Oracle Drags Nasdaq Down 2%; U.S. Mortgage Applications Drop

Arthi Gupta
21 Dec, 2011
New York City

The Nasdaq dropped 2% after Oracle cited difficulties in signing large deals and reported weaker than expected earnings. U.S. mortgage applications fell last week. Japan-based Tokio Marine Holdings agreed to acquire Delphi Financial for $2.7 b

[R]12:20 PM New York – The U.S. indexes edged lower and the European Central Bank offered 3-year loans to large number of banks and eased liquidity concerns and dampened the bond yields in the region. U.S. mortgage applications fell last week. Japan-based Tokio Marine Holdings agreed to acquire Delphi Financial for $2.7 billion.[/R]

U.S. indexes traded lower after Oracle missed its earnings estimates and technology stocks headed lower.

The Nasdaq Composite declined 2.2% by mid-day and broader indexes also slipped after business software maker said finalizing sales with large customers has been difficult.

European markets advanced after the European Central Bank offered cheap loans to a large number of small and large banks and expanded the quality of collateral it accepted.

The central bank lent 523 euro area banks a total of €489.2 billion from the European Central Bank’s new three-year loan facility to ensure banks have enough liquidity. Funds are expected to be disbursed tomorrow.

Of the nearly half a trillion euros of loans from the central bank, €110 billion are expected to be available for new lending by the banks and the rest are to facilitate the rollover of the existing loans.

The move was widely welcome by investors in the region and further eased the pressure on the sovereign debt market in the euro zone.

The large amount of loans also helped bond yields of Italy and Spain to ease as many banks used cheap loans to purchase sovereign bonds that pay higher interest rates. The loans from the ECB will charge 1% annual interest.

Fitch Ratings placed seven Italian banking groups' long-term issuer default ratings and viability ratings on rating watch negative.

Italy GDP Contracts

The Italian economy contracted 0.2% on a quarterly basis in the third quarter, following a 0.3% growth in the second quarter, according to data from the statistics office Istat.

Asian markets rallied following sharp increase in overnight trading in New York. Market indexes in India surged 3.3%, in Australian gained 2.1% and in Japan jumped 1.4%.

The benchmark indexes in China region closed mixed. Taiwan index soared more than 4.5% and in Hong Kong gained 1.9% but in Shanghai declined 1.2%.

U.S. Mortgage Applications Drop

U.S. mortgage applications fell last week despite low interest rates, according to industry data released today.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity declined 2.6% in the week ended December 16, after rising 4.1% the previous week.

The MBA's seasonally adjusted index of refinancing applications fell 1.6%, while the measure of loan demand for home purchases dropped 4.9%.

Fixed 30-year mortgage rates averaged 4.08%, down from 4.12% the week before.

Tokio Marine to Acquire Delphi Financial

Tokio Marine Holdings, Inc., the Japanese property and casualty insurer agreed to acquire Delphi Financial Group, Inc. for $2.7 billion in cash, aiming to expand its international business.

Tokio Marine will pay $43.875 per Delphi's Class A share and $52.875 per Class B share in cash, through its unit Tokio Marine & Nichido Fire Insurance Co., Ltd.

Delphi shareholders will also receive $1 in cash per share pursuant to a one-time special dividend from Delphi for each Class A and Class B stock they own.

Earnings Review

CarMax, Inc. ((KMX)) declined 7% to $28.90 after the retailer of used cars said third quarter net sales and operating revenues rose 7% to $2.26 billion from $2.12 billion in the year-ago quarter. Analysts were looking for earnings per share in the quarter of at least 36 cents.

Cintas Corp ((CTAS)) gained 8.5% or $2.65 to $33.93 after the cleaning supplies provider revised its annual earnings forecast to at least $21.6 a share.

CommVault Systems, Inc ((CVLT)) dropped 16.5% to $38.68 after Oracle reported weaker than expected earnings on the fears that enterprise spending on technology may be weaker than expected.

The Oracle earnings news also dragged IBM down more than 3%, Teradata Corp 11%, SAP AG fell 6% and EMC declined 4%.

Delphi Financial Group ((DFG)) soared 72% or $18.49 to $43.92 after the workers compensation and group life insurer agreed to be acquired by Tokio Marine Holdings Inc for $2.7 billion in cash.

Emerson Electric Co ((EMR)) fell $2.65 to $47.02 after the electric products maker said sales for the quarter ending in December sales to decline between 3% and 5% compared to a year ago and the company reiterated 2012 sales to increase between 4% and 6% and earnings per share to jump between 8% and 12%.

The company blamed the weakness in sales in the uncertainty in the telecom sector spending and supply chain disruptions linked to floods in Thailand.

Nike, Inc. ((NKE)) soared $3.21 to $96.84 after the sportswear maker reported second quarter revenues grew 18% to $5.731 billion from $4.842 billion in the year-ago quarter. Net income rose 3% to $469 million or $1 per diluted share compared to net income of $457 million or 94 cents per share last year,

Oracle Corporation ((ORCL)) plunged 14% to $25.21 after the software maker said second quarter revenue rose 2% to $8.79 billion from $8.58 billion a year ago. Net income in the quarter increased 17% to $2.19 billion or 43 cents per diluted share compared to net income of $1.87 billion or 37 cents per share for the year-ago quarter.

Expedia Inc ((EXPE)) increased 3% to $28.04 after the online travel agency completed the spinoff of its travel message board operator TripAdvisor Inc and began trading on Nasdaq today.

TripAdvisor, Inc ((TRIPV)) traded at $28.66.

Walgreen Company ((WAG)) declined 5.2% or $1.76 to $31.74 after the pharmacy retailer said first quarter net sales climbed 5% to $18.16 billion from $17.34 billion in the year earlier period.

Net earnings in the quarter decreased 4.5% to $554 million compared with net earnings of $580 million in the same quarter a year ago. However, quarterly net earnings per diluted share improved to 63 cents from 62 cents a year earlier.