The unofficial closing bells put the DJIA up nearly 97 points to 12,578.95 (0.78%), the NASDAQ rose nearly 42 points (1.53%) to 2,769.71, and the S&P 500 rose 1.11% or more than 14 points to 1,308.04.

There were several analyst upgrades and downgrades today, including Chesapeake Energy Corp. (NYSE: CHK) cut to ‘hold’ at Brean Murray; Google Inc. (NASDAQ: GOOG) cut to ‘market perform’ at Wells Fargo; The Kroger Co. (NYSE: KR) cut to ‘market perform’ at BMO Capital; Cheniere Energy Inc. (AMEX: LNG) started as ‘outperform’ with a $13.50 target price at Credit Suisse; and Carnival Corp. (NYSE: CCL) maintained as ‘hold’ but estimates cut at Argus.

Earnings reports since markets closed yesterday have led to some price changes as of the last half hour of trading today: Cree Inc. (NASDAQ: CREE) is up 4.3% at $24.33; The Charles Schwab Corp. (NYSE: SCHW) is down -1.3% at $12.00; Fastenal Co. (NASDAQ: FAST) is down -2.8% at $45.48; Goldman Sachs Group Inc. (NYSE: GS) is up 7.5% at $105.03; and State Street Corp. (NYSE: STT) is down -7% at $39.72.

Other standouts from today include the following stocks:

Euro Tech Holdings Co. Ltd. (NASDAQ: CLWT) is up nearly 53% at $3.91. The Hong Kong-based company has announced an 11-for-2 reverse stock split.

Net 1 UEPS Technologies Inc. (NASDAQ: UEPS) is up more than 33% at $8.96. The South African software maker has announced a 5-year deal with the government’s social security agency.

Majesco Entertainment Co. (NASDAQ: COOL) is down more than -27% at $2.17. The video game maker forecast higher sales and marketing costs in 2012.

Ku6 Media Co. Ltd. (NASDAQ: KUTV) is down nearly -18% at $2.71. The Chinese online video company rose more than 150% yesterday on the announcement of deal with Google. Today’s fall is likely due to profit-taking.

We also noted 10 stocks that posted new all-time highs today. These include Apple Inc. (NASDAQ: AAPL), McDonald’s Corp. (NYSE: MCD), and Nike Inc. (NYSE: NKE). See our coverage here.

Stay tuned for Thursday. We have noted the following events on the schedule (all times Eastern):

• 8:30 a.m. – Consumer price index
• 8:30 a.m. – Housing starts
• 8:30 a.m. – Initial unemployment benefits claims
• 10:00 a.m. – Philadelphia Federal Reserve business outlook survey
• 10:30 a.m. – EIA weekly natural gas inventory report
• 11:00 a.m. – EIA weekly petroleum status report
• 4:30 p.m. – Federal Reserve balance sheet and money supply

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Paul Ausick

Bank of New York missed on the top and bottom line with earnings of $0.42 EPS versus $0.52 estimates; revenues were down over 5% to $3.54 billion versus the $3.74 billion estimate.  Assets under custody and administration rose 3% to $25.8 trillion; Assets under management were up 8% to $1.26 trillion.  The company talked up general uncertainty in the financial markets and lower levels of client activity.

State Street reported $0.93 EPS after charges versus $0.94 EPS estimates; revenue rose by 13% to $2.315 billion versus estimates of $2.4 billion.  The company ended with a tier 1 common ratio of 16.9% and it has submitted its 2012 capital plan to the Federal Reserve Bank with plans for dividends and our share repurchases.

Bank of New York is down 3.6% at $20.49 and State Street has not yet started trading and we have not yet started seeing early indications in the early pre-market with about two hours until trading opens in New York.

JON C. OGG

We have compiled basic earnings previews and shown Thomson Reuters estimates from the following: Goldman Sachs Group Inc. (NYSE: GS); State Street Corporation (NYSE: STT); Bank Of New York Mellon Corp. (NYSE: BK); U.S. Bancorp (NYSE: USB); Northern Trust Corporation (NASDAQ: NTRS); American Express Co. (NYSE: AXP); Bank of America Corporation (NYSE: BAC); Morgan Stanley (NYSE: MS); and Capital One Financial Corporation (NYSE: COF).

Goldman Sachs Group Inc. (NYSE: GS) is set to report earnings on Wednesday morning and the earnings estimates have been coming down more than just marginally ahead of the expected earnings report.  It is no longer expected to have the name “Golden Slacks” attached as a nickname right now.  The current target is $1.24 EPS on $6.54 billion in sales, but the earnings targets were above $2.00 EPS recently and the street expected almost $3.00 just about 90 days ago.

State Street Corporation (NYSE: STT) is set to report earnings on Wednesday morning and the consensus estimate for the trust and custodial bank is expected to rise about 8% to $0.94 EPS.  Bank Of New York Mellon Corp. (NYSE: BK) is set to report earnings on Wednesday morning and the earnings estimates are $0.53 EPS and $3.75 billion in revenues.  We will be waiting to see if any of the charges to trust and custodial customers taking the cash holdings operations to a cost rather than as an interest bearing account will have made a difference.  That seems to have gone away but it may have just been lost in the shuffle.

U.S. Bancorp (NYSE: USB) is expected to report earnings on Wednesday morning.  The estimates are $0.63 EPS on $4.76 billion in sales.  Northern Trust Corporation (NASDAQ: NTRS) is also due Wednesday morning and estimates are $0.68 EPS and $972.3 million.

American Express Co. (NYSE: AXP) is due on Thursday after the close and earnings estimates are $0.98 EPS and $7.92 billion in sales.  As with the rest of the lenders and credit cards, we expect to hear continued improvements in credit metrics regarding the customer base.

Bank of America Corporation (NYSE: BAC) is due to report on Thursday morning.  The most unpopular of the big ‘too big to fail’ money-center banks in America, has a consensus earnings estimate of $0.23 EPS on $24.08 billion in revenues.  This has been the best DJIA stock so far in 2012 even including the last two trading sessions.  It is a bit more than just interesting that earnings estimates have ratcheted higher over the last ten days when estimates elsewhere have been cut so much in banking.  The huge discount to book value is again likely to be less material than in years passed.

Morgan Stanley (NYSE: MS) is set to report on Thursday morning as well.  Long gone is worrying about the relative book value and long gone is the comparison to Goldman Sachs.  Estimates are for a loss at -$0.57 EPS and $5.57 billion in revenues.

Capital One Financial Corporation (NYSE: COF) is due to report earning on Thursday and this is the credit card bank “for the rest of America.”  The earnings report could be wildly far off of estimates because the bank is in the process of acquisitions which could greatly skew the headline numbers.  A fresh SEC filing showed that monthly data showed a continued improvement in default rates and in late payments in December. The consensus estimate is $1.55 EPS and $4.08 billion in sales.

JON C. OGG

We will be paying extra attention to the money center banks of Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), and Wells Fargo & Co. (NYSE: WFC); and then there are the “bankless bank holding companies” of Goldman Sachs Group Inc. (NYSE: GS) and Morgan Stanley (NYSE: MS) to consider as rival trading outfits.  Then there is also American Express Co. (NYSE: AXP) with much of the same client base as Chase Banks and then the more mainstream Capital One Financial Corporation (NYSE: COF) to consider as well. On the trust bank side and fiduciary side, there is Bank of New York Mellon Corporation (NYSE: BK) and State Street Corporation (NYSE: STT).

We have added in color on each group as well as shown trading ranges, implied price targets, and the implied discounts to the stated book values.

J.P. Morgan Chase & Co. (NYSE: JPM) is the best of the large diversified money center banks to most investors and it still trades at 0.76-times its stated book value.  The stock is at $36.35, the 52-week range is $27.85 to $48.36, and the consensus analyst price target objective is $46.29. Thomson Reuters has estimates of $0.91 EPS and $23.05 billion in revenues for the quarter.  Keep in mind that estimates have ticked lower almost each week during the last quarter.

Bank of America Corp. (NYSE: BAC) was recently listed as being at well under 0.5-times book value, but the stock has been the top performing DJIA stock.  With shares at $6.87, the 52-week range is $4.92 to $15.31. The consensus target is $9.02.

Citigroup Inc. (NYSE: C) was recently about 0.52-times stated book value. Shares are trading around $31.27 with a 52-week range of $21.40 to $51.50 and the consensus price target is $41.98.

Wells Fargo & Co. (NYSE: WFC) was recently trading at 1.1-times book value, making Warren Buffett’s favorite bank stock the only of the money center banks not at a discount to its stated book value.  That is partly because the new trading rules and regulations are believed to have the least impact on it out of the money center banks.  Shares are trading around $29.62 with a 52-week range of $22.58 to $34.25 and the consensus price target is $32.37.

Goldman Sachs Group Inc. (NYSE: GS) trades at about 0.7-times its stated book value and some now expect a loss when it reports earnings.  At $99.76, the 52-week range is $84.27 to $175.34 and the consensus price target is $128.80.

Morgan Stanley (NYSE: MS) trades at a steep discount even to Goldman Sachs with a price/book ratio of only about 0.52-times stated book.  Shares trade at $17.10 and the 52-week trading range is $11.58 to $31.04.  The consensus price target is currently about $21.80.

American Express Co. (NYSE: AXP) is not at a discount to book value at all at 3.19-times book value because it is classified in such a different manner.  Shares are trading at $48.95, the 52-week range is $41.30 to $53.80, and the consensus price target is $56.63.

Capital One Financial Corporation (NYSE: COF) may not be accurate on book because of the acquisitions and changes there.  It is stated as being 0.75-times its stated book value.  Shares trade at $47.71, the 52-week range is $35.94 to $56.26, and the consensus price target is $56.85.

Bank of New York Mellon Corporation (NYSE: BK) trades at 0.77-times its stated book value at the custodial and fiduciary bank. Shares are at $21.50, the 52-week range is $17.10 to $32.50, and it has a price target of $25.33.

State Street Corporation (NYSE: STT) is at a premium of 1.08-times its stated book value for the custodial bank.  State Street;s stock is at $43.05, its 52-week range is $29.86 to $50.26, and the consensus price target is $47.36.

Price-to-book and price-to-earnings data provided by Finviz.com, consensus price target (mean target) provided by Thomson Reuters.

Many estimates have been trimmed by analysts of late for the banks and financials.  We still expect modest credit metric improvements in most of the big banks and more importantly expect improvements in customer credit metrics to have improved again.  The difference this quarter is that there should be a tick up in loan demand actually being met by the banks, but don’t expect any huge gains there.

Before you get too excited about the discounts to book value, this may still be more of a ceiling rather than a floor.  Cash may have to be paid out in settlements, carrying cash balances yields literally nothing, and many banking operations remain in a state of muted flux.

Lastly, look for this to impact the wild triple-leverage ETF of the Direxion Financial Bull 3X Shares (NYSE: FAS), but watch the tracking error when the markets are not open.

JON C. OGG

Wells Fargo & Co. (NYSE: WFC) was cut to A+ from AA- and the outlook remains Negative. Bank of America Corporation (NYSE: BAC) was cut marginally to A- from A with a negative outlook.  Ratings cuts also were awarded to Merrill Lynch, Bank of America, Countrywide, FIA, and U.S. Trust units.  Citigroup Inc. (NYSE: C) was cut to A from A+ with the outlook remaining negative. J.P. Morgan Chase & Co. (NYSE: JPM) is supposed to be the strongest of them all, but S&P downgraded the rating to A from A+.  While the Stable outlook was maintained, it seems odd that the downgrade was given without a prior Negative outlook.

Bank of New York Mellon Corporation (NYSE: BK) was cut to A+ from AA- and outlook is Negative.  State Street Corporation (NYSE: STT) was maintained at an A+ rating, but the outlook went to Negative from Stable.

The Goldman Sachs Group Inc. (NYSE: GS) was cut to A- from A with a negative outlook remaining.  Morgan Stanley (NYSE: MS) was cut to A- from A and the Negative outlook remained in place.

BofA closed down over 3% and the stock is off another 1% after the close at $5.02.  Wells Fargo is down 0.75% at $23.90, Citi is down 0.7% at $25.07, and J.P.Morgan is down 0.4% at $28.45. Both Morgan Stanley and Goldman Sachs are lower by about 1% in the after-hours session.

JON C. OGG

These 29 banks have been awarded an implicit guarantee that they are, indeed, ‘too big to fail.’ That’s the good news. The not-so-good news — at least from the institutional point of view — is that capital requirements for the banks will increase and each bank must create a plan by the end of 2012 describing how they would wind themselves down if necessary.

Boosting capital reserves presents little or no problem for any of the banks. The US banks can manage that easily by increasing their retained earnings. They’ll squawk some, but that will be mostly for show.

The requirement that each bank create what amounts to a ‘living will’ represents the real teeth in the G-Sifi designation. The rule is intended to shine a light on a bank’s lending and trading practices, and that transparency is expected to restrict moral hazard. This is far from being a guarantee that if one of these banks fails that world governments will ride to the rescue. The G-Sifi banks will have to disclose where the money is, how it’s being lent and borrowed, and how much risk the bank is really taking. Presumably, the ‘borrow short, lend long’ practices that crushed Lehman Brothers and nearly killed AIG would at least be open to inspection and criticism, if not regulatory prohibition.

For example, recent reports provide very different estimates of US banks’ total exposure to the debt of Portugal, Ireland, Italy, Greece, and Spain (the PIIGS or, more genteelly, the GIIPS). The total direct exposure of five US banks to Greek debt is about $8.6 billion. Not much in the great scheme of things. Here’s a chart from Citigroup published at the Financial Times Alphaville blog:

However, when derivatives and other financial instruments are included, these banks’ direct exposure to the PIIGS debt was estimated at $175 billion, and the Bank of International Settlements set the total at around $725 billion. This figure is disputed by the US banks, which prefer to net out their exposure over their entire portfolio. They come up with a figure of about $50 billion.

The 29 G-Sifi banks won’t be able to account for their derivatives in a way that best suits the individual bank. The FSB will force the banks to follow a single set of rules that should provide figures that can be examined and compared.

For investors and regulators, transparency is a wonderful thing. For banks, it is less so. In the coming months, look for at least some of the G-Sifi banks to try to get out from under the designation. These banks will have figured out that being TBTF is a curse, not a blessing.

Paul Ausick

The unofficial closing bells put the DJIA up triple digits with a gain of 178 points to 11,575.46, the NASDAQ rose more than 42 (1.6%) to 2,657.43, and the S&P 500 rose 2% or 24 points to 1,225.28.  Today’s top analyst upgrade and downgrade calls were numerous and included Charter Communications Inc. (NASDAQ: CHTR), Halliburton Company (NYSE: HAL), and more than a dozen other companies.

There has been a turnaround from the indicated loss in Bank of America Corporation (NYSE: BAC) after its earnings showed that book value managed to actually grow and the stock was up almost 10% at $6.63 late in the session.

Some food for thought… Now the MLP and pipeline sector may look cheap on the heels of the El Paso Corporation (NYSE: EP) buyout.

As far as the other big earnings report reactions today (prices within 20 minutes of the closing bell): The Coca-Cola Company (NYSE: KO) was down 0.3% at $66.79; International Business Machines Corporation (NYSE: IBM) was a huge drag on teh DJIA with shares still down 4.5% at $178.30; Johnson & Johnson (NYSE: JNJ) was up 1.2% at $64.54; State Street Corporation (NYSE: STT) was up 9% at $36.97.

Several other standouts from today are as follows…

American Public Education Inc. (NASDAQ: APEI) lost more than 20% of its value to $30.05 after the American Military University will see far lower tuition assistance from the U.S. Marine Corps.

Badger Meter Inc. (NYSE: BMI) was a loser even if it is supposed to be a water winner after missing earnings estimates.  Shares were down 13% at $29.08 in the final minutes of the day.

Crocs Inc. (NASDAQ: CROX) was a disaster after an earnings warning that would not have been so bad had the stock not been up 100% from its 52-week lows before the report.  The stock was down a massive 39% at $16.20 right before the close on more than 8-times normal volume of 25 million shares.

Halozyme Therapeutics Inc. (NASDAQ: HALO) was such a winner that it should be called “Master Chief” for its stock ticker.  Its subcutaneous Herceptin trial met the study goals and the stock was up over 18% at $7.34 right before the close.  This was not even a 52-week high.

Harley-Davidson Inc. (NYSE: HOG) was about 4% shy of sales targets in its earnings report and that had the stock down 7% to $34.56 right before the close.  With a 52-week high of $46.88, it seemed a bit harsh of a reaction even with slightly lower margin guidance.

Human Genome Sciences Inc. (NASDAQ: HGSI) was up over 15% at $12.95 on reports that a $25.00 per share buyout could be headed its way.  We gave a handicap on the odds of a deal happening.

USEC Inc. (NYSE: USU) broke a major run higher today and still no news exists.  The belief is that the loan approval from the DOE may get a better review now that solar loan fraud seems to be prevailing after Solyndra.  Shares were down 4% at $2.10 right before the close.  Still, this was a $1.30 stock just last Thursday.

Stay tuned for Wednesday.  We have speeches to watch from Rosengren and Lockhart on the docket as well as a hearing about ETFs.  Here are some economic releases due in the morning and throughout the day:

• 8:30 September CPI
• 8:30 Housing Starts
• 10:30 Weekly Oil Inventories
• 2:00 PM Beige Book

JON C. OGG

Alcoa, Inc. (NYSE: AA) Cut to Hold at Deutsche Bank.
Amazon.com Inc. (NASDAQ: AMZN) Raised to Buy at Stifel Nicolaus.
Athenahealth, Inc. (NASDAQ: ATHN) Started as Outperform as Bull of the Day at Zacks.
Chico’s FAS Inc. (NYSE: CHS) Cut to Hold at KeyBanc.
CF Industries Holdings, Inc. (NYSE: CF) named value stock of the day at Zacks.
First Solar Inc. (NASDAQ: FSLR) Cut target to $80 from $135 at Credit Suisse.
Gap Inc. (NYSE: GPS) Cut to Hold at KeyBanc.
Goldcorp Inc. (NYSE: GG) Raised to Buy at Deutsche Bank.
LinkedIn Corporation (NYSE: LNKD) Started as Hold at Citigroup.
NetApp, Inc. (NASDAQ: NTAP) Raised to Buy at Citigroup.
Priceline.com Incorporated (NASDAQ: PCLN) Raised to Overweight at Morgan Stanley.
Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) Started as Buy with $24 target at BofA/ML.
Sears Holding Corporation (NASDAQ: SHLD) maintained Underperform as Bear of the Day at Zacks.
State Street Corporation (NYSE: STT) Cut to Hold at Jefferies.
United Continental Holdings, Inc. (NYSE: UAL) Cut to Hold at Citigroup.

Here is a detailed summary list of the top analyst calls from Wall Street last week.  Many were cautious.

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JON C. OGG

Crain’s Chicago Business is highlighting a CEO presentation yesterday at the Barclays Capital Global Financial Services Conference investor conference, and the publication also made the reminder that Northern closed three branches in Chicago and cut some jobs in Europe earlier this year.  The CEO discussed how the bank expected a better economy and higher interest rates, but admitted that now the outlook for rates remains low for two more years.  Rick Waddell, CEO of Northern Trust, said that the bank will be releasing details of its cost cutting measures early in 2012.  When banks of any sort announce cost cuts, this almost always includes a headcount reduction even though the CEO said that this was a combination of revenue AND expense initiatives.

The return on equity in the banking sector has been under pressure due to such low net interest margins and other metrics, but if the rates are going to remain low like for two more years then what hope is there?

Where these cuts will come is anyone’s guess as the bank is into investment management, asset and fund administration, banking solutions and fiduciary services. As of June 30, 2011, its banking assets were listed as $97 billion, assets under custody were $4.4 trillion, and assets under investment management were $684.1 billion.  Northern Trust is based in Chicago, but it has offices in 18 states and 16 international locations in North America, Europe, the Middle East and the Asia-Pacific region.

Northern Trust Corporation (NASDAQ: NTRS) has had a rough 2011.  At $35.75, its 52-week trading range is $34.68 to $56.86 and its market capitalization is now back down to $8.6 billion.  The drop in the stock price has also given this an accidentally high yield of 3.1%, and it should be noted that the current $0.28 quarterly dividend rate has been the same dividend since December 2007.

Here is the saddest thing of all… Look at the 5-year chart.  Northern Trust is currently trading in line with its prices during the late-2008 market panic and under the early-2009 market panic levels.

JON C. OGG

No money was injured while filming

The floor for interest rates is ZERO.  Right?  Apparently not when extreme conditions arise.  Those extreme conditions came today as investors moved solidly into the safety of very short-dated T-bills and the bidding was so intense for a while the real rate was actually a negative yield.  The rate technically went to -0.01% on the 1-month bills and this came on the same day that both the S&P and DJIA went into formal correction territory.

While the Swiss have taken rates to zero, and while there has been a huge move to cash, The Bank of New York Mellon Corp. (NYSE: BK) went on to start charging some large depositors just to hold their cash.  Effectively, this takes overnight and extremely short-term rates to a negative yield.  This will begin next week for customers who have sharply increased their deposit values in recent weeks.  We have yet to hear of any rate changes like this at State Street Corporation (NYSE: STT), but if there is not a revolt from customers then it seems a shoe in that State Street would follow BNY Mellon’s lead.

The fee charged by Bank of New York is going to be set at 13 basis-points, or 0.13%, but there will be an additional fee if the 1-month Treasury yield dips under zero on $50 million deposits.  If you do not understand this fee, it is not just because custodial banks are trying to force risk-taking nor just because they are the “greedy bankers” we all like to accuse them of being.  Custodial banks pay close to 0.1% to insure accounts with the Federal Deposit Insurance Corporation (FDIC).  If the rate on T-bills dips too low, as its situation shows now, it actually costs the banks for customers to deposit overnight cash.

What happened is that investors rapidly bought up short-dated Treasury bills, driving down the yields into the negative territory today.  There was a time in 2010 where yields in the inflation-adjusting TIPS went negative in yield because of the prices and the conversion adjustments at the time.  If this explanation is a bit off, we have some other sources that gave their explanations as well:

• TheStreet.com
• ZeroHedge
• Bloomberg

Any time you see a 500-point sell-off that coincides with a crazy rate situation like you saw today, you know what the fear is… The next recession.

The markets are looking at the global austerity measures that have been piled on top of all of the other woes of the world and the risk trade and the growth expectation is being repriced.  Most economists have been trimming the expectations so far for Q3 and Q4 in GDP growth.

What you haven’t seen is where the economists start predicting that GDP will not only slow, but the predictions are very near that the economists will be calling for GDP to back under the red-line.  A lot is riding on Friday’s unemployment and non-farm payrolls data.  If anyone is expecting those numbers to be good they have not been watching the news over the last few weeks.

JON C. OGG