GG now spends rainy days trading equities and currencies. He likes to use a combination of technical analysis and news flow to make trading decisions.
Merrill Lynch and Citigroup
Results are pencilled in for Google, AMD, Nokia and Harley Davidson on Thursday but despite that I’ll be keeping my eyes firmly on the banks. Merrill Lynch are due to release pre-US market open and pain is expected.
Analysts are expecting Merrill’s to announce another $6-8bn of asset write-downs, taking their total to over $30bn since October and leading to the worst run of results in the company’s 94 year history, according to a story in the Wall Street Journal. Overall the company is expected to post a loss of $1.99 per share for Q1.
The bad news is that whereas the last lot of write-downs were exclusively sub-prime related, some of the impairment this time round may relate to commercial real-estate debt and other loans. This suggests that as far as the credit crisis goes, we may only be at the ‘end of the beginning’ as other parts of the US economy start to be dragged into the write-off spiral.
In order to cut costs, ML is expected to announce further redundancies-potentially up to another 10-15% of the workforce. Those in non-revenue generating operations look particularly vulnerable.
One key metric-the company’s ‘leverage ratio’-how many times assets exceed equity will be scrutinised very closely to see what progress Merrill’s has made in de-gearing its balance sheet over the quarter. In December, it stood at an eye-watering 31.9 times-not very different to Bear Stearns. It has however raised equity over the period-but has it also scaled back some of the bets too?
In a very similar vein, Q1 results from Citigroup on Friday are expected to be the main focus, though there will be earnings releases from other key names including; Caterpillar, Honeywell and Schlumberger.
In common with Merrill Lynch & JP Morgan Chase, Citi is also expected to post another round of huge asset write-downs. There is a divergence of views on the size of the write-downs; consensus seems to be around $10bn, though the range is a wide $4bn-$12bn. This suggests that the group will post an overall loss for Q1-of perhaps $7bn.
Earlier this week Wachovia (the 4th largest US bank) and State Street Bank both took unexpected hits to their balance sheets-suggesting that Citi’s write-offs could be towards the top end of the range. However a clutch of decent results on Tuesday from a number of US regional banks offers hope that things might not be as bad as the most pessimistic forecasts would suggest.
April 17th, 2008 at 11:22 am
My early take on the ML numbers is that they are possibly a bit worse than expected, with a loss per share of $2.19 vs. expectations of about $1.99. Write-downs look to be about $6.5bn-toward the bottom end of recent estimates of $6-8bn. Might need some more capital at some stage.
Not much chage in the stock pre-market, down about 40 cents or just under 1%
April 17th, 2008 at 11:24 am
And Nokia look disappointing, whilst the HOG beat expectations just, Pfizer came in light, suggesting that the St. will open down about 50 points.
April 17th, 2008 at 12:08 pm
What I find interesting is that the banks are reporting on a period during which they were in the eye of the credit crunch storm, whereas the non-financials are reporting a period when they were bystanders watching from afar. Quite why reasonable results from non-financials should be interpreted as a sign that all’s well and we’re getting back to normal is a mystery to me.
As we move through this year, the non-finanacials will report on periods that include increasing chunks of time during which they were suffering the fallout that has now spread (and is continuing to spread) out from the financials.
Dig in for a steady stream of downgrades, profit warnings and disappointments in the months ahead. What we’re seeing in the markets now is the grand-daddy of all shorting opportunities — he said confidently while eyeing the red numbers on that short FTSE call
April 17th, 2008 at 1:15 pm
See the WSJ is suggesting that losses may actually be $9bn for ML, citing some accounting funnies which weren’t immediately apparent on the eps headline release. the amount of some of the debt ML owns has actually increased over the period ….’as some of their hedges failed’.
Cutting workforce by 4000 or so.
Nice to see you back in the money ken
Rumour (and is only that!) that Citi will take a $22bn hit-but caveat— only ‘hot chatter’ so far.
April 17th, 2008 at 1:37 pm
Nice to see that ML paid heed to FT’s mate Indiana Brown in coming clean on the full extent of their losses - not! Is there anyone left that takes the PM seriously?
I’ve been stopped out of everything but the FTSE short. Haven’t lost anything but only made enough to cover the cost of the electricity to power the PC — but, hey, it’s all good fun.
April 18th, 2008 at 3:24 pm
GG apologies-running around like something with wings and a blue backside!
Citigroup managed to come in with an eyewatering $12bn writedown and a $5.1bn loss for Q1, but that’s better than the $20bn somebody suggested yesterday. How handy! Happy days are here……
Stock has reacted positively (+6%)-which together with show-stopping results from Google yesterday has put a decent bid into the Street, currently flirting with 12,800 and a former resistance level.
I have to say that I was more intersested in the CAT & Honeywell results which both beat estimates. Proper companies doing proper things, not financial engineering!
CAT particularly as international sales were especially strong-helped in part by the weak $. With the US domestic economy tetering on the brink /already in recession I think that you want to consider overseas earners like CAT-and maybe a similar strategy might pay off in the UK.
I am keen on (and hold positions in) a selection of UK engineering stocks (exposure to emerging markets, weak £ etc) and some big international earners like DGE etc.