Bank of America and Genentech Lead Market Higher

Bank of America gave yet another boost to financials following less than catastrophic earnings results from the large money center banks last week.  It says alot about the market we're in when a stock can rally 10% on news that it will not need an FDIC bailout this week.  Bank of America's net income declined 41% to $3.41 billion from $5.6 billion a year ago.  What investors were really cheering was the announcement by the bank that the Countrywide acquisition will supposedly add to profit this year.  I suppose that California regulators read that comment and began to salivate as they have now expanded their suit against Countrywide.  The California Attorney General is now alleging that the company handed out bonuses to its loan officers to steer borrowers into the riskiest mortgages possible.  I'm sure this comes as a complete shock to everyone.  I smell a very expensive settlement with the government in the making.

The most interesting part of Bank of America's earnings report was the fact that net charge-offs were up 33% from the previous quarter to $3.62 billion yet the provision for future bad debts fell 3% from the first quarter to $5.8 billion.  Thankfully, net charge-offs and the provision for loan losses are never correlated so it shouldn't be a surprise that the bank's charge-offs increased significantly without a corresponding increase in the provision for future losses.  Oh, wait a minute.  Nevermind.  

Meanwhile, in Biotech Land, Swiss drug maker Roche offered to pay $43.7 billion for the balance of Genentech.  Roche already owns 54.9% of the US biotech and is clamoring for control of the R & D.  Perhaps this signals the return of the buyout boom?  I suppose if Roche was a private equity firm and Genentech was a car company it might be a positive sign for buyouts.  But since Roche is a drug company and Genentech has the closest thing to the cure for cancer, I can safely say that this is probably just a one-off deal.  As long as the front page of the Wall Street Journal continues to contains stories such as the one today detailing the significant problems Cerberus is encountering in its attempts to refinance Chrysler's $30 billion in short-term debt, the private equity bust is far from over.  More importantly, as long as companies and consumers who benefitted from overly easy financing in the past couple of years continue to have problems refinancing their debt, the market malaise is sure to continue.