Thursday, July 16, 2009

Financial Headlines 7/16/2009

  • JP Morgan's profits rose 36% from a year earlier to $2.7 billion. The bank posted $26 billion in revenues, up 39% from a year earlier. The strong revenues were offset by an $8 billion provision for loan losses. Loan losses continue to rise but the bank believes that the $30 billion it has set aside to cover uncollectible loans should be sufficient.
  • CIT was denied government assistance and is scrambling to line up at least $2 billion in rescue funds from existing debtholders. Debtholders have 24 hours to decide if they will come up with new cash. A bankruptcy of CIT could potentially wreak havoc on many small retailers and clothing manufacturers and suppliers that rely on the finance concern to provide cash advances to operate their businesses. Apparently California may be particularly hard hit because of the state's large apparel-import business. Also, the FT reported yesterday that a CIT bankruptcy could trigger widespread losses for investors in the $600 billion market for synthetic CDOs. The company is the second most widely referenced company in CDOs after Volkwagen, with almost two-thirds of those rated by S&P in Europe including it in their portfolios of credit default swaps. Synthetic CDOs are debt products that pool CDS against a range of companies. Shame on you for not knowing that. A credit event could trigger further downgrades of synthetic CDO debt, which would lead to more writedowns. The clock is ticking. Now we wait.
  • Unemployment claims declined by 47,000 to 522,000 while continuing claims declined by 642,000 to 6.273 million. Calculated Risk notes that the seasonally adjusted weekly claims are being impacted by the layoffs in the automobile industry and other manufacturing sectors. Usually companies cut back production in the summer and the numbers are adjusted for that pattern, but this year the companies cut back much earlier. The distortion is expected to last another week or two.
  • The Philly Fed index fell to negative 7.5% from a nine-month high of negative 2.2% in June. Manufacturing activity has declined for 19 out of the past 20 months. This was a weak report. Not much else to say about that.

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