Q4 2009 Earnings Call

February 09, 2010; 09:00 am ET

Q4 2009 Earnings Call

February 9, 2010 8:00 am ET

As always, I start my quest for the next great stock by taking the new high list on Barchart and sorting for frequency. I then take the top 10 and look for something interesting. Yesterday, when all the major banks were getting hit on the chin, the smaller and regional banks seemed to be doing better. Sandy Spring (SASR) seems to be that small bank I'm looking for.

Sandy Spring is a bank holding company for Sandy Spring National Bank of Maryland. The bank is community oriented, and conducts a full-service, commercial banking business through community offices located in Montgomery, Howard, Prince George's and Anne Arundel counties in Maryland. It looks like geographically, they are in a very strategic region.

Q3 2009 Earnings Call

February 09, 2010 08:00 am ET

Fitch Ratings expects lending to private‐sector non‐financial companies and to consumers in the euro zone and UK to grow modestly, at best, in 2010 following a sharp contraction in 2009.

“The larger, well‐capitalised banks are more likely to go from strength to strength, increasing market share in lending. This trend is already evident, particularly in UK, where HSBC Holdings plc (HBC) and Banco Santander (SAN), both rated ‘AA’/Stable, and Barclays plc (BCS) ,’AA−’/Stable, are making significant inroads. Similarly, BNP Paribas, ‘AA’/Negative, is building up its franchise in the Benelux.”

Q4 2009 Earnings Call Transcript

February 9, 2009 3:00 am ET

Sorry I haven’t written much recently. The recent snowstorms have tossed me around, as I care for my family, and those around me. It is amusing in a backwards way, to see Washington, DC frozen at a time when there is so much volatility in global finance. Yo, Treasury, make sure the skeleton crew on international finance gets in, regardless.

The incentives are perverse in every way in Europe. If Germany, France, and the Netherlands don’t bail out Greece, then what will become of Portugal and Spain? And later, Italy and Ireland? In aggregate, this is big.

Standard & Poor’s offers a discouraging prognosis for Southern Europe sovereign debt in a new analysis. Selected excerpts below.

Despite the benefits of EMU membership, with the exception of the 2008 upgrades of both Slovak Republic and the Republic of Cyprus, Standard & Poor’s rating actions within the Eurozone since 2004 have been uniformly negative, reflecting the longstanding deterioration of these countries’ competitiveness and the related weakening of underlying budgetary positions.

NYSE Euronext, Inc.’s (NYX) fourth quarter operating earnings per share of 58 cents came in decisively ahead of the Zacks Consensus Estimate of 48 cents. Earnings were also ahead of the 52 cents per share recorded in the year-ago quarter and 53 cents in the prior quarter.

Results reflect increasing momentum in the business model and the continuing benefit from the various cost reduction programs, including 14% year-over-year reduction in staff members. The company also benefited from the acquisition of NYFIX Marketplace and semi-mutualization of NYSE Liffe U.S. Accordingly, operating net income increased to $151 million compared to $137 million in the year-ago quarter.

Nasdaq OMX Group Inc.’s (NDAQ) fourth quarter operating earnings per share of 46 cents surpassed the Zacks Consensus Estimate of 44 cents and prior quarter earnings of 42 cents. However, operating earnings declined substantially from 52 cents reported in the prior-year quarter. Total operating earnings, on non-GAAP basis, were $99 million, up from $89 million in the prior quarter but down from $110 million reported in the year-ago quarter.

Nasdaq’s GAAP net income was $43 million or 20 cents per share, up from $35 million or 17 cents in the year-ago quarter but down from $60 million or 28 cents in the prior quarter. This included $51 million in impairment charges related to unconsolidated investors (net of tax), $16 million in pre-tax expenses associated with occupancy sub-lease reserves workforce reductions, $12 million in pre-tax gains on the sale of certain businesses and $5 million (2 cents per share) in a Swedish tax benefit.

You can almost hear an audible sigh of relief echoing around risk managers’ desks and that tone is reflected by a positive market sentiment on hopes for a solution to the fiscal problems facing the government of Greece. Given the far more favorable tone to both equity and commodity prices on Tuesday, it seems that something is out of whack since bond prices have failed to decline. Yields have remained relatively unmoved, adding just a couple of basis points. That begs the question as to whether investors are expecting little more than a relief rally. Why sell bonds for more than a couple of sessions at most? Short term interest rate futures around the globe are just about flat to higher arguing in the face of the rally in risk appetite.

Banks are the epicenter of the economic crises that face the developed and emerging nations over the last few years. Many appear to have allowed the media to carry the conversation away from the banks and into sovereign debt issues, social unrest etc., but the main issue still resides in the banks. Why, you ask? Well, because every single major country conducts its finances through the banks and when those finances become stressed, the banks will be the first to show it and usually show it in an aggrieved manner since most banks are still highly leveraged.

The fact that governments worldwide have made the (generally unwise) attempt to bail out their big banks by transferring bad debts and liabilities from the private sector and bank investors to the public sector and taxpayers, doesn't mean that the problem has been solved or even ameliorated.

Standard & Poor’s today lowered its credit ratings on 43 European commercial mortgage-backed securities (CMBS) tranches and affirmed 19 ratings.

“The rating changes result from our assessment of the effect on these transactions of the unprecedented events in European real estate, including drops in property values in some markets that have exceeded those of the 1930s.”

Remember our good old friend the TED spread? It measures the difference between interbank loans and short-term Treasuries, and is used as a gauge of short-term confidence in the banking system. Back during the crisis, when lending came to a freeze, it blew out to record levels.

So you might think that with all the fresh nervousness hitting the market that the TED spread would so some signs of widening again, but nope.

Not even Joe DiMaggio could have hit this change up. Just one year ago, the United States financial system stood on the brink of failure. GDP had declined by 6.25%, the most severe contraction since 1982. In November 2008, non-farm payrolls were cut by 533,000, the most severe contraction since 1974. But just a few months later, right after the ink had dried on largest corporate bankruptcy filing in American history (Lehman Brothers), U.S. GDP managed to grow at a 5.7% annual rate -- the the fastest expansion in 6 years.

It's a remarkable turnaround, but the problems in commercial real estate persist. CMBS defaults at the end of 2009 registered a five-fold increase over 2008. In two of the hardest hit sectors, hotels and apartments, almost 10% of all CMBS loans were delinquent at the end of 2009. Fitch says overall CMBS default rates could reach 12 percent by 2012.