GE Q2 profit falls, scales down industrial outlook

GE Q2 profit falls, scales down industrial outlook
General Electric's 2Q profit tumbles 49 pct on finance unit struggles, weak demand for goods

General Electric Co.'s second-quarter profit was sliced nearly in half, the company said Friday, as the recession drove down earnings at its finance unit and smothered demand for its wide-ranging industrial goods.
Although earnings beat Wall Street forecasts by a penny, GE's revenue fell $3 billion short of expectations, helping push down shares 6 percent. Quarterly sales fell across its divisions, from health care to broadcasting, suggesting that the recession is still sapping demand for goods and services.

That appeared to be troubling news for the nation's economic health since GE's businesses touch nearly all facets of the economy and investors were hoping sales would show flashes of strength.

The Fairfield, Conn.-based company is also retreating from a more optimistic outlook for its industrial businesses that make everything from microwaves to wind turbines. It's now saying those divisions could break even rather than show a profit this year.

GE 's second-quarter net income totaled $2.6 billion, or 24 cents per share, after paying preferred dividends. That fell 49 percent from $5.1 billion, or 51 cents per share, a year earlier. Revenue declined 17 percent to $39.1 billion.

Analysts polled by Thomson Reuters expected GE to earn 23 cents per share on revenue of $42.16 billion.

The first half of 2009 has been a difficult one for GE, one of the world's largest companies. It cut its dividend sharply to preserve cash, lost its vaunted Triple-A credit rating, and saw its share price plummet on fears that things could get worse for its lending unit.

GE Capital, which lends money on everything from credit cards to commercial real estate, posted a modest profit of $590 million in the second quarter. But those results were 80 percent lower than a year earlier, further proof that GE Capital is struggling with losses on bad loans. GE boosted reserves for loan losses to $6.6 billion during the quarter.

Still, GE Capital "remains on track to be profitable for the full year," Jeff Immelt, GE's chief executive, said.

GE Capital has tried to compensate for its weaknesses by scaling back its reliance on riskier debt and lowering costs through steps like cutting staff. It has also been helped by tax credits that helped it dodge a loss during the first three months of the year.

But GE Capital's second-quarter earnings show that the unit continues to face serious challenges. For example, GE's real estate unit, which owns office buildings and makes loans for commercial properties, posted a $237 million loss compared with $484 million in profits a year earlier.

"We are still very cautious about the real estate outlook," said Keith Sherin, GE's chief financial officer.

The company plans to give a detailed review of GE Capital later this month, the second time this year it will open its books as it tries to convince investors that there are no big losses lurking.

As GE Capital founders, the company has looked to its industrial divisions for stability. But those businesses, which make products like home appliances, train locomotives, diagnostic equipment for hospitals and jet engines, have also struggled during the recession.

GE said Friday that its industrial units should just break even this year. Previously, the company had said earnings could reach $5 billion. Read Article... http://finance.yahoo.com/news/GE-Q2-profit-falls-scales-apf-2602881202.html?x=0&sec=topStories&pos=3&asset=&ccode=


Comment Trendsbridge: Of all the troubling signs the Economy is not back on track and the crisis is not over yet this is one of the worst.

Fears of big bank problems return

Fears of big bank problems return
A key market measure of credit risk is deteriorating again, as investors fret over the side effects of giant federal bailouts for the nation's largest banks.

NEW YORK (Fortune) -- Betting against the banks is back in fashion.

A key market measure of the health of the biggest global financial institutions has deteriorated this month, after showing sharp improvement in April and May.

The price of betting that big banks will default on their debt -- made via derivatives known as credit default swaps -- has risen 17% in June, according to data from New York-based Credit Derivatives Research.

The uptick in wagers against banks such as Bank of America (BAC, Fortune 500), Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) comes as the spring's scorching stock market rally peters out and doubts about the health of the global economy and the banking sector re-emerge.

The blue-chip S&P 500 has dropped 6% over the past two weeks, with half of that loss coming this week. The KBW Bank index has slid 20% since hitting a recent high May 11.

Some selling is no doubt inevitable after a strong rally. But a World Bank report Monday that predicted the global economy will shrink 2.9% this year "touched a raw nerve," said Mauro Guillen, director of the Lauder Institute at the University of Pennsylvania's Wharton School.

"We have been too optimistic for too long, and we still haven't done the dirty work of fixing the financial system," he said.

Guillen said the U.S. will have to take action to restore the credit system before the economy can resume expanding in earnest.

That will mean actually implementing plans such as the one the government proposed this spring to attract private sector buyers of troubled bank assets, Guillen said. Regulators shelved one such program earlier this month.

Guillen also advocates pushing financial regulatory reform program through Congress.
But Robert Claassen, chair of the derivatives and structured products practice at international law firm Paul Hastings, said he senses the momentum for sweeping change has ebbed in recent weeks.
"There's a lot less public outrage right now," he said.
Guillen shares that view, and said it bodes ill for the long anticipated economic rebound. He notes that the economy must start growing again before unemployment -- rapidly approaching 10% -- comes down to a more moderate level.
"We have reached this period of apathy, and there's a real danger that the economy will languish with the underlying problems unaddressed," he said.

Fear of failure replaced by fear of weak earnings. Read on...
http://money.cnn.com/2009/06/24/news/companies/banks.bets.fortune/index.htm?postversion=2009062404

Standard & Poor's cuts ratings on 22 banks S&P cuts ratings on 22 banks amid concern over further weakening in financial sector

Standard & Poor's cuts ratings on 22 banks
S&P cuts ratings on 22 banks amid concern over further weakening in financial sector

NEW YORK (AP) -- Credit ratings agency Standard & Poor's on Wednesday cut ratings and revised outlooks on 22 banks amid concern about further weakening in the financial sector.
S&P said the changes reflected its assessment that volatility will remain in the financial sector and the industry is expected to face tighter regulatory oversight. S&P also said loan losses, which have plagued the industry for more than a year, are likely to continue to increase and could grow beyond expectations.

BB&T Corp., Capital One Financial Corp., PNC Financial Services Group Inc., Regions Financial Corp. and Wells Fargo & Co. were among the largest banks that saw their ratings cut by S&P.

Widescale changes to the industry because of the credit crisis and ongoing recession will dramatically alter the banking landscape, S&P credit analyst Rodrigo Quintanilla said in a release.

"We believe the banking industry is undergoing a structural transformation that may include radical changes with permanent repercussions," Quintanilla said. "Financial institutions are now shedding balance-sheet risk and altering funding profiles and strategies for the marketplace's new reality. Such a transition period justifies lower ratings as industry players implement changes."

S&P did note that recent capital raising efforts in the sector will help defray some of the losses banks are facing.

Lower credit ratings make it more expensive for companies to borrow money and can sometimes lead to difficulty accessing credit. Low ratings can also affect investments in a company's debt as some institutional investors are required to only hold debt rated at a certain level.

Ratings were also cut on Associated Banc Corp., Astoria Financial Corp., Carolina First Bank, Citizens Republic Bancorp Inc., Comerica Inc., Fifth Third Bancorp, First National Bank of Omaha, Huntington Bancshares Inc., KeyCorp, M&T Bank Corp., Susquehanna Bancshares Inc., Synovus Financial Corp., U.S. Bancorp, Valley National Bancorp, Webster Financial Corp., Whitney Holding Corp., and Wilmington Trust Corp.

The ratings of Carolina First Bank, Citizens Republic Bancorp, Huntington Bancshares, Synovus Financial and Whitney Holding were cut to junk status from investment-grade levels. The other banks all saw their ratings remain at investment-grade levels.

Today in Russian Business - June 15, 2009

Today in Russian Business - June 15, 2009
http://www.robertamsterdam.com/2009/06/today_in_russian_business_-_june_15_2009.htm

(Source Robert Amsterdam Blog)
Finance Minister Alexei Kudrin has said that he believes the dollar is in 'good shape' and does not need to be replaced as a global reserve currency. Russia will not 'significantly' change the structure of its reserves, he added. The Moscow Times examines the place of Russia within BRIC, as its economy falters and its lack of a 'properly developed financial sector' becomes problematic. At the first formal summit of the BRIC nations, new global reserve currencies will not be discussed, but reforming international financial institutions will be. Russia and Canada will support Germany's deal to sell Opel to Magna. China Development Bank has extended a $1 billion credit line to VEB. Oleg Deripaska has invited two of Putin's allies, First Deputy Prime Minister Igor Shuvalov and Deputy Prime Minister Igor Sechin, to join the board of a paper mill that he owns in a conciliatory gesture towards the Prime Minister. Bloomberg looks at Deripaska's links to Putin, and how as 'Russia's largest non-state borrower', the oligarch will manage to emerge from the crisis.
http://www.robertamsterdam.com/cgi-bin/mt4/mt-t.cgi/15145

Consumer, production prices continue to drop in China

Consumer, production prices continue to drop

Consumer, production prices continue to drop by -- CHINA'S consumer and production prices continued to decrease in May as expected, which allowed the central bank to retain low interest rates.

Analysts anticipate the deflation will extend into August and some...

Saudi Billionaire With HSBC Stake Has Accounts Frozen

Saudi Billionaire With HSBC Stake Has Accounts Frozen

May 31 (Bloomberg) -- Saudi Arabia’s central bank ordered the country’s banks to freeze the accounts of Maan al-Sanea, the Saudi billionaire who owns a stake in HSBC Holdings Plc, people familiar with the instructions said.

The Saudi Arabian Monetary Agency sent circulars to the legal departments of Saudi-based banks on May 28 and May 30 telling the lenders to freeze the accounts, including credit cards, of al-Sanea, his wife and four family members, according to one person who read the documents. SAMA didn’t say why it took the action, according to the person, who declined to be identified because the information is confidential.

Al-Sanea, who is chairman of the Khobar-based Saad Group, also manages The International Banking Corp. B.S.C., a unit of Ahmad Hamad Algosaibi & Brothers Co., according to an Algosaibi official who spoke on condition of anonymity. Algosaibi said last week that TIBC’s creditors weren’t paid “pending a debt restructuring exercise.” The bank has $2.2 billion of short-and medium-term debt, according to a May 16 report by Capital Intelligence, a credit analysis and ratings company.

“Although Mr. al-Sanea was at one time named as a managing director of Ahmad Hamad Algosaibi & Brothers Co., he has not acted in such capacity for many years and is not involved in the operations of Ahmad Hamad Algosaibi & Brothers Co. in any way,” a London-based spokesman said on behalf of Saad Group in response to questions from Bloomberg News. The spokesman said al-Sanea doesn’t manage TIBC.

$7 Billion Fortune

People in the Saudi banking industry said their employers had received instructions to freeze al-Sanea’s credit lines, though they hadn’t seen the documents. They spoke on condition that they not be identified because the information is confidential and they’re not authorized to speak to the press.

The central bank didn’t respond to two e-mails seeking comment on al-Sanea after the governor’s office asked for questions to be submitted electronically.

Al-Sanea’s net worth is $7 billion, ranking him as the world’s 62nd richest person, Forbes magazine reported March 11.

As of Dec. 30, al-Sanea indirectly held 359.1 million shares, or 2.97 percent, of London-based HSBC, Europe’s biggest bank, according to an HSBC filing. The stake is worth about 2 billion pounds ($3.28 billion).

Al-Sanea’s Saad Investment Co. received a $2.82 billion loan from a group of 26 European, U.S., Asian and Arab banks in September 2007 as the global credit crisis damped demand for debt. Earlier that year, Saad Trading Contracting & Financial Services Co., part of al-Sanea’s Saad Group of companies, said it would borrow $5 billion as part of a 20-year plan to diversify investments inside and outside the kingdom.

MEED Report

The Middle East Economic Digest reported on May 23 that Algosaibi had defaulted on $1 billion of foreign exchange transactions, trade finance loans and swap agreements. The magazine cited unidentified bankers.

The default by TIBC, Algosaibi’s Bahrain-based unit, was a “conscious decision not to honor debt payments,” even though the bank’s $400 million equity portfolio means it had enough money to do so, Standard & Poor’s Ratings Services said May 12.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a71Eo4dH6iVE&refer=home