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

Hawaii Superferry service to Maui resumes Dec. 1

The Hawaii Superferry will resume service to Maui on Dec. 1 with $29 special one-way fares, the company announced yesterday. However, no date has been set for sailings to and from Kaua'i, officials said.

The announcement came just days after a Circuit Court judge on Maui lifted an injunction barring the 866-passenger ferry from using Kahului Harbor and after a bruising legal and legislative fight to keep the company operating in the Islands.

"We appreciate the support we've received from everyone who shares the vision of uniting our islands and families by sea," said Hawaii Superferry CEO John Garibaldi in a statement.

Ferry opponents yesterday said they were disappointed in the company's decision to resume service to Maui before a required environmental assessment is done. They predicted some type of legal protest when the first sailings occur.

"I would expect some demonstrations. I know some people who have been talking about going down (to the harbor) and I know they are not happy," said Judith Michaels, acting president of the citizens group Maui Tomorrow, one of three groups that had pushed for an environmental review before the ferry resumed operations.

The organization is particularly concerned about the potential for ferry collisions with humpback whales and the spread of invasive species, Michaels said.

Maui County Mayor Charmaine Tavares asked people to respect the law and each other.

"Our police department is working in conjunction with state and federal law enforcement officials and I have absolute faith in their capabilities and preparedness," the mayor said in a statement. "It is still my hope that our residents will be able to remain civil, safe and out of harm's way.

"Public safety is to be taken seriously. The welfare and protection of our citizens and visitors are crucial no matter what the issue or situation at hand. From the public safety perspective, federal and state agencies will be at the forefront of the situation. I think we can also rely on and call upon people to respect the law and each other."

The Superferry's Maui manager Duane Kim was at a job fair in Kahului last night trying to recruit a half-dozen more employees to add to the local staff of 36.

"It feels great. I've been getting a lot of phone calls from employees about when they can come back to work now that the Dec. 1 date has been set," he said. "We're moving forward and bringing employees back and starting to get the terminal ready. It's really been a long road but we're happy."

The company said a date for commencing service to and from Kaua'i has not been determined.

"We have already begun community outreach efforts on Kaua'i," Garibaldi's statement said. "We will make our decision about when we commence our Kaua'i service once that process is completed."

The Superferry was forced to halt service to Maui after the state Supreme Court ruled that the state needed to conduct a study of ferry-related environmental impacts.

The court sided with environmentalists who argued the ferry could harm whales and could carry invasive plant and animal species between islands. The state Legislature revised state law in a special session that paved the way for the ferry to resume service.

TRAFFIC HEARING MONDAY

Although Hawaii Superferry won court approval Wednesday to resume service, still unresolved is the question of traffic control at Kahului Harbor.

A hearing is scheduled for Monday in a separate court case over the ferry's traffic impacts. Maui Circuit Judge Joel August has required that only two vehicles per minute be allowed to exit the ferry site on the north end of Pu'unene Avenue near one of the island's busiest intersections.

The restriction caused an hourlong back-up of disembarking vehicles when the Alakai last visited Kahului Harbor on Aug. 27.

The start-up of service on Dec. 1 likely will add to Maui's traffic congestion, Michaels said.

"Unless (Judge August) keeps the traffic mitigation, there will be a real problem," Michaels said.

The Maui Tomorrow board will meet next week to consider whether to pursue further court appeals.

August has indicated he is willing to be flexible and drop the rule and allow off-duty police offices or other trained personnel to manage the traffic.

Other mitigation ordered by the judge includes reconfiguring the Pu'unene Avenue intersection and making space available for ferry customers at the Kahului Airport overflow parking lot, about two miles from the harbor.

The ferry can carry 866 passengers and 282 cars, but company officials estimate an average of 400 passengers and 110 vehicles per trip. At Kahului Harbor, 267 vehicles a day are expected to travel through the ferry site, either loading or unloading from the vessel or dropping off or picking up passengers.
Source : http://www.honoluluadvertiser.com