Trader Talk

The Pounding Of The Pound


The British pound fell to its lowest level against the dollar since 2001 on continuing fears that UK banks would need to raise more capital and are facing massive dilution from investments by the UK government.

Royal Bank of Scotland , for example, has essentially been nationalized in the eyes of traders, since the UK government has increased its stake to about 70 percent.

Big British banks, which did not trade in the U.S. yesterday, are down notably, as are European banks, which are trading down double-digits.

The dollar is rallying big-time, and commodities are down again: oil down 6 percent, gasoline down 5 percent, copper down 2 percent. Today is an expiration day for oil.

Commodity stocks are trading down mid-single digits.


1) Institutional asset manager State Street State Street down 37 percent pre-open, as earnings were below expectations, and there is fear they may need to raise additional capital. The main cause for the weakness is 2009 guidance that earning would be flat, below the company's long-term goal of 10 to 15 percent growth.

NOTE this update/correction: State Street down 37 percent pre-open, as earnings were ABOVE expectations.

2) Regions Financial , one of the large southeastern (Alabama-based) banks, down 11 percent pre-open as they reported a loss of $0.35, vs. consensus expectations of a loss of $0.08, but it was worse than that. Fully diluted earnings per share was a loss of $9.01 due to a $6 billion non-cash charge for impairment of goodwill. Goodwill is excess of purchase price over fair market value of purchases (they bought Union Planters and AmSouth, remember).

3) J&J beats expectations ($0.94 vs. $0.92 expected), and gave 2009 guidance of $4.45-$4.55, but backing out 3 to 5 cents for the Mentor merger we get $4.48-$4.58 (for 3 cents), still below the $4.60 the Street was expecting. Given the uncertainty, that is close enough.

4) How far have assets dropped? Two examples today:

a) Citigroup said it will be selling its Japanese retail brokerage operation, Nikko Cordial, only one year after it acquired the company for $17.7 billion. Citi's market cap at the close Friday was $19 billion. The reason for the sale: once Smith Barney was being spun off, Nikko was the only major brokerage group within the group.

b) Fiat reportedly getting a 35 percent stake in Chrysler--for no money!



Questions?  Comments?