Posted on 10/16/2002 4:00:31 PM PDT by rohry
That is a stretch. This is not a wartime economy by any measure. No industries have been mobilized, no one has been drafted, rationing has not begun. Not that it will stay this way, but this is not a wartime economy.
Looks like the manipulators and speculators are going to use IBM's "beat the Street" earnings as an excuse to push the market up again tomorrow. Never a dull moment at the casino.
Richard W.
By Mark Felsenthal
(Updates to market close, adds comment) WASHINGTON, Oct 15 (Reuters) - Fannie Mae (NYSE:FNM - News), the No. 1 U.S. home loan financing company, on Tuesday reported a 19 percent drop in third-quarter net income, as options it uses to protect itself from interest rate swings lost value.
The company said, however, that its operations benefited from falling interest rates, because they prompted consumers to take out mortgages or refinance their home loans.
Excluding the unrealized losses from the derivatives, earnings rose 18.4 percent, hitting the high end of Wall Street estimates.
Many investors agreed with the company that the derivatives losses were not a reflection of the company's performance, and Fannie Mae shares rose nearly 7 percent to close at $70.98 in trading on the New York Stock Exchange.
"The overall results were excellent," said Dreyfus Corp. senior analyst Bill Rubin. "I liked the fact that the net interest margin improved more than expected, and the credit quality looks stellar."
The mortgage financier said it expects 2002 earnings growth, excluding accounting for derivative securities such as options, to be higher than in the past.
For 2003, it said precise earnings estimates are difficult because of the rapid pace of portfolio growth and wider than normal difference between its interest rates for borrowing and lending.
AMPLE BUSINESS
Fannie Mae, which benefits from backing by the U.S. government, said third-quarter net income fell to $994.3 million, or 98 cents per share, from $1.23 billion, or $1.19 per share, a year earlier. The company's net earnings were reduced by mark-to-market write-downs of the value of its options of $1.378 billion, well above the year-earlier write-down of $413.1 million.
Analysts discounted the effect of unrealized derivatives losses on the company's performance.
"They're using derivatives to hedge their portfolio and not to speculate and grow earnings," said David Duchow of Thompson, Plumb & Associates.
Strong housing and mortgage finance markets have created ample business for the company, observers said.
Excluding items, Fannie Mae's earnings rose to $1.63 billion, or $1.62 per share, from $1.38 billion, or $1.33 per share, a year earlier.
On this basis, analysts on average expected a profit of $1.57 per share, with estimates ranging from $1.55 to $1.62, according to research firm Thomson First Call.
"Very strong volumes and stable-to-increasing business margins enabled Fannie Mae to produce another record quarter of operating earnings per share," said Chief Executive Officer Franklin Raines in a statement.
MORTGAGE BUYING UP, MARGIN STEADY
Fannie Mae, which buys home loans from lenders and repackages them as securities for investors or holds them in its own portfolio, reported record mortgage purchase commitments of $128 billion for the quarter.
Buying mortgages for its own portfolio is a big earnings generator for the company, but purchases had slowed in the second quarter as other investors competed to buy mortgage-backed securities.
Another source of profit, the margin between the company's interest rates for borrowing and lending, was unchanged from the previous quarter but higher than a year earlier.
The agency has taken steps to close its duration gap, a measure of how well it matches cash flows between its mortgage assets and its own debt. On Tuesday it said it would commit to buy $57 billion of mortgage bonds and home loans -- its largest monthly commitment to date -- for its portfolio and use those assets to help manage interest rate risk.
"The $57 billion we committed to buy in September made a big push for lowering duration," said Mary Lou Christy, vice president of investor relations at Fannie Mae. "The $57 billion in retained commitments to buy mortgage loans and bonds is a record and reflects the active mortgage market."
DURATION GAP SHRANK
Fannie Mae said its September duration gap was minus 10 months, down from minus 14 months in August. It has a goal of plus or minus six months for its duration gap, which would mean its assets and liabilities would be in better balance.
Analysts said the company's financial report eased concerns raised by widening of the duration gap.
"Investor expectations were a little grim on Fannie Mae. I think there was over concern about the duration gap issue," said Yin Kon, an analyst for State Street Global Investors.
Meanwhile, Fannie Mae's credit-related losses fell to $13.9 million in the third quarter from $17.3 million in the April-June period and from $18.7 million in third quarter 2001.
Do you think China and Korea will sell us the steel? And can be get Rosie the Riveter to replace the guys drafted?
When the Market is Up, he's DOWN. When the Market is DOWN, he's waa-a-y DOWN.
Unfortunately, he also usually seems to be RIGHT! When he starts acting like a Bull, that's the time to start grabbing stocks with both hands.
I don't think he's ever going to act bullish; the best thing to do is wait until he's just a little bit down and then buy like crazy. :^)
Richard W.
Indeed! But not by me. I've read his thesis.
... these days I'm only a buyer in gold and silver stocks... the rest of the crowd can chase GM and JPM.
Korea has nukes -- tell me it ain't so. I thought that Bubba bought them off with our tax dollars.
I think it is much more likely they bought him off with Campaign "donations" and huge sums in his offshore bank accounts. All of Bubba's chickens won't be coming home to roost for a long, long time. We have just been seeing the very first of the huge flocks.
Do you remember the fable about the tortoise and the hare? I think the days of grabbing stocks with both hands is over for the time being.
For most of them, you are probably correct. You'll be able to buy most of them a lot cheaper in future years - if the companies are even around!
Analysts see up to 8,000 positions in peril
By Rex Crum, CBS.MarketWatch.com
Last Update: 11:33 AM ET Oct. 16, 2002
PALO ALTO, Calif. (CBS.MW) -- Analysts say Sun Microsystems could lay off as many as 8,000 of its 39,400 employees when it reports its quarterly results on Thursday.
The layoffs would be on top of the 7,000 jobs the company cut last year.
"The signs of an imminent reduction are there," said Steve Milunovich of Merrill Lynch. "(CEO) Scott McNealy said last week that if Sun isn't making money, 'we will restructure.'"
? Milunovich said that by cutting 8,000 jobs, Sun could break even with revenue of $2.5 billion per quarter instead of the current $3.1 billion. Milunovich said that while such a move could boost Sun's earnings in the near-term, it could also hurt revenue in the coming quarters.
Toni Sacconaghi, an analyst with Sanford Bernstein, says Sun could cut between 4,000 and 8,000 jobs. "(This) would trigger earnings revisions and could serve as a catalyst for the stock," Sacconaghi said.
Sun spokeswoman Diane Carlini said Wednesday that the company could not comment on the analyst reports because of the quiet period leading to its earnings. "But to clarify what Scott (McNealy) said last week," she said, "we would consider making changes in spending, if necessary, with the goal of achieving consistent profitability."
Sun officials virtually laid the groundwork for at least some disappointment during a mid-quarter update in August. CFO Steve McGowan said revenue would come in 10 percent to 15 percent below the $3.4 billion Sun took in during its 2002 fourth quarter, which ended in July.
That quarter brought some of the first good news regarding Sun's bottom line in nearly a year, as the company posted earnings of 1 cent a share, or $20 million. Those good tidings were quickly dashed when McGowan added that Sun would see a "slight loss" during its first quarter.
Sun later revised its fourth-quarter figures to show earnings of 2 cents a share, or $61 million.
Analysts surveyed by Thomson First Call expect a loss of 4 cents a share for the period ended Sept. 30, which was the company's first quarter of 2003.
Sun also will probably face questions regarding a charge of up to $2.2 billion it expects to take later in the year. Sun revealed plans for the acquisitions-related charge in its 2002 annual report, saying that the charge may be necessary if the company's market value does not climb back to its April level of $29.1 billion. On Sept. 30, Sun's market value was about $8.4 billion.
Unless Sun's stock price does a dramatic turnaround, it appears the company will be taking that charge. When the company reported its fourth-quarter figures on July18, its stock had closed at $5.80. Since then, the stock fell to a 52-week low of $2.34 on Oct. 7. It has rebounded a bit, trading at $2.79 at midday Wednesday.
"Our quality of earnings rating (on Sun) declined from last quarter," said Rebecca Runkle of Morgan Stanley. "We expect management to announce actions that could improve financial performance going forward."
Analysts also say Sun will also need to give some insight into its acceptance of open-standard computing platforms. On Monday, Sun said it would partner with IBM (IBM: news, chart, profile), Veritas (VRTS: news, chart, profile), and Hitachi (HIT: news, chart, profile) to promote open-standard technology that allows different computing platforms to work together in data-storage networks. See full story.
Still, Milunovich of Merrill Lynch said that, because of Sun's continuing dependence on its own Sparc and Solaris technology platforms, the company needs to do more to ensure it doesn't become a niche player in the high-end computing market.
"Sun risks becoming the Apple (AAPL: news, chart, profile) of corporate computing -- cool but less relevant," Milunovich said. "McNealy must act to get Sun into the black."
Rex Crum is a reporter for CBS
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