Futures Rally on Bailout Optimism
Futures rallied despite disappointing results from both Citigroup and Bank of America Friday, with investors hoping the government will do all in its power to save big institutions from collapsing following news of a bailout for Bank of America.
Banks have dragged down markets all over the world because of renewed fears of more losses in the battered sector, which after the freeze of the wholesale credit markets over the past year and a half is now suffering because of the global economic downturn as well.
But Citi's shares gained more than 11 percent in premarket trading while Bank of America rose about 10 percent amid the bailout hopes.
Dow futures were indicating a gain of about 1.6 percent at the open, while the Nasdaq was showing a 1.3 percent gain and the S&P 1.7 percent.
Bank of America obtained a $20 billion bailout and a guarantee for almost $100 billion of potential losses on toxic assets because of a deteriorating balance sheet at Merrill Lynch.
The bailout makes Bank of America the biggest recipient of taxpayer money next to Citigroup.
Bank of America's results disappointed in the fourth quarter, as it posted a loss of 48 cents per share compared with consensus estimates for a small profit of 8 cents per share.
The bank's full-year 2008 profit was $4.01 billion, sharply down from a net income of $14.98 billion a year earlier. Bank of America reduced its dividend to 1 penny per share.
Citigroup reported a quarterly loss much wider than expected and said it would reorganize into two different units, separating its banks from the risky assets on its books.
Citi reported a fourth-quarter net loss of $8.29 billion, or $1.72 a share. On average analysts polled by Thomson were predicting a loss of $1.31 a share.
More good news for fans of bailouts came as the Senate rejected a bid to block the release of the second half of a $700 billion bailout program, handing an early political victory to President-elect Barack Obama.
Also in the sector, Swiss bank UBS gained nearly 1 percent as it agreed to sell the trading books of some of its commodities business to Barclays , which fell 6.5 percent premarket.
Other corporate news was generally bleak, as Intel earnings fell because of weak PC sales and the chip maker tempered its outlook for the current quarter. But the result actually met expectations, and shares were nearly 4 percent higher premarket.
Mobile phone maker Sony Ericsson posted a much-bigger-than-expected fourth-quarter loss and announced plans for additional cost savings.
Auto parts marker Johnson Controls reported a larger-than-expected loss as production volumes fell, and the company predicted more of the same ahead. Shares fell more than 6 percent premarket.
And Toyota said late on Thursday it would reduce production at several North American plants over the next few months trying to cut its vehicle inventory in half.
Shares of Dow components Procter & Gamble and Kraft Foods both gained premarket after the companies announced the amicable settlement of a lawsuit.
P&G had alleged that Kraft violated a patent regarding the Maxwell House coffee plastic container. Terms of the settlement were not disclosed. Kraft gained 1.9 percent while P&G rose about 0.5 percent.
Major Asian markets were in the green, while European shares snapped a seven-session losing run in morning trade.