BAC, GE, IBM, GOOG

We'll start with the lousy earnings news and work our way up:

• Bank of America posted a net loss of $1 billion or 26 cents a share, compared with a profit of $1.18 billion a year ago. The loss was mostly due to $2.6 billion in write-downs from an improvement in credit spreads and a $402 million charge from a payment to the US government to get out of an asset-guarantee deal tied to the incredibly stupid and expensive purchase of Merrill Lynch. To add insult to injury, CEO Ken Lewis, who is stepping down at the end of the year, will receive no comp for this year and will be asked to refund the $1 million in salary he has collected for the year. This should be fairly easy to do as he is slated to receive around $69 million or so in retirement benefits.
• GE, the finance firm that likes to pretend it is an industrial conglomerate, posted a third-quarter profit of $2.49 billion, or 23 cents a share, down from $4.31 billion or 43 cents a share. GE Capital's profits dropped by 87%, and will likely weigh on GE's earnings for some time, regardless of any improvements in the industrial part of the business. This is because GE Capital doesn't have to mark-to-market so its assets will just bleed to death rather than take large hits. But luckily, the company had the pleasure of issuing government guaranteed debt through the crisis to stave off a liquidity problem. The industrial side of the company seems to be doing well with an increase of 3% in its backlog of orders for big-ticket equipment, maintenance and other services.
• IBM posted fairly decent numbers, although the market seemed not to like them enough to sustain the recent rally in the stock. Profits were up 14% on an increase in margins on a 6.9% decline in revenue. IBM also raised its full year guidance for next next year to at least $9.85 a share from its previous forecast of $9.70.
• Google continues to impress. The highly profitable tech outfit actually had an increase in revenues of 7% from the year earlier quarter to $5.94 billion. Revenues were up 8% sequentially as well. Profits grew even faster as net income rose 27% to $1.64 billion. Google's stock is the only one up this morning after its earnings results.

B of A, Citi, GE Earnings

Let's go in alphabetical order, shall we? Bank of America posted income of $3.22 billion or 33 cents a share, down from $3.41 billion , or 72 cents a share. Notice how earnings were down slightly, yet earnings per share were cut in half? That's dilution working for you. It's what happens when you have 64% more shares outstanding due to a capital-raising frenzy. Revenue jumped 61% to $32.77 billion. No indication yet where the increase in revenues is coming from. Actual growth? Merrill Lynch? Countrywide? I presume we'll get a few more details later, but the company did say that results were driven by strong revenues in the wholesale capital markets business and home loans, with most of the activity in mortgages coming from refinance activity. Revenues are up, which I'll take at face value as much better than being down. However, credit-loss provisions more than doubled from a year earlier, while the net charge-off rate surged to 3.64% from 1.67% a year ago and 2.85% in the first quarter. Credit-card managed losses increased to a whopping 11.7% from 5.96% a year ago, and total nonperforming assets rose to 3.31% from 1.13% in the prior year and 2.64% last quarter. Bank of America is pedaling hard against the rising heap of losses in its poorly performing loan portfolio. The question is: Can robust capital markets activity continue to counteract the losses in its loan portfolio until the economy turns?

Moving right along, Citigroup posted a record $4.28 billion in profits! Who needs government help with profits like that? Well, the results were distorted with a little help from a $6.7 billion gain related to the combination of its Smith Barney brokerage operations with those of Morgan Stanley. Conveniently, Citigroup didn't provide results excluding the gain, so I'll have to do my own math. By my calculations $4.28 billion minus $6.7 billions equals a loss of around $2.4 billion. Now this is probably not the right way to do the calculation, but you know, I don't think it would be inappropriate for the damn company to break out its operating results so that analysts and investors can see what the real story is. Particularly when you're on government life support and everyone and their mother is trying to figure out if you're going to survive another quarter.

Meanwhile, GE, that finance company that calls itself an industrial bellwether, reported a 47% drop in second-quarter earnings Friday. GE posted income of $2.67 billion or 24 cents a share, down from $5.07 billion or 51 cents a share a year earlier. Revenue fell 17% to $39.08 billion amid a 29% drop at GE Capital. Analysts expected earnings of 23 cents on revenue of $42.16 billion so I'll call these results worse than expected. GE Capital's profits plummeted 80%, but really the only reason GE Capital is even posting profits is that it isn't required to mark its assets to market. More details on the performance of its loan portfolio will be extremely enlightening. Although the energy-infrastructure business only had a 1% drop in revenue, the consumer and industrial operations saw revenues and profits drop 20%.

GE's stock is down around 4% and seems to be the biggest disappointment to investors. Yesterday's lackluster results from Google, 5% revenue growth for a company that is used to 30% or more, is also weighing on the market. IBM's respectable quarter, a 12% jump in second-quarter profit on a 13% decline in revenues coupled with raised guidance for the forthcoming year, hasn't done much to propel the market higher. If you were hoping for an exciting expiration Friday, you will likely be sorely disappointed.

Meanwhile, In Techland, Microsoft and Google Disappoint

Google and Microsoft both disappointed investors with weaker than expected earnings.  Google's earnings missed analysts' estimates, although profit rose to $1.25 billion from $925.1 million from the prior year.  Excluding some items, Google's earnings were $4.63 a share.  The stock is taking a bit of a beating today, essentially reversing the gains it took the last time Google reported earnings that surprised to the upside.  The company admitted that a pullback in the economy was affecting the rate of "paid clicks" on search advertisements that generate revenue.  The paid-click rate decreased 1% from the previous quarter but grew 19% from the same period a year earlier.  Clearly, the stock is slumping because investors expect surprises to the upside from Google, something the company has been able to deliver consistently.  The perverse logic of today's market indicates that it is better to lose $2.5 billion when investors are expecting losses of $5 billion, rather than make $1.25 billion when investors were expecting profits of $1.26 billion.    

Microsoft, on the other hand, posted profits of $4.3 billion, a 42% increase from the prior year's second-quarter on revenues of $15.8 billion, an 18% increase from the previous year.  Because Microsoft missed estimates by a penny and issued a weak outlook, the stock is down 5%.  While we're on the topic of Microsoft, I'm going to weight in on the Microsoft/Yahoo kerfuffle.  Back when every analyst in America was going on and on about how Microsoft desperately needed to pay upwards of $37 a share for Yahoo, I wrote a skeptical piece.  It was very hard for me to believe that Microsoft did not have the upper hand in negotiations.  After all, Yahoo was trading at $18 a share before Microsoft launched its initial bid that caused Yahoo's stock to rally to $28.  In the interim, talks have fallen apart, resumed, fallen apart again, resumed again,  and fallen apart....again.  So where do they stand now?  Microsoft wants Yahoo's search business, but it has made it perfectly clear that it is not going to pay a penny more than it believes the business is worth.  Yahoo's board is now facing a major uphill battle in an attempt to convince its shareholders that it can extract more value independently.  The market doesn't seem to believe that Yahoo's current board can organically grow the business, as the stock has slumped back down into the low $20's since Microsoft withdrew its bid.  Microsoft's latest blow came when it said it is no longer going to engage in negotiations with Yahoo's current board.  I believe that Yahoo's board will be given the boot by shareholders and Microsoft will claim its prize.  Microsoft may even win Yahoo (either in part or in whole) at a lower price than it originally anticipated.  Why?  Because we're in a bear market, Microsoft has cash and nobody else can afford to offer a counter.  Call me crazy and feel free to mock me if I'm wrong...       

Google and Citi, A Tale of Two Economies

Google posted a 31% jump in profits for the first quarter, dispelling the rumors that had been circulating about the slow-down in the economy affecting the company's ability to continue to grow at a torrid pace. If you happened to check the stock after hours yesterday, you may have thought for a moment that you had stepped through a portal in time and traveled back to 1999. It's rare to see a $75 surge in a stock's price these days, although on a percentage basis a 17% move isn't that hard to believe. What is interesting is how mispriced the options on Google were relative to the jump in the stock price. The options market is generally good at jacking up the implied volatility in the options to anticipate a stock's move on earnings news. But given that Google reported the day before options expiration, getting the pricing right was particularly difficult this time. If you were a betting fool and felt like taking some serious one-day risk, you could've purchase the april at-the-money straddle for roughly $30 yesterday and printed cash today. It's rare to see a stock blow through eight strikes on an expiration friday. In any event, there are some fairly significant profits and losses out there today, which should make for interesting trading.

Citigroup, on the other hand, lost $5 billion in the first quarter on a massive $15 billion in write-downs. Revenues, although down by 50%, did not decline as much as analysts expected, which got the market very excited. Why does this also remind me of 1999? Because back then internet companies with negative margins would claim "we're losing money on every product we sell, but we'll make it up on volume." And the stocks would rally. Once again, the chorus of "the worst is behind us" continues. I still don't believe it given how the overhang in the credit market persists and Citi remains an owner of $2 trillion in assets, but it's tough to fight a market that loves to rally on such dismal news.