
Based in New York City, Alleghany is a collection of various insurance businesses. As of Friday, its market value was about $2.7 billion. The deal carries a $115 million break-up fee.
Alleghany was advised by UBS (NYSE:UBS), Morgan Stanley (NYSE:MS) and the law firm Wachtell, Lipton, Rosen & Katz. Transatlantic was advised by Goldman Sachs (NYSE:GS), Moelis & Company and the law firm Gibson, Dunn & Crutcher.