Morgan Stanley rallies, analysts defend on France

Morgan Stanley rallies, analysts defend on France

Stock Market Predictions

(Global Markets) - Morgan Stanley (MS.N) shares rallied on Friday, despite continued weakness in global markets, as analysts said that fears about its exposure to French banks were overblown and that the bank was prepared to manage risk.

At midday the stock had given up some early gains but was still up 3.7 percent, far outstripping the broader market. In the previous five trading sessions, the bank lost more than 21 percent of its value, reducing its market capitalization by more than $6.8 billion.

Other financial stocks also rose, after days of being slammed by the weak financial outlook and market malaise.

The KBW Bank Index .BKX rose 1.5 percent, led by a nearly 3.8 percent gain for Bank of America Corp (BAC.N). Most members of the broker-dealer index .XBD also rallied, led by Morgan Stanley and by a 4.3 percent gain for Jefferies Group Inc (JEF.N).

But even with the rally, there were signs the market was still not fully confident in Morgan Stanley's strength.

The cost to insure Morgan Stanley's debt in the credit default swap market jumped on Friday even as swaps on other U.S. banks came off their highs, with the cost to insure the company's bonds rising above that of Bank of America bonds for the first time since late August.

CDS costs to insure Morgan Stanley's bonds for five years were last up 39 basis points to 438 basis points, the highest level since March 2009, according to Markit. That means it would cost $438,000 per year to insure $10 million in debt for five years.

FRENCH FEARS

Like many other banks, Morgan Stanley has been hurt by fears of weak third-quarter performance, a gloomy economic outlook and a Federal Reserve plan to lower long-term interest rates that could compress margins.

The pressure increased Thursday with a post on the well-known finance blog "Zero Hedge" that said Morgan Stanley was at serious risk because of its exposure to French banks.

The blog said Morgan Stanley's French exposure was greater than its market capitalization and about two-thirds of its entire book value. French banks are some of the biggest victims of the panic in recent weeks about Greek debt and the effect a default would have on Europe.

Wall Street analysts were quick to rush to Morgan Stanley's defense. Bernstein Research's Brad Hintz -- himself a former treasurer of the company -- said Friday that Morgan Stanley's total exposure to France was probably less than $2 billion.

"We believe Morgan Stanley's risk management staff and its trading units are fully aware of the highly publicized risks emanating from Europe and warnings about the firm's potential exposure to a European Sovereign crisis," Hintz said in a note. "There is solid evidence that shows Morgan Stanley has been taking action to limit risk in preparation for potentially difficult market conditions ahead."

The Wall Street Journal reported that Credit Suisse also defended Morgan Stanley's French position in a note late Thursday, saying any risk to the bank in the euro zone was not a surprise and would be manageable.

The market also shrugged off an estimate change on Morgan Stanley. JMP Securities analyst David Trone cut his third-quarter profit forecast by 10 percent on expected losses in the bank's bond portfolio.

(Reporting by Ben Berkowitz in New York, additional reporting by Karen Brettell; Editing by Gerald E. McCormick and John Wallace)

Read More

VOC Energy Trust up in NYSE debut

VOC Energy Trust up in NYSE debut

Stock Market Predictions

NEW YORK (Global Markets) - Shares of VOC Energy Trust (VOC.N), which invests in oil and natural gas production in Kansas and Texas, rose in their debut on the New York Stock Exchange on Thursday after the initial public offering priced at the top of the proposed range.

Shares were at $22, or 4.8 percent above their IPO price in early trade on the New York Stock Exchange.

VOC Energy Trust raised $232.8 million in the IPO on Wednesday, selling 11.09 million trust units for $21 each. It had planned to sell the units for $19 to $21 each.

The trust was formed by VOC Sponsor, a privately held limited partnership. The Delaware statutory trust is expected to own a term net profit interest in the limited partnership's exposure to the oil and gas production in the two states, receiving 80 percent of the net proceeds.

Net proceeds will be used to repay debt, buy back some outstanding equity interests and pay cash distributions. The trust also plans to pay cash distributions to unitholders, expected to start on August 15.

Raymond James and Morgan Stanley led underwriters on the IPO.

(Reporting by Alina Selyukh, editing by Gerald E. McCormick)

Read More

Amazon downgraded by Morgan Stanley; shares fall

Amazon downgraded by Morgan Stanley; shares fall

Stock Market Predictions

SAN FRANCISCO (Global Markets) - Amazon.com Inc shares were downgraded by Morgan Stanley analysts on Thursday on concern about competition from Apple Inc and slowing sales growth.

Analysts led by Scott Devitt lowered their rating on Amazon shares to "equal weight" from "overweight." Amazon's shares fell 4.1 percent to $176.97 in morning trading.

(Reporting By Alistair Barr; Editing by Maureen Bavdek)

Read More

Morgan Stanley falls hard on concerns about Europe

Morgan Stanley falls hard on concerns about Europe

Stock Market Predictions

NEW YORK (Global Markets) - Morgan Stanley (MS.N) shares fell 10.5 percent on Friday, far more than comparable financial stocks, on concerns about its exposure to European banks.

The shares of the second-largest U.S. investment bank closed at $13.50, a penny above its intraday low.

Other large bank and brokerage stocks also fell, but not nearly as much. Chief rival Goldman Sachs Group Inc (GS.N) dropped 5.3 percent to $94.55, with larger U.S. banks down 3.5 percent to 4.8 percent. The NYSE Arca Securities Broker/Dealer Index, which includes Morgan Stanley, fell 4.7 percent.

"Investors are still worried about Morgan Stanley's exposure to Europe and that's going to weigh on the stock," said Derek Pilecki, founder of Tampa, Florida-based Gator Capital Management, which operates long-short equity strategies in financial stocks. "I think this will pass, but it may take some time."

Morgan Stanley shares hit their lowest since December 2008 last week after finance blog Zero Hedge reported the bank was at risk because of its exposure to French banks.

Morgan Stanley has zero net exposure to France, including French sovereign debt and French banks, a source familiar with the matter said on Friday.

Nonetheless, investors appeared to be reacting to fears in the credit markets related to Morgan Stanley.

The cost of insuring $10 million worth of the bank's five-year bonds against default spiked to $470,000 on Friday, almost three times what it was on June 30.

Morgan Stanley credit default swaps were more expensive than Italian banks Monte dei Peschi and Unicredit SpA CRDIN.UL, as well as French banks Credit Agricole CAGRCO.UL and BNP Paribas SA (BNPP.PA), said Otis Casey, director of credit research at Markit. Its swaps were also pricier than Bank of America Corp (BAC.N), the largest U.S. bank, which has been plagued by investor concerns about its legal liabilities.

"Morgan Stanley CDS are among the widest of its U.S. peers in CDS trading and significantly wider than French banks," said Casey. "In part, it's hurt by perception because the markets are jittery."

A higher swap price indicates the market perceives a higher risk.

Credit default swaps are very thinly traded compared to equities, but many stock investors still view the product as an important measure of risk because they portended problems leading up to the financial crisis.

Walter Todd, a portfolio manager at Greenwood Capital whose fund holds 106,000 shares of Morgan Stanley, expressed frustration at the impact that credit default swaps appeared to have on Morgan Stanley shares.

There was no specific information to cause the stock to fall so sharply on Friday, he said, noting investors who do not own Morgan Stanley bonds can make speculative bets by buying credit default swaps, while also shorting its equity.

"It's like seeing an overweight person walking down the street, buying a life insurance policy on him, then buying a gun and shooting him," said Todd.

Morgan Stanley's stock was down on Friday on heavy volume, with 51.3 million shares changing hands, 76 percent more than its 50-day average of 29.2 million shares. It was the fifth most actively traded stock on the New York Stock Exchange.

Morgan Stanley is likely to offer detailed information about its European exposure when it reports third-quarter results next month, analysts said, but other factors have also been weighing on large bank stocks.

Wall Street has cut its earnings expectations for large U.S. banks sharply through 2012 due to declining asset values, low interest rates and a weak business environment.

Analysts now expect Morgan Stanley to report third-quarter earnings per share of 36 cents, on average, according to Thomson Global Markets I/B/E/S, down from 47 cents a month ago. They also cut estimates for the fourth quarter and for 2012 by 16 percent and 10 percent, respectively. Goldman has received even sharper estimate cuts.

(Reporting by Lauren Tara LaCapra; editing by Robert MacMillan and Andre Grenon)

Read More

Morgan Stanley cuts Google on margin worries

Morgan Stanley cuts Google on margin worries

Stock Market Predictions

(Global Markets) - Morgan Stanley downgraded Google Inc (GOOG.O) a notch to "equal-weight," saying the search giant's margins will shrink as it undertakes aggressive hiring and ramps up advertising for new products.

"Given Google's aggressive hiring plans, rising compensation expense, and significant advertising spend on Chrome and other Google products, we expect EBITDA margin to decline in 2011 and 2012," Morgan Stanley analyst Scott Devitt said in a note.

Devitt also raised doubts over the ability of the company's newer businesses, such as DoubleClick, Android Market and YouTube, to add to its revenues.

"We see lots of promise from Google's display/mobile/apps businesses, but we believe the consensus incorrectly attributes upside to those businesses and therefore may be overestimating their contribution in future periods," said the analyst, who slashed his target price on the company's stock to $600 from $645.

Shares of the company were down 2.5 percent at $533.12 in morning trading on Nasdaq. They earlier touched a low of $531.24.

(Reporting by Himank Sharma in Bangalore; Editing by Viraj Nair)

Read More

Profitless Pandora pricks the tech bubble

Profitless Pandora pricks the tech bubble

Stock Market Predictions

NEW YORK (Global Markets) - It had all the signs of another dotcom bubble: A start-up without a convincing business plan or any foreseeable chance of turning a profit saw its shares soar in the first hours after its stock market debut.

The difference this time -- one that cost some investors money but provided a measure of relief to anyone worried about an overheated IPO market -- is that shares of Pandora Media Inc quickly went south.

Two days after Pandora's stock debuted, it had handed back all its gains and was down nearly 20 percent from its IPO price of $16. While Pandora raised $235 million in its offering, any of the investors that bought shares at the IPO price or higher are now suffering losses -- a tough lesson in jumping into the dicey IPO market.

And Silicon Valley seems just fine with that. Not due to Schadenfreude within the venture capital and start-up worlds, although surely some exists, but rather because it demonstrated sanity in the markets.

"Pandora showed that if you're still trying to figure out your business model and you go public, then the market is going to call you out on it," said Bruce Taragin, managing director of Blumberg Capital. "I'm pleased there's no irrational fervor in the marketplace."

Pandora, an online music service, is not alone. Its rise and fall just happened at a stunning speed.

Shares of LinkedIn Corp and China's Renren Inc, social networks that debuted in May, also reversed course after strong debuts. It just took them a bit longer. Today, LinkedIn is still above its IPO price but is down 45 percent from its highs, while Renren has lost half of its value since its IPO.

For the Chinese Internet companies there has been a double dose of bad sentiment to deal with. A series of accounting scandals at Chinese companies listed in North America has led to a loss of confidence in the sector generally.

Josef Schuster, founder of Chicago-based IPO research and investment house IPOX Schuster LLC, said the pullback from Pandora and others is "a healing process" that should help the technology IPO market in the months to come.

NO PROFIT? STAY HOME

Indeed, the road ahead looks quite crowded for technology start-ups that want to go public. But for now it may be too early for judgment since only a clutch have made their public debut.

"Right now it's just a handful of companies," said Eric Hippeau, a partner at Lerer Ventures. "It's not the best way to indicate where the market is going."

That should change in the coming months. Groupon has filed for an IPO, while Zynga and Twitter could also announce IPO plans. Facebook would be the most anticipated, considering it has 500 million users and this year could produce what one researcher estimated would be $4 billion in ad revenue.

"For the market as a whole it's actually going to be quite good," Schuster said of the Pandora debut. "You will see Groupon being much cheaper, you will see Zynga being much cheaper. I think it's going to have a big influence on the Facebook valuation as well."

The trouble with Groupon and many others lining up for IPOs is that they aren't turning profits. Groupon posted an operating loss of $117 million in the first three months of the year. In its IPO filing, Chief Executive Andrew Mason said the company does not value itself in a conventional manner and suggests other ways of looking at how much Groupon is worth.

Pandora, for its part, has never turned an annual profit.

"What we thought before when you couldn't do an IPO is still true: If you are losing money, don't go public," said Todd Dagres, general partner at Spark Capital.

The question is whether Pandora will serve as a cautionary tale for super-hyped start-ups and those investors willing to overlook doubtful business plans to get a piece of the action.

"Everybody wants to invest in Facebook but they can't," said Dagres, citing a "halo effect" surrounding social and new media. "Other companies are riding that wave that are not leaders in the category and don't have long-term advantages. The reason is because there is a premium for growth."

Perhaps the rush to sell shares to the public and raise money is sensible, considering how much uncertainty surrounds the housing markets, employment and fears about debt troubles at home and abroad.

"Now is a great time to raise money, A lot of times smart entrepreneurs are raising perhaps a little bit more than they think they need because they recognize that it may not last forever," said Paul Buchheit, a partner at start-up accelerator Y Combinator and former Google engineer.

"I'm not worried about a tech bubble. I'm worried that the entire economy may be a bubble," he added.

Others, of course, say the IPO market is on solid footing and that much of what happened with Pandora is a pricing issue that will be sorted out with public offerings over the coming three to six months.

"I don't feel we're in a bubble, I feel that strongly," said Sandy Miller, general partner at Institutional Venture Partners, an investor in Twitter and Zynga. "We're in the early stages of an IPO market, which I think will be sustainable for some period of time."

In a sign of how much market sentiment has shifted in only a few months it is worth recalling the complaints from one executive that Morgan Stanley had underpriced his company's offering.

Li Guoqing, the chief executive of E-Commerce China Dangdang in January ranted publicly on a Chinese Twitter-equivalent that he thought Morgan Stanley had priced the shares of his company too low.

"I regret not giving the share offer to Goldman Sachs," Dangdang's Li wrote on the Weibo microblogging site. "I'm openly criticizing investment banks, including Morgan Stanley."

Dangdang's shares, which shot up 87 percent on their first day of trading are now at $11.50 -- which puts them 28 percent below the IPO price that Li complained about.

(Additional reporting by Alexei Oreskovic and Sarah McBride in San Francisco, Liana B. Baker in New York; writing by Paul Thomasch; editing by Gary Hill, Martin Howell)

Read More

Banks, brokers plunge as Twist reality sinks in

Banks, brokers plunge as Twist reality sinks in

Stock Market Predictions

NEW YORK (Global Markets) - Shares in Citigroup, Morgan Stanley and other big banks fell to their lowest levels in more than two-and-a-half years over growing concerns about their profitability in a deteriorating global economy.

Wednesday's bleak economic outlook from the Federal Reserve, combined with its plan to lower long-term interest rates, raised fears that banks and brokerages are at risk for a prolonged period of depressed earnings.

The Fed's aim with Operation Twist is to make credit cheaper for consumers, thereby stimulating borrowing and the economy. The problem is that banks and brokerage firms generally borrow short-term and lend long-term, meaning that if Twist works they are squeezed.

"Nearly every line is being marked down from our prior forecasts, which were not particularly optimistic to begin with," Barclays banking analyst Roger Freeman said in a note on Thursday.

In afternoon trading, Goldman Sachs shares fell 5.5 percent to $92.48, their lowest level in two-and-a-half years. On Wednesday the stock closed below $100 for the first time since March 2009.

Morgan Stanley shares were down 6.3 percent to $12.95, at one point touching their lowest level since December 2008. Since its mid-February peak, the stock has lost 59 percent of its value.

Goldman has fared a little bit better, but not much. The stock is down 13 percent in the last five sessions and down 44 percent from its mid-January peak.

Banks have been hammered in recent weeks by deepening fears about slowing markets. Barclays analysts said on Thursday they expect Goldman to report a third-quarter loss, the second in its history.

Broader markets sank as well, with the Dow down 373 points at mid-afternoon. Shares in Citi fell 7.1 percent to a March 2009 low, and J.P. Morgan Chase dropped 4.7 percent to an April 2009 low. Bank of America fell 5 percent and Wells Fargo dropped 2.7 percent.

IN THE LINE OF FIRE

Brokers may fare little better, analysts said. Many brokers are having to waive fees on mutual funds, given their limited returns, while others are also getting hurt by a squeeze on margin lending.

"Generally speaking, earnings growth for (brokers) is at risk to a prolonged, low-rate environment," Bernstein Research analyst Brad Hintz said on Thursday.

Hintz singled out three names at risk -- Charles Schwab, TD Ameritrade and LPL -- and cut 2012 earnings estimates for all three by at least 10 percent.

Schwab shares fell 2 percent in afternoon trading, while TD Ameritrade fell 1.1 percent and LPL dipped 0.8 percent.

Banks and brokers are not the only ones that are going to suffer the effects of Twist. Insurance companies and pension funds are also in the line of fire.

Life insurers rely on strong rates of return to meet their long-term obligations, both to insurance customers and to retirees who rely on annuities for income. Some actuaries say insurers may have to rethink their business models if rates stay low for years.

The nation's largest pension funds, already being battered by equity market weakness, will also be hurt by persistently low bond yields. The 100 largest pension plans already face an asset shortfall relative to obligations, which could get much worse in the next two years.

One brighter spot -- or at least a less-dark spot -- may be retail banks such as Bank of America and Wells Fargo, among others. Though they have lamented the low-interest-rate environment like everyone else, analysts say their profile puts them at somewhat less risk.

"Where banks live is the 2-to-5-year period. The margin isn't driven primarily by the long end of the curve," said Jefferson Harralson, bank analyst with Keefe, Bruyette & Woods.

But even so, Harralson said, "the overall rate environment is a really tough one right now, and if you layer Operation Twist on top of that, it becomes tough to make decent spreads."

(Reporting by Ben Berkowitz in New York; Additional reporting by Joe Rauch in Charlotte; Editing by John Wallace and Tim Dobbyn)

Read More

Investors brace for European hit on earnings

Investors brace for European hit on earnings

Stock Market Predictions

NEW YORK (Global Markets) - Investors are about to find out if the economic woes in Europe are going to deliver a deep wound to U.S. company earnings instead of the mere scratch that many expect.

The fourth-quarter reporting period kicks off next week, and all eyes will be on erosion in sales in Europe, where the debt crisis has propelled the region toward a recession. This could dent positive sentiment just as investors start to focus on strong U.S. growth.

Analysts believe that low U.S. stock market valuations already factor in weakness from Europe for the fourth quarter, but there are concerns that earnings forecasts for 2012 have yet to account for deeper fallout.

"There's some unhealthy optimism that thinks somehow the U.S. can decouple from the rest of the world," said Shawn Hackett, president at Hackett Financial Advisors in Boynton Beach, Florida. "That is highly unlikely."

Companies including tech heavyweights Texas Instruments and Hewlett Packard and others like insurer MetLife have already cited fallout from Europe for reduced expectations. Analyst forecasts for fourth- and even first-quarter earnings have tumbled since the summer despite steady improvement in U.S. economic demand.

While all 10 S&P 500 sectors have seen profit estimates cut,

materials and financials have been the hardest hit. Other sectors that could get dragged down by Europe's problems include the industrial, consumer and technology sectors.

The overall S&P 500 forecast for fourth-quarter earnings growth has already been slashed, down to growth of 7.9 percent from 17.6 percent previously.

EUROPE'S STRUGGLE

Some 14 percent of all Standard & Poor's 500 company sales come from Europe, which would have a sure impact on results, said Standard & Poor's earnings analyst Howard Silverblatt.

"In earnings, when you're talking about pennies beating it or not, 14 percent of the number makes a difference."

The euro zone debt crisis has engulfed much of the continent as major institutions have found themselves exposed to debts in struggling nations such as Greece, Portugal, Italy and Spain. The latter two are the third- and fourth-largest economies in the euro zone and are struggling to reduce debt through severe spending cuts and higher taxes.

These problems are affecting economic growth. Italy grew just 0.2 percent in the third quarter from the previous year. Economists in a December Global Markets poll forecast the euro zone will contract by 0.3 percent in the fourth quarter, followed by a further 0.2 percent contraction in January-March, before a meager recovery in subsequent quarters.

Global companies with more than 50 percent of their sales in Europe and with a market cap greater than $5 billion underperformed other major averages in 2011, according to Thomson Global Markets data.

An index of 161 names meeting that criteria lost 13 percent in 2011, compared with a 5 percent drop for the MSCI World Index. Cisco Systems, which gets 56 percent of sales from Europe, is the largest U.S. name in this group.

Many other U.S. companies have less exposure to Europe than Cisco, but still generate a substantial portion of their sales - 20 to 30 percent - there. In these cases, it would take a more severe recession to hurt their revenues.

In a report on Thursday examining a number of industrial equipment companies, Morgan Stanley analysts pointed out that many executives were "cautiously optimistic" with expectations for a mild recession in Europe. Companies in that industry are expecting 4 to 6 percent revenue growth in 2012, but Morgan Stanley said "short-term trends" suggest estimates could fall short of that if world growth slows.

Companies including Dover Corp and Illinois Tool Works would be hurt, they wrote. Dow component 3M would also be hit in a "deep recession" in Europe.

"If we're dealing with organic revenue growth, you're going to be seeing earnings declines," said Hackett.

"In some cases, in the more cyclical businesses, it could be very severe, and I do not believe the stock market has priced in what the likely reality is."

Google's stock on Thursday was downgraded by brokerage Benchmark Co, whose analysts expect Google to suffer a decline in European advertising revenue.

PROFITS EYED FOR REBOUND

A drumbeat of negative preannouncements is also raising some concerns.

The ratio of negative to positive preannouncements over the last four weeks is at 3.3, and it hit a 10-year high late in December. The long-term average is 2.3, according to Thomson Global Markets data.

"The number of companies issuing negative guidance during the fourth quarter has increased, and this perhaps has flown a little under the radar screen over the last few weeks in our judgment," Morgan Stanley analysts wrote in a 2012 outlook. The firm expects the S&P 500 to end 2012 at 1,167, which would be an 8.8 percent decline from the current level.

The euro zone's weakness has another detrimental effect. Strength in the dollar against the euro will increase headwinds for earnings, because it makes U.S. goods more expensive in Europe.

"Each 1 percent appreciation in the U.S. dollar corresponds to an expected 0.97 percent decline in aggregate earnings," Morgan Stanley wrote.

Still, many stock strategists are hoping healthy sales from the United States, where the economy is slowly improving, will more than offset the negative impact of Europe.

"Europe is clearly the caboose on the train...(but) I don't think the caboose is as bad as most people think it is," said Ken Fisher, a billionaire investor whose money management firm oversees $40 billion in assets.

"At a time when people have been fearful of a weak Europe, the economy in America has been consistently stronger than people have though it would be," he added.

Several blue-chip companies with heavy exposure to Europe performed well in 2011. McDonald's, for instance, derives 42 percent of its sales from Europe, and it was the Dow's best performer last year, rising 31 percent.

Kraft Foods generates 32 percent of sales in Europe, and its stock rose 19 percent in 2011. And Apple gets 26 percent, according to Thomson Global Markets data, and its stock was up 25.6 percent.

Those gains would be in danger if Europe's fundamentals worsen.

Big-cap multinationals have "become a bit of a darling here in the last couple of months...they're probably more vulnerable to disappointments," said James Dailey, portfolio manager of TEAM Asset Strategy Fund in Harrisburg, Pennsylvania.

(Reporting By Caroline Valetkevitch; Editing by Leslie Adler)

Read More

Moody's may downgrade UBS and Morgan Stanley

Moody's may downgrade UBS and Morgan Stanley

Stock Market Predictions

(Global Markets) - Moody's warned on Thursday it may cut the credit ratings of 17 global and 114 European financial institutions in another sign the impact of the euro zone government debt crisis is spreading throughout the global financial system.

It was reviewing the long-term ratings and standalone credit assessments of a range of banks, Moody's added. Markets were unaffected by the Moody's announcement.

"Capital markets firms are confronting evolving challenges, such as more fragile funding conditions, wider credit spreads, increased regulatory burdens and more difficult operating conditions," the ratings agency said in a statement.

It said among 17 banks and securities firms with global capital markets operations, it might cut the long-term credit rating of UBS, Credit Suisse and Morgan Stanley by as much as three notches following the review. It said the guidance was indicative.

Among the banks that might be downgraded by two notches are Barclays, BNP Paribas, Credit Agricole, Deutsche Bank, HSBC Holdings, and Goldman Sachs.

Bank of America and Nomura were included in those that might be downgraded by one notch.

The U.S. rating agency said in a separate statement its action on 114 financial institutions from 16 European nations reflected the impact of the debt crisis and deteriorating creditworthiness of its governments.

It cited more fragile funding conditions, increased regulatory burdens and a tougher economic environment for its review of banks and securities firms with global reach.

Moody's salvo follows rounds of downgrades in European sovereign ratings as the euro zone's struggle to keep its weakest link Greece afloat has been driving up borrowing costs and straining finances of other nations.

Last Monday, Moody's cut the ratings of six European nations including Italy, Spain and Portugal and warned it could strip France, Britain and Austria of their top-level AAA grade.

Standard & Poor's cut France's and Austria's top ratings and downgraded seven other euro zone nations last month. It also cut the euro zone's bailout fund by one notch.

Moody's on Thursday also downgraded the insurance financial strength ratings (IFSR) by one or two notches of several insurance companies, which it said related to their investment and operating exposures to Spain and Italy.

These included Unipol Assicurazioni SpA, Mapfre Global Risks, Assicurazioni Generali SpA and Allianz SpA. It affirmed the IFSR of Allianz SE, AXA SA, Aviva Plc and their subsidiaries, but cut the outlook on the rating to negative from stable.

VICIOUS CIRCLE

Asian shares and the euro were weaker on Thursday on concerns about another delay in cementing a bailout for Greece. Traders said markets didn't not show any specific reaction to the Moody's announcement.

In its review of European financial institutions, Moody's said that once completed, the ratings would "fully reflect the currently foreseen adverse credit drivers."

European banks' bond holdings of struggling euro zone nations Greece, Portugal, Ireland, Spain and Italy have trapped Europe in a vicious circle.

The falling value of the debt puts pressure on banks, which in turn weighs on lending and economic activity, making it tougher to sustain the growth that governments badly need to shore up their finances.

The biggest single group among the 114 institutions under review were headquartered in Italy, followed by Spain, with more than 20 each. Nine were headquartered in Britain, 10 in France and seven in Germany.

Moody's said nine of the 17 banks with global reach are included in the list of 114 financial institutions in Europe.

European Union leaders have been trying to put a financial "firewall" around the nations most afflicted by the euro zone debt crisis.

But jittery market sentiment suffered a fresh setback on Wednesday when several EU sources told Global Markets that the euro zone was considering a delay in parts of a second bailout plan for Greece.

Moody's said that for 99 European financial institutions, the standalone credit assessments have been placed on review for downgrade. For 109 institutions, the long-term debt and deposit ratings have been placed on review for downgrade.

For 66 institutions, the short-term ratings have been placed on review for downgrade.

(Additional reporting by Wayne Cole in Sydney: Writing by Tomasz Janowski and Neil Fullick; Editing by Ramya Venugopal)

Read More

Japan's MUFG converts Morgan Stanley shares

Japan's MUFG converts Morgan Stanley shares

Stock Market Predictions

NEW YORK (Global Markets) - Mitsubishi UFJ Financial Group (8306.T) raised its stake in Morgan Stanley (MS.N) to 22.4 percent by converting its preferred shares into common stock, saving the bank some $200 million in a dividend payment that would otherwise have been due in July.

Morgan Stanley said it would book a non-cash charge of $1.7 billion against second-quarter earnings as a result of the conversion, which was announced in April.

For Mitsubishi UFJ (MUFG), the deal will result in more than 200 billion yen ($2.48 billion) in profit in the April-June quarter, according to Japanese newspaper Nikkei.

The Japanese company's earnings are expected to get an estimated 80 billion yen boost from its share of Morgan Stanley's net profit, Nikkei reported. MUFG will also get an additional seat on Morgan Stanley's board.

Mitsubishi UFJ rode to the rescue of Morgan Stanley at the height of the financial crisis, buying $9 billion of convertible preferred shares from the investment bank in October 2008. While the deal was a lifeline for Morgan Stanley at the time, the roughly $800 million dividend on the stake put a big dent in the U.S. bank's earnings.

The two partners renegotiated their original deal two months ago, giving MUFG the right to convert an additional 75 million shares, valued at roughly $1.7 billion today and resulting in the non-cash charge against Morgan Stanley's second-quarter earnings.

The conversion will raise Morgan Stanley's capital levels and increase its so-called Tier 1 common equity ratio, a key measure of a bank's capital strength, by 2.7 percentage points to a comfortable 14.5 percent, based on first-quarter numbers.

MUFG still owns some $500 million worth of preferred shares, on which Morgan Stanley pays about $50 million a year in dividends.

(Reporting by Rachana Khanzode in Bangalore and Knut Engelmann in New York; Editing by Saumyadeb Chakrabarty)

Read More

JPMorgan profit falls, but sees hope in economy

JPMorgan profit falls, but sees hope in economy

Stock Market Predictions

(Global Markets) - The drag of the European debt crisis on investment banking weighed on JPMorgan Chase & Co's fourth-quarter profit, sending financial stocks tumbling even as the bank provided evidence that the domestic economy is strengthening.

Chief Executive Jamie Dimon said the New York-based bank was seeing signs of improvement in credit quality as well as loan demand from corporations and consumers in the United States.

"We see a mild recovery which actually might be strengthening, and it's broad," Dimon said in a conference call with reporters following the earnings report on Friday. "Hopefully, it will add to more jobs. We have seen jobs growing ... it's not enough but it could be self-sustaining."

Loan balances in JPMorgan's commercial division were up 13 percent at the end of December compared with a year earlier, the sixth consecutive quarterly rise in the measure of business borrowing.

But Dimon sounded renewed alarm on the European debt crisis. "I would put myself in the 'increasing worried' category," he said.

His comments came shortly before a senior euro zone government source said credit rating agency Standard & Poor's was set to downgrade several euro zone countries, not including Germany. The report sent the euro and U.S. markets lower.

JPMorgan shares fell 2.9 percent in afternoon trading on the New York Stock Exchange, while the KBW banks index was down 0.7 percent.

JPMorgan is the first major U.S. bank to announce results for the fourth quarter. Its weak investment banking results suggest Wall Street firms Goldman Sachs Group Inc and Morgan Stanley will also report tough quarters when they issue results next week.

Others such as Bank of America Corp and Citigroup Inc, which also report results in the coming days, could benefit from the stronger business loan demand that JPMorgan experienced, but could also face problems in investment banking and housing loans.

Dimon, in a conference call with stock analysts, predicted that other banks will also report what he called "good loan growth in commercial banking." Shares of U.S. regional banks seemed to reflect Dimon's view as they traded better during the day, with PNC Financial Services sliding 0.8 percent and US Bancorp rising 0.8 percent.

But Dimon also conceded that at least some of JPMorgan's new loans came from taking business from competitors. European banks have been retreating from lending in the U.S. and JPMorgan has been deploying new loan marketers in California and Florida.

In a discouraging sign for upcoming results from private equity firms such as Blackstone Group LP, JPMorgan's competing unit showed an $89 million loss in the quarter because of a decline in investment values.

JPMorgan's results "show that there are major headwinds against the banking industry and it requires a strong management team to battle the headwinds," said Rick Meckler, president of investment firm Libertyview Capital Management in New York.

"The bigger negatives tend to be the housing and mortgage situation and investors questioning, 'Have we really hit bottom in this sector or is this just a black hole?'"

In afternoon dealings, Goldman Sachs shares were down 2.5 percent, Morgan Stanley was off 2.9 percent, Bank of America fell 2.8 percent, and Citigroup dropped 3.1 percent.

"We all knew the fourth quarter would be difficult," said Gary Townsend of Hill-Townsend Capital. "But the overall economic outlook has been improving from an economic standpoint starting in December."

ROUGH TIMES

JPMorgan said fourth-quarter net income was $3.72 billion, or 90 cents a share, down from $4.83 billion, or $1.12 a share, a year earlier.

Wall Street analysts, on average, had expected 90 cents a share, according to surveys by Thomson Global Markets I/B/E/S.

There had been some expectation the bank would do better, but that view faded after Dimon warned on December 7 that investment banking was not improving. "He did a great job guiding people down, but people thought he would beat" the estimate, said Paul Miller of FBR Capital Markets.

Revenue declined 17 percent to $22.2 billion on an adjusted basis, missing the average Wall Street estimate of about $23 billion.

Investment banking revenue fell 30 percent to $4.36 billion, hurt by a 39 percent drop in underwriting and advisory fees, a 13 percent decline in fixed income, and a 31 percent fall in equity markets.

The results were complicated by an accounting adjustment that reduced earnings by 9 cents per share to reflect a change in the market value of JPMorgan debt during the quarter. In the third quarter, the accounting adjustment added 29 cents per share to profits.

The bank also booked more than half a billion dollars in additional expenses for litigation, primarily for mortgage matters, an amount that totaled 8 cents a share. It said reducing its loan loss reserves added 11 cents per share to earnings.

"The earnings show how well JPMorgan can be managed in one of the roughest times," said money manager Michael Holland, founder of Holland & Co. "They were able to pull off a meet-or-beat quarter."

The bank's return on equity, a key measure of shareholder profits, fell to 8 percent from 11 percent a year earlier and 9 percent in the 2011 third quarter.

The company's quarter-end share count declined 4 percent from a year earlier as it bought back stock.

For the first time in three quarters, JPMorgan booked more income and revenue from its credit card and card loan businesses than from any other area.

Net income from the consumer credit areas was $1.1 billion, or 28.2 percent of total profit. Investment banking profit, by far the largest generator of profits in the first three quarters of 2011, fell 52 percent to $726 million, or 19.5 percent of total quarterly profit.

(Additional reporting by Jed Horowitz and Angela Moon in New York, Rick Rothacker in Charlotte, North Carolina, and Ben Berkowitz in Boston; editing by Alwyn Scott, John Wallace and Gerald E. McCormick)

Read More