Merrill Lynch & Co, Washington Mutual Inc and Sovereign Bancorp Inc on Friday became the latest banks to take big writedowns on mortgages and other credit-related losses, but their shares rose on hopes the worst was over.
Following similar warnings earlier this week from Citigroup Inc, UBS and Deutsche Bank, the latest disclosures dramatized the sweeping impact of the meltdown in the subprime mortgage market and left investors wondering how many profit warnings were still to come.
The share gains echoed a similar rally in Citi stock on Monday after the largest US bank's own multibillion-dollar writedown.
"The market I think has pretty much signaled that coming clean and taking your lumps is the best thing you can do for your stock price, as long as the lump doesn't put you out of business," said Bill Hackney, a managing partner at Atlanta Capital Management.
Merrill shares were 3.1 percent higher at US$77.12 in afternoon trade, while Wamu stock rose 2.7 percent to US$36.23. Sovereign trimmed gains after its profit warning but was still up 2.2 percent.
Merrill said it would write down US$5.5 billion for bad bets on subprime mortgages and leveraged loans, taking the worst hit yet among major Wall Street brokerages from turmoil in the credit markets.
The bulk of the losses will come from marking down the value of complex instruments known as collateralized debt obligations (CDOs), and from declines in subprime mortgages -- loans given to customers with poor credit history.
Financial analysts and credit rating agencies agreed the unexpectedly large writedown would hurt Merrill Lynch's image and call into question its ability to manage risk.
"We believe that the magnitude of [Merrill Lynch's] losses might dampen the firm's reputation around acquisitions," Wachovia Capital Markets LLC analyst Douglas Sipkin wrote in a research note.
In total, Merrill said it would report a loss of up to US$0.50 per share for the quarter.
Analysts polled by Thomson Financial on average forecast earnings of US$1.24 per share for the quarter ending on Sept. 30.
About US$4.5 billion of the writedowns are related to the declining value of subprime mortgages and CDOs. Merrill Lynch said it took significant steps to reduce its exposure to the subprime market in the third quarter.
The warning came on the heels of an executive shakeup at the bank, which blundered by spending US$1.3 billion to buy subprime mortgage lender First Franklin Financial last December, just before the market for home loans to buyers with weak credit histories went into free-fall.
Wamu, the No. 1 US savings & loan, said it expected a 75 percent plunge in profit after provisioning nearly US$1 billion for loan losses and taking US$410 million in losses and writedowns for various loans and securities in its portfolio.
Sovereign, the second-largest thrift, roughly tripled its provision for credit losses sequentially to US$155 million and US$165 million and said it would take US$35 million in charges related to financings extended to troubled mortgage lenders as well as writedowns of loans in its portfolio.
Both Merrill and Wamu sought to portray the losses as a one-off hit and said they were hoping for a fourth-quarter turnaround.
"While we're disappointed with our anticipated third-quarter results, we look forward to an improved fourth quarter as we continue to see good operating performance in our retail banking, card services and commercial group businesses," Wamu chief executive Kerry Killinger said in a statement.
Merrill Lynch CEO Stan O'Neal was similarly reassuring.
"While it is very early in the current quarter and despite continued challenges in structured finance, we are beginning to see signs of a return to more normal activity levels in a number of markets," he said.
But many believe the writeoffs will continue.
"Although they may firmly believe this gets everything out of the way, I think there's going to be further reserve additions in future quarters," said Keith Davis, an analyst at fund manager Farr, Miller & Washington. "I'm pretty bearish on the whole banking sector."
Citi, Merrill and Wamu were three banks in the spotlight coming into the third quarter because of their exposure to CDOs, leveraged loans and subprime mortgages.
Now they have made a clean breast of their losses, investors are betting they will soon have company.
JPMorgan Chase and, to a lesser extent, Bank of America and Wachovia Corp may take hits as well.
Taiwan Transport and Storage Corp (TTS, 台灣通運倉儲) yesterday unveiled its first electric tractor unit — manufactured by Volvo Trucks — in a ceremony in Taipei, and said the unit would soon be used to transport cement produced by Taiwan Cement Corp (TCC, 台灣水泥). Both TTS and TCC belong to TCC International Holdings Ltd (台泥國際集團). With the electric tractor unit, the Taipei-based cement firm would become the first in Taiwan to use electric vehicles to transport construction materials. TTS chairman Koo Kung-yi (辜公怡), Volvo Trucks vice president of sales and marketing Johan Selven, TCC president Roman Cheng (程耀輝) and Taikoo Motors Group
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
RECORD-BREAKING: TSMC’s net profit last quarter beat market expectations by expanding 8.9% and it was the best first-quarter profit in the chipmaker’s history Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), which counts Nvidia Corp as a key customer, yesterday said that artificial intelligence (AI) server chip revenue is set to more than double this year from last year amid rising demand. The chipmaker expects the growth momentum to continue in the next five years with an annual compound growth rate of 50 percent, TSMC chief executive officer C.C. Wei (魏哲家) told investors yesterday. By 2028, AI chips’ contribution to revenue would climb to about 20 percent from a percentage in the low teens, Wei said. “Almost all the AI innovators are working with TSMC to address the
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”