Goldman profit halves, Wells Fargo rises

Two banks reported earnings before the bell today and each painted a different picture.

Investment banking powerhouse Goldman Sachs reported disappointing numbers for the fourth quarter after its profit dropped from $4.95bn or $8.29 per share to $2.39bn or $3.79.  Analysts were expecting per share earnings of $3.76 on revenue of $9bn.  The bank missed topline with $8.64bn.

The disappointing numbers came after weaknesses were seen in its investment banking and trading businesses.  Investment banking revenues went down by 10% while that of trading and security services were more significant, with a 37% drop.  Isolating trading in fixed income, currencies, and commodities, the business earned 48% less compared to the previous year.

Amid the decline in client activity, expenses not related to compensation also saw an 11% rise, including a write off for its investment in Speer Leeds and Kellogg.  Compensation, meanwhile is lower by 800m at $15.4 billion from a year earlier. Average per employee falls at $430,700, from last year’s $498,246.

The second bank that reported today is Wells Fargo, the 4th largest bank in the US.

While Goldman missed the topline number, Wells Fargo narrowly beat expectations of $21bn to report $21.5, which is still 5.3% lower than last year.  Profit stood at $3.41bn or 61 cents a share, higher than the 8 cents that was earned in 2009.

Improved standing was affected by lower loan loss provisions, which went down by almost $3bn from $5.91bn a year earlier.  Net charge-offs and nonperforming assets also improved.

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Apple profit soars

It was another rosy quarter for the biggest tech company in the world as Apple reports stellar earnings after the market closed Tuesday.  Top line increased 71% or just about $11bn to $26.7bn for the quarter ended, while profit increased by 78% to $6bn or $6.43 per share.  Gross margin however declined from a year earlier though slightly higher from Q3.

The stock went up after hours following the release of the earnings, recovering from the loss that was seen on the first trading day of the week.

In the conference call, executives didn’t talk about the health of CEO Steve Jobs, who on Monday announced will step back from day-to-day operations for medical leave.  The reason behind this has not been disclosed.

COO Tim Cook, who is currently in charge, spoke positively of the prospects for the company, amidst Jobs’ condition.  “In my view, Apple is doing its best work ever.  The team here has an unparalleled breadth and depth of talent and a culture of innovation that Steve has driven in the company.”

The company expects earnings to be 47% higher for the coming quarter at $4.90 while revenues are expected to move 63% north to $22bn from last year.  These numbers are higher than analysts’ expectations.

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Citi reports profit, misses expectations

Citigroup, one of the largest banks in the world, today reported a turnaround in its numbers after earning $1.3bn profit, compared to last year’s loss of $7.6bn.  This comes on a revenue that is more than 3x last year’s figure, $18.4bn vs $5.4bn, but is more than 10% lower than what was reported in the third quarter.

The numbers though positive missed analysts’ expectations by quite a lot, bringing down the stock almost 5% and below the $5 mark.  Analysts surveyed expected a per share earnings of 8 cents but the bank reported on $0.3.

Part of the reason for the miss is in fixed income where a $1.1bn charge resulted from declining spreads in Citi bonds after the US government sold its holdings of the bank.  The bank also incurred higher expenses due to increased hiring.

The improving landscape of consumers worldwide, however, improved the provisions for losses by cutting it in almost half, to $4.84bn.  It is also lower than what was set aside in the third quarter.


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Apple CEO Jobs leaves job… for now

One of the biggest headlines the past two days: Visionary Apple CEO Steve Jobs is taking a medical leave of absence for an indefinite amount of time.  This is the third time in 10 years that he’s stepping back and letting Tim Cook, the current COO, to take charge of day-to-day operations.  First was in 2004, then in 2009 following a liver transplant, and then this year.

Compared to past leaves, however, the statement that was released by him didn’t specify a time when he would be back.  In 2004, he began his leave in August and said he’ll see everyone in September.  In 2009, where he was gone for 6 months, he said to be back the following summer.  In his statement this time, he just said he loves Apple very much and that he hopes to be back as soon as he can.

Apple shares plunged 6.5% early morning Tuesday in New York, following a bigger plunge in Frankfurt yesterday, while the US markets were closed for the Martin Luther King holiday.

Despite that, analysts don’t necessarily perceive this to be a killer for Apple given the many new things in store for the company – the Verizon/iPhone deal, the growing clout of iPad, and the continued strength of sales of existing products.  They also see buying opportunities in the big dips in stock price.  Valuation wise, Goldman analyst Bill Shope notes that PE ratio stands at a big discount and maintains the 12-month price target of  $430.  The stock is currently at $335.

Lastly, everyone will be looking at the earnings of the company to be released today after the bell.  Big jump of 47% in earnings is expected, going up to $5.40 while revenue is also expected to increase 56% to $24.43 billion.

The timing of the release of Jobs’ absence is interesting though.  It came on the day when the US was on holiday and just before the earnings release for Q4.


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Obama on 21st regulatory system

The US president today came out with an editorial in the Wall Street Journal that talks about a 21st century regulation that aims to improve the balance between regulation and a well functioning economy.  Today, he signs an executive order that does that.

In it, he acknowledged the burden provided by unnecessary rules, while at the same time not forgetting that the lack of rules was what brought the US economy on the brink of a depression.

He writes,

This order requires that federal agencies ensure that regulations protect our safety, health and environment while promoting economic growth. And it orders a government-wide review of the rules already on the books to remove outdated regulations that stifle job creation and make our economy less competitive. It’s a review that will help bring order to regulations that have become a patchwork of overlapping rules, the result of tinkering by administrations and legislators of both parties and the influence of special interests in Washington over decades.

The order isn’t simply about adding or removing current rules, but also about how regulations can be imposed while keeping cost-benefit comparison in mind.  Furthermore, he looks to the idea of reducing paperwork and moving more things to be done online, “just like companies are doing.”

In the editorial, Obama sounded a little centrist, where personally I saw him liberal, and quite appropriately so, given his political leanings.  But this comes at a time when a lot of regulations have already been churned out by Washington – from health care, to credit card fees, to other banking regulations.  Rhetorical as this may be, the recognition of the dangers of too much regulation sounds pleasant to the ears.

Toward a 21st Century Regulatory System – WSJ

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China raises bank reserve requirements

As an effort to continuously curb inflationary pressure, the Chinese central bank is asking its banks to hold more of their deposits in reserve, raising requirements by 0.5% to 19%.  This policy becomes effective on January 20th.

This brings the ratio to another all-time high since the measure was introduced in 1980.  With the high level of inflation faced by the giant last year, standing at 5.1% in November, the central bank had to raise reserve ratio 6 times in 2010.

Some continue to worry about the inflationary pressures given the incoming Chinese New Year in February which puts additional pressure on prices as consumers buy more good to prepare for the occasion.

This partially reflects the tremendous amount of lending made by the Chinese banks last year, leading to the increased prices, whether in consumer goods or real estate.  Lending amounted to roughly 9.6 trillion yuan last year.

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Asian markets up for the 2nd day

For the second day, markets in Asia are up following the rally in the US markets overnight.  AMong the major markets, Australian market gains the most gaining as much as 1.5%.  Hang Seng is up almost half a percent at 24,233 while Nikkei is up 3/4%.  Shanghai composite is up 6 points or 0.2% while Singapore market is up 0.80%.  US futures are relatively flat with all 3 indices just about on the same level as the fair value.

The buying stands amidst the mixed reports in Asia, starting off with Korea.  The Korean central bank unexpectedly raised interest rate by 0.25% to 2.75 while analysts expected no change.  The government also unveiled measures to counter inflationary pressures, particularly in food.  These measures include cutting tariffs and imposing tougher punishment for pricing irregulations.  Inflation in the country has reached a 2-year inflation high of 5.3% in December.

Korea’s decision came a day after Thailand raised its own interest rates, also in the face of rising prices.  This is the 4th in 7 months, bringing the key rate to 2.25%.  Inflation of 1.4% was also much higher than expected but falls in the middle of the target of 0.50 to 3%.  A little more from the FT:  

However, the data were affected by subsidies on water and various energy sources and a government initiative that has persuaded 90 per cent of suppliers not to pass on price increases in key commodities including rice, cooking oil, fertiliser and gasoline to consumers for at least another two to three months.

The ministry of finance estimates that without the subsidies, which cover electricity, water, LPG, and transport for the country’s poorest citizens and have been renewed on a rolling basis for more than two years, headline inflation would be 1.3 percentage points higher.

Australia’s more than 1% increase comes after employment reports show that the country added fewer workers than expected.  Median forecast of a 25,000 increase was much better than the 2,300 jobs that were actually created. Interest rates however, remained at 4.75%.  The gain comes even while Queensland continues to be submerged in muddy water.

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Here are some other headlines for today:

World Bank backs efforts to counter rapid inflows Emerging market countries should consider all possible means to prevent rapid and volatile capital inflows destabilising their economies, according to the World Bank.   

S&P 500 no longer needs leadership from banks Market lore once said that the index needs leadership from the banks, but banks have lagged behind since October 2009 and Technology and Materials have taken up the baton. 

World Bank Sees Capital-Flow Risks, 3.3% Global Growth in 2011 Capital inflows, a driving force of the recovery in emerging countries, now pose risks to global growth as they can trigger abrupt currency fluctuations that may do “lasting damage” to some nations, the World Bank said.

Spain Wins `Breathing Space’ Buoyed by Portugual Debt Auction: Euro Credit Spain’s first bond auction of 2011 may be buoyed by Portugal’s success selling debt yesterday and European efforts to bolster the region’s sovereign-bailout fund.

Trichet Faces `Annus Horribilis’ as Crisis Strains ECB Policy Jean-Claude Trichet ’s final year at the helm of the European Central Bank may be his toughest yet as widening economic divergences within the euro area strain the bank’s one-size-fits all monetary policy.

Portugal Shouldn’t Be Forced Into Rescue, Germany’s Hoyer Says German Deputy Foreign Minister Werner Hoyer called the Portugal bond auction “good news” and proof that a European-led financial rescue should not be forced upon the government.

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Philippine picture: 13 Jan

The main index continues its rally for the 2nd day, after consecutive days of falling early this week and last, closing 33 points higher at 4,070, off from more than a percent intraday high earlier this morning.  Yesterday PSE inched up by merely 0.12% to close at 4,037.  This follows the rally that was seen in the US after the Fed Beige Book gave a positive tone to the recovery that’s underway in the US.  Most Asian markets are also up today.

On the currencies front, the peso lost ground against the dollar after deficit in the US reported to have declined from last year and December figures met expectations.  A dollar currently buys 44.1350 pesos, up 0.22 or half a percent from yesterday’s close of 43.9150. 

Exports for the month of November slowed for the Philippes, rising by 11.2% to $4.14bn compared to the 27.4% increase seen in October.  Despite the slowdown, full year target of $43.1bn was surpassed as aggregate exports for 11 months reached $47.22bn, higher by 34.5% from previous year. 

The decline was attributed to seasonal changes, given that the months of November and December are the sale season for many Western countries.  By then, most have already been exported.

From BusinessWorld:

In a telephone interview, National Economic and Development Authority (NEDA) Deputy Director-General Augusto B. Santos said, “Our performance is good despite the perceptively weak global economic recovery [last year].”

“Given the good showing, it (exports growth) may exceed 15% for 2011; in that case we may have to review the macroeconomic targets of the government,” he added.

Meanwhile, despite the economic openness of the country to trade and business, its ranking in the annual Index of Economic Freedom conducted by The Heritage Foundation in Washington, DC dropped from 109 out of 179 to 115th this year.  Based on 10 areas, business, trade, monetary and fiscal conditions, investment, financial, property rights, freedom from corruption, and labor, the country scored 56.2, below the global average of 59.7 

Scored of 0 to 49.9 implies repressed, 50-59.9 as mostly unfree, the next 10 as moderately free, 70-79.9 as mostly free and the last range as free.  Hong Kong and Singapore placed highest while North Korea stood at the bottom with a measly 1.0.

Some excerpt from the report:

“The absence of entrepreneurial dynamism, however, still makes long-term economic development a difficult task.”

“Deeper institutional reforms are required in four interrelated areas: business freedom, investment freedom, property rights and freedom from corruption.”

“The government imposes formal and non-formal barriers to foreign investment, and foreign remittances do little to promote sustainable growth. The judicial system remains weak and vulnerable to political influence and corruption.”

In most areas, the country scored above average but the big gap between averages and the scores for investement freedom and property rights brought us lower than the global overall average. 

More on this here.

Other headlines: FDI turned negative in October for the country, seeing a net outlflow of $23m vs. the $66m inflow in September.  Net FDI inflow for January to October decline 36.5% to $1.07bn.

Government seeks more reliable data for revenue tracking – The Dept of Finance (DoF) plans to form next year “a fiscal unit” that will focus on acquiring “third party” information to be checked against the records of its two main revenue-collecting bureaus, Secretary Cesar V. Purisima told a think tank in an interview.

More stocks, peso gains seen – Stocks and the local currency are expected to continue posting gains this year as investors seeking high yields favor assets in emerging market economies like the Philippines, research firm GlobalSource Partners, Inc. said in its latest report.

PSBank launches ‘Prepaid MasterCard’ debit card – Cardholders of PSBank MasterCard, a debit card that requires no maintaining balance, can use it to withdraw cash from automated teller machines (ATMs), make purchases in all MasterCard-affiliated establishments, shop online, or transfer money.

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Germany reports record growth

Germany yesterday released its latest GDP figure, showing a strong 3.6% growth for 2010.  As an export-driven economy, it was no surprise that its strong demand from China for cars, machinery and other goods helped the country achieve its strongest growth since the two Germanys, the East and West, reunified in 1991. 

The Germans also saw an increase in domestic consumption, increasing 0.5%, when it has been slow and flat the previous years. 

Another factor to the strong growth was the weakeaning of the euro the past year due to the credit crisis that was experienced by other Eurozone countires such as Greece, Italy, and Portugal.  The problems of these countries caused but very little trouble to the German economy; Greece, Ireland nad Portugal account for just 16bn EUR of Germany’s 2.5tn EUR economy. 

Experts foresee another strong growth for the country this 2011 as parts of Europe improve and other Western economies such as the US continue its pick up from the slow growth it has seen.  Any decline in Chinese demand though may dampen the growth in the country.

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