What's Important in the Financial World (5/29/2012) "MIB 3" Profits, EU Bank Bailouts

Douglas A. McIntyre

The perception that the large banks in Europe could present as much of a financial problem as the debt of sovereign nations does has grown rapidly. Spain’s bailout of Bankia will cost more than $23 billion by some estimates. Greek banks also expect to get aid from the government because of the write-downs they needed to take on Greece’s paper. If Greece does leave the European Union, the estimate of the costs to banks in the region have risen above $1 trillion. That amount is more than the supposed cost of salvaging Greece, Portugal and Spain. It is not clear from where the money might come. Many local governments cannot afford to provide the aid. In theory, the money could come from the European Central Bank. Less likely, the source could be the region’s bailout funds, worth more than $700 billion, meant for the area’s countries. It is hard to see how a mechanism could be set up for that capital to go to banks.

Galaxy 3S Launch

Samsung launched its Galaxy 3S smartphone in Europe, and supplies in many areas ran out the first day. Some expects say that the handset has a set of features that matches those of the Apple (NASDAQ: AAPL) iPhone, and the Samsung product works on many ultra-fast 4G networks. The iPhone 4S does not. For some reason, the heads of Samsung do not believe that the smartphone’s features will be attractive enough to customers on their own. Samsung has launched a service called Music Hub, which seems to be a poor competitor to iTunes. The service allows the download of music to five devices and a PC. The inventory of songs will range into the millions. But there are already music downloads for smartphones, which include Pandora’s (NYSE: P) app product. Pandora already has more than 50 million customers who use its services worldwide. Not joining forces with an existing company is probably a poor decision on Samsung’s part. The move puts it in a position in which it has several competitors, only one of which is Apple.

Sony Gets a Boost

Sony (NYSE: SNE) will benefit from the extraordinary launch of Men In Black’s third installment — MIB 3. Worldwide sales for the Memorial Day weekend were $203 million. Estimates of the cost of the film have been over $250 million. The movie should blow past that number this week. Sony could use the help. Its studio is one of the few divisions that might throw off a profit for the corporate parent, which has lost money for four years in a row. The architect of that set of disasters, Sir Howard Stringer, has finally given up as CEO. A lift in studio profits will have to be followed by turnarounds at its game console, PC, cellphone and TV divisions, which will require extraordinary management and luck. In the meantime, Sony can brag that it has one success, even if that success has nothing to do with its core businesses.

Low Oil Prices

Oil prices have stopped their rapid decent. Concerns about arms negotiations in Iran pushed crude back to $91. Any breakdown in those talks is unlikely to help WTI to recapture $100. Gasoline reserves in the U.S. are at multiyear highs. There is an assumption that slow economic activity in Europe and China will undermine demand. OPEC says that $100 oil is a point at which it can be happy with the financial yield. And, long term, the assumption of most oil companies is that shale oil has extended the year at which peak production will occur. None of these alone is enough to keep oil prices low, and perhaps to push them lower. Together, they make a powerful force.

Douglas A. McIntyre