Bernanke Foresees Cooling Inflation, Stronger Growth
Overall inflation should continue to recede for the remainder of 2007 and all of 2008, reaching levels similar to that of so-called core inflation (ex-food-and-energy), Fed Chairman Ben Bernanke testified Wednesday morning before the House Financial Services Committee -- assuming energy prices cool off. He stressed the Fed remains cautiously hopeful that its 'soft-landing' scenario of slowing inflation and gentle growth will play out, noting that there are always risks in both directions -- slower-than-expected growth due to the housing slowdown, or higher-than-expected inflation from sudden rises in energy and commodity prices, reiterating that the latter is and has been the Fed's primary concern. Economic growth will be moderate for the remainder of 2007, and 'strengthen a bit' in 2008. While not forecasting when the housing slowdown might bottom, Bernanke said it will likely continue to drag on growth 'over coming quarters.' Labor demand should continue to expand, "though possibly at a somewhat slower pace than in recent years." Economists reactions were muted. Josh Shapiro, chief U.S. economist at MFR Inc. said there were no surprises: "There is nothing in the prepared testimony designed to shake market expectations of little if any change to Fed policy over the medium term."
Sources: Bernanke testimony, Bloomberg, MarketWatch
Commentary: Bernanke's Vision of Inflation Reflexivity May Soon Rear Its Ugly Head • The Next Bear Market is Anybody's Guess • Beyond The 'Wall Of Worry'
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Housing Starts Beat Forecasts; Permits Miss the Mark
Housing starts were up 2.3% to 1.467 million annual starts, an about face from May's revised 3.4% drop to 1.434 million. Originally, the Commerce Department reported a milder 2.1% drop in May. June starts beat economist forecasts, who thought starts would fall 1.6% to 1.45 million. Overall, housing starts are now down 25.2% from June 2006. On Tuesday, the National Association of Home Builders said its sentiment index fell to its lowest level since January 1991 amid worries over higher interest rates and problems in the subprime mortgage market. However building permits, which are a more clear indication of future activity, fell 7.5% to 1.406 million annually in June, reversing a May gain of 4.3%. Economists thought permits would fall a milder 2.6%. Broken down, single-family home starts dropped 0.2%, two-or-more family units were up 12.5%, and multi-family units (5 units or more) were up 12.9%. "The housing market remains fairly shaky," said BMO's Sal Guateiri. "All of the strength" was in multi-family housing. Next week June sales of new and existing homes will be reported.
Sources: Press release, Wall Street Journal, Bloomberg
Commentary: Pulte Homes Warns of Worse Than Expected Q2 Loss • The Fallout From the Subprime Debacle Continues • Are Homebuilding Investors Getting a Second Chance?
Stocks/ETFs to watch: streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB), iShares Dow Jones US Home Construction (NYSEARCA:ITB)
CPI Up a Gentle 0.2%, Down from May's 0.7% Jump
U.S. consumer prices rose 0.2% in June, taking a decided break from the 0.7% jump they took in May. Core CPI, which excludes prices of food and energy, also rose 0.2% after climbing 0.1% in May. Economists were looking for a 0.1% CPI and 0.2% core CPI increase. The numbers, released Wednesday morning by the Labor Department, bring annual CPI to 2.7% and core CPI to 2.2%. The moderate gains will likely reinforce the Fed's long-term economic forecast for a mix of slowing inflation and gentle growth. Fed Chairman Ben Bernanke delivers his semi-annual testimony before Congress Wednesday morning. He will likely say once again that inflation remains the predominant risk to the U.S. economy, with core inflation still hovering around the Fed's unofficial 1-2% comfort zone. Breaking the CPI down, energy prices fell 0.5% after gaining 5.4% in May; food was up 0.5%; medical care +0.2%; housing +0.3%; and lodging +2.5%. Clothing fell 0.6%. Separately, the Labor Department said average weekly earnings jumped 0.5% in June, bringing the yearly running total to 3.9%. Average hourly earnings were up 0.3%.
Sources: CPI press release, Real Earnings press release, Wall Street Journal
Commentary: Market Climbing a 'Wall of Worry' • Wholesale Prices Drop Unexpectedly on Lower Energy Costs • Trying to Put the Sector Horse Race into Context
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
IBM Tops Estimates on Strong Software Sales
IBM reported a second-quarter profit of $2.26 billion ($1.55/share), up 11.8% from $2.02 billion ($1.30) a year ago. Revenue grew 8.5% to $23.77 billion from last year's $21.9 billion. Not including a $0.05/share gain from the sale of its printing systems business, EPS were $1.50 -- beating analyst consensus estimates of $1.47/share on revenue of $23.07 billion. IBM's results -- its best since 2001 -- were bolstered by a 22% jump in signed service contracts ($11.7 billion), 16% growth from its middleware line ($3.7 billion) and software revenue growth of 13%. Systems and Technology revenue, including mainframe computers, servers and chips, was up just 1.8% to $5.1 billion. During the quarter, IBM repurchased $14.6 billion in shares. It was the 12th straight quarter that the hardware/software giant posted a gain in its gross profit margin -- to 41.8% from 41.2% in Q2 2006. Shares were up 1.2% to $112.05 in AH trading. They have gained 14% YTD.
Sources: Press release, Dow Jones, Reuters
Commentary: Buying Amazon Could Bring IBM New Opportunities • IBM Software Group: Research And Markets Report Available • Apple's Market Value to Surpass IBM, Intel
Stocks/ETFs to watch: International Business Machines Corp. (NYSE:IBM). Competitors: Hewlett-Packard (NYSE:HPQ), Microsoft (NASDAQ:MSFT), Electronic Data Systems (NASDAQ:EDS), Microsoft Corp. (MSFT). ETFs: Internet Architecture HOLDRs (NYSE:IAH), DIAMONDS Trust, Series 1 DIA, iShares Goldman Sachs Technology (NYSEARCA:IGM)
Clearwire, Sprint Near WiMax Deal -- WSJ
Sprint Nextel and Clearwire are near an agreement to provide seamless roaming service to each other's customers as they deploy broadband networks with WiMax technology, the Wall Street Journal reported Thursday. WiMax gives users the capability to access the Internet at high speed via cellphones, laptops and other devices. It is designed to be as fast as cable broadband and much faster than the cellular Internet access service provided by Verizon Wireless and AT&T. This would be the first time WiMax has been made available on a wide scale, and some Sprint investors are reportedly apprehensive about Sprint's plans for a $3 billion nationwide rollout. If the agreement is finalized, the two companies will be able to access one another's spectrum resources outside their current networks. According to the report, Sprint is also sounding out cable operators and private equity firms about investment in its WiMax unit. The pact would follow a deal recently inked by Clearwire with satellite providers DirecTV and Echostar that will allow it to bundle its high-speed wireless Web access with their programming.
Sources: Wall Street Journal, Trading Markets, Seattle P.I.
Commentary: Clearwire Soars 23% on WiMax Deals with DirecTV, EchoStar • Sprint Nextel Seeks Help With WiMax -- WSJ • Clearwire Service Expanding Quickly; Solid Sub Growth Should Follow
Stocks/ETFs to watch: Clearwire Corp. (CLWR), Sprint Nextel Corp. (NYSE:S). Competitors: AT&T Inc. (NYSE:T), Qwest Communications International Inc. (NYSE:Q). ETFs: Wireless HOLDRs (NYSEARCA:WMH), Telecom HOLDRs (NYSEARCA:TTH), Vanguard Telecom Services ETF (NYSEARCA:VOX)
Earnings call transcripts: Sprint Nextel Q1 2007
Strong Sales Growth Boosts SAP Profits
SAP said Thursday that second-quarter software license sales rose a better-than-expected 18% to €715 million amid double-digit growth in all its regions. Operating profit also bested forecasts, rising 10% to €577 million, despite a weak U.S. dollar versus the euro, in part because the company held back spending on new software development. The world's largest maker of business software posted a currency-adjusted 19% rise in software and software-related service revenues to €1.71 billion, in line with expectations. Analysts had expected SAP to report license sales of €674 million, software and software-related service revenues of €1.658 billion, and operating profit of €556 million. Net income was €449 million, or €0.37/share, up from 8% in 2006. Fund manager Michael Vieker told Bloomberg, "Expectations had been very low, so it was rather easy to surprise on the upside." The company reiterated its outlook for full-year 2007 software and service revenues growth of 12-14%, compared to 2006 growth of 12%. Full-year operating margin is expected to be 26-27%, compared to 2006's 27.3%. "Europe was very good for them, but they're not raising guidance," WestLB AG analyst Jonathan Crozier told Bloomberg. "The message of one good quarter and not raising guidance is clear: you can't expect every quarter to outperform just because one does." The company made no mention of a charge, anticipated by some analysts, to cover the costs for ongoing litigation with Oracle. SAP acknowledged earlier this month that its Texas-based customer-support unit had made "some inappropriate downloads" from Oracle's Web site, prompting investigations from the U.S. Department of Justice.
Sources: Press release, Reuters, Bloomberg, Dow Jones
Commentary: Oracle vs. SAP: No Mea Culpas On Illegal Downloads • SAP: On-Demand and Extended Enterprise Trends Have Arrived • WSJ: SAP Suffers Globalization Growing Pains
Stocks/ETFs to watch: SAP AG ADR (NYSE:SAP). Competitors: Oracle Corp. (NASDAQ:ORCL), Microsoft Corp. (MSFT), salesforce.com Inc. (NYSE:CRM). ETFs: Software HOLDRS Trust ETF (NYSE:SWH), WisdomTree International Technology Fund (DBT), iShares MSCI Germany Index Fund (NYSEARCA:EWG)
Earnings call transcript: Q1 2007 • SAP Earnings Call Transcript (later today)
Related: CNBC earnings tables for SAP
eBay Posts 50% Net Gain, Outdoing Forecasts
EBay reported Q2 2007 earnings of $0.34/share, up 42% from a year ago, and better than consensus analyst estimates of $0.32. Net income jumped 50% to $376 million. Revenue climbed 30% to $1.83 billion, slightly better than the $1.78 billion analysts were expecting. EBay gave Q3 revenue guidance of $1.78-1.83 billion and EPS of $0.31-0.33; analysts had been calling for $1.79 billion and $0.32. The company marginally raised its full-year guidance; it now expects $7.3-$7.45 billion revenue and $1.34-$1.38 EPS vs. $1.30-$1.34 previously. Analysts were calling for $1.34 and $7.4 billion. Much of the company's growth came from its PayPal and Skype properties. PayPal revenue was up 34% to $454 million. Skype revenue jumped more than 100% to $90 million; the VoIP service boasts 220 million registered users, up 94% y/y. Gross merchandise volume in its core business was up only 12% in the quarter, its second consecutive decline, and down 18% y/y. Listings fell 6% over the period. CFO Bob Swan attributed the lower core numbers to the company's campaign to prune 'low-quality' listings from the site in order to improve user experience. He also noted that the company's Asian business lists through strategic partners, so its numbers are missing from the earnings. Steve Weinstein of Pacific Crest Securities commented: "When you look at the company, nearly everything eBay does is centered around the value they create in their core business. It's not a particularly strong number, but it is what it is, and they seem to be managing their business well." Some analysts, such as Motley Fool's Rick Munarriz, are bothered by the combination of soaring revenue and contracting listings: "The company is milking more out of each transaction. There comes a point where the end user isn't going to like being nickeled and dimed, so this could backfire." Shares have gained 28% over the past year; they're down 1.6% in AH trading.
Sources: Press release (.pdf), MarketWatch, AP
Commentary: No Room For eBay's New Ad Service • Why eBay Needs Google • eBay: Coming Up Short in a Bull Market
Stocks/ETFs to watch: eBay Inc. (NASDAQ:EBAY). Competitors: Google Inc. (NASDAQ:GOOG), Yahoo! Inc. (NASDAQ:YHOO), VeriSign Inc. (NASDAQ:VRSN), ValueClick Inc. (VCLK), Amazon.com Inc. (NASDAQ:AMZN). ETFs: Internet HOLDRs (NYSE:HHH), First Trust Dow Jones Internet Index (NYSEARCA:FDN), PowerShares Dynamic Retail (NYSEARCA:PMR)
Related: CNBC earnings tables
Google Widens Reach of Print Ads Program
Google is opening up Print Ads, an experimental program that allows online advertisers to place ads in newspapers, to U.S. advertisers and agencies that already use Google's AdWords platform. The program is designed to attract advertisers who have rarely or never placed print ads before. "We believe newspapers are a critical component in the marketing ecosystem,” said Spencer Spinnell, head of sales strategy for Google Print Ads. “More than 50% of adults read newspapers every day, and marketers are always trying to reach new customers." An initial test in November linked about 100 advertisers with 50 dailies. There are now 225 papers involved, and they have a combined circulation of almost 30 million. The program lets companies bid on ad sizes, sections and dates. The papers decide which bids to accept, and then the program automates billing and payment. Print media are struggling to stem the tide as more and more advertisers forgo newspapers in favor of the Internet. "It's obviously a challenging time, so any new tools, any messages, any education to stretch the reach of our offerings is very exciting," said Mei-Mei Chan, vice president of advertising at The Seattle Times Co. "What Google brings is a whole cast of clients who are typically not traditional media advertisers."
Sources: Wall Street Journal, New York Times, Business Week
Commentary: Google Gets Over 75% Of Search Spending In Q2 • Google Expecting Yet Another Stellar Growth Quarter • Yahoo to Announce New Targeted Ad Tool
Stocks/ETFs to watch: Google Inc. (GOOG). Competitors: Yahoo! Inc. (YHOO), Microsoft Corp. (MSFT). ETFs: First Trust IPOX-100 Index (NYSEARCA:FPX), First Trust Dow Jones Internet Index (FDN), Vanguard Information Technology ETF (NYSEARCA:VGT)
Earnings call transcripts: Q1 2007
Macy's Shares Spike on Buyout Speculation
Shares of Macy's Inc. logged their biggest gains in 20 months Wednesday on a Women's Wear Daily report that Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. are planning a $24 billion bid for the department store chain. Officials with both companies declined comment on the report. The Street.com reported, however, that a source at Goldman familiar with the investment bank's plans said Goldman was not working on a deal to buy Macy's. According to WWD, the firms are considering a $52 a share offer for Cincinnati-based Macy's, which is about 30% above the closing price Tuesday, prior to the report. Shares have risen in recent weeks as speculation about a buyout circulated. The stock rose 7.6% to $43.09 on Wednesday, its biggest one-day gain since November 2005. Although sales growth has slowed since Macy's bought May Dept. Stores in 2005, analysts believe acquirers may be interested in Macy's cash and real estate holdings. The company owns more than half of its 858 stores. In a July 19 note, Citigroup wrote Macy's real estate holdings suggest a share price of $54, 25% higher than Wednesday's close. Others, however, said a buyout might not be likely. "We think management would prefer to remain independent, rather than subject Macy's to the risks of a leveraged buy-out," Jason Asaeda, an analyst with Standard & Poor's Equity Research, wrote in a report.
Sources: TheStreet.com, AP, Bloomberg
Commentary: Macy's Still Trading At Significant Discount To Potential Offer • Options Report: Macy's • Will Macy's Merge Into Sears Holdings? • Macy's Shares Surge on Buyout Rumors
Stocks/ETFs to watch: Macy's Inc. (NYSE:M). Dillard's Inc. (NYSE:DDS), Saks Inc. (NYSE:SKS), J.C. Penney Company Inc. (NYSE:JCP), Nordstrom Inc. (NYSE:JWN). ETFs: Retail HOLDRS ETF (NYSEARCA:RTH)
ENERGY AND MATERIALS
Oil Demand to Overtake Supply by 2030 -- Report
Demand for oil could exceed supply by 13 million bbls/day by 2030, according to a new study that warned of 'accumulating' risks to energy production and encouraged the use of alternative fuels. Among the risks cited were geopolitical barriers, higher costs, fewer petroleum engineers and growing constraints on carbon dioxide emissions. The 476-page study, titled "Facing the Hard Truths About Energy," involved 350 participants and was led by former Exxon Mobil chairman Lee Raymond. "There is no quick fix [to the problem]," Raymond said. Data collected showed that global production may reach 105-110 million bbls/a day by 2030, an amount that is 11% below U.S. government forecasts for daily demand of 118 million bbls. The National Petroleum Council, an advisory group that conducted the study in response to a request from U.S. Energy Secretary Samuel Bodman, approved the report on Wednesday. "We need energy efficiency, we need to moderate the rate of growth of demand. We need diversity of suppliers and of supplies," Bodman said in response to the report. Top industry executives, private research centers, academic institutions, banks, government agencies and environmental groups also contributed to the report. The study noted that the world was not running out of energy resources, indicating that coal, oil and natural gas would be important resources for meeting increased energy demand. Among the stated recommendations are improving energy efficiency and pursuing unconventional sources of energy such oil from tar sands and shale formations and non-petroleum fuels such as ethanol. The council also urged the U.S. government to start regulating greenhouse gas pollutant carbon dioxide and setting a high enough cost for CO2 emissions to encourage companies to curb them.
Sources: NPC report summary (.pdf), NPC full report (.pdf), Press release, Bloomberg, Reuters
Commentary: Will We Have Too Much Generation for Renewable Energy Projects? • Pay Attention To the Oil Price Naysayers • Investing in Renewable Energy: An Introduction
Stocks/ETFs to watch: United States Oil Fund ETF (NYSEARCA:USO), Claymore Macroshares Oil Down (DCR), PowerShares WilderHill Clean Energy ETF (NYSEARCA:PBW), Energy Select Sector SPDR ETF (NYSEARCA:XLE), iShares Goldman Sachs Natural Resource ETF (NYSEARCA:IGE)
Noble Tops Forecasts as Profits Jump 66%
Offshore driller Noble Corp. reported second quarter earnings that rose 66% to $2.16/share after a $0.08/share charge, up from $1.30 a year ago -- besting analyst forecasts of $2.13. Net income was $290 million, up 38% from $180 million last year, while revenue rose 40% to $726 million, from $517 million. "Strategic placement of the company's assets has driven the continued increases in dayrates and, when coupled with superb execution by our employees, has yielded record operating margins, earnings and shareholder returns," said CEO Mark A. Jackson. In a July 12 note, Citigroup analyst Geoff Kieburtz wrote that Noble has achieved the second highest operating margin and highest return on capital among the contract drilling peer group over the past five years, and that he believes "The company's ability to control drilling cost growth has been a key driver of its outperformance." The Sugarland, Texas-based oil and gas company said it also received a Letter of Award from PEMEX to pursue exploration and development offshore Mexico under a three-year contract at a dayrate of $484,000 beginning in the Q4 2008, while in Brazil, it secured a seven-month contract with Chevron for the Noble Leo Segerius project at a dayrate of $525,000 beginning in Q3 2008. Jefferies & Co. analyst Judson Bailey told Bloomberg the contracts probably suggest growing strength in the deepwater market, as the rate received by Noble "is probably higher than most had anticipated." Noble's shares have gained 31.79% YTD, and added another 1.6% to $101.98 Wednesday in after-hours trading following the report.
Sources: Press release, Bloomberg, Reuters
Commentary: The Long Case for Noble Corporation • Noble Corporation: Every Drill Bit is Money in the Bank • Four Deepwater Oil Riggers With Fantastic Fundamentals
Stocks/ETFs to watch: Noble Corp. (NYSE:NE). Competitors: Diamond Offshore Drilling Inc. (NYSE:DO), GlobalSantaFe Corp. (NYSE:GSF), Transocean Inc. (NYSE:RIG). ETFs: Oil Service HOLDRs ETF (NYSEARCA:OIH), PowerShares Dynamic Oil & Gas (NYSEARCA:PXJ), iShares Dow Jones U.S. Oil Equipment & Services (NYSEARCA:IEZ)
Related: CNBC earnings tables for NE
Allstate Posts Higher Q2 Net, But Operating Income Misses Estimates
Allstate reported net income increased 16% to $1.4b, or $2.30/share; however operating income fell 16% to $1.07b, or $1.76/share and missed analysts' average estimate of $1.80. Allstate suffered a 70% increase in catastrophe losses to $433m, as its pre-tax underwriting profit declined 30%, also hurt by a doubling of its reinsurance budget. Its property-liability combined ratio worsened to 87.6% from 82.5% last year [a higher figure represents higher claims and expenses costs] and is expected to be within the range of 84.0 and 86.0 for the year. Allstate said it repurchased $1.5b of common stock (24.3m shares) during the quarter and has $1.6b remaining of a $4b authorized program, which it plans to complete by the end of Q1'08. Shares of Allstate gained 0.2% to $60.56 during normal trading, but fell 0.8% to $60.10 in the after-hours. Separately, the Consumer Federation of America accused Allstate of excessively raising home and auto insurance rates and using questionable practices to settle claims.
Sources: Press release, Bloomberg, MarketWatch, Reuters, Associated Press
Commentary: Allstate Corporation: An Underperformer Poised to Break Out • David Merkel's Insurance Holdings • Allstate: An Attractive Market Insurance Policy - Barron's
Stocks/ETFs to watch: The Allstate Corporation (NYSE:ALL). Competitors: The Progressive Corporation (NYSE:PGR), The Travelers Companies (NYSE:TRV), Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), American International Group (NYSE:AIG). ETFs: streetTRACKS KBW Insurance (NYSEARCA:KIE), PowerShares Dynamic Insurance Portfolio ETF (NYSEARCA:PIC), iShares Dow Jones U.S. Insurance (NYSEARCA:IAK)
Sources: Allstate Investor Relations Q2 earnings information
IRS Probes Derivatives Trades at Citigroup and Lehman Brothers -- WSJ
The Wall Street Journal reported Thursday that the IRS has requested information from Citigroup and Lehman Brothers to help it assess whether complicated derivatives trades it put together for hedge funds and other clients were designed to reduce tax liability. The authorities are interested in cases where the firms bought stock from offshore hedge fund clients and paid them with returns from the stock's appreciation as well as dividends they generated. The funds thereby sidestepped payment of up to 30% in taxes on the dividends, since technically, they did not own the stock. This practice, called variously Yield Enhancement, Dividend Arbitrage and Tax Efficiency trading, is standard practice on Wall Street. At issue is over $1 billion worth of withholding taxes on dividends that funds have managed to avoid. The probe is part of a wider investigation into tax advantages enjoyed by "big wealth generators," including hedge funds, private equity firms and oil companies. Last month, the Senate Finance Committee put forward a bill to tax publicly traded financial-services partnerships at the same 35% rate paid by corporations. At present, private equity firms can list their shares publicly and pay no tax. In May, the IRS assembled a special branch to investigate complex financial products.
Sources: Wall Street Journal, Reuters
Commentary: Supreme Court Tosses Class-Action Suit Against I-Banks • Lehman Denies Subprime Exposure • Lehman Brothers: A Risk-Averse Goldman Sachs - Barron's
Stocks/ETFs to watch: Citigroup Inc. (NYSE:C), Lehman Brothers Holdings Inc. (LEH). Competitors: Goldman Sachs Group Inc. (NYSE:GS), Deutsche Bank AG (NYSE:DB), JPMorgan Chase & Co. (NYSE:JPM). ETFs: iShares Dow Jones US Broker-Dealers (NYSEARCA:IAI), KBW Capital Markets ETF (NYSEARCA:KCE), First Trust Morningstar Div Leaders Idx (NYSEARCA:FDL), PowerShares FTSE RAFI Financials (PRFF)
Earnings call transcripts: Citigroup Q1 2007, Lehman Brothers F2Q07
ABN Amro to Meet with Barclays and RBS Consortium -- FT
Under pressure from Dutch shareholders' association VEB, ABN Amro has arranged a meeting with competing bidders Barclays and a Royal Bank of Scotland-led consortium, according to the Financial Times. VEB had put in a request that Amsterdam's Enterprise Court name three independent directors to oversee the takeover of ABN. The group withdrew the request following news that a "powwow" had been scheduled between ABN and the two bidders. Though the Dutch bank denies its support for the Barclays offer has diminished, the presence of the consortium at the meeting is interpreted by "people close to the deal" as increasing pressure on Barclays to sweeten its bid. Barclays' all-stock bid values ABN at €64 billion; the consortium's cash-and-stock offer, which was just revised to increase the cash portion to 93% from 79%, values ABN at €71.1 billion. According to the article, ABN is hoping to clarify how the consortium, which also includes banks Fortis and Santander, plans to divvy up ABN's businesses. In related news, a study released Wednesday by independent broker Execution indicates that only 41% of Barclays' shareholders would vote in favor of its takeover of ABN and that only 5% of ABN shareholders would accept its current bid.
Sources: Financial Times
Commentary: Barclays to Sweeten Offer for ABN Amro -- FT • RBS Consortium Ups Cash Ante for ABN Amro • Dutch Supreme Court: ABN Amro Can Proceed with LaSalle Sale
Stocks/ETFs to watch: ABN Amro Holding N.V. (ABN), Barclays PLC (NYSE:BCS), Royal Bank of Scotland Group plc [ADR] (RBSPY.PK). Competitors: HSBC Holdings plc ADR (HBC), Deutsche Bank AG (DB), UBS AG (NYSE:UBS). ETFs: iShares MSCI Netherlands Index (NYSEARCA:EWN), streetTRACKS KBW Bank (NYSEARCA:KBE), HOLDRS Regional Bank (NYSEARCA:RKH)
Lehman Denies Subprime Exposure
Lehman Brothers denied rumors on Wednesday that it was about to announce losses connected to the subprime mortgage market, but its shares fell along with its sector. The market was already skittish following the revelation Wednesday that two Bear Stearns hedge funds with wide exposure to subprime loans have essentially been wiped out. Adding to investor apprehensions, Punk Ziegel & Co. downgraded Bear Stearns, Merrill Lynch, Morgan Stanley and other firms on concerns that they might not be able to make payments due on debt. Investors honed in on Lehman because of a perception that it has a greater exposure to the mortgage market than its competitors, a premise the firm denies. "The rumors regarding subprime exposure are totally unfounded," said Lehman Brothers spokeswoman Kerrie Cohen. Despite the denial, investors clamored to buy puts on the stock: 50,113 Lehman puts versus 21,118 calls were traded by early afternoon Wednesday, well beyond Lehman's normal options volume of 28,682 contracts. The shares fell over 3% before rebounding slightly to close down 1.93% at $71.65.
Sources: TheStreet.com, Reuters
Commentary: Lehman Strategist Says Economy Won't be Derailed by Subprime Crisis • Lehman Brothers: A Risk-Averse Goldman Sachs - Barron's • I-Banks At Risk From Hedge Fund Over-Exposure?
Stocks/ETFs to watch: Lehman Brothers Holdings Inc. (LEH). Competitors: Goldman Sachs Group Inc. (GS), Merrill Lynch & Co. Inc. (MER), Morgan Stanley (NYSE:MS). ETFs: KBW Capital Markets ETF (KCE), iShares Dow Jones US Broker-Dealers (IAI)
Earnings call transcripts: F2Q07
UnitedHealth Group Beats Estimates On 22% Growth In Net
Thursday before the open UnitedHealth Group reported Q2 net income of $1.2 billion, up 22%. EPS came in at $0.87 cents a share, ahead of consensus estimates of $0.81. Revenue climbed 7% to $19.05 billion on a GAAP basis, slightly below consensus estimates of 19.07 billion. UNH increased the top end of its full year EPS guidance by $0.02 to a range of $3.43-$3.48/share. The company reported a consolidated medical care ratio of 80.5%, marking an improvement of 1.1% y/y and 2.2% sequentially. The ratio measures the number of claims and expenses to premiums. UNH shares rose 1.1% during composite trading Wednesday and are up 12.7% over the recent 12 month period.
Sources: Press Release, Bloomberg, Reuters, MarketWatch
Commentary: Additional Public Hearings Scheduled For Sierra Health/UnitedHealth Merger • Companies With 100% Earnings Beat Rates Over Last Few Years • Cramer's Take on UNH
Stocks/ETFs to watch: UnitedHealth Group (NYSE:UNH). Competitors: Aetna (NYSE:AET), Cigna (NYSE:CI), Coventry Health Care (CVH), Humana (NYSE:HUM), WellPoint (WLP). ETFs: iShares Dow Jones US Healthcare Provider (NYSEARCA:IHF), Vanguard Health Care ETF (NYSEARCA:VHT), Health Care Select Sector SPDR (NYSEARCA:XLV)
China's Q2 GDP Highest in 12 Years, Inflation Climbs
China's statistics bureau reported Q2 GDP grew 11.9%, topping every estimate in a Bloomberg poll. Inflation rose 4.4%, the most since Sept. 2004, and exceeded the central bank's 3% target for the fourth straight month. Despite renewed concerns of rate hikes, stocks were mixed and held up much better than in the past. The Shanghai Composite ended lower by 0.44% to 3,912.94. A-shares gained 0.25% in Shenzhen, but fell 0.44% in Shanghai. B-shares meanwhile, rose 0.46% Shanghai, while falling 0.30% in Shenzhen. The yuan strengthened to its highest level against the U.S. dollar since the ending of its peg in July 2005. High food prices are blamed for the rise in inflation, as China faces a shortage of pigs and also faces rising international grain prices. A spokesman for the statistics bureau commented, "China will continue to strengthen and improve macro- economic controls in the second half of this year'' in order to contain lending and the money supply. Goldman Sachs upward revised its 2007 GDP forecast to 12.3% from 10.8% and expects two more 0.27% rate hikes this year.
Sources: Bloomberg, Associated Press
Commentary: GDP Index Weighting For China Would Likely Backfire • Growing Disconnect: Market-cap Weighted Indexes and the GDP Share of China • As Long As China's Excess Money Supply Remains, Keep Buying
Stocks/ETFs to watch: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT). Currency funds: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), Euro Currency Trust (NYSEARCA:FXE), CurrencyShares Japanese Yen Trust (NYSEARCA:FXY). China funds: Morgan Stanley China A (NYSE:CAF), iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NASDAQ:PGJ)
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