Anglonautes > English words - vocabulary - dictionary - encyclopedia > Economy > Business > Corpoorations, companies, firms > Results

Goldman Sachs’s long run of profitable quarters came to an end Tuesday as the bank announced a fourth-quarter loss of $2.12 billion, driven by big markdowns on its large portfolio of proprietary investments in everything from Japanese golf courses to Chinese banks.

It was the first losing quarter since Goldman went public in 1999 and demonstrates that even some of Wall Street’s most skilled operators have not been able to overcome historically tough markets and sagging economies across the globe.

Goldman sidestepped earlier losses by staying out of the high-risk subprime mortgage market and taking an early bet against the United States housing industry. But it has been unable to avoid taking big markdowns following nearly 30 percent declines across global equity markets in its fiscal fourth quarter, which ended in November.

Goldman’s quarterly loss, which amounted to $4.97 a share, kicks off a run of what are expected to be poor banking results. Morgan Stanley will report its earnings on Wednesday, and is expected to announce a loss of around $400 million.

Revenue in Goldman’s big trading and principal investment business was negative $4.36 billion compared with $6.93 billion in the fourth quarter of last year.

Goldman slashed compensation and expenses and benefits by 46 percent in 2008 to $10.93 billion, reflecting lower payments because of poor performance. None of Goldman’s top seven executives will take a bonus for this year. Morgan Stanley has made a similar decision.

Employment at the firm, which had been 32,569 at the end of the third quarter, decreased 8 percent. Goldman has said it will reduce head count by a total of 10 percent, but some analysts believe it will need to make deeper cuts to reflect declining revenue and a slowing global economy.

After the announcement, Moody’s, the debt rating agency, downgraded the long-term senior debt ratings of Goldman Sachs to A1 from Aa3. Other ratings were affirmed but the outlook on them remains negative. Goldman shares, down 70 percent this year amid the financial crisis, rose nearly 8 percent, to $71.68 in early trading.

David Viniar, Goldman’s chief financial officer, said it an interview that about $1 billion in losses came in real estate investments while $600 million came in its stake in the shares of the Industrial and Commercial Bank of China.

“Over time, a lot of those are great investments,” he said, reiterating the belief within Goldman that these were largely unavoidable losses that will be reversed as market conditions improve. The same cannot be said for banks with huge holdings in subprime mortgages and related securities that may never recover much of their value, according to Goldman executives.

Mr. Viniar said it was too soon to say when markets might recover but that huge efforts by governments in the United States and around the world should begin having positive effects.

“Economies around the world are quite slow but governments around the world are throwing in enormous resources,” he said. “You don’t know when they will kick in. They may already have kicked in, or they may kick in in a year.”

Mr. Viniar reiterated the view privately expressed by Goldman officials that he does not believe the bank needs to make a major acquisition to help its balance sheet. He noted that the bank reduced its balance sheet to about $885 billion at the end of the quarter from $1 trillion last quarter. He added that $111 billion of that is free cash that does not need to be funded.

Both Goldman Sachs and Morgan Stanley have transformed themselves into deposit-taking bank holding companies that have direct access to borrowing from the Federal Reserve but must also take less risk by law.

Speculation has centered on Goldman’s buying a retail bank or a trust bank that manages money for large institutions and wealthy individuals.

Goldman executives have looked at many possible acquisitions but found none that were both cheap and strategically useful.

Goldman Sachs Reports $2.1 Billion Quarterly Loss,
NYT,
17.12.2008,
http://www.nytimes.com/2008/12/17/business/17goldman.html

Ford Plans More Cuts

as It Posts a $129 Million Loss

November 7, 2008

The New York Times

By BILL VLASIC

and NICK BUNKLEY

The Ford Motor Company, battered by the weak economy and a shift in consumer preferences, announced more cost cuts on Friday and reported a third-quarter loss.

Ford said it lost $129 million, or 6 cents a share, less than the $380 million, or 19 cents a share, in the third quarter a year ago.

In its statement, Ford said it would cut another 10 percent of its salaried work force in North America. The company also said that it had used up $7.7 billion in cash.

Third-quarter sales were $32.1 billion, down from $41.1 billion a year ago. Ford said the decline reflected lower sales volume, the sale of Jaguar and Land Rover units, changing product mix and lower net pricing.

Excluding special items, Ford lost was about $3 billion, or $1.31 a share, compared with a loss of $24 million, or a penny a share, a year ago. On that basis, analyst surveyed by Thomson Reuters expected a loss of 94 cents a share.

Rival General Motors will report results later Friday.

Underscoring the dire circumstances facing the industry, the chief executives of G.M., Ford and Chrysler met with Nancy Pelosi, the House speaker, and Harry Reid, the Senate majority leader, on Thursday about an emergency loan package. The meeting focused on a request by automakers for up to $25 billion in loans to help the companies get through the worst vehicle market in 15 years and avoid bankruptcy protection.

The loan request is in addition to $25 billion in low-interest loans administered by the Department of Energy to assist automakers in developing more fuel-efficient vehicles.

Automakers have been battered by a weak economy, rising gas prices, a sharp shift away from their most profitable products and a credit crisis that has emptied dealer showrooms. The stunning falloff has affected all automakers, as shaky consumer confidence and the inability of many eager shoppers to get loans because of tight credit drove sales down 31.9 percent in October compared with the period a year ago.

Ford lost $8.6 billion in the first half of 2008. Its sales in the United States are down 18.6 percent this year through October.

Not long ago, it was viewed as being in the worst shape of the three Detroit automakers, but now, as its two crosstown rivals — G.M. and Chrysler — explore a merger to avoid running out of cash, Ford has become the most stable. It still has a large cash cushion — $26.6 billion as of June — from mortgaging most of its North American assets in 2006, before the credit markets tightened.

“Despite meaningful production declines forecasted for the coming quarters, we estimate that Ford has enough cash through 2009,” Brian A. Johnson, an analyst with Barclays Capital, wrote in a report this week.

After losing $18.8 billion in the first six months of the year, G.M., suffered an even further decline in fortunes in the third quarter.

The company’s global sales fell 11.4 percent in the quarter, with most of the damage done in the slumping vehicle markets of North America and Europe.

A lack of available credit for consumers has hurt all automakers this fall, but G.M. has been particularly hard hit by the problems of the finance unit GMAC Financial Services.

GMAC is controlled by Cerberus Capital Management, which has a 51 percent ownership stake. G.M. owns the remaining 49 percent. GMAC reported a $2.52 billion loss in the third quarter, mostly because its lack of access to available capital choked off the flow of auto loans to G.M. customers.

As a result, G.M.’s dealers have been increasingly unable to finance sales to even creditworthy customers. In October, G.M.’s United States sales plunged 45.1 percent, compared with a 31.9 percent drop for the overall industry.

Those declining sales have cut sharply into G.M.’s revenues and crippled its previously announced turnaround plans.

With the company burning through cash, G.M. said in July that it would increase its liquidity by cutting costs by $10 billion, and by raising $5 billion through new borrowing and asset sales.

But the company has been unable to take on new debt, and has been unable to sell any major assets like its Hummer brand.

With revenues declining and its cash reserves rapidly diminishing, G.M. began looking for a merger partner this summer, according to people with knowledge of the company’s actions.

G.M.’s chairman, Rick Wagoner, first approached Ford, but its leadership rejected the overtures. In September, G.M. began talks with Chrysler, which is also controlled by Cerberus.

While both sides are committed to merging the two automakers, the deal has stalled because prospective lenders have been hesitant to support it without assurances of government assistance to Detroit.

Mr. Wagoner and other G.M. executives have repeatedly vowed that the automaker will not seek bankruptcy protection.

Analysts, however, believe that without an infusion of capital from the government, G.M. will exhaust its cash reserves by sometime next year.

For its part, Ford has reacted aggressively in recent months to the downturn, announcing a plan to convert three truck plants so they can build small cars instead and to bring six fuel-efficient vehicles to the United States from Europe in the next few years.

It is beginning a major new-product blitz, introducing a redesigned version of its stalwart F-series pickup this fall and more revamped models, including new versions of the Taurus and Mustang, next year. It is counting on strong sales of the F-series, despite lessened demand for trucks, to lift its short-term fortunes.

Any momentum that Ford has been building, though, took a big hit last month when its largest shareholder, the casino mogul Kirk Kerkorian, began selling off his stake. Mr. Kerkorian had previously expressed confidence in the company and in the leadership of the chief executive, Alan R. Mulally, and that support pushed shares of the company to more than $8 in May. But the company’s stock hit a 26-year low of $1.88 last month.

Ford Plans More Cuts as It Posts a $129 Million Loss, NYT, 7.11.2008,
http://www.nytimes.com/2008/11/07/business/08auto.html

Write-Down Is Planned at Merrill

July 29, 2008

The New York Times

By LOUISE STORY

Only 10 days after stunning Wall Street with a huge quarterly loss, Merrill Lynch unexpectedly disclosed another multibillion-dollar write-down on Monday and sought to bolster its finances once again by selling new stock to the public and to an investment company controlled by Singapore.

Moving to purge itself of the tricky mortgage-linked investments that have brought the once-proud firm to its knees, Merrill said that it had sold almost all of the troublesome investments, once valued at nearly $31 billion, at a fire-sale price of 22 cents on the dollar.

As a result, Merrill expects to record a write-down of $5.7 billion for the third quarter. Such an outcome could push Merrill into the red for a fifth consecutive quarter if revenue remains weak and would bring its charges since the credit crisis erupted last summer to more than $45 billion.

The problems at Merrill, the nation’s largest brokerage, underscore how bankers and policy makers are struggling to contain the damage to the financial system and the broader economy caused by the collapse of housing-related debt. The latest news came on a day when the International Monetary Fund said there was no end in sight to the housing slump, a forecast that depressed financial shares as well as the broader market.

To shore up its finances, Merrill said it would raise $8.5 billion in new capital from common shareholders, including $3.4 billion from the investment arm of the Singapore government, Temasek Holdings, which, with an 8.85 percent stake as of June 30, is already Merrill’s largest shareholder. Those shares and a conversion of preferred securities into common stock will dilute the value of stock held by current shareholders by about 40 percent.

John A. Thain, who has struggled to turn Merrill around since becoming chief executive in December, said the sale of the worrisome investments, known as collateralized debt obligations, or C.D.O.’s, was “a significant milestone in our risk reduction efforts.”

The C.D.O.’s have plunged in value over the last year, forcing Merrill to take one write-down after another and sapping investors’ confidence. Merrill’s share price fell 11.6 percent on Monday, before the news of the write-down and stock sale were announced after the close of trading. Merrill is trading near its lowest level in a decade.

But the sale of the C.D.O.’s, to an investment fund based in Dallas, may enable Merrill to move on, investors said.

“What they sold, from a headline standpoint, is certainly constructive because they have reduced risk in a very sensitive area,” said Thomas C. Priore, chief executive of Institutional Credit Partners, a $12 billion hedge fund and C.D.O. manager in New York.

Merrill had been working on the C.D.O. sale and the effort to raise capital before its earnings call but did not finalize the actions until recent days.

Merrill’s sales could cause further write-downs at other Wall Street firms with C.D.O. exposure. If those companies — the likes of Citigroup and Lehman Brothers — have similar C.D.O.’s valued at prices higher than those at which Merrill sold, the firms may be forced to take additional charges to reflect the difference.

Merrill recently moved to raise money by selling its 20 percent stake in Bloomberg L.P., the financial news and data company, for $4.425 billion. Mr. Thain hinted at the C.D.O. sale in the quarterly earnings call, in response to a question from Meredith Whitney, an analyst with Oppenheimer & Company.

“Why not, at this point, be the first to purge assets and get it over with? And, if that means raising capital, raise capital,” Ms. Whitney said.

Mr. Thain responded that Merrill had been selling assets but had not yet sold any C.D.O.’s.

“Your question is a very leading one, and that would certainly be something that we would hope that we could do,” Mr. Thain said.

Merrill sold the investments at a steep loss. The United States super senior asset backed-security C.D.O.’s that Merrill sold were once valued at $30.6 billion. As of the end of second-quarter, Merrill valued them at $11.1 billion — or 36 cents on the dollar. And Merrill sold them for $6.7 billion to an affiliate of Lone Star Funds, the Dallas private equity firm.

Merrill provided 75 percent financing to Lone Star Funds, which means Merrill lent the private equity fund about $5 billion to complete the sale.

The discounted sales will cause the majority of Merrill’s write-down in the third quarter.

Merrill also said it had settled a battle with the reinsurance company XL Capital Assurance, which had insured some of the firm’s C.D.O.’s.

Write-Down Is Planned at Merrill,
NYT,
29.7.2008,
http://www.nytimes.com/2008/07/29/
business/29merrill.html

Related > Anglonautes > Vocapedia

economy, money, taxes,

housing market, shopping,

jobs, unemployment, retirement,

debt, poverty, homelessness

industry, energy, commodities