Financial Industry 01 (Jul 08 - Aug 09)

[ishak]

Bank stocks look cheap, but buyers remain cautious
JOE BEL BRUNO ASSOCIATED PRESS
Originally published 01:59 a.m., July 19, 2008, updated 01:51 a.m., July 19, 2008

NEW YORK (AP) - Merrill Lynch & Co. Chief Executive John Thain is making a pitch to Wall Street: Buy the brokerage's shares while they're still cheap. But investors don't seem ready to listen.

In spite of a nearly 400-point surge in the Dow Jones industrials this past week, the market is expected to remain on edge for the foreseeable future. The reasons are varied: The economy is stumbling, the price of oil is still high and the housing slump that triggered the year-old credit crisis is not yet abating.

The market was clearly relieved by the upbeat financial sector earnings reports from Citigroup Inc., JPMorgan Chase & Co. this past week. But while the old rule on the Street is that financials tend to be the group that leads the broader market higher in any rebound, investors are taking a cautious approach, waiting for more positive signs that the worst of the credit crisis is behind financial companies.

Thain, like many of his colleagues, believes badly beaten financials represent opportunity.

"At what point do buyers realize that stock prices have gone too low and there's a real buy opportunity?" Thain said in an interview after Merrill released earnings on Thursday. "It for sure will happen eventually. Whenever we get these kind of crisis and panic type selling, they always present great buying opportunities for those who can overcome the fear."

Though bank and brokerage stocks surged earlier in the week on JPMorgan Chase's results and an equally pleasing report from Wells Fargo & Co., investors on Friday took a more conservative stance. A nearly 8 percent surge in Citi's stock on Friday had little influence on the rest of the nation's bank stocks, the Philadelphia/KBW Bank index of 24 companies edged up by just under 1 percent.

Arthur Hogan, chief market analyst at Jefferies & Co., said the biggest reason investors aren't ready to snap up financials is because of the companies' need for more capital. Global banks and brokerages have written down some $300 billion of bad investments since last year, and have raised just as much by selling stakes to big investors like sovereign wealth funds.

"That's dilutive to the shares, makes them worth less," Hogan said. "Merrill Lynch continues to take charges, and they'll need to raise capital. You don't want to jump into the financial sector until you know how much capital needs to be raised, and that's going to restrain the overall market from moving higher."

He said Citi's move higher on Friday was in part because the bank not only kept write-downs below expectations, but did not need to raise any new money. Others might not be as fortunate, on Friday goverment-sponsored mortgage lender Freddie Mac informed regulators it plans to float $5.5 billion of new stock to stave off its financial troubles.

Moreover, a solid move higher on Wall Street is likely to be a ways off because investors' concerns have gone well beyond the hobbled financial sector. This past week the government reported that consumer prices surged 5 percent in the past year, the biggest jump since 1991. Higher expenses for food and fuel caused yet another increase in June, according to the Labor Department.

With consumers struggling with falling home values and the ongoing credit crisis, the Federal Reserve finds itself in a tough spot. Raising interest rates might help fight inflation, but it also could slow the economy even further.

And there's still a great deal of anxiety in the market about consumer spending, with so much money going into Americans' gas tanks, even though crude oil futures plunged nearly $16 over three days this past week. It's too soon to say that the energy bubble is over, especially since speculative buying has taken crude to previously unthinkable prices this year.

Professional traders believe that all investors will have to wait a bit longer to determine if financial stocks are poised to lead the market higher. The answer might come in the next few weeks as even more financial companies, along with other major sectors, continue to post quarterly results.

"The real message is that there really aren't a lot of buyers out there these days," Hogan said. "John Thain will find them once we get a better idea about how much capital is needed to prop up the financials."

[blid2def]

Ishak, I've split this post out and put this in a new topic in the "AMERICAS & EUROPE: Data, News & Commentaries" parent forum as it's generic to banks stocks rather than specific to there Fannie & Freddie thread where it was parked.

[ishak]

The Guardian, Saturday July 19, 2008

Investing is easy with hindsight. The best bet of the past week was to buy the right selection of stockmarket dogs in these tables. Lunchtime on Wednesday was the moment to strike. If you had put £1,000 into each of Persimmon, Punch, Taylor Wimpey, Trinity Mirror and Wolseley, your £5,000 would be worth £7,260 today. Not bad in two-and-a-half days.

Such eye-catching rallies offer only small consolation to those who have owned the same stocks for the past year or so. The fact that Trinity Mirror could bounce from 45p to 85p doesn't mean much if you were buying at 550p. Taylor Wimpey at 50p? Some people bought at 500p in spring 2007.

But did something significant happen last week? Did Wednesday lunchtime mark the moment when investors said: "Hey, maybe we've overdone the doom, Armageddon might not happen"?

It is possible to see breaks in the clouds. The fundraisings by HBOS and Barclays were not the disasters they looked set to be. In the US, results from JP Morgan Chase and Citigroup were better than expected. The price of oil fell - $130 a barrel is still painful for the global economy but it's better than $147.

On the other hand, think of the unresolved problems. In the US, the future of Fannie Mae and Freddie Mac, the two big US mortgage lenders, is up in the air. Merrill Lynch spoiled the mood by announcing $9bn of fresh write-downs.

In the UK, the fall in house prices is accelerating. If the eventual decline is 20%, the pain may be bearable. But a 35% fall, as some serious economists predict, would bring tens of thousands of homeowners into negative equity.

"All we have consumed so far is a very small, but very rancid, amuse-bouche," says arch-bear Albert Edwards of Société Générale, who thinks the global economy is sliding towards recession.

What's an investor to do? One chief executive made a neat remark this week: "I don't know where the markets and the economy are going. But I do know that the best thing I've read recently was Sir John Templeton's obituary."

Templeton, one of the great 20th century investors, had a few simple rules, like pick long-term value stocks and buy at the moment of maximum pessimism.

Excellent advice, but how do you tell the difference between the bottom of the market and a sucker's rally? You can't, of course, except after the event. The guess here is that there are more shocks to come, and that patience is still the best policy. But it's a guess. As Templeton also said: "An investor who has all the answers doesn't even understand the questions."

[ishak]

Have financial stocks fallen so far that they are great investments?
The International Herald Tribune
By Floyd Norris
Saturday, July 19, 2008

There was hope that was true this past week. After selling off for months, the financial stocks in the Standard & Poor's 500 had their best day ever on Wednesday. But previous rebounds in those stocks have vanished as more bad news came out.

The Bush administration felt it had to offer a $300 billion line of credit to Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy or guarantee most mortgages made in the United States. Their inability to function would devastate the credit markets and the economy, and worries about them initially contributed to sharp falls.

There have been times before when the financial system seemed to be in jeopardy, but it recovered, and financial stocks soared as the fears faded.

The accompanying charts look at the performance of financial stocks over 52-week periods since the autumn of 1990, and do so in two ways.

The first chart shows the absolute performance of the Standard & Poor's index of financial stocks in the S&P 500, not including dividends. The second chart shows by how many percentage points the financial index outperformed, or underperformed, the broader index.

By either measure, the 52 weeks through Tuesday, July 15, were the worst since S&P began calculating the financial index in 1989.

At the low point in the past week, the index was down 53 percent over 52 weeks, a rapid decline not seen before. The previous record came in the autumn of 1990, when the financials were down 44 percent over a year as many banks failed and fears mounted that even Citicorp might not survive.

That was a great time to buy financial stocks, both relatively and absolutely. Over the ensuing 52 weeks, the financials soared 58 percent. That gain was not enough to wipe out the previous year's losses, but it was a phenomenal performance.

The past year has not been a good time for most stocks, of course. But even on a relative basis, the financials have had their worst 52-week period ever. They had fallen by 31 percentage points more than the overall S&P 500 on Tuesday, a figure that was marginally worse than the two previous times that the relative underperformance reached 31 percent.

The first of those came in 1990, and was followed by the surge mentioned above. The second one came in March of 2000, when financial stocks had done poorly at a time when the technology bubble was driving up the S&P 500. Over the next year, the S&P 500 fell by 12 percent, while the financials leaped 37 percent.

The fact that relative underperformance of 31 percentage points over 52 weeks has twice signaled a great opportunity in financial stocks does not prove that it will happen again. But it shows that pessimism about the financial system had reached extraordinary levels that could provide attractive prices if the system muddles through the current crisis.

[Chiron]

Cautious attitude is good for the stock market. Slow n steady, build a strong base for future shoot up. Too weak a base, trying to swallow more than it can take means disaster.

[millionairemind]

Financial regulation
Grasping at shorts
Jul 17th 2008
From The Economist print edition

America’s SEC fights dirty

BEAR markets often involve bare-knuckle fights, but it is still a shock when the referee starts punching below the belt. The Securities and Exchange Commission (SEC) has intervened in the epic struggle between financial companies and the hedge funds that are short-selling their shares.

Desperate to prevent more collapses, the main stockmarket regulator has slapped a ban for up to one month on “naked shorting” of the shares of 17 investment banks, and of Fannie Mae and Freddie Mac, the two mortgage giants. Some argue that such trades, in which investors sell shares they do not yet possess, make it easier to manipulate prices. The SEC has also reportedly issued over 50 subpoenas to banks and hedge funds as part of its investigation into possibly abusive trading of shares of Bear Stearns and Lehman Brothers.

The SEC’s moves deserve scrutiny. Investment banks must have a dizzying influence over the regulator to win special protection from short-selling, particularly as they act as prime brokers for almost all short-sellers. There is as yet no evidence that market abuse has driven down financial firms’ share prices—and plenty that their trashed balance-sheets and credibility have. London’s financial-services regulator has as yet failed to provide evidence to justify its decision to tighten the disclosure rules on short-selling of some bank shares.

The SEC’s initiatives are asymmetric. It has not investigated whether bullish investors and executives talked bank share prices up in the good times. Application is also inconsistent. The S&P500 companies with the biggest rises in short positions relative to their free floats in recent weeks include Sears, a retailer, and General Motors, a carmaker. Like the Treasury and the Federal Reserve, the SEC is improvising in order to try to protect banks. But when the dust settles, the incoherence of taking a wild swing may become clear for all to see.

[ishak]

James Doran in New York
The Observer, Sunday July 20, 2008

In the middle of last week, as the shares of almost every American bank were sliding south faster than an Arctic ice shelf, panic stultified even the highest echelons of Wall Street.

'I got a call from a partner at a major Wall Street brokerage, I won't say which one,' says Brad Hintz, chief Wall Street analyst at Sanford C Bernstein & Co, an independent asset manager.

'He was literally in the bathroom and in all seriousness he called me to ask me if I thought his firm, where he is a partner, was going to survive,' Hintz says. 'I find that kind of panic incredible.'

US banking shares recovered much of their lost ground as the week wore on, but the underlying fear that America may soon suffer a wave of banking failures still looms large in the minds of traders and bankers alike.

So far Bear Stearns, one of the big five investment banks on Wall Street, has collapsed, while two weeks ago Indymac Bank, a Californian mortgage provider and high street bank, was closed down.

Now there are fears that Lehman Brothers, another big Wall Street bank, might be next to go under, while US regulators have drawn up a list of at least 90 banks said to be in a critical condition.

The expected blood bath in the banking sector is just the latest fallout from America's housing market collapse and the credit crunch, which have battered the US economy for almost a year.

As house prices continue to fall, banks that hold billions of dollars of mortgages on their books - like Indymac - are faced with investors selling off shares in record numbers and depositors withdrawing their cash in a panic.

This fatal combination leaves such banks virtually worthless, and powerless to weather the continuing economic storm.

Hintz, meanwhile, adds that a continued freefall in banking shares would wipe out billions of dollars worth of personal wealth in America, which would have a disastrous effect on the wider economy.

Wall Street's most powerful executives have billions of dollars tied up in the weakening shares of their institutions.

'We are running out of options,' Hintz says. 'You cannot tell people that this is a problem that will fix itself any longer. Many people on Wall Street have never seen a downturn like this last this long. And that makes them very unsettled. None of them were around to remember the Great Depression.'

Hintz recalls his father, who lived through the Depression, telling him stories of how his family survived by eating nothing but oatmeal for two or three weeks at a time.

'My father is still alive; these are things we have endured within living memory,' Hintz says.

'People are beginning to think there could be a possibility we may endure them again.'

[millionairemind]

'I got a call from a partner at a major Wall Street brokerage, I won't say which one,' says Brad Hintz, chief Wall Street analyst at Sanford C Bernstein & Co, an independent asset manager.

'He was literally in the bathroom and in all seriousness he called me to ask me if I thought his firm, where he is a partner, was going to survive,' Hintz says. 'I find that kind of panic incredible.'

Scary thought!!! Even insiders don't know if their firms might go under.... so much so for the shareholders..

[kennynah]

this kind of employee....better get sacked...not in tune with company's affairs and keep making calls from toilet during office hours??? hahah...

[blid2def]

Or it's the writer or analyst just bull shitting and shit stirring.