JPMorgan “whale” loss cuts bank trading revenue

NEW YORK, Fri Sep 21, 2012 – JPMorgan Chase & Co.’s multibillion-dollar loss on a bloated derivatives portfolio led the way to a 73 percent decline in U.S. banking industry trading revenue, according to a new government report.

Trading revenue fell to $2 billion in the second quarter from $7.4 billion a year earlier, the Office of the Comptroller of the Currency said on Friday.

“It was clearly the highly publicized losses at JPMorgan Chase that caused the sharp drop in trading revenues,” Martin Pfinsgraff, deputy comptroller for credit and market risk, said in a statement from the OCC. Less demand from clients for trades was also a factor, he said.

Compared with the first quarter, trading revenue fell almost as much, by 69 percent, from $6.4 billion.

So far, JPMorgan has pegged its total loss on the trades at $5.8 billion, using public-company accounting standards and assigning part of the loss to the first quarter.

A London-based trader involved in the trades was known in the credit derivatives market as the “London whale” for the large size of the positions he took.

The OCC’s tally of industry results put JPMorgan’s second-quarter loss on the trades at $3.7 billion, which the regulator said had caused the bank to report an aggregate $420 million trading loss for the quarter. Accounting for bank regulations is different in some ways from that used in companies’ reports to shareholders.

The OCC report echoes similar data reported on Aug. 28 by the Federal Deposit Insurance Corp.

HP posts mega-loss after EDS writedown

SAN FRANCISCO,. Thu Aug 23, 2012 – Hewlett-Packard Co. swung to an $8.9 billion quarterly loss as personal computer sales shrank again and it swallowed a huge write-down linked to its $13.9 billion purchase of Electronic Data Systems Corp.

The company also on Wednesday reduced its full-year earnings outlook slightly to the low end of its previous range, responding to a faltering PC market as well as touch economic conditions in Europe and also China, where growth too is slowing. Its shares slid more than 4 percent in late trading.

The No.1 personal computer maker, which employs more than 300,000 people globally, is undergoing a multi-year restructuring aimed at focusing the sprawling corporation on enterprise services, in the mold of IBM. The plan calls for reducing its employee base by 8 percent.

HP will have gone through about half of its targeted job reductions by the end of the fiscal year, HP’s Chief Financial Officer Cathie Lesjak said in an interview. It cut 4,000 jobs in fiscal third quarter and will likely have shorn 11,500 jobs by end of fiscal 2012, she said.

“HP is definitely showing progress in terms of turning around the company,” said Sterne Agee analyst Shaw Wu. “One of the clear signs is a better predictability of earnings.”

The company was plagued by poor forecasting during former CEO Leo Apotheker’s brief tenure.

CEO Meg Whitman has urged investors to be patient as she works to jumpstart revenue and cut costs.

Knight trading loss shows cracks in equity markets

NEW YORK,  Aug 3, 2012 – The software glitch that cost Knight Capital Group $440 million in just 45 minutes reveals the deep fault lines in stock markets that are increasingly dominated by sophisticated high-speed trading systems. But Wall Street firms and regulators have few easy solutions for such problems.

Automated trading can handle massive volumes of transactions in milliseconds, something human traders could never do. But the benefits come at a cost: stock markets have become a jumble of exchanges, market makers, high-frequency traders, and investors using different systems that can interact in unexpected ways.

The May 2010 ‘Flash Crash’, in which U.S. stocks inexplicably sank in a matter of minutes, illustrated how technological problems can cascade. These sorts of problems may be more likely given that many market participants are under pressure to cut costs – including technology spending – as trading margins narrow and regulation costs increase.

Since April, a series of embarrassing and costly technology issues have rocked markets and shaken the confidence of investors.

BATS Global Markets, an exchange, was unable to complete its own initial public offering because of a technical problem. Nasdaq botched the market debut of Facebook due to technical glitches, costing it tens of millions of dollars, while UBS AG lost more than $350 million in trading Facebook shares and is blaming Nasdaq.

“The structure just may be too complicated to work,” said Larry Tabb, founder of Tabb Group, a consulting firm that focuses on capital markets.

Sprint second-quarter loss widens on Nextel charges

NEW YORK, Thu Jul 26, 2012 – Sprint Nextel Corp. on Thursday posted a wider quarterly loss as it took hefty charges for the planned shutdown of its old Nextel network.
The No. 3 U.S. mobile service reported a loss of 246,000 subscribers in the quarter, compared with the average expectation of about 203,000 subscriber losses, according to five analysts contacted by Reuters.
The customer numbers included losses of 688,000 subscribers on the Nextel network, which Sprint bought in 2005. On top of the work Sprint is doing to shut down the older network, the company is spending billions of dollars to upgrade its own network.
In contrast, Sprint’s bigger rivals Verizon Wireless and AT&T Inc., both added customers in the quarter.
Sprint, which committed to spend $15.5 billion on Apple Inc. iPhones over the next few years, said that its iPhone sales had declined in the quarter.
The quarterly loss widened to $1.37 billion or 46 cents per share, from $847 million, or 28 cents per share in the year-ago quarter. The loss included a $782 million depreciation charge for the network decommissioning and an impairment cost related to the share price of its Clearwirel Corp. venture.
Net operating revenue rose to $8.8 billion from $8.3 billion. Analysts expected $8.727 billion, according to Thomson Reuters I/B/E/S.

KBW posts fourth-quarter loss on sluggish bank M&A

NEW YORK — KBW Inc reported a fourth-quarter loss due to restructuring charges and a drought of merger and acquisition activity among its core customer base of small to mid-sized commercial banks.

The company posted a net loss of $16.3 million, or 55 cents a share, compared with a year-earlier net profit of $3 million.

Excluding severance and other one-time charges, KBW posted a loss of 28 cents a share. Analysts on average had expected a profit of 2 cents a share, according to Thomson Reuters I/B/E/S.

While restructuring charges for the elimination of about 20 percent of KBW’s workforce were expected, revenue and earnings were “well below” forecast, JMP Securities analyst David Trone wrote in a note to clients. He maintained his “buy” rating on KBW on prospects of banking consolidation down the road, but said the stock was likely to fall on Thursday because of the “big miss.”

Shares of KBW were down 7.1 percent at $16.03 in midmorning trading on the New York Stock Exchange. They had fallen 8.7 percent earlier.

On a conference call, recently appointed CEO Thomas Michaud declined to say when merger activity among bank clients might revive, but said potential buyers are getting more confident while sellers are under pressure to cut costs and expand revenue.

“There is a general belief within the industry that consolidation has to happen as a way of driving better returns in the banking industry,” he said.

Potential buyers, he said, are growing more confident that they can effectively value loan portfolios.

Sears posts big net loss, to sell some stores

HOFFMAN ESTATES, Ill. — Sears Holdings Corp reported a big quarterly net loss as the U.S. retailer struggled to woo shoppers in the key holiday selling season.

The operator of Sears department stores and the Kmart discount chain also reached a deal to sell 11 stores to General Growth Properties Inc and decided to separate Sears Hometown and outlets businesses and some hardware stores.

The dismal results come at a time when business lenders such as CIT Group Inc. keep Sears on a tight leash, adding to problems plaguing the company.

Sales at the company have fallen every year since it was formed by hedge fund manager Edward Lampert through the merger of two of the most iconic American chains in an $11 billion deal in 2005.

Sears reported a net loss of $2.4 billion after a number of charges, compared with a profit of $374 million a year earlier.

Walgreen sales hit by exit from Express Scripts

DEERFIELD, Ill. – Walgreen Co. is being hit by its withdrawal from the Express Scripts Inc. pharmacy network and by a much-weaker-than-expected flu season, leading it to temper its expectations for the number of prescriptions it will fill this year.

Walgreen said on Friday that it now expects prescriptions filled in fiscal 2012 to be around the low end of its previous forecast of 97 percent to 99 percent of the prescriptions it filled last year.

Walgreen said January sales at stores open at least a year, or same-store sales, fell 4.6 percent as it lost business following its decision to walk away from Express Scripts after failing to come to terms on a new contract with the pharmacy benefits manager.

Analysts, on average, anticipated that sales would fall only 2.7 percent, according to Thomson Reuters data.

Walgreen, the largest U.S. drugstore chain, stopped filling prescriptions for patients in the Express Scripts network on Dec. 31, 2011. Chains such as CVS Caremark Corp. and Rite Aid Corp. have been advertising to woo customers who used to fill their prescriptions at Walgreen.

CVS, in particular, appears to be “the clear winner” due to the fallout between Walgreen and Express Scripts, said Jefferies & Company analyst Scott Mushkin, who has a “buy” rating on CVS and a “hold” rating on Walgreen.

CVS stands to benefit both in its stores and in its Caremark pharmacy benefits management business, analysts say.

Aluminum slump has Alcoa staring at quarterly loss

NEW YORK ― Alcoa Inc., the largest U.S. aluminum producer, could end up posting a fourth-quarter loss due to a dizzying drop in the metal’s price in the last six months as the euro zone debt crisis and an economic slowdown in China hurt demand growth.

At least five Wall Street analysts cut earnings estimates in the last week and 18 slashed their full-year 2011 estimates since September for Alcoa, which will announce results on Monday after the market closes.

Analyst Bridget Freas of Morningstar in Chicago noted that Alcoa’s fortunes are tied very closely to the price of aluminum, which fell 6 percent in the fourth quarter.

“We have seen a weakening trend in the last few months and it will show in the results,” she said. “Most analysts are blaming what has happened with the LME (London Metals Exchange) price and we ended the year on a low point.”

The price of aluminum fell 18 percent, from $2,470 per tonne at the end of 2010 to $2015 last week. Traders cited the euro zone crisis and China’s economic slowdown for hurting prospects for demand growth that send the metal on a downward track after May.

And that, says Wall Street, can only hurt Alcoa’s bottom line.

“They had a pretty weak quarter and should come in around the break-even mark,” said Freas, who does not give a quarterly estimate. Her full-year estimate of 80 cents per share is unchanged, she said, since she has already factored in the lower metal price.

“They still face high raw material costs , but the biggest driver (of Alcoa’s results) is the price of aluminum.

“They will not be posting the kind of results (they did) at second-quarter levels,” Freas said.

Blackstone private equity firm posts loss, hit by market decline

NEW YORK ― Blackstone Group posted a worse-than-expected quarterly loss on Thursday as market declines hit the value of the private equity firm’s investments, forcing it to book a huge accounting loss.

But Blackstone said assets under management on which it earns management fees increased during the quarter, operating performance of its portfolio companies and properties was strong, and U.S. and European markets had rebounded since Sept. 30.

The company said it had record $33.4 billion of “dry powder,” or capital available to invest, up from $31.4 billion in the second quarter, and expected its latest real estate fund to raise more than $10 billion.

Blackstone invested $4.8 billion in total capital — its highest level of investment activity since 2007 — during the quarter, capitalizing on market dislocations.

“It’s been a quarter of contrasts,” President Tony James said during a conference call with reporters. “We had a very favorable and active environment for new investments.”

Blackstone, for example, bought a 44 percent stake in Leica Camera on Wednesday, when other bidders for the German company dropped out, James said.

The level of deal activity for private equity firms, however, remains muted compared with the pre-crisis years as buying and selling assets has become difficult as markets gyrate and debt financing markets remain tough.

Private equity firms have done $239.8 billion worth of deals so far this year, compared with $730.3 billion over the same period in 2007, according to Thomson Reuters data.

Blackstone’s economic net loss, which measures operating performance, was $342 million, compared with a profit of $339 million a year earlier. Adjusted ENI was a loss of 31 cents per share, lagging analysts’ average estimate of a loss of 5 cents, according to Thomson Reuters I/B/E/S.

Blackstone saw unrealized performance fees — its share in profits after funds hit a typically 8 percent return hurdle — fall to negative $465.2 million.

Performance fees booked over the life of a fund can swing from one quarter to the next as the firm marks its portfolio to market every quarter. It books gains when the investments rise and losses when they fall, so overall it gets a 20 percent share of the profits at the end.

The results signal a tough third quarter for the other major publicly traded private equity firms — KKR & Co and Apollo Global Management — which are expected to report results in the coming weeks.

Fee-earning assets under management rose to a record $132.9 billion, boosting base management fees 20 percent to $322.4 million.

Blackstone’s James said the firm raised $4 billion in the first closing of its global real estate fund, BREP VII. The firm also closed on $2 billion for its next mezzanine fund and is on track to exceed $3.5 billion.

“Our limited partner investors affirmed their confidence in our world-leading businesses and increased their share of funds with us,” Chief Executive Stephen Schwarzman said in a statement. “The third quarter presented extremely challenging market conditions, dominated by risk aversion and volatility.”

Its shares were down 0.6 percent at $13.16 during late morning trading on the New York Stock Exchange.