Trader Talk

Have Loan Losses Peaked for European Banks?

Cautiously optimistic comments from two British banks this morning: HSBC earnings were better than expected and the tone of the report was upbeat, with bad loans down. Barclays (BCS) said it expects loan losses to peak in the first quarter of 2010.

These may be two of the winners emerging in Europe; unlike Lloyds and Royal Bank of Scotland, neither took government money.


1) AIG up 7 percent as Moody's said the insurer may be able to repay its Federal Reserve credit line and "much or all" of the Treasury Department's investment if financial markets stabilize.

2) Fluor falls 6 percent after disappointing earnings and guidance. The oil and gas segment, which makes up just over half of the firm's revenues, remained weak (revenues down 11 percent) as oil companies have been curtailing their operations. This was offset by strength in its industrial and infrastructure operations (revenues up 26 percent) and its government division (revenues up 47 percent).

The engineering firm reduced its full-year earnings outlook to $3.75-$3.90 from $3.80-$4.10 (vs. $3.84 est.) due to project cancellations, reductions, and delays. It also remains cautious on 2010, projecting earnings between $3.20-$3.60 - mostly below estimates of $3.58.

3) Beazer Homes is up 9 percent pre-open after returning to profitability for the first time in over a year thanks to gains related to repurchasing of some of its debt. The number of orders increased 2.4 percent from last year as more affordable home prices, low mortgage rates, and the first-time homebuyer tax credit made purchasing attractive.

CEO Ian McCarthy cautions that it remains "difficult to predict when and to what extent the housing market will sustainably recover" due to high unemployment and foreclosures.

4) Sprint is down 2 percent after announcing plans to cut 2,000 to 2,500 jobs (5 percent to 6 percent of workforce) this quarter which would help save the telecommunications firm $350 million a year. 



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