Thursday will be a big day for European earnings, with heavyweights like Credit Suisse, Fiat and ABB set to hit the tape.
Fiat– End of the Road for Growth?
There is no denying Fiat boss Sergio Marchione has done a great job getting the Italian auto giant back on track. He's cut costs and made production more efficient, but the market—which he described as "horrible" earlier this month—may make things more difficult despite virtually no exposure to the U.S. market.
European new car registrations fell 1.7 percent in March, adding to the selling pressure on Fiat's share price, which after big gains in recent years is underperforming the sector in 2008 by 26 percent. Despite signs things are getting more difficult, Morgan Stanley and Merrill Lynch both see upside for the stock, with price targets of €19 and €21 a share, respectively, versus a current share price of below €13.2.
Most expect Marchione to stick by his 2008 guidance, but if he's become more bearish, those calls from the US investment banks could begin to look overly ambitious.
ABB – Who's in Charge?
If you had bought into the Swiss-listed engineering giant 5 years ago, you would now be sitting on a 794 percent profit and been thankful for CEO Fred Kindle's astute stewardship of the company. The ABB board in February decided they were not quite so thankful, and forced Kindle out amid speculation that he refused to spend the group's huge cash pile on big acquisitions.
ABB profits are seen 43 percent higher tomorrow, and despite concerns, a global slowdown could lead to lower growth as the year progresses. The big questions that remain: Who will replace Kindle? And will that person use the $5.4 billion of cash on the firm’s books at the end of the last year to pull off a big deal?
Analysts at Societe Generale in Paris believe a bid for French rivals Legrand or Schneider is well within ABB’s means, while U.S.-based firms like Emerson or Eaton could also be targets. A new CEO debuting at ABB tomorrow could spark moves among the shares of all those firms.
Credit Suisse – Anything You Can Do, I Can Do Better?
UBS on Wednesday was forced to scale back its ambitions in investment banking, from something akin to "we will be the world’s number one," to a recently revised "growth must fund itself." A full $38 billion in subprime losses will humble even the most aggressive bankers, but how will UBS’ arch rival Credit Suisse fare when it updates on the first quarter tomorrow?
So far we have seen writedowns of $5.8 billion, but analysts believe that number will rise tomorrow. The size of any writedowns will make the headlines, but bad news in areas like wealth management and investment banking could give a better indication of where this bank is heading.
JP Morgan believes investment banking returns for much of the industry have fallen significantly since the beginning of March. Growth at the wealth management division could also be under pressure as fee income falls in line with client asset losses.
One option for Credit Suisse to help shore up its balance sheet should its losses rise would be to sell some of the $35 billion worth of buyout loans it has on its books. Rivals Deutsche Bank and Citigroup have made similar moves recently. Management could also please investors by cutting costs with more job cuts expected on top of the 820 that have taken place in investment banking since September.
Guy Johnson will be live from Credit Suisse’s headquarters tomorrow on CNBC Europe.