Merck falls on 4Q loss, sales questions

Merck & Co. shares fell Wednesday after the company said it swung to a loss in the fourth quarter, and investors wondered how strong future sales of Merck's cholesterol drugs will be.

The company reported its fourth-quarter results Wednesday, posting a larger-than-expected profit when one-time charges were excluded. Revenue came up slightly short of analyst estimates.

Including one-time expenses, primarily a large charge related to a settlement of lawsuits surrounding Merck's withdrawn painkiller Vioxx, the company lost $1.63 billion, or 75 cents per share.

The company reiterated its 2008 profit forecast of $3.28 to $3.38 per share, excluding one-time charges. However, analysts said questions remain about sales of Zetia and Vytorin, which brought Merck $538 million in revenue in the fourth quarter.

A recent study showed that Vytorin was no more effective than a generic drug at stopping plaque from accumulating in arteries, leading to government scrutiny and lawsuits against Merck and its partner on the drugs, Schering-Plough Corp.

On average, analysts polled by Thomson Financial estimate a profit of $3.36 per share for Merck.

Goldman Sachs analyst James Kelly, who rates the stock "Neutral," said Merck has not addressed the impact those developments might have on sales.

"Initial enthusiasm for the maintained guidance will likely wane as the recent analyst earnings per share reductions for the cholesterol joint venture are not reflected/addressed," he said.

Citing the same questions, Deutsche Bank analyst Barbara Ryan cut her price target to $62 per share from $70, and maintained a "Buy" rating.

Shares fell $1.32, or 2.8 percent, to $46.69 Wednesday.

Source : http://www.businessweek.com

Bond Insurers Under Assault

Monoline bond insurers are enduring increasing pressure with a renewed assault Wednesday by activist investor Bill Ackman and looming downgrades of their vaunted triple-A credit ratings.

In a widely distributed 20-page treatise targeting monoline firms MBIA (MBI - Cramer's Take - Stockpickr) and Ambac Financial (ABK - Cramer's Take - Stockpickr), Ackman argues that losses at the bond insurers have been underestimated.

Ackman, the head of hedge fund Pershing Square Capital Management, estimates that losses at Ambac related to its exposure to residential mortgage-backed securities and asset-backed collateralized debt obligations will be about $11.6 billion and that losses at MBIA could be as much as $12.6 billion.

"MBIA and Ambac's exposure to nearly the entire universe of CDOs also compounds their exposure to many other classes of [residential mortgage-backed] securities with MBIA and Ambac being exposed to 3,131 and 4,179 unique tranches of ABS respectively," Ackman writes in his letter, which was sent to members of the financial media, in addition to the Securities and Exchange Commission and other industry participants. "These larger numbers of exposures will likely cause MBIA and Ambac to experience losses similar to that of the entire residential mortgage backed securities market."

Ackman has been railing against the integrity of bond insures for nearly a decade and has billions to gain should shares of Ambac and MBIA continue to fall in value. The activist is believed to have short positions in both financial guarantors, which have seen tremendous volatility in trading over the past week as rating agencies including Fitch Ratings, Moody's Investors Service and Standard & Poor's threatened to strip the firms of their coveted triple-A ratings. The pristine ratings are a necessity for bond insurers, who rely on them to backstop potential losses on debt including municipal bonds and structured debt.

Fitch on Wednesday downgraded little-known guarantor firm Financial Guaranty Insurance Co. from triple-A to double. Fitch also stripped Ambac of its triple-A rating last week and now rates the company double-A as well.

Ackman also argues that monolines, which are usually structured with a holding entity and an operating company, should be forced to stop funneling money up to their parent company.

An Ambac spokesman in New York declined to comment and a call to MBIA in Armonk, N.Y., was not immediately returned

Shares of MBIA closed down 12.6% and Ambac fell 16.1% in Wednesday trading, following Ackman's report.
Bailout Plan Complicated

The flap surrounding monolines has compelled the New York Insurance Superintendent Eric Dinallo to try and orchestrate a bailout of the sector by encouraging investment banks to provide some support capital that could either bolster the insurers or be used to form a reinsurance pool to assume some of the liabilities on their books. An accord among some of the challenged banks, such as Merrill Lynch (MER - Cramer's Take - Stockpickr) and Citigroup (C - Cramer's Take - Stockpickr), might be difficult to achieve, especially since those banks have suffered their own massive writedowns on subprime-related bets.

Earlier Wednesday, Oppenheimer & Co. analyst Meredith Whitney added more fodder to the writedown fire speculating that banks Merrill, Citi and UBS (UBS - Cramer's Take - Stockpickr) may see further writedowns linked to monoline bond insurers. She estimates that monoline-inspired writedowns may hit as much as $75 billion.

Ackman's letter places added pressure on the industry and may inspire a further notching down of the monoline sector if his estimates are to be believed. In addition to the letter, Ackman also called for an "open source" forum in which Wall Street participants could calculate their own view of losses using publicly available data.

Estimates tied to how much capital monolines will need has been wide-ranging. Sean Egan, principal at independent rating agency Egan-Jones, estimated last Friday that monolines may need as much as $200 billion to shore up their balance sheets in anticipation of mounting defaults on the mortgage paper that has come to comprise much of the debt in question by the monolines.

Source : http://www.thestreet.com

Starbucks cautious on 2008, sees recession likely

Starbucks Corp (SBUX.O: Quote, Profile, Research) said on Wednesday it is closing 100 underperforming U.S. stores and slowing domestic openings in the face of a likely consumer recession and "cannibalization" from overbuilding.

The coffee chain, whose shares dropped about 2 percent after the news, also said it was pulling much-hyped hot breakfast sandwiches from stores, despite the cost of reducing sales, because customers complained that the smell was overwhelming the aroma of coffee.

Starbucks, which posted a higher quarterly profit, is turning its focus to international markets and revamping U.S. plans. It has been battered in recent months by slower consumer spending, higher milk and labor costs and concerns it may have saturated the U.S. market.

"There's a macroeconomic headwind that we're all facing that strongly suggests that the (U.S.) consumer is in a recession," Starbucks recently-returned Chief Executive Howard Schultz said in a telephone interview.

Starbucks cut its forecast for 2008 U.S. store openings to 1,175 from 1,600. Meanwhile, it plans to increase international store openings by 75 outlets to 975.

"We believe having less openings at this point in time, in addition to the economic environment, gives us an opportunity to have less cannibalization and better use of capital," Starbucks Chief Financial Officer Peter Bocian, said on a conference call.

Executives said they will discontinue guidance for fiscal 2009 and beyond and cease to issue same-store sales results, saying those will not be effective indicators of the business during the turn-around period.

Seattle-based Starbucks said it now expects earnings per share in fiscal 2008 to grow in the low double-digits by percentage. Starbucks' previous forecast was for earnings per share of between $1.02 and $1.05 in fiscal 2008, which would mark a 17 to 21 percent increase in earnings per share.

Source : http://www.reuters.com

Amazon profit margins squeezed

Amazon.com Inc posted a decline in profit margins on Wednesday as the cost of discounting overshadowed a robust rise in quarterly earnings and a bullish 2008 sales view above Wall Street targets.

Shares of the Internet retailer, which trade at a huge premium to peers, fell 11 percent on fears a potential recession could sap Amazon's earnings.

Margin contraction is a recurring worry among analysts who have watched the company spend on technology to attract new customers and discount shipping to keep buyers loyal.

But the fourth quarter was no exception to the worrying trend, with gross profit margin falling to 20.6 percent from 21.3 percent a year ago and 23.4 percent in the third quarter.

"That was disappointing," said Hamed Khorsand of BWS Financial. "It seems there was a lot of promotions, discounting in the quarter."

The operating income forecast range, largely below Wall Street targets, "doesn't look too great," he added.

Global Crown Capital's Martin Pyykkonen said the company had implied its operating margins would be 5.5 percent to 6.2 percent in 2008, in line with the previous two years and compared with 5.7 percent in 2007.

Chief Financial Officer Tom Szkutak said double-digit operating margins were "possible" but added: "If a high single-digit operating margin is the right thing to drive free cash flow, that's what we'll do."

Source : http://www.reuters.com

Wii Works Magic On Nintendo Results

Strong holiday sales of its Wii videogame console and Nintendo DS portable game device helped Nintendo Co. nearly double its nine-month net profit and raise its sales forecasts for the third time this business year.

The Japanese company said its net profit for the April to December period jumped 96% to ¥258.93 billion ($2.43 billion) from ¥131.92 billion a year earlier. Sales rose 85% to ¥1.316 trillion from ¥712.58 billion.

Nintendo doesn't break out its results for the latest October-December period.

Nintendo has benefited from the tremendous popularity of the Wii, which lets users intuitively play games like virtual tennis and bowling by swinging a controller. In the U.S., the console was in such high demand during the holidays that stores were sold out of them. In Japan, a new game launched in December called Wii Fit, which lets users play exercise games by standing on a board that can detect shifts in weight, saw strong sales.

The Wii, which launched in November 2006, has outsold both Sony Corp.'s PlayStation 3 and Microsoft Corp.'s Xbox 360 world-wide. Nintendo said it now expected to sell 18.5 million Wii consoles this business year, which ends March 31, compared with its forecast of 14 million at the beginning of the year.

Over the past few years, Nintendo has made a conscious effort to expand the videogame market by targeting new game players such as women and the elderly with easy-to-play casual games. In addition to the Wii, its Nintendo DS portable game machine, with its two screens including a touch screen that detects handwriting, has also been a huge hit. The company raised its full-year forecast for the DS to 29.5 million units from 28 million.

Nintendo has already achieved 94% of its full-year net profit forecast. Still, the company, known for its conservatism, kept its profit outlook unchanged even as it raised its operating profit forecast to ¥460 billion from its previous forecast made in October of ¥420 billion. In the year-earlier period, its operating profit was ¥226 billion. It also raised its sales forecast to ¥1.63 trillion from its previous forecast of ¥1.55 trillion. Sales in the year-earlier period were ¥966.5 billion.

The company, which records significant sales outside of Japan, typically adjusts its full-year net profit forecast in early April after it has accounted for the effect of foreign-exchange rates on its business.

Analysts say they believe that videogame sales will continue to be strong despite worries of an economic slowdown in the U.S. as consumers spend more time at home. Nintendo in particular is likely to continue to see strong momentum as highly-anticipated games like Wii Fit enter markets in the U.S. and Europe later this calendar year.

Nintendo raised its dividend forecast for the full year to ¥1,190 per share from ¥1,090 per share. Last year, it paid out ¥690 per share. Nintendo's results are based on Japanese accounting standards.
Source : http://online.wsj.com

Bank of France to open inquiry into Socgen fraud

The Bank of France said on Thursday it would open an inquiry into an alleged fraud at French bank Societe Generale which will have a 4.9 billion euros negative impact on the group.

The central bank said it had been immediately informed about the fraud and noted the bank had taken steps to reinforce its capital in the light of the news and the crisis in financial markets.

"In these conditions, the financial situation of the bank does not require any particular comment," the Bank of France said in a statement.

Bank of France Governor Christian Noyer, who is also a governing council member of the European Central Bank, will hold a news conference on SocGen at 1330 GMT.

Last Friday, Noyer said in an interview with the International Herald Tribune that he was not expecting any "strong shocks" from French banks' 2007 earnings.

He said he was reasonably confident that French banks were in a position to weather the turmoil in financial markets.

SocGen also announced on Thursday a 2.05 billion euros writedown related to the global credit crunch.

The IHT website reported Noyer as saying, without directly quoting him, that he had been assessing the balance sheets of banks like SocGen and BNP Paribas before they revealed their 2007 results.

However, the Bank of France later issued a statement saying: "In the interview that appeared today, Governor Christian Noyer at no moment mentioned the name of a bank."
Source : http://www.reuters.com

Bush Meets Democrats on Stimulus

President Bush met with leaders from both political parties in Congress to brief them on his trip to the Middle East last week. But it was concern about the U.S. economy that dominated Mr. Bush's session with lawmakers.

"I believe we can find common ground to get something done that is big enough and effective enough so that an economy that is inherently strong gets a boost to make sure that this uncertainty does not translate into more economic woes for our workers and small business people," said Mr. Bush.

President Bush says he has reasonable expectations about how quickly an economic stimulus plan can get through Congress, but he is optimistic that it will.

Mr. Bush says broad-based tax relief must be big enough to make a difference. So he is proposing an amount equal to about one percent of the value of all U.S. goods and services. That is between $140 billion and $150 billion.

Before their meeting at the White House, Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi met with Treasury Secretary Henry Paulson, who was named by President Bush as his lead negotiator on the stimulus plan.

Speaker Pelosi told reporters that congressional Democrats are ready to work with their Republican colleagues and the president.

"It's important that we have a stimulus package that is timely, that is temporary, and that is targeted," she said. "To that end, we are going to work in a bipartisan way in Congress and with the president to do just that."

President Bush wants tax incentives for businesses to make investments this year as well as direct and rapid income tax relief for individuals.

Democrats agree on the need to help individual taxpayers, but they also want to boost unemployment benefits and food aid in the stimulus package. That social spending may face opposition from a president who says the deal should not include spending projects with little immediate impact on the economy.

President Bush remains determined to make his record tax cuts permanent, but removed what would have been a big obstacle to any deal by agreeing not to include that demand in this request for temporary economic stimulus.

Stock markets around the world have declined recently as investors worry that a slowing U.S. economy could hurt businesses in the many nations that trade with the United States. Federal Reserve officials say they cut rates to 3.5 percent to ease tight credit.
Source : http://voanews.com

Emerging debt-Wary but resilient markets eye US recession risk

Emerging markets felt the heat but were not seriously burned on Tuesday after U.S. shares fell sharply on recession fears despite the U.S. Federal Reserve's largest cut in a key interest rate in 23 years.

Dollar-denominated sovereign bonds and a broad measure of emerging market stocks fell, albeit above earlier lows. On the positive side, Latin American stocks and currencies rallied.

In volatile trade, global markets recovered ground after the Fed's surprise cut in the federal funds rate by three-quarters of a percentage point.

Following Monday's carnage in international markets, brought on by U.S. recession concerns, the Fed brought the rate down to 3.5 percent. U.S. markets were closed on Monday for a holiday.

Historically, emerging markets are putting in strong performances given the volatile environment. In the past, their less mature economies and markets would have suffered bigger routs. This has led some investors to believe emerging markets have "de-coupled" from developed markets.

"On a trend basis, a multi-month or even multi-year basis, I would expect emerging markets will probably do fairly well, in that after this correction their growth is to hold up reasonably well, better than what we are seeing in the U.S. and Europe," said Nick Chamie, head of emerging market research at RBC Capital Markets in Toronto.

"Over the long term, that is going to be the case, but in the short term I think they are still quite vulnerable to significant sell-offs," he said.

"I think the whole de-coupling myth is well on its way to becoming debunked," Chamie added.
Source : http://www.reuters.com

Bond Insurers’ Distress Rattles Wall Street

If it was a terrible week for Wall Street, it was a devastating one for companies that promise to protect investors against bond losses.

Already under siege for having branched into risky mortgage-related debt from far safer municipal bonds, two bond guarantors — who have insured hundreds of billions of dollars of debt — ended the week in severely weakened conditions.

One insurer, Ambac Assurance, which lost nearly three-fourths of its stock market value in the first four days of the week, lost one of its most coveted assets on Friday: the AAA credit rating that has allowed it to guarantee lower-rated bonds. The company has guaranteed $556 billion in bonds, and about $66.9 billion of the amount is issued by collateralized debt obligations that have come under scrutiny in recent months. Altogether, bond guarantors have written nearly $3.3 trillion in insurance.

A smaller bond guarantor, ACA Financial Guaranty, was facing a midnight deadline to restructure its insurance contracts with investment banks or face a bankruptcy filing.

Ambac, ACA and other bond guarantors are far from household names, but their troubles have sent ripples down Wall Street and Main Street. Bonds issued by states and governments that were insured by the companies have already lost value and the problems may raise the cost of new debt they raise. For investors and banks that have insured their portfolios with Ambac, its downgrade to AA, from AAA, by Fitch Ratings raises fresh questions about just what value the insurance holds, if any.

“The most damning effect is on the value of bond insurance itself,” said Joseph R. Mason, a professor of finance at Drexel University and the Wharton School, both in Philadelphia. “The big question that should be asked for issuers is: ‘Why should I buy bond insurance?’ ”

Ambac, which had won clean bills of health from ratings agencies a month ago, surprised Wall Street on Wednesday by writing down its insurance portfolio by $5.4 billion and ousting its chief executive, Robert J. Genader, after he and the board disagreed over whether the company should raise more capital.

While much of the write-down was the result of declining market value of its contracts, the company admitted that an estimated $1.1 billion represented credit losses on which, over time, it would have to pay claims, something that the credit ratings firms had not anticipated.

After initially saying it would raise capital to shore up its AAA ratings from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, Ambac reversed itself on Thursday after its stocks lost half their value and a big shareholder called on the company to give up on the AAA rating. A day later, Fitch lowered its rating and S.& P. put a “negative” outlook on the company. Analysts say a downgrade from Moody’s and S.& P. would now seem likely.

“They blew it and lost their window of opportunity to raise capital,” Rob Haines, an analyst at CreditSights, a research firm, said about Ambac.

A spokesman for Ambac declined to comment.

Shares of Ambac closed down 4 cents, to $6.20 on Friday; they fell more than 70 percent for the week, from $21.73.

Mr. Haines said the downgrade did not mean that Ambac was insolvent. While the company will not be able to write many of the insurance contracts it used to before, it can “plod along” by collecting premiums on its existing contracts and pay out claims as bond defaults occur. Fortunately for the company, it only makes payments on lost interest and principal on the debt it insures as it comes due, not all at once when a default occurs.

“Even though this is a big, big negative,” Mr. Haines said, “it doesn’t mean it’s going to go out of business, policyholders can’t pull contracts.”

Customers who have bought insurance protection from Ambac will have to decide whether they should write down the value of that guarantee or sell the underlying bonds. Investors that are required to only own AAA-rated debt may have to sell Ambac insured bonds that no longer have that top implied rating.

“Investment funds, pension funds just flat out refuse to hold anything that is not AAA,” Mr. Mason said.

The New York Insurance Department, which oversees Ambac and MBIA, the nation’s largest bond guarantor, has been holding daily meetings with the companies, according to a spokesman, David Neustadt.

“As a regulator we have to be a facilitator” of several solutions, including a possible bailout, Eric R. Dinallo, the state’s insurance superintendent, said at a news conference before the Fitch downgrade. “That’s our No. 1 goal.”

ACA, which only had a single-A credit rating that was cut to CCC last month, is in a tougher position. Its insurance contracts require it to post collateral when the value of its contracts, or credit default swaps, fall. The company would have to put up at least $1.7 billion, money the company does not have. The company has ceded significant control to the Maryland Insurance Administration, a state agency that regulates it.

Shares of ACA Capital were up 2 cents, to 48 cents, in over-the-counter trading.
Source : http://www.nytimes.com

Sprint’s Customer Erosion Prompts Cutbacks

Sprint Nextel’s announcement on Friday that it is losing customers more rapidly than expected is making investors nervous about a weak economy’s effect on other wireless companies.

Shares of Sprint fell $2.87, or 25 percent, to $8.70 after it said that it planned to lay off 4,000 workers and close stores to trim costs as its customer base shrinks.

The stock prices of AT&T and Verizon also slipped after the news. AT&T, the largest wireless carrier, was down more than 3 percent, and Verizon, which owns Verizon Wireless along with Vodafone, fell more than 4 percent.

Sprint has been struggling for more than a year, and installed a new chief executive only last month. But the sharp drop in the company’s customer count during the traditionally strong holiday quarter, analysts say, raises concerns that the problem extends beyond Sprint.

“The broader question here is whether this is the tip of the iceberg in a deceleration of the U.S. wireless market over all,” said Craig Moffett, an analyst at Sanford C. Bernstein & Company.

Industry analysts had estimated that in the fourth quarter Sprint lost about 350,000 contract subscribers — a carrier’s most valuable customers, signed up for contracts of a year or more. Instead, Sprint announced that it had a net loss of 638,000 contract customers.

“It’s the magnitude of the weakness that is shocking,” said Michael Nelson, an analyst at the Stanford Group, an investment firm.

To reduce costs, Sprint said it planned to cut its payroll by 4,000 workers. The company, based in Reston, Va., currently has about 60,000 employees.

Sprintsaid it would also close 125 company-owned retail stores, about 8 percent of the nearly 1,400 in the Sprint chain. The total labor savings, the company said, should be $700 million to $800 million a year.

The cutbacks were the first major step taken by Sprint since the arrival last month of its new chief executive, Daniel R. Hesse. He had been the chief executive of Embarq Corporation, a local-phone spinoff of Sprint.

Cutting costs at Sprint, analysts say, is a logical step, given the decline in business. But they say the company must address other fundamental issues — some unresolved since Sprint completed its $35 billion purchase of Nextel in 2005. The company, the analysts say, runs two networks that use different technologies, and making the transition to a single compatible technology is proving to be more time-consuming and costly than expected.

Sprint, Mr. Nelson said, has also not settled on a consistent marketing strategy. By contrast, he said, Verizon has successfully promoted the quality of its network with advertisements that include the catchphrase “Can you hear me now?”

And AT&T has carved out a position as offering a reliable network and stylish handsets. It was the first to offer Motorola’s Razr and, later, Apple’s iPhone.

“But Sprint has not come up with a broad enough marketing strategy to appeal to a mass consumer audience yet,” Mr. Nelson said.

It is unclear whether Sprint’s travails are solely its own or portend broader troubles for cellphone carriers. Before the Sprint announcement, Mr. Moffett of Bernstein published a report that noted the telecommunications industry has long been considered a safe haven when the economy is weak. “Suddenly,” he wrote, “that looks like a riskier bet.”

The reason, he said, is doubt about the outlook for the wireless business. The industry has been adding 3 million to 5 million new subscribers a quarter in recent years. But by now, more than 85 percent of Americans are subscribers — well into the 90s, if one includes only adults.

The growth in net new subscribers will inevitably slow. Some of the slippage will be offset by increased revenue per user, as subscribers buy more data services like Web searching, video and audio. But the main engine of growth for the industry, Mr. Moffett said, has been new subscribers.

In the last national economic slowdown, the pace of new-subscriber signups fell approximately in half from 2000 to 2002, before rebounding again.

“If we’re headed into a recession,” Mr. Moffett said, “wireless growth expectations are suspect.”
Source : http://www.nytimes.com

NYSE Buys Amex for $260M

(NYX - Cramer's Take - Stockpickr) said late Thursday that it would acquire the privately held American Stock Exchange for $260 million in stock.

The deal, approved by boards of both companies, will provide the Big Board with additional listings as well as increase its scale in U.S. options, exchange traded funds, closed-end funds, structured products and cash equities. Amex members also will be entitled to additional shares of NYSE Euronext stock based on the planned sale of Amex's lower Manhattan headquarters.

"The addition of the American Stock Exchange to the NYSE Euronext family is highly beneficial for our customers and shareholders, and demonstrates our ongoing commitment to growing our business and product lines," said NYSE CEO Duncan Niederauer. "NYSE Euronext is the established leader in global financial-market consolidation, offering the most attractive and diverse array of products of any global exchange. This transaction is consistent with our strategic objectives and will strengthen our competitive position in the U.S., produce significant operational efficiencies, and create new business opportunities."


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Source : http://www.thestreet.com

NYSE Buys Amex for $260M

(NYX - Cramer's Take - Stockpickr) said late Thursday that it would acquire the privately held American Stock Exchange for $260 million in stock.

The deal, approved by boards of both companies, will provide the Big Board with additional listings as well as increase its scale in U.S. options, exchange traded funds, closed-end funds, structured products and cash equities. Amex members also will be entitled to additional shares of NYSE Euronext stock based on the planned sale of Amex's lower Manhattan headquarters.

"The addition of the American Stock Exchange to the NYSE Euronext family is highly beneficial for our customers and shareholders, and demonstrates our ongoing commitment to growing our business and product lines," said NYSE CEO Duncan Niederauer. "NYSE Euronext is the established leader in global financial-market consolidation, offering the most attractive and diverse array of products of any global exchange. This transaction is consistent with our strategic objectives and will strengthen our competitive position in the U.S., produce significant operational efficiencies, and create new business opportunities."


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Source : http://www.thestreet.com

Merrill Lynch Posts a $9.8 Billion Loss

Merrill Lynch, a firm one-third the size of Citigroup, posted an equally huge fourth-quarter loss of $9.8 billion on Thursday, fueled by write-downs totaling $16.7 billion, more than double the firm’s 2006 profits.

The staggering losses came from packaging and holding onto complex securities that seemed safe but have recently unraveled. The result was the worst quarterly loss in Merrill Lynch’s history, underscoring both the severity of the credit crunch and the brokerage firm’s failure to adequately understand or manage the risks it was taking.

For the year, Merrill lost $7.78 billion, compared with profits of $7.5 billion in 2006.

Merrill’s stock was down almost 8 percent in midday trading as analysts expressed concern about remaining exposure to the mortgage market — from the subprime market to the safer so-called Alt-A market and commercial real estate — as well as the reality that the firm will be constrained in many aspects of its business.

“There is still a lot of uncertainty ahead for Merrill,” said Brad Hintz, a securities analyst at Sanford C. Bernstein & Company.

Like Citigroup, Merrill Lynch has been forced to tap capital — from locales as close as New Jersey and the Upper East Side of New York, and as distant as Singapore, Korea, Japan and Kuwait —to plug the gaping holes left by losses associated with complex debt instruments packed with mortgages whose value has plummeted. Merrill earlier this week raised $6.6 billion from Korea, Kuwait and Japan. In December, the bank raised an additional $6.2 billion from Singapore’s Government Investment Corporation and Davis Selected Advisors.

John Thain, who took over as Merrill’s chief executive officer in December, called the firm’s results “unacceptable” but expressed certainty that the firm would not have to raise any more money. “We’re very confident that we have the capital base now that we need to go forward in 2008,” he said.

Mr. Thain tried to highlight the positive elements of the firm’s results — record results in equity capital markets, investment banking and global wealth management — but expressed a certain level of dismay at the risks taken to incur such hefty losses. “They shouldn’t be taking risks that wipe out the earnings of the entire firm,” he said, referring to the trading desk.

In his first weeks, Mr. Thain said he focused on three things: the firm’s liquidity, its capital, and its reporting structure, which he said should be flattened to “reduce the siloing that has taken place at Merrill Lynch over the last few years.” Merrill announced the appointment of Noel B. Donohoe to co-chief of risk, joining Edmond N. Moriarty, and Mr. Thain said he would hire a new global head of trading, reporting directly to him.

Merrill losses included a $9.9 billion write-down on collateralized debt obligations, a $1.6 billion write-down on subprime mortgages and a $3.1 billion write-down on exposure to bond insurers, who themselves have come under tremendous pressure for insuring securities that are defaulting a record rates. Other areas for write downs include $900 million in Alt-A and residential mortgages outside the United States and $230 million related to its $18 billion commercial real estate portfolio.

Mr. Thain made it clear that he did not think that so-called asset-backed collateralized debt obligations — instruments that have leveled Citigroup, Morgan Stanley and UBS — would rebound in any way. “I don’t think we’re likely to get back much on these,” he said.

Citigroup wrote down $23.2 billion in mortgage-related losses and provisions for future bad loans while also reporting a $9.83 billion fourth-quarter loss. The firm has raised $19.1 billion from sovereign wealth funds and investors.
Source : http://www.nytimes.com

True Religion sees Q4 sales above Wall Street view

Apparel company True Religion Apparel Inc (TRLG.O: Quote, Profile, Research) on Thursday projected fourth-quarter sales above analysts' expectations, driven by an expanded product assortment and growth in its consumer direct business.

The company said it expects sales of about $52.4 million for the quarter. Analysts on average were expecting revenue of $47.3 million, according to Reuters Estimates.

True Religion's consumer direct business' sales rose 280 percent to $11.4 million in the fourth quarter helped by increase in its store count from four to 15 in 2007.

True Religion, which made its mark selling jeans that cost hundreds of dollars, forecast fiscal 2008 earnings of $1.48 and $1.52 a share, on sales of about $210 million to $215 million.

The outlook includes $3.5 million of pre-opening expense related to 20 retail store openings projected for 2008, the company said in a statement.

Analysts were expecting earnings of $1.56 a share, before items, on revenue of $208.4 million for the year.

The company's stock closed at $17.56 Wednesday on the Nasdaq. (Reporting by Dilipp S. Nag in Bangalore; Editing by Amitha Rajan)
Source : http://www.reuters.com

Continental reports $71M pretax profit for 4th quarter

Continental Airlines, which is still working on calculating its final quarterly and full-year financial results, reported Thursday it had a pretax profit of $71 million for the fourth quarter on better-than-expected revenue of $3.52 billion.

But the carrier is delaying its report of its net income figures while it decides the size of a non-cash accounting charge it will take in the last three months of the year related to pilot pension liabilities. Continental expects to make that determination by by mid-February and report final results for 2007 in its annual report.

Continental said its pretax profit for the October-December period contrasted to a loss of $26 million a year earlier.

Revenue grew nearly 12% to $3.52 billion from $3.16 billion a year ago, helped by a 27.5% jump in passenger revenue from trans-Atlantic flights and a nearly 10% rise from domestic flights.

Excluding previously disclosed one-time items, the company said the pretax profit was $24 million versus a loss of $4 million in the 2006 period.

For fiscal 2007, Continental reported pretax profit grew 53% to $566 million from $369 million a year earlier. Excluding charges and gains, pretax earnings rose 78% to $542 million from $304 million in fiscal 2006.

Revenue climbed 8% to $14.23 billion from $13.13 billion a year ago, with increases across all regions driving strong passenger revenue.

Analysts surveyed by Thomson Financial had expected revenue of $3.51 billion for the fourth quarter and $14.22 billion for the full year.

"We continued to grow our passenger revenue at a pace significantly greater than our capacity growth, which is a testament to our excellent pricing and revenue management, operational and marketing performance," said Jeff Smisek, Continental's president.

The airline said fuel hedging and increaed fuel efficiency helped offset rising crude prices, which topped $98 a barrel during the quarter. Jet fuel is one of the industry's top costs.

On Wednesday, the carrier said it expects to record a non-cash tax charge of $70 million to $140 million in the fourth quarter to boost its tax valuation allowance.

The charge stems from a December change in federal law increasing the mandatory retirement age for pilots to 65 from 60, which resulted in a decrease in the company's pension liabilities.
Source : http://www.usatoday.com

Despite Miss, JPMorgan Soars

In the land of the subprime blind, a mere $1.3 billion writedown is making CEO Jamie Dimon's JPMorgan Chase (JPM - Cramer's Take - Stockpickr) king.

At least that is the view that investors appear to be espousing after the bank, the third largest in the U.S. in terms of deposits, reported fourth-quarter earnings that showed signs that the U.S. economy is weakening, but set it in stark contrast to its mortgage-laden, cash-strapped competitors.

JPMorgan's stock soared as high as 8.9% to $42.65 in Wednesday trading, even after it reported that fourth-quarter profits fell by 34% on net income of $2.97 billion, or 86 cents a share in the fourth quarter. During the same period last year, it reported net income of $4.53 billion.

On Tuesday, Citigroup (C - Cramer's Take - Stockpickr) reported it would slash its dividend by about 40%, write down $18.1 billion in debt and raise $14.5 billion in much-needed funding from investors, including ex-CEO Sandy Weill and Saudi billionaire Prince Alwaleed. Another major firm, Merrill Lynch (MER - Cramer's Take - Stockpickr) is expected to report a writedown of as much as $15 billion on Thursday, when it reports fourth-quarter earnings. In anticipation of the big hit, Merrill CEO John Thain on Tuesday said the firm had raised some $6.6 billion from foreign investors.

Merrill shares closed up more than 3.9% at $55.09 Wednesday, while Citi shares dipped 2.4% to a 52-week low of $26.24. JPMorgan closed up 5.8% to $41.43.

In the case of JPMorgan, heartening investors are not just the relatively small scope of its charge-offs and its healthy cash flow compared to its rivals, but also the likelihood that Dimon and company will take advantage of its peers' misery to beef up in areas including mortgages.

"We're going to continue to build this business even if it causes some problems in the short term," said Dimon during an analyst earnings call, explaining JPMorgan's intent on boosting its market share in mortgages. "We're going to build one of the best mortgage businesses on the Street," he noted, adding that JPMorgan would "keep on marching" despite the upheaval in the markets.

So far upheaval in mortgages has claimed a number of victims, including embattled mortgage lender Countrywide Financial (CFC - Cramer's Take - Stockpickr), which agreed to be purchased by Bank of America (BAC - Cramer's Take - Stockpickr) last week, to stave off the more likely scenario of bankruptcy or having to delist from the New York Stock Exchange amid a plummeting share price.

Dimon has been unequivocal about his view that JPMorgan could take advantage of the mortgage casualties and most believe that the executive's ability to thus far manage risk will prove invaluable as the U.S. looks down the barrel of a recession.

"Basically [investors] are betting on Jamie Dimon and saying that he's a smart guy," says Walter O'Haire, senior bank analyst at Boston-based consulting firm Celent. "He's proved that he's doing the right things and he's the guy to bet on."

Investors' bullish bets on Dimon underscore the differences between its once-larger rival Citi, with which JPMorgan competes directly. JPMorgan's market cap stands just under $140 billion compared to about $131 billion for Citi, as of late Wednesday.

A protégé of ex-Citi CEO Sandy Weill, Dimon finds himself in the ironic position of boasting a market capitalization that exceeds Citi and eyeing a chance to grow the JPMorgan franchise further while Citi flounders.

On the company's earnings call, Dimon was cautious about the outlook for the firm and the economy, but was forthcoming about the JPMorgan's balance sheet and relayed a clear message on the firm's future. The same can't be said about Citi's new CEO Vikram Pandit, who left investors with more questions than answers.

Responding to a question about JPMorgan's desire to acquire another financial institution in 2008, Dimon said during the call that the current environment "just may make it more likely."
Source : http://www.thestreet.com

Detroit's bumpy road to better times

The Detroit News welcomed Detroit auto show attendees to town over the weekend with the headline "Carmakers try to overcome gloom."

Oil at $100. The worst sales since 1998. Billions in continuing losses. New fuel economy regulations on the horizon.

There's plenty weighing on the industry, especially the U.S. automakers, as they gather for what is officially called the North American International Auto Show. Forecasts are that U.S. sales are going to be down again this year from last year's weak level, as both high gas prices and a weak housing market weigh on car buyers.

But while there's plenty of trouble facing the industry, there are also signs of hope for U.S. automakers, in the form of new labor deals, new management and new opportunities overseas.

"As bad as it is, it could be worse," said Tom Libby, senior director of industry analysis for J.D. Power and Associates. "If you think about it, all three have taken big steps. None of them will have the strength they used to have in the near term. But they have some good new product in the pipeline and the drop in costs is going quicker than they anticipated."

Still, Libby and other experts agree it's going to be another tough year ahead for the industry in general but for the Detroit based automakers, in particular, as Ford Motor (F, Fortune 500), General Motors (GM, Fortune 500) and Chrysler LLC try to stem ongoing losses from their auto operations.
Banking on green

During press preview days that started here Sunday, U.S. automakers are unveiling new vehicles they are arguing will help them complete the turnaround. In particular, they are hyping "green" technology and fuel economy more than ever.

Still, the fact is that that these companies are still depend on the larger, less fuel efficient vehicles for most of their sales and profits. And it's clear that those vehicles are still a key to their future.

Ford unveiled a new version of the F-series pickup truck on Sunday. The F-series till the nation's best selling vehicle and one that is responsible for more than one in four of the company's U.S. sales last year, even as sale of the outgoing version plunged 13.5 percent.

Chrysler, which was sold last year by German automaker Daimler (DAI) to a U.S. private equity firm Cerberus Capital Management, also unveiled its new Dodge Ram pickup, which accounted for more than one in six of Chrysler's sales.

The large pickup, a favorite of contractors, has been particularly hard hit by the downturn in housing and home building. But the entire industry was hurt by declining home values, industry experts said, as loss of home equity and value caused potential buyers to delay or drop plans for a new vehicle purchase.

That's one reason that total U.S. sales fell 2.5 percent to 16.1 million vehicles in 2007, and why consultant CSM Worldwide is forecasting sales of only 15.8 million in 2008, even if the overall U.S. economy avoids falling into a recession. And sales are likely to fall even further if it does, which a growing number of leading economists now believe is likely, if it hasn't already begun.

Also weighing on the industry are record oil prices at or near $100 a barrel. The traditional SUV, for years one of the major drivers of profit for the Big Three, is undergoing a sharp sales decline, as buyers move towards so called "crossover" vehicles which have some of the attributes of an SUV while providing a more car-like ride and somewhat better fuel economy.

While the Big Three have had some success in this category, the shift has left them with excess capacity at plants that made the SUV. Just 10 miles from the Cobo Arena where the auto show is being held, Chrysler is preparing to eliminate the second shift in the coming weeks at its Jefferson North plant that makes the Jeep Grand Cherokee and Jeep Commander mid-and full-size SUVs.

While the automakers are trying to put more emphasis on developing improved car models and stressing fuel efficiency, they are having trouble selling that idea to American car buyers who still see the Big Three as a source of trucks.

The Saturn Aura, which won the "Car of the Year" at the show last year, had disappointing sales despite critical acclaim.

Sunday at the show the Chevy Malibu picked up a second straight "Car of the Year" honor for parent GM, following a fall of great critical acclaim. But it's not clear that the Malibu is ready to take a significant bite out of the sales of the competing Toyota Camry or Honda Accord.
Looking up

Despite all the problems facing U.S. automakers, there are also reasons for optimism, which is why a growing number of auto executives are forecasting improve profitability going forward, according to a survey by audit firm KPMG..

First, there are the new labor agreements that General Motors, Ford and Chrysler reached with the United Auto Workers union this past year.

While those agreements preserved the wages of veteran autoworkers, they allowed the traditional Big Three to pay many future new hires a lower hourly rate. In addition it shifted nearly $100 billion in future health care coverage for retirees and their family members to union-controlled trust funds, which the automakers will pay into with a combination of cash and other assets.

Lifting the post-employment cost burden from the unionized automakers and allowing them to cut wage costs going forward will allow them to close much of the labor cost gap that they have had compared to U.S. plants operated by nonunion overseas automakers such as Toyota Motor (TM), Honda (HMC), Nissan (NSANY) and Hyundai.

Sean McAlinden, vice president for research for the Center for Automotive Research, said that cost savings won could actually give GM a cost advantage over Toyota within a few years, although he expects Toyota to respond to the challenge and make further cuts in its labor costs to retain an edge. Even so, that is likely to be a much slighter edge than in the past.

In addition, the automakers are seeing improve outlook elsewhere around the globe, as developing markets such as China, now the world's second largest market for cars, as well as India, Brazil and Japan, are soaring.

"It's important we don't look at the industry through North American blinders," said Michael Robinet, vice president of global vehicle forecasts for CSM. "The global industry is growing by 2 million to 3 million units a year. You've got developing markets that are on fire now, it's mainly because their GDPs are rising and incomes are rising to the point where more and more people have the ability to buy vehicles. Virtually everyone is making money in Brazil and China."

In all, while things still look cloudy in the short term, things may be starting to brighten a bit in Detroit.
Source : http://money.cnn.com

Thomson, Reuters confident on buyout

Thomson Corp. and Reuters Group PLC said Monday they are confident the Department of Justice and European Commission will approve Reuters' proposed $17.6 acquisition of Thomson soon.

Financial information company Thomson announced the proposed transaction in May.

The companies said they agreed to have the Department of Justice and European Commission align their reviews, which should result in the two regulatory bodies giving their decisions around the same time.

The buyout is expected to close early in the second quarter.
Source : http://www.businessweek.com

Zagat Survey says it is considering sale

agat Survey, publisher of the quote-filled restaurant guides, said on Monday that it was exploring strategic opportunities, including a potential sale of the company.

The company, which started as a hobby by Nina and Tim Zagat nearly 30 years ago, said it was considering growth opportunities, including potential partnerships and joint ventures, as well as a sale.

Goldman Sachs & Co (GS.N: Quote, Profile, Research) is its financial advisor, Zagat said on its Web site.

The New York Times reported that a sale would probably attract broad interest, and potential buyers might include IAC/InterActiveCorp (IACI.O: Quote, Profile, Research), News Corp (NWSa.N: Quote, Profile, Research), or phone companies seeking mobile content, such as AT&T Inc (T.N: Quote, Profile, Research) and Verizon Communications Inc (VZ.N: Quote, Profile, Research). It also named American Express Co (AXP.N: Quote, Profile, Research) as a possible suitor. (Reporting by Ritsuko Ando; Editing by Lisa Von Ahn)
Source : http://www.reuters.com