Merrill Lynch reported stellar earnings. Its net loss was only $1.96 billion after taking a $6.5 billion write-down. The most interesting part of this earnings report is not the write-down, which even my cab driver the other day was estimating at around $6 billion, but the precipitous declines in all of Merrill's other businesses. Debt and equity underwriting dropped by 61% and 45% respectively. Underwriting is supposed to pick up the slack when trading suffers, but apparently, that doesn't always work. Thank goodness John Thain was given $78 million in pay last year for starting in December (according to the Wall Street Journal's CEO compensation report.) Can you imagine how much Merrill would've lost if Thain wasn't "adequately motivated?"
In other finance news, SLM reported a loss of $.28 a share. The company wants you to ignore the loss and pay attention to its "core earnings" which were $.34 a share. The loss, apparently, is supposed to be one of those "one-time" things, that has happened to SLM three quarters in a row now. Given the incredible turmoil in the student loan market, it is hard to imagine that SLM will ever rise to its former glory when JC Flowers was willing to pay $60 a share for the company very recently. It may not ever rise to its former glory of $45 a share, the price SLM paid to buy back its own shares after Citi exercised the puts SLM had sold against its own stock. SLM then had to issue stock at $20 to fund the buyback, locking in a $1 billion loss. More importantly, SLM said it cannot issue any more loans until liquidity improves. What this means is that the company is just sitting on about $155 billion in loans with shareholders equity of $5 billion. Time will only tell what will happen to delinquency rates in student loans when students are no longer receiving 50 offers a week in the mail to consolidate or refinance their loans.
If you haven't already jumped out the window after reading this depressing report of the state of our financial institutions, there is some good news out there. Both INTC and IBM reported solid earnings yesterday, so all may not be lost. Google's earnings are probably the most anticipated in the tech world. Options traders will tell you with confidence that they have no idea what Google's earnings are going to be, but the stock is going to make a $50 move in either direction.
Thursday, April 17, 2008
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"The main takeaway I want you to have from this is we believe that our core franchise is very strong, has great earnings power and, as we look forward into 2008 - and of course we don't offer guidance and we do don't give projections - but..we're actually quite optimistic about our mix of businesses and how they can perform." - John Thain 10 weeks ago....Kind of like saying the Pcoast will return to greatness in 2008
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