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Biz Links Current Issue Q3-02 Index Q2-02 Index Q1-02 Index Q4-01 Index Q3-01 Index Q2-01 Index Q1-01 Index Prior Financial Services Updates August 2004 July 2004 June 2004 May 2004 Feb 2004 Jan 2004 Dec 2003 Nov 2003 Oct 2003 |
NOTE: Please confirm through your own research any numbers on which you are to make a buy, sell or hold decision. Monthly Sector Summary During the month of September, the year-to-date sector price performance went from a 0.54% gain to 0.32% loss, 04 EPS growth estimates went from 15.82% to 15.37%, and yields rose from 3.31% to 3.34% - a rise of 2 basis points. The 10-year Treasury note yielded 4.19% [vs 4.12% last month - up 7 basis points]. Month Ending Sector Summary During the month of September, the year-to-date sector price losses fell from a decrease of 5.68% to a decrease of 6.56% and 04 EPS growth estimates fell from 25.65% to 20.48%. Yield went from 1.03% to 1.07% Underwriters Turn In A Lackluster Q3 Diya Gullapalli, WSJ / Reuters 10-01 Rising interest rates and a sputtering stock market made for stagnant stock and bond underwriting in the third quarter, as total issuance fell 2% from the year-earlier period and 8% from Q2. A sharp decline in the issuance of bonds, as well as bonds that convert into stock, was only partially offset by a notable upturn in initial public offerings of stock and leveraged buyouts in the quarter. Total underwriting volume inched down to $1.24 trillion from $1.26 trillion a year earlier, according to Thomson Financial. The top underwriter for Q3 was Citigroup with $122 billion in total underwriting, followed by Morgan Stanley, J.P. Morgan Chase and Lehman Brothers Holdings. A notable climber in the rankings was J.P. Morgan, which jumped to third from fifth place in the year-earlier period as it benefited from an increase in stock-related issuance. For the year, underwriting volume is up 5% to $4.29 trillion, and overall reported fees are up 13% to $11.7 billion. Citigroup, the biggest underwriter since 2000, has in 2004 handled $413.2 billion of transactions, for a 9.6% market share, followed by Morgan Stanley's $317.3 billion, J.P. Morgan's $296.6 billion and Merrill Lynch's $288.7 billion. Total fee income increased 5% to $3.39 billion. This was in part the result of the increase in IPOs, which offer hefty fees of as much as 7% of proceeds. However, the usual August slump, when few deals hit the road for marketing presentations, held fees back. M&A activity remained relatively stagnant last quarter, with announced deals in September of less than $29 billion. That marks the lowest September since 1994. The quarter marked the most stunning performance of leveraged buyouts since the heyday of 1989. Already, the dollar volume of these deals in the first three quarters of 2004 is 50% above full-year 2003, with more than $37 billion in leveraged-buyout lending. S&P Raises Lehman, Morgan Stanley Outlooks Reuters 9-29 Standard & Poor's on Wednesday raised the debt rating outlooks for Lehman Brothers and Morgan Stanley to positive from stable, citing long-term stability in earnings performance at both brokerages. Outlook revisions to positive suggest the companies have a higher chance of their debt ratings being upgraded over the next few years, which in turn could lower their borrowing costs. In addition to achieving relatively stable long-term earnings, Lehman Brothers has also improved its business line diversification and its market position, S&P said. At the same time as raising both companies' debt rating outlooks, S&P affirmed their long-term counterparty credit ratings -- Lehman's at "A," and Morgan Stanley's one notch higher at "A-plus." Counterparty credit ratings apply to transactions like derivatives trades. At the same time, the ratings agency affirmed the ratings and outlooks for Bear Stearns, Goldman Sachs, Jefferies Group (JEF) and Merrill Lynch. Lynch Cuts Estimates for Asset Managers Reuters 9-20 Merrill Lynch has lowered its estimates for most of the 11 publicly traded asset managers it covers to reflect a decline in the value of the equity funds they manage, a company report said on Monday. The group's equity funds declined 1.7% so far in Q3, below Merrill's assumption of a 1.9% gain for the quarter, lead analyst Guy Moszkowski said in a report. Most of the group's equity funds are trailing the benchmark S&P500, down 1.1% through Sept. 16, he said. In most cases, Merrill lowered its estimates by 3% or less. Its greatest changes in estimates were for Janus, Legg Mason, Waddell & Reed Financial, Federated Investors and Gabelli Asset Management. Of the money managers that Merrill covers, only one -- Franklin Resources [BEN] -- has had positive equity performance in the third quarter, up 0.7 percent, on an asset-weighted basis, he said. Janus and Legg Mason funds have declined the most -- 3 percent and 4.4 percent, respectively, which is well below Merrill's assumption, it said. Merrill cut Janus earnings estimates for 2005 to 58 cents per share from 67 cents, and cut Legg Mason's fiscal 2005 earnings estimates less, to $4.78 from $4.95, because of its large fixed-income business. Many core fixed-income funds are up more than 3 percent in the quarter to date, Merrill said. Morgan Stanley's Profit Falls AP/ Reuters 9-22 Morgan Stanley earnings fell well short of Wall Street's already-low expectations. Investors were caught off-guard by Morgan Stanley's fixed-income results which suffered after the bank misjudged interest rate movements during the quarter. Morgan said net income fell to $837 million, or 76 cents a share, in the three months ended Aug. 31, down from $1.27 billion, or $1.15, in the year-earlier period. Analysts on average had expected Morgan Stanley to earn 96 cents a share, according to Reuters Estimates. The consensus figure had fallen 7% over the past two months. Morgan Stanley's net revenue, or total revenue minus interest expense and the loan-loss provisions, increased 3.4% to $5.43 billion from $5.25 billion last year but was down 18% from Q2. It also took a charge of $42 million on the markdown of some aircraft owned by the firm. Morgan's fixed-income sales and trading net revenue fell 19% from last year to $1.2 billion. The company said it experienced a difficult trading environment as mixed U.S. economic data and higher energy prices led to concerns about the strength of economic growth. Morgan Stanley's advisory revenue more than doubled to $310 million as it boosted share in a growing mergers-and-advisory market. Morgan Stanley's brokerage group took a deep hit from slack trading activity this summer, posting pretax income of $22 million -- an 88 percent decline from 2003's third quarter. Income in the company's credit-services business, which encompasses the Discover card operations, rose 13% to $330 million on improved credit quality and lower loss provision. Bear Stearns' Profit Falls AP/ Reuters 9-22 Bear Stearns reported fiscal third-quarter net income of $283.3 million, or $2.09 a share, compared with $313.4 million, or $2.30 per share a year ago. That beat analysts' estimates the company would earn $1.99 a share, according to Reuters Estimates. Last year, Q3 profit included 38 cents from a gain on an investment. Net revenue rose 3.3% from a year earlier to $1.53 billion. Yet revenue in its capital market division fell 1.7% to $1.2 billion. Institutional equities revenue rose 19 percent to $239.3 million. With last year's one-time gain, investment banking revenue fell 30%, while expenses climbed 8.8% to $1.1 billion due primarily to a jump in compensation payments. The company also raised its quarterly stock dividend 25% to 25 cents a share. Net revenue for the latest quarter, excluding interest expense, crept up 3.3 percent to $1.53 billion from $1.49 billion a year ago. Commission revenues declined, reflecting lower trading volumes among prime brokerage and fully disclosed clients. Bear Stearns said net revenue for the capital markets segment slipped 1.7 percent to $1.2 billion from $1.22 billion. Investment banking net revenue fell 30.3% to $208.9 million from $299.7 million a year ago. The 2003 quarter included merchant banking revenue of $92 million. Excluding these 2003 gains, investment banking revenue for the latest quarter was slightly higher than a year earlier. Wealth management net revenue for the latest period rose 11% to $139.8 million. Total assets under management stood at $28.1 billion on Aug. 31, up 9.3% from $25.7 billion a year earlier. Goldman Sachs Reports Solid Results Susanne Craig, WSJ 9-21 Goldman Sachs reported net income of $879 million, or $1.74 a share, for Q3 ended Aug. 27, up 30% from $677 million, or $1.32 a share, in the year-ago quarter. The result was down 26% from the $1.19 billion reported for Q2. Goldman posted the strong bond results, with revenue from its bond, currencies and commodities division more than doubling in the quarter to $1.87 billion, though the result was basically flat from the previous quarter. Overall, Goldman's net revenue, or total revenue minus interest expense, increased 19% to $4.53 billion from $3.79 billion a year earlier, but was down 18% from Q2. Revenue from trading and principal investments, which includes stock-trading and bond revenue, was $2.7 billion, up 15% from a year earlier but down 26% from Q2. Lehman Reports Solid Results Susanne Craig, WSJ 9-21 Lehman posted net income of $505 million, or $1.71 a share, for the period ended Aug. 31, up 5.2% from $480 million, or $1.81 a share, a year ago. While Lehman's net income rose from year-ago levels, its per-share results dropped because of an increase in the number of shares outstanding. The latest figures were down 17% from $609 million, or $2.01 a share, in the previous quarter. At Lehman, net revenue increased 12% to $2.62 billion from $2.35 billion from a year earlier, but dropped from $2.93 billion in the second quarter. Lehman Chief Financial Officer David Goldfarb said a lack of equities volume, in the U.S. and abroad, created a tricky market for Wall Street in the quarter. Revenue from Lehman's capital-markets division, which includes bond and stock trading, was $1.7 billion, up 2% from a year earlier but down 13% from Q2. Low Volumn Hurts Schwab/Brokers Gaston Ceron, WSJ 9-16 Trading activity at Charles Schwab waned last month, as the discount brokerage company continued to struggle with the lackluster environment that has plagued the trading business. The San Francisco firm's revenue-producing trades fell to an average of 118,600 a day, down 11% from 133,700 in July and off 6.5% from 126,800 in August 2003. Schwab's competitors were also hit by the seasonally slow month of August and difficult trading conditions. Trading activity fell in August at Schwab rivals, such as E*Trade Financial, and Ameritrade Holding Corp. Now, it remains to be seen if Schwab's fortunes will improve in the next few months. Historical trends would suggest a pickup in the fall months. That is what E*Trade President R. Jarrett Lilien on Wednesday said he expects. However, Bear Stearns analyst Daniel Goldberg said in a research note Thursday that he believes Schwab's trading so far in September is "roughly in line with August." 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