The Week: Banks, Techs Make Their Case
Big banks topped this week's investing news as they continued to fight their way through the subprime mortgage mess. For some, like JPMorgan Chase and Citigroup , which both reported earnings this week, it meant
That was both a good and bad thing. While those writedowns meant, obviously, that bank portfolios and balance sheets were taking hits, they also raised hopes among traders that Wall Street was putting the worst of the credit crunch behind it.
(For a full rundown of the week's events and associated investment advice, watch the accompanying video).
JPMorgan Chase said Wednesday that quarterly profit fell by half, although shares rose as the third-largest bank avoided the kind of massive losses that crippled many of its rivals. The bank absorbed more than $5 billion of losses and write-downs tied to mortgages and broken-down corporate credit markets.
(Video: Richard Bove, Byron Wien and Jack Welch react to JPMorgan earnings)
Nevertheless those losses were less dramatic than those of rivals such as Citigroup, which posted its second straight quarterly loss, hurt by more than $16 billion of write-downs and costs related to credit losses, and said it will cut another 9,000 jobs.
Though the $5.11 billion first-quarter loss was larger than expected, analysts and investors expressed optimism that the largest U.S. bank and its new chief executive, Vikram Pandit, were taking necessary steps to move past credit problems and drive down costs.
Citigroup shares rose sharply Friday in reaction to the news.
Meanwhile, Merrill Lynch & Co. , the world's largest brokerage, also saw it's stock price rise Thursday in spite of saying it would cut another 3,000 jobs after more than $6.5 billion of fresh write-downs pushed it to a loss for the first quarter.
It marks the third straight quarterly loss for Merrill amid a global credit crisis that began last summer. Banks and brokerages have racked up nearly $200 billion of write-downs to date, with more feared to come.
(Video: David Katz of Matrix Asset Advisors dissects Merrill's steep Q1 loss)
John Thain, hired as chief executive four months ago to clean up the firm's books, cautioned that things were unlikely to improve in the next couple quarters. The New York-based brokerage lost about $2 billion during the most recent quarter, and has now written off about $29 billion worth of risky asset-backed securities and leveraged loans.
A Tale of Two Economies?
The week's economic data showed the pain from subprime is lingering in the economy as well.
U.S. producer prices advanced by a more-than-expected 1.1 percent in March after energy costs jumped, Labor Department data showed, but core inflation at the producer level was more subdued.
Consumer inflation pushed higher in March after remaining flat in the prior month. Overall prices rose 0.3 pct, while core inflation, which strips out volatile food and energy prices, rose 0.2 pct in March, in line with forecasts of economists polled by Thomson's IFR Markets.
Overall inflation is up an unadjusted 4.0 percent in the year ending in March, matching the 12 months through February, but slightly off the two-year high of January. Core inflation is up an unadjusted 2.4 percent over the last 12 months.
Jared Bernstein of the Economic Policy Institute said he finds some comfort in the CPI numbers, but warned CNBC's Steve Liesman that there's more to consider for consumers.
"If you look at 3-month annualized change, which in some ways the most relevant, up-to-date measure, the three-month annual core CPI is 2 percent right at Fed's," Bernstein said.
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