Lehman Falls Again, Stocks Slide

123jump.com Staff
03 Jun, 2008
New York City

U.S. stocks struggle as worries of new credit market losses make rounds. Recent downgrade of bonds from Moodys and warnings of possible asset write downs at financial brokers left market on the defensive. Especially, Lehman Brothers is facing intense investors scrutiny. Lehman at the end of the quarter reported financial leverage of 27 to 1 and remains vulnerable to weakness in the housing market and leveraged loan after-market.

[R]1:30PM New York – Lehman Brothers stock fell on quarterly earnings speculation and a need for new capital.[/R]

Lehman Brothers ((LEH)) fell more than 4% as analysts speculate a quarterly loss ahead of its earnings release. The rating downgrade from the S&P 500 and talks of more asset write down in the asset portfolio dragged the stock lower.

Lehman dropped $1.90 to $31.93. Recent media speculation suggests that company may have to raise as much as $4 billion in the next quarter. Lehman has raised $8 billion in the year. UBS, Royal Bank of Scotland and AIG are the few leading bank and insurance companies that have announced plans or completed raising capital totaling nearly $60 billion.

Fed stresses inflation control and strong dollar, investors remain skeptical

Fed Chairman Bernanke in his comments talked about the risks of higher inflation driven by rising commodities prices. In a speech delivered via satellite at the International Monetary Conference, Bernanke stressed on the importance of keeping the inflation in control and monitor the developments in the foreign exchange markets.

The Fed’s focus appears to be on the rising inflation and falling dollar value in the international markets.

In his comments he noted, “For now, policy seems well positioned to promote moderate growth and price stability over time.” The Fed for the first in recent months also stressed the foreign exchange markets and Bernanke added, “In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.”

Chairman Bernanke stressed the importance of keeping inflation under control. He added in his comments, “The possibility that commodity prices will continue to rise is an important risk to the inflation forecast. Another significant upside risk to inflation is that high headline inflation, if sustained, might lead the public to expect higher long-term inflation rates, an expectation that could ultimately become self-confirming.”

The tough talk on inflation has been common at Fed for the last three years yet consumers see little respite from the rising food and energy prices. Oil prices have jumped more than five times in the last six years and food prices in the recent months have steadily edged higher. The Fed’s indicators of measuring inflation also appear to not factor in home prices that have nearly doubled in the last ten years.

Investors in the last five years have gravitated to the view that Fed promotes growth at the cost of inflation and dollar.

On the comments the dollar edged higher against yen and euro. Dollar gained 1 cent to $1.54 against one euro and added nearly 1 yen to 105.36 yen to a dollar.

Earnings in review

ABM Industries Incorporated, a facility services contractor reported second quarter sales rose 34.5% to $938.5 million from $697.9 million a year ago. Net income in the quarter decreased 33.8% to $11.1 million or 22 cents per diluted share compared to net income of $16.7 million or 33 cents per share, a year ago.

ABM Industries Incorporated stock ((ABM)) fell $1.24 to $20.68.

Agilysys, Inc, Information technology services provider said fourth quarter revenues rose 75% to $206.4 million from $118.1 million a year ago. Net loss in the quarter was $807,000 or 3 cents per diluted share compared to net income of $200.6 million or $6.67 per share, a year ago. Revenues from acquisitions contributed $91.5 million or 44% of revenue during the quarter.

For the full year, the company earned $7.2 million, or 25 cents per share, compared with profit of $232.8 million, or $7.59 per share, a year earlier. Revenue jumped 65% to $781 million from $474.6 million.

Agilysys, Inc stock ((AGYS)) rose 62 cents to $10.91.

Angelica Corporation, a provider of outsourced linen management services to the healthcare industry said first quarter revenues rose 1.8% to $109.7 million from $107.8 million a year ago. Net income in the quarter was $2.1 million or 22 cents per diluted share compared to net loss of $1.1 million or 12 cents per share, a year ago.

Angelica Corporation stock ((AGL)) added 5 cents to $21.48.

Credence Systems Corporation, chip testing equipment maker said second quarter sales fell 44% to $68.1 million from $121 million a year ago. Net loss in the quarter was $18.7 million or 18 cents per diluted share compared to net loss of $3.5 million or 3 cents per share, a year ago.

Credence Systems Corporation stock ((CMOS)) fell 3 cents to $1.04.

Lululemon Athletica Inc, sportswear apparel maker said first quarter revenues rose 74.5% to $78.2 million from $44.8 million a year ago. Net income in the quarter rose 58.21% to $8.5 million or 12 cents per diluted share compared to net income of $3.5 million or 5 cents per share, a year ago.

Lululemon Athletica Inc stock ((LULU)) fell $1.76 to $30.44.

Mitcham Industries, Inc seismic data equipment marketer said first quarter revenues fell 19% to $18.5 million from $23 million a year ago. Net income in the quarter rose 9% to $4.3 million or 41 cents per diluted share compared to net income of $3.9 million or 39 cents per share, a year ago.

Mitcham Industries, Inc stock ((MIND)) fell $2.75 to $19.08.

Terremark Worldwide, Inc, a data center operator reported fourth quarter revenue increase of 85% to $56.8 million from $30.7 million a year ago. Net loss in the quarter was $2.7 million or 5 cents per diluted share compared to net loss of $4.5 million or 10 cents per share, a year ago. Terremark added 61 new customers during quarter, bringing the total to 983.

The full year's net loss attributable to common stockholders was $43 million, or 74 cents per share, compared with a loss of $15.6 million, or 36 cents per share, a year earlier. Revenue rose 86% to $187.4 million from $100.9 million.

Terremark Worldwide, Inc stock ((TMRK)) rose 4 cents to $6.46.

Asian markets review

In Tokyo Nikkei 225 Index closed lower 230.97 or 1.60% to 14,209.17, in Hong Kong Hang Seng index decreased 455.60 or 1.83% closed to 24,375.76. In Australia ASX 200 index lower 88.10 or 1.56% to close 5,574.20. In Malaysia KL Composite index decreased 4.92 or 0.39% closed to 1,257.57.

In South Korea Kospi Index decreased 28.14 or 1.52% to close at 1,819.39, in Thailand SET index closed lower 3.36 or 0.41% to 806.86 and Indonesia JSE Index edged decreased 23.95 or 0.99% to 2,403.81. Sensex index in India decreased 100.62 or 0.63% to 15,962.56.