U.S. Indexes Lower on Weak JP Morgan Earnings

Devan Biswas
13 Oct, 2011
New York City

U.S. stocks declined after JP Morgan said quarterly earnings dropped 33% and set aside $1 billion for securitized mortgage loans litigation. Investors turned cautious after European leaders suggested more losses for banks and said the rescue fund should be accessed as a last resort.

[R]12:20 PM New York – U.S. stocks declined after JP Morgan said quarterly earnings dropped 33% and set aside $1 billion for securitized mortgage loans litigation. Investors turned cautious after European leaders suggested more losses for banks and said the rescue fund should be accessed as a last resort.[/R]

Stocks in early trading were lower in New York after JP Morgan reported lower earnings and European leaders offered another round of promises with no details to manage widening sovereign debt stress.

S&P 500 index declined 1% after rising 4.5% in the last three days but the index is stuck in a trading range between 1,100 and 1,200 in the last eight weeks.

Financials were lower after JP Morgan declined 6% and said it quarterly earnings declined 4% and set aside $1 billion to cover the litigation costs related to mortgage securities.

Goldman Sachs declined 4%, Morgan Stanley fell 5.5% and Citigroup eased 6% and Wells Fargo decreased 4%.

European markets were under pressures after political leaders sent mixed signals. Though the plan to recapitalize banks is taking shape before the crucial meeting on October 23 division among the 17-member euro zone is deepening.

Germany, Holland, Finland and Slovakia are on one side demanding that the €440 billion expanded rescue fund should be used as a last resort and France, Spain and Portugal and Greece on the other side asking to tap in the facility immediately.

At least for now, it appears that banks will be asked to raise capital on their own from investors or public markets and then use national funding before tapping into the emergency facility that is close to setting up.

European Commission President Jose Manuel Barroso urged European leaders to expedite the release of 8 billion tranche aid to Greece and said banks must tap investors and national government funds before securing loans from the EFSF.

Banks were quick to condemn the Barroso plan and said that the plan to temporarily increase capital that meets Basle III standard is not likely to be favored by investors. Deutsche Chief Executive Josef Ackermann said, “The injection of capital wouldn’t solve actual problems” and government bonds are not risk-free anymore.

Separately, Italy sold €6.2 billion of government bonds of various maturities and the auction drew 1.45 bid-to-cover ratio.

Markets in Asia closed higher on the optimism that the plan proposed by the euro zone policy makers will contain the debt contagion. The benchmark index in Japan increased 1%, in Hong Kong gained 2.3% and in South Korea added 0.8%.

Crude oil futures of the immediate month delivery fell 2% to $84.09 and gold declined 1% to $1,661 an ounce.

Stock Movers

Fairchild Semiconductor International ((FCS)) increased 4.7% or 58 cents to $12.82 after the power and mobile products maker stated third quarter sales fell 3% to $403.2 million from $414.4 million in the same quarter last year. Net earnings in the quarter flat to $35.8 million or 28 cents per diluted share compared to $35.8 million or 28 cents per share a year ago quarter.

JPMorgan Chase & Co. ((JPM)) decreased 5.5% or $1.83 to $31.37 after the financial holding company reported third quarter flat to $24.4 billion from $24.3 billion in the same quarter last year. Net income in the quarter fell 4% to $4.3 billion or $1.02 per diluted share compared to $4.4 billion or $1.01 per share a year ago.

Quarterly earnings declined 33% after separating one-time gain of $1.9 billion on weaker investment banking and trading revenues.

Lindsay Corporation ((LNN)) dropped 8.2% or $4.99 to $55.28 after the irrigation systems maker said fourth quarter total revenues increased 33% to $116.1 million from $87.2 million in the same quarter last year. Net earnings in the quarter edged down to $5.9 million or 46 cents per diluted share compared to $6.0 million or 48 cents per share a year ago period.

Safeway Inc. ((SWY)) increased 3.3% or 61 cents to $18.58 after the food and drug retailer reported third quarter sales increased 1.5% to $10.1 billion from $9.4 billion in the same quarter last year. Net income in the quarter increased to $130.2 million or 38 cents per diluted share compared to $122.8 million or 33 cents per share a year ago period.

Wal-Mart Stores, Inc. ((WMT)) fell 0.1% or 6 cents to $55.14 the retail stores operator updated capital spending forecast for the current fiscal year ending January 2012 to between $13 billion and $14 billion and forecasted sales growth in the range of 5% and 7% for fiscal year 2013.