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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 Oct 2004 Sept 2004 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 first two weeks of November, the year-to-date sector price performance went from a gain of 1.95% to a 7.78% gain, 04 EPS growth estimates have not been updated, and yields went from 3.34% to 3.16%. The 10-year Treasury note, which yielded 4.06% on 10-29, is now 4.20% - up 14 basis points for the month]. Bank Earnings Likely to Weaken in 2005 Eileen Alt Powell, AP 12-21-2004 After two years of record profits, the banking business is likely to get a little tougher, and maybe a little more concentrated, in 2005. Banks are expected to see earnings weaken a bit in the coming year due to rising interest rates and sluggish stock market returns. And more mergers are anticipated after 2004's wave of big acquisitions -- although the deals are likely to involve smaller players. Tanya Azarchs, a managing director at the Standard & Poor's ratings service in New York, believes 2005 will bring "a lot of pressures on revenues" at the nation's banks, making it difficult for them to match their 2004 performance. And Jeff Rulis, an analyst with D.A. Davidson., said earnings-per-share growth "is very likely to taper toward the later half of the year." Rate hikes since last June have already put a crimp in mortgage lending, and increases in 2005 are expected to raise banks' costs as competition for commercial loans rises. Meanwhile, the industry's investment banking side isn't expect to have a strong year. Overall merger activity isn't very robust, and the stock market's sideways trading has limited banks' transaction fees. Still, that doesn't mean the nation's 9,000 banks and thrifts are suffering. They're going into the new year with strong capital bases and few problem loans on their books, according to James Chessen, chief economist for the American Bankers Association in Washington, D.C. "That means they're extremely well-positioned to meet the increasing loan demands of both companies and individuals," Chessen said. He said banks already were reporting "much more interest in businesses taking on new loans, particularly smaller and mid-sized companies." One area where consumers have begun backing off as interest rates rise is mortgage financing. Doug Duncan, chief economist for the Mortgage Bankers Association of America in Washington, D.C., said mortgage originations are expected to total about $2.8 trillion in 2004, a big drop from 2003's record $3.9 trillion. The biggest decline has been in mortgage refinancings, which in 2004 were less than half of 2003's $2.5 trillion record, he said. Duncan said interest rates currently averaging about 5.8 percent for a 30-year, fixed-rate mortgage could climb to 6.25 percent or higher by the end of 2005. "That's still a pretty good rate," Duncan said. "So we expect to see some slowing of the market, but nothing precipitous." Mortgage giant Freddie Mac expects mortgage originations to total just over $2 trillion in 2005, down from a projected $2.5 trillion in 2004. 2004 also saw the consummation of two of the biggest bank mergers in history -- JPMorgan Chase & Co.'s alliance with Bank One and Bank of America Corp.'s acquisition of FleetBoston. Along with Citigroup Inc., the mergers have given the nation a triumvirate of megabanks with assets of more than $1 trillion. The consolidation at the top is likely to prompt more merger activity among mid-sized and small institutions as they maneuver to compete against the behemoths, analysts say. And it's also sharpened competition for customers nationwide. Liam McGee, president of consumer and small business banking with Bank of America in Charlotte, N.C., said his company's purchase of FleetBoston allows Bank of America, which is No. 1 in Florida, to better attract the business of snowbirds, people who migrate to the state from the Northeast in winter. "Now we can handle those relationships in both places," he said. McGee said Bank of America also was working to expand its branches -- which the bank refers to as "stores" -- in markets with fast-growing Hispanic, Asian and black populations. "A lot of banks are building stores, but they doing it where they have no density," he said. "We're doing it where we already have density, and we're filling in in emerging growth markets." Bankers are likely to encounter more scrutiny by regulars in the coming year after 2004's series of scandals. Bank of America and FleetBoston jointly settled with regulators over improper trading in their mutual fund divisions, paying $675 million in fines, penalties and restitution. Citigroup agreed to a $2.6 billion settlement stemming from its bond underwriting for WorldCom Inc., which collapsed amid allegations of accounting fraud in 2002. Both Citigroup and JPMorgan set up huge reserves to deal with further legal fallout from the WorldCom bankruptcy as well as allegations that the banks helped Enron Corp. hide debts off its balance sheet before it collapsed in December 2001. JP Morgan, Bank of America Lead U.S. Bank Lenders Reuters of 1-03-2005 J.P. Morgan Chase, Bank of America and Citigroup led banks that arranged a record $1.3 trillion of U.S. syndicated loans in 2004 as merger activity and lowered costs fueled borrowing activity, Loan Pricing Corp. said. Lending rose by roughly half from a year earlier, ending a three-year decline, according to data from LPC, a unit of Reuters Group Plc. Investment-grade lending rose 46 percent from 2003 to $612 billion but fell short of 2001's record $690 billion, LPC said. Leveraged loans, which are made to companies rated below investment-grade and often used to fund mergers or leveraged buyouts, surged 46 percent to $480 billion, while institutional lending nearly doubled to $221 billion, it said. LBO activity topped $50 billion, by far the most since the 1980s, LPC said. Merger lending, meanwhile, more than doubled from 2003 to $190 billion from $72 billion, and "seems poised to explode into 2005," it said. J.P. Morgan arranged $410.3 billion of syndicated loans in 996 deals, for a 30 percent market share. Bank of America finished second with $272.7 billion of loans in 990 deals, for a 20 percent share. Citigroup ranked third, with $200.6 billion of loans in 357 deals, for a 15 percent share. In leveraged lending, J.P. Morgan replaced Bank of America as the top lender, handling $98.6 billion of loans in 450 deals, for a 21 percent share. Bank of America had $84.5 billion of loans in 538 deals, for an 18 percent share, while Citigroup was third with $44 billion of loans in 137 deals, for a 9 percent share. Citigroup, J.P. Morgan and Bank of America are the three biggest U.S. banks by assets. Analysts have said that such commercial banks can use their lending power to help win other, more lucrative business. During the year, J.P. Morgan bought Bank One Corp., which ranked fourth in syndicated lending in 2003, while Bank of America bought FleetBoston Financial Corp., which ranked fifth. Wachovia Corp.'s Wachovia Securities, Deutsche Bank AG and Credit Suisse Group Inc.'s Credit Suisse First Boston ranked fourth, fifth and sixth in syndicated lending, LPC data show. Deutsche Bank, Credit Suisse and Wachovia ranked fourth, fifth and sixth in leveraged lending. Low Rates Boost Sales Of Tax-Exempt Bonds Stan Rosenberg WSJ 12-29-2004 State and local governments in 2004 sold a near-record volume of tax-exempt bonds as market interest rates remained lower than expected. With interest rates low, refinancing remained popular among state and local governments, while an improved economy lessened the need to raise fresh cash. Issuers also kept borrowing costs low by opting for floating-rate debt, in the form of auction-rate securities, over fixed-rate bonds. Many in the market hadn't expected volume to hold up as well as it did this year. Final volume declined only about 7% to $352 billion from last year's record $379 billion, according to preliminary data from Thomson Financial. That makes 2004 the third-highest year for tax-exempt bond issuance after $355.9 billion in 2002. UBS AG's UBS Financial Services Inc. appears to have unseated Citigroup Inc.'s Citigroup Global Markets Inc. as top muni-bond underwriter, a position Citigroup has held since 1997, according to Thomson Financial. UBS was bookrunning manager for about $46 billion of issues through Dec. 23 compared with $44 billion for second-place Citigroup. Together, the two firms captured almost 26% of the market. Merrill Lynch & Co. finished third with $26 billion, about 7.4% of volume. In 2003, Citigroup took top ranking with $52 billion and UBS placed second with $45 billion. Merrill again was third with $29 billion. For 2005, most observers expect new issue volume to shrink again as market rates slowly edge higher. Lehman's Mr. DeGroot expects about a 10% decline, putting volume around $315 billion, while Merrill Lynch's Mr. Fischer says $340 billion is a good initial projection. Chief municipal strategist Chris Mier at Chicago-based Loop Capital Markets LLC anticipates a range of $305 billion to $355 billion, based on a projected average 10-year Treasury yield of 5% for the year. Top Underwriters for 2004 Kavitha Shastry, Reuters 12-26-2004 Morgan Stanley claimed the top spot in U.S. IPO underwriting activity in 2004, jumping from fifth place the previous year, on high profile deals that included Google. In total, Morgan Stanley served as lead bookrunner on 21 offerings that raised $7.3 billion this year, accounting for 16.8 percent of the total deal value. In 2003, Morgan Stanley ranked fifth, pulling in only six deals worth $975 million. Goldman Sachs, last year's No. 1, fell to second in 2004, leading 27 offerings that combined to raise $6.5 billion. The company led with 11 deals last year, worth $2.4 billion. Rounding out the top five underwriters were Merrill Lynch at No. 3 with 30 IPOs and 10.6 percent of total deal value; JP Morgan, whose 24 deals raised $3.8 billion; and Citigroup , who served as lead bookrunner on 20 deals worth $3.7 billion. Combined, the top 10 underwriters in 2004 accounted for $38.1 billion in deal volume, 87.6 percent of the total. Goldman cedes No. 1 U.S. M&A spot to J.P. Morgan Reuters 12-22-2004 Goldman Sachs Group ceded the No. 1 U.S. merger advisory ranking by value of deals to J.P. Morgan Chase in the last few weeks of 2004 amid a slew of deals that gave J.P. Morgan a $1.6 billion lead. Credit for advising on its $58 billion purchase of Bank One earlier this year also helped boost J.P. Morgan to the top spot and it closed the year having advised on $291.2 billion in deals ahead of Goldman Sachs' $289.6 billion, according to preliminary data from market research firm Dealogic. Total 2004 U.S. deal volume rose to $832.4 billion from $553.7 billion a year earlier. Investment banks use these annual rankings as bragging rights and to help them win new business. Goldman had been ranked No. 1 in the United States last year while J.P. Morgan held the sixth spot. J.P. Morgan did 189 deals compared with Goldman's 187 deals in 2004, Dealogic said. Lehman Brothers climbed to the third spot from the fourth spot with $239.7 billion worth of deals while Citigroup fell to the fourth spot from the third with $237.4 billion in deals. Morgan Stanley held the fifth position with $190.1 billion in deals, down from the No. 2 spot it held in 2003, while Merrill Lynch rose to the sixth spot from the eighth ranking it held last year. Lazard Freres & Co., which has filed for an initial public offering, rose into the top 10, hitting the seventh spot compared with its position in eleventh last year. The value of deals it advised on were less than half of what either J.P. Morgan or Goldman advised on. Also in the top 10 were Credit Suisse First Boston, a unit of Credit Suisse Group, which fell to No. 9 from No. 5 and Deutsche Bank, which retained its 10th place ranking. Dealogic includes debt in its figures. Dealogic also ranked investment banks by estimated revenues, which is based on disclosed fees and its own analysis when fees are not disclosed. Some investment banks to do not disclose any fees at all. Based on these Dealogic numbers, Goldman Sachs was ranked first with $768 billion in revenue from M&A advisory fees followed by Lehman Brothers's $478 billion. Morgan Stanley was in the third spot with $477 billion followed by J.P. Morgan's $437 billion and Citigroup with $435 billion. Bank of America Customers Spend $100 Billion in 04 With Their Debit Cards press release of 12-20-2004 Bank of America customers spent a record $100 billion on their debit cards for goods and services during 2004, making the bank the first financial institution to pass the milestone within any year. Bank of America is the No. 1 debit card issuer in the country, with more than 22 million cards issued, making up 15% of the market. Bank of America reached the $100 billion milestone because customers with debit cards are using them more often, and a higher percentage of customers are getting the cards when opening accounts, said Ken Kavanagh, Debit and Prepaid Cards executive. Bank of New York Looks Safe reasearch release in Barrons Ryan Beck 12-20-04 Analyst firm Ryan Beck initiated coverage of the Bank of New York with an Outperform rating and a price-target of $37. In our view, the shares of Bank of New York are currently undervalued relative to its trust, custody, and wealth management companies. Bank of New York is currently selling at 14.1 times our 2006 earnings per share (EPS) estimate of $2.35, which is at a 9% discount to its peer group multiple of 15.5 times. In our view, the company is well positioned to assist financial institutions, corporations, and individuals with the movement and management of assets across the world. Bank of New York holds a leading market position in attractive businesses, has a diversified global client base, and possesses a substantial breadth of services to meet the needs of its clientele. The Bank of New York's business model is more global market volume driven, rather than market price sensitive. The volumes of particular interest include equity-linked businesses, fixed income, global merger and acquisition, and equity issuance. Bank of New York's revenue contribution is approximately 79% domestic and 21% international clients. U.S. Bancorp Increases Dividend by 25%; Board OKs Stock Repurchase AP 12-21 U.S. Bancorp said Tuesday that it is increasing its quarterly dividend by 25 percent to 30 cents from 24 cents. The dividend will be paid on Jan. 17 to shareholders of record from Dec. 31. The bank holding company said its annual dividend will now be $1.20, up from 96 cents previously. The company's board also approved a stock repurchase program for up to 150 million shares over the next two years. U.S. Bancorp said the moves are part of its continued plan to return at least 80 percent of earnings to stock holders. U.S. Bancorp said it also plans to reduce its ratio of common equity to 6 percent from 6.25 percent because of its lower risk profile and its ability to generate capital. Wachovia Opens first of 200 financial centers in Texas PRNewswire 12-07 Wachovia, the country's fourth largest bank, today opened its Texas general banking headquarters and first financial center, both located in Dallas. Through 2008, Wachovia plans to open approximately 200 financial centers in Dallas, Fort Worth, Austin, Houston and San Antonio. The first six locations will open by year's end. Month Ending Sector Summary During the first two weeks of November, the year-to-date sector prices rose from a decrease of 0.89% to a increase of 5.35%. 04 EPS growth estimates were not updated. Yields went from 0.97% to 0.92% Bear Stearns Fourth-Quarter Profit Up Reuters 12-21 Bear Stearns Tuesday said quarterly profit rose 22 percent, helped by a sharp rise in revenue at its investment banking division. The New York brokerage and investment bank reported net income of $352.6 million, or $2.61 per share, for the fourth quarter ended Nov. 30. That compared with $288.3 million, or $2.19 per share, a year earlier. The results sailed past the average expectation by Wall Street analysts that Bear would earn $2.14 per share, according to Reuters Estimates. Net revenue rose 19 percent to $1.83 billion. Investment banking net revenue jumped 83 percent, boosted by $160 million in gains from private investments, the firm said. Bear also said it raised its litigation reserves during the quarter to guard against potential costs from previously disclosed investigations related to the mutual fund trading scandal. It did not quantify the amount. Fourth-quarter net revenue in the capital markets division -- which includes institutional equities, fixed income and investment banking -- rose to a record $1.43 billion, up 23 percent from $1.17 billion a year earlier, Bear said. While revenue from fixed-income, which has fueled strong results across much of Wall Street in recent years, represented the biggest portion of Bear's capital markets revenue for the quarter, it edged up only 4 percent in the quarter, to $675.2 million. Investment banking net revenue, however, surged 38 percent even when the gains from Bear's private investments are excluded, reflecting a rise in merger advisory fees. "Over the past three years, Bear Stearns has been performing very well, and beating the numbers has become the norm for them," said Paul Hickey, who helps oversee $300 million at Birinyi Associates Inc., which owns shares of Bear Stearns. "They continue to do well, but the stock is overbought here, trading at the high end of its normal range," Hickey said. "I wouldn't sell the stock here, but it's not something that's getting us terribly excited here either." Bear shares closed at $104.50 on the New York Stock Exchange on Monday, not far from a 52-week high of $109.82, reached earlier this month. The stock has gained 31 percent since the beginning of the year. In June, Bear Stearns said the Securities and Exchange Commission might bring a civil action against the firm in a probe related to mutual fund trading practices. It said any action could result in fines, adding that it was fully cooperating with the SEC. The firm said it continues to cooperate with regulatory and law enforcement agencies. Brokerage Stocks Rise on Lehman Results Wednesday December 15, Brokerage Shares Move Mostly Higher As Wall Street Reacts to Strong Lehman Brothers Results Lehman Brothers Holdings Inc. posted fourth-quarter profit Wednesday that trounced Wall Street forecasts due to an unexpected revival of its investment banking business, a signal that could bode well for some of its rivals. The nation's fifth-largest securities firm reported investment banking revenue of $608 million, up 27 percent from last year as merger and acquisition fees almost doubled. Strength from investment banking was not anticipated by many analysts, who felt the quarter would instead lean on Lehman's mainstay business -- the trading and underwriting of corporate bonds. The unexpected boom from investment banking sent shares of most of Lehman's rivals higher in trading, and many of them are on tap to report results in the coming weeks. Lehman shares rose $2.06, or 2.4 percent, to $87.71 in midday trading on the New York Stock Exchange. The American Stock Exchange Broker/Dealer Index rose 0.24 to 152.31 points, and the Philadelphia Bank Index rose 0.29 to 103.02 points. "This was a solid quarter with a better mix," said Glenn Schorr, an analyst with UBS in New York. "Lehman beat both our estimates and the street's, with stronger expected revenue coming primarily in equity trading, private client and investment banking." Schorr wasn't the only analyst to note equity trading and private client business as key earnings drivers during the period. There had been concern throughout Wall Street that the company might have relied too heavily on bond underwriting -- a business that has shown evidence of retracting as interest rates have been hiked five times since June. Lehman's strong results might be an indication that investment banking is making a comeback, especially considering a number of high-profile merger and acquisition deals have recently swept through the market. Among them was Monday's announcement that Oracle Corp. finally scooped up PeopleSoft Inc. in a $10.3 billion deal, and then Wednesday's blockbuster $35 billion merger between Sprint Corp. and Nextel Communications Inc. That could be good news for four other securities firms scheduled to soon report earnings. Goldman Sachs Group Inc., which will report fourth-quarter earnings on Thursday, is expected to report earnings of $2.32 per share. The stock fell 13 cents to $109.75. Morgan Stanley is expected to report fourth-quarter earnings of $1.01 per share when it reports next Tuesday. Shares of the company rose 91 cents to $55.62 on the NYSE. Bear Stearns Cos. will also report its fourth-quarter earnings next Tuesday, when analysts expect the firm to post a profit of $2.14 per share. The stock fell 9 cents to $105.70. A.G. Edwards Inc. is expected to report third-quarter earnings of 56 cents per share next Wednesday. The stock rose 31 cents to $41.59 on the NYSE. Lehman Brothers also told analysts during a conference call that it expects to see continued strength into 2005. For the fourth-quarter, Lehman reported quarterly income of $585 million, or $1.96 per share, up from $481 million, or $1.71 per share, a year ago. Revenue rose 25 percent to $2.88 billion from $2.3 billion. The results beat expectations of $1.69 cents per share on revenue of $2.64 billion, according to analysts polled by Thomson First Call. Banc of America Securities Likes MER, MWD, SCH Forbes 12-28-2004 Banc of America Securities raised estimates and the price target on Merrill Lynch, citing a "resurgence in retail investor trends and estimated market share gains on the investment-banking side in underwriting and merger and acquisition fees. Banc of America said strong equities sales and trading results from brokers with fiscal years ending in November "also bode well" for Merrill. Banc of America said "Merrill should see above-peer growth in earnings per share and returns (on equity) over the next couple of years, driving an improved relative valuation." Banc of America raised the 2004 fourth-quarter earnings estimate for Merrill to $1.10 per share from $1.00, and raised the 2005 earnings estimate to $4.75 per share from $4.65. The research firm, which reiterated a "buy" rating on Merrill, raised the 12-month price target to $66 from $60. In its coverage of brokers and asset managers Banc of America's two top picks are Morgan Stanley and Charles Schwab, both rated at "buy" with respective price targets of $65 and $13. The firm's two least favorites are Ameritrade and Goldman Sachs, rated at "sell" and "neutral," respectively, with price targets of $12 and $99. Trading Volumn Increases Reuters 12-15-2004 E*Trade, the third-biggest U.S. online brokerage, on Wednesday said customer stock trading rose 17.6 percent in November and forecast 2005 earnings roughly in line with expectations. E*Trade reported daily average commission trades of 144,800 for November, up from 123,100 in October. The percentage increase in trading lagged that of rivals Charles Schwab and Ameritrade, which recently reported a 25 percent and 26 percent rise for the month, respectively. Morgan Stanley and Bear Stearns Post Robust Results Diya Gullapalli, WSJ 12-22-2004 Morgan Stanley and Bear Stearns Cos. joined the lineup of big Wall Street firms posting robust results for their fiscal fourth quarters, aided by a surge in mergers and acquisitions, rebounds in stock markets and volatile oil prices. Morgan Stanley's net income for the three months ended Nov. 30 surged 18%; Bear Stearns posted a 22% gain. Both firms had strong increases in revenue in their investment-banking divisions, the latest sign that a three-year drought in big deals finally may be over. Morgan Stanley's investment bankers experienced a 7% drop in revenue from stock underwriting during the quarter, even as volume increased 19% industrywide. But the decline wasn't steep enough to knock Morgan Stanley out of the top spot for global stock deals for the year through yesterday, ahead of archrival Goldman Sachs Group Inc., according to the "league tables" that rank Wall Street firms, maintained by information firm Thomson Financial. If Morgan Stanley's lead holds, it will be the first time Goldman hasn't held first place on an annual basis since 1995. For the quarter ended Nov. 30, Morgan Stanley reported net income of $1.2 billion, or $1.09 a share, up from $1.01 billion, or 92 cents a share, a year earlier. Net revenue, which is total revenue less interest expense and provisions for loan losses, rose 7% to $5.4 billion from a year earlier and was flat from the previous quarter. Bear Stearns reported quarterly net of $352.6 million, or $2.61 a share, up from $288.3 million, or $2.19 a share, a year earlier. Net revenue increased to $1.83 billion, up about 19% from a year earlier and the prior quarter. Revenue from stock sales and trading was up at both Morgan Stanley and Bear Stearns, and the rebounding stock markets helped Morgan Stanley's asset-management division report higher investment gains and an increase in assets under management. But Morgan Stanley's big securities-brokerage business focused on individual investors took a hit: Pretax income was down 67% from the year-earlier quarter to $51 million, in part from a change in accounting to recognize certain asset-management and account fees over the relevant contract period as compared to when billed. Brad Hintz, a brokerage analyst with the Sanford C. Bernstein unit of Alliance Capital, said he anticipated $100 million in retail brokerage pretax income in the belief individual investors were returning to the market. Morgan Stanley is one of the biggest winners on Wall Street from the volatility in oil prices, with a large commodities business that the firm said "achieved a record quarter." That strength helped offset weakness in the sales and trading of bonds and other interest-related products. This revenue "declined significantly," the firm said, as interest-rate volatility in the U.S. and most major countries resulted in a less-favorable trading environment. Morgan Stanley's chief financial officer, David Sidwell, said in a conference call that the decline in revenue from interest-rate-related products wasn't from any trading blowups, but instead from lower revenue from derivatives financial instruments. "I think we're pretty optimistic, but obviously it's very early in the new fiscal year," Mr. Sidwell said. "We're seeing a flurry of investment-banking activity, and if you just look at the drumbeat of announcements in M&A activity, I think that shows the return of confidence" in the markets. At Bear Stearns, investment-banking net revenue rose 83% from a year earlier to $458.7 million. This quarter, Bear participated in the initial public offering of shares in clothier New York & Co., which generated realized and unrealized gains of $160 million for the firm's merchant-banking division. "We hope to repeat those [merchant-banking] gains, but I'm not going to suggest that you should assume that it will happen," said Sam Molinaro, chief financial officer, adding, "The current M&A environment is good and backlog is building." Some key developments in Asia helped Morgan keep an edge over Goldman in year-to-date global stock underwriting. For example, this year Hong Kong's Housing Authority decided not to proceed with the $3 billion Link Real Estate Investment Trust offering. Goldman was a planned underwriter on the deal, which could have pushed the firm ahead in global equity rankings had the offering been completed. Todd Buechs, another analyst at Sanford C. Bernstein, said "the quality of earnings were high" at Bear Stearns, and attributed the stock decline to a retreat from recent highs. Morgan Stanley also reported record numbers for its Morgan Stanley's Discover credit-card segment. The company said the increase was partly driven by a decline in the provision for loan losses. Home Page Factoids Previous Update
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