Monday, July 14, 2014

Higher markets on Citigroup earnings

Dow jumped 120, advancers over decliners better than 3-1 & NAZ gained 23.  The MLP index went up 1+ to the 517s & the REIT index inched up fractionally in the 305s.  Junk bond funds edged higher while Treasuries saw selling.  Oil was off & gold took a big tumble.

AMJ (Alerian MLP Index tracking fund)

CLQ14.NYM...Crude Oil Aug 14...100.74 Down .....0.09  (0.1%)

GCN14.CMX...Gold Jul 14.........1,305.70 Down ...31.30  (2.3%)

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Draghi Seen Delivering $1 Trillion to Banks in ECB Offer
Photo:   Bloomberg

The newest stimulus tool from Mario Draghi will hand banks more than €700B ($950B) of cheap funding.  The ECB targeted lending program for banks will boost credit for the real economy as planned, & at the same time help keep the financial system flush with cash, according to a survey of economists.  Draghi may address the topic today when he testifies at the European Parliament for the first time since elections in May.  The ECB has identified lending to companies & households as a key weakness in the area’s fragile recovery.  The TLTRO program, part of a wider package of measures announced in Jun, offers as much as 4 years of low-cost funding tied to bank lending that Draghi said & could ultimately provide as much as €1T.  Lenders probably won’t take the full amount.  They are expected to borrow €305B in the first TLTRO rounds this year, compared with an ECB cap of about €400B.  That’ll rise to €710 after quarterly operations in 2015 & 2016 tied to new loans.  3/4 of respondents said the measure will increase credit provision to companies & households in the euro-area periphery.  The loans are charged just above the ECB’s benchmark interest rate, at a record-low 0.15%.  The TLTRO will run alongside the unprecedented stimulus measures that the ECB announced after its Jun meeting, including a negative deposit rate & an extension of unlimited short-term liquidity until at least 2016.  After the Jul gathering, Draghi reiterated his pledge that rates will stay at present levels for an extended period.

Draghi Seen Delivering $1 Trillion to Banks in ECB Offer

Citigroup posted Q2 profit that beat estimates after excluding $3.7B in costs tied to a mortgage-bond settlement.   EPS plunged to 3¢ from $1.34 a year earlier.  Excluding special items, EPS was $1.24, surpassing the $1.05 estimate.  Citi & US authorities announced a $7B agreement earlier today to resolve a probe into sales of mortgage securities leading up to the financial crisis.  The deal requires the company to pay $4B to the Justice Dept, & $500M to state attorneys general & the FDIC.  A further $2.5B will go toward consumer relief.  “Despite the significant impact of today’s settlement on our net income, our capital position strengthened,” CEO Michael Corbat said.  The bank’s Basel 3 Tier 1 common-capital ratio increased to 10.6% from 10.5% in Q1.  Revenue adjusted for accounting costs fell 3% from a year earlier to $19.4B, while operating expenses excluding the cost of the settlement dropped 3% to $11.8B.  Analysts projected $18.8B in revenue.  Citi has now disclosed almost $11B in legal & related costs since the start of 2012.  The Citi Holdings division, businesses tagged for sale, posted a loss of $3.48B linked to the cost of the mortgage-bond agreement.  Excluding those costs, the unit had net income of $244M.  The stock shot up 1.73.  If you would like to learn more about Citi,

Citigroup Beats Estimates as Bank Reaches Mortgage Accord

Citigroup (C)

Ukraine Fights Rebels in Luhansk as Russia Denounces Shellfire
Photo:   Bloomberg

Ukraine accused Russia of violating its air space, allowing weapons & fighters to cross its border to aid rebels & massing troops on the frontier.  Separatists, not Ukrainian forces, were behind artillery fire that killed one person in Russia’s Rostov region last week that pres Putin's gov has blamed on Ukraine, an Ukrainian spokesman said.  Ukraine also has proof that its border guards were attacked from its neighbor’s territory & Russian helicopters & drones crossed over the intl boundary, he said.  He added, “The developments of recent days show the Russian side has taken a course of escalation.”  “Pro-Russian militants used mortar fire and killed one Russian citizen. Now Russia is trying to present the shooting as an attack from the Ukrainian army. Those accusations are groundless.”  Fighting between Ukrainian forces & pro-Russian separatists has intensified since pre Poroshenko called off a cease-fire Jul 1.  The gov is trying tighten an encirclement around insurgents who retreated to the eastern cities Luhansk & Donetsk last week, as well as stop the flow of weapons & fighters across its border with Russia.  Meanwhile, Ukraine’s US & European allies are urging Russia to help stop the conflict.

Ukraine Accuses Russia of Escalation as Conflict Worsens

The earnings from Citi were good, but the pig picture repeats a common theme in earnings.  Revenue was lower.  In addition, banks have a mish mash of numbers, making it difficult to truly understand what is going on.  The $7B paid to the Treasury is chalked up as just one of those things because it is not related to current operations.  Traders aren't fussy & they bid up the stock.  More earnings are coming this week.  Then are also no shortage intl conflicts to watch.

Dow Jones Industrials

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