According to Bloomberg, GE (GE) may layoff as many as 11,000 people at its financial unit.
"General Electric Co.’s finance arm may cut 7,500 to 11,000 jobs, or at least 10 percent of its workforce, because of the global financial slump."
Douglas A. McIntyre
Looking at the headlines at WSJ.com, the majority are about large companies that cut workers today. Circuit City is liquidating, which could put 30,000 people out of work. AMD (AMD) is cutting 1,100. Pfize (PFE) is letting 2,400 salesmen go.
Hertz (HTZ) is firing 4,000 people and Wellpoint (WLP) laying off 1,500. All that on one web page.
Dark day.
Douglas A. McIntyre
Yesterday’s story about Venezuela opening the bidding for its oil resources raised an interesting question. What are the chances that Exxon Mobil Corporation (NYSE:XOM), with nearly $40 billion in cash at the end of the third quarter or Chevron Corporation (NYSE:CVX) with about $11 billion will acquire new assets or purchase smaller companies? Royal Dutch Shell plc (NYSE:RDS.A-B) is sitting on nearly $8 billion in cash, and BP plc (NYSE:BP) holds more than $6 billion. If you have listened to what Big Oil operators have been saying, you can assume that there is at least some interest in them looking at opportunistic acquisitions of companies, units, or reserve assets.
ConocoPhillips Corporation (NYSE:COP), though its market cap is near $75 billion, held more than $1 billion in cash at the end of the third quarter. Another substantial E&P player, Apache Corporation (NYSE:APA), has about $1.7 billion in cash and short-term equivalents. Devon Energy Corporation (NYSE:DVN) has about $1.3 billion, and Anadarko Petroleum Corporation (NYSE:APC) has nearly $2 billion.
What energy companies have right now that other industries might not have is at least a perceived ease of access or at least somewhat easier access to capital vie debt or equity sales.
Today marks the official death of Circuit City Stores, Inc. All hopes of reviving or saving all or part of the company are gone. The company is now officially seeking approval from the U.S. Bankruptcy Court to liquidate its assets. We held little to no hope for Circuit City for some time. There were many problems at Circuit City not seen at other failed retailers.
It has begun to dawn on investors. The news about Bank of America (BAC) and Citigroup’s (C) fourth quarter earnings is the beginning of the end of the private enterprise banking system in America. It may return in a few years, but not until the government decides it can sell the stakes it is accumulating as part of the financial bailout.
Henry Paulson today said that most of the second half of the TARP, the next $350 billion, is going to have to be sent to banks. If only half of that sum goes into the system to keep financial firms from failing, it will overwhelm their current market capitalizations. The government will own a large portion of the equity in the nation’s largest banks, whether that was it intention or not. What Barney Frank wants to do with TARP cash may become irrelevant.
Shareholders in banks are starting to catch on to their dilution problem. The stocks in BAC, JPMorgan (JPM), and Wells Fargo (WFC) are all down between 7% and 10%. The common stock of these companies is headed to the same place the shares of Fannie Mae (FNM), Freddie Mac (FRE), and AIG (AIG) ended up.
Douglas A. McIntyre
Husbands have long joked that certain segments in their households, such as cosmetics and personal beauty care products, were largely immune from recessions. Many will still joke about this, but the numbers reported by Estee Lauder Companies Inc.(NYSE: EL) and Elizabeth Arden, Inc. (NASDAQ: RDEN) show this is not quite the case. The good news is that they are at least still very profitable. Both companies cut their earnings forecast and this is taking its toll on other major players in the sector today. Avon Products Inc. (NYSE: AVP), Bare Escentuals, Inc. (NASDAQ: BARE), and Revlon Inc. (NYSE: REV) are all trading as though they are next in line to join the warnings parade.
Analysts at Deutsche Bank commented on General Motors (NYSE: GM) after the company presented additional details of its restructuring plan at the Detroit Auto Show Conference on Thursday. They said the operational restructuring could work, but the financial restructuring has big risks. They said the stock is likely a "zero."
Charles Schwab Corp. (NASDAQ: SCHW) results might not be that great compared to before, but they may be the envy of Wall Street. The online discount broker not only made money on a GAAP and non-GAAP basis, but it even beat analysts’ estimates.
The December Consumer Price Index, or CPI measuring consumer-level inflation, is showing that the risks to deflation are real. Low prices are good. Low prices that go lower can generate a whole host of problems.
Buried a bit in the news that the government had entered into a definitive agreement to share losses on $301 billion of Citigroup’s toxic assets and the announcement that the company lost $8.3 billion last quarter was a description of a plan to break the firm into two pieces.
The new operations will be called Citicorp and Citi Holdings. Citicorp will function as a commercial bank. The holdings operation will have the company’s brokerage and asset management businesses.
Vikram Pandit, Citi’s CEO, would, it appears, be the head of both units. He has done such a poor job managing the large financial services company that it is amazing that the board would allow him to run the two pieces of an operation that he has nearly ruined. Pandit should be left to run the traditional bank and someone with a better set of skills for managing the business of managing money should be hired as head of Citi Holdings.
Douglas A. McIntyre
These are some of the top pre-market analyst upgrades we have seen early this Friday morning:
Jon C. Ogg
January 16, 2009
These are some of the top pre-market analyst downgrades we have seen early this Friday morning:
Jon C. Ogg
January 16, 2009
If there was ever any concern that consumers would face higher gas prices, many are now assuming that this economic worry may be gone. And the case for deflation is growing.
More and more analysts are coming to the conclusion that oil supplying nations cannot drop the price of crude fast enough to keep up with slumping demand.
Sony Ericsson, by most measures the fourth-largest handset company in the world, missed analysts’ estimates for the last quarter. The age of the endless growth of cellphone purchases may have come to an end. It may not be as temporary as the period of the recession. The market for cell phones may have reset for good.
Management at Sony Ericsson estimates that handset growth last year was about 6%., Their view of this year is that it will be worse.
The rehabilitation and restructuring of Citigroup (C) was supposed to take months, or maybe a year. The big bank got a cash infusion when it sold a part of Smith Barney to Morgan Stanley. The plan for the creation of a new Citi was based on its ability to limit its losses so that it could buy time to unload other parts of its family of financial companies.
Things did not work out that way. Citi announced that it had lost $8.3 billion last quarter. There was no confidence in management. The general belief that the banking system is so badly broken fueled the fear in the government and the public that matters were going to get even worse.
The Fed will step in and do what it did for Bank of America (BAC) as its Merrill Lynch unit posted a $15.3 billion loss in the fourth quarter. Citi will also get a program which will guarantee the value of certain bad assets and keep the bank from failing.
A run-of-the-mill economist would define deflation as the loss of money supply and credit in the markets. Simply stated, the value of money erodes as prices drop sharply. The value of labor and goods and services goes into free fall.
Investment drops in a period of deflation. Who wants to put money into assets which may continue to lose value? Who wants to buy goods and services and hire people when all of those may cost less in the future?
Now that Bank of America (BAC) has been given $20 billion more capital from the government in addition to about $118 billion in guarantees against toxic asset losses, the subject of whether the government will end up owning big banks is back in the headlines.
The government set up a loss sharing of $301 billion for Citigroup as it announced over $8 billion in losses today. It will also give the firm a series of loans, if Citi needs them. And, it will.
Bank of America has a market value of $42 billion. Why shouldn’t the taxpayers end up owing at least a third of the company for their $20 billion? In Citi’s case, the Fed may end up with the equivalent of a 50% share.
According to Reuters, Bank of America will get a huge financial aid package from the government.
Reuters reports that Congress is advancing legislation to release the balance of the TARP funding.
Reuters says that Intel (INTC) sees margins improving in the second half.
Reuters reports that the Minneapolis Star Tribune filed for Chapter 11.
Markets in Asia were higher.
The Nikkei was up 2.6% to 8,230.
The Hang Seng rose .3% to 13,228.
The Shanghai Composite was up 1.8% to 1,954.
At the open in Europe, the FTSE was up 1.9% to 4,199. The Dax rose 1.4% to 4,397. The CAC 40 was up 2.1% to 3,095.
Data from Reuters and MarketWatch.
Douglas A. McIntyre
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