Gold Loses Some Luster And Street Giddy Over Visa Inc IPO
Gold lost some of its luster today after U.S. Treasury Under Secretary David McCormick gave support to the idea of International Monetary Fund gold sales.
Earlier today, the Treasury, in a turnaround, said it would support gold sales from the IMF's reserves if they are part of a package reforming the way the organization operates. McCormick said timing for the sales or when such a plan would be taken to Congress was not yet determined. April gold finished down $7.30 at $940.50 an ounce on NYMEX.
The Bush Administration would support a sale of the about 8 percent of the reserves or 12.9 million ounces, to fund an endowment that would produce income to support IMF operations. The administration wants cost cutting and a change in the IMF's mission which would put greater emphasis on surveillance and financial stability and less on lending.
Brown Brothers Harriman, in a note, said gold fell on the news "which also corresponded to the slightly better than expected existing home sales in the U.S. and a bounce in the U.S. dollar."
Goldman Sachs , its own stock the topic of a Wall Street Journal column today, cut estimates on several Wall Street firms today. Goldman predicted first quarter writedowns of $1 billion to $12 billion for each of the firms it follows. In the note, Goldman said mortgage related assets continued to decline in value. It also expects the write downs to spread from subprime and CDOs to leveraged loans, all aspects of residential mortgage securities and commercial mortgage backed-securities.
Goldman said "investment banking activity levels also dries up noticeably due to weakness in these markets. Franchise trading businesses were one of the few bright spots in the quarter as clients remain very active."
Goldman cut Bear Stearns' first quarter estimate to $0.55 per share, from $2.16. Citigroup was cut to $01.5 per share from $0.40, and JP Morgan was reduced to $0.70 from $0.96 per share. Merrill was slashed to $0.25 per share from $0.90, and Morgan Stanley was trimmed to $1.25 per share from $1.65 per share. Wall Street firms, like Bear and Goldman, shut the books on their first quarter this Friday.
Goldman was the focus of a Wall Street Journal article that said Goldman's first quarter could be its smallest quarterly profit in three years. The paper said Goldman could be impacted by leveraged loan exposure and a slowdown in investment banking activity.
The Street gets a little giddy when a substantial IPO makes it to the calendar, and today was no different. The long-anticipated Visa Incoffering is for 406 million class A shares at $37 to $42 each, for proceeds of $15 billion to $17.1 billion. Visa also said it may extend the offer if demand is strong. The offering could be the largest ever for a U.S. company.
There was some question as to why Visa would enter the market now as the U.S. economy looks shaky, the consumer is pulling back and the crunch on credit continues. But Visa is not directly exposed to rising defaults in the credit card industry because it doesn't issue cards, unlike American Express.
Sal Catrini, senior managing director at Bear Stearns, spoke about the IPO market on "Squawk on the Street" today. He did not speak specifically about Visa, but he did say the market likes new offers.
"Good companies are getting financed. Over the last couple of months..I've looked and it looks like at least 11 ipos are trading down in the U.S. but 20 are trading up. The ipo market is definitively becoming discontinuing. So if people like the company, they are going to buy into it," he said.
I spoke to Catrini later. He noted that U.S. new issues may also be relatively more attractive as some recent new issues in China and India are getting "dicey."
"In these types of times for the market, people want new ideas and newly capitalized companies," he said. "That could help the ipo market."
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