Investment Bank / S&P500 Charts
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NEW YORK (AP) - Goldman Sachs Group Inc., the world's biggest investment bank, reported on Thursday the third-best profit in the securities firm's 138-year history. Three of its rivals -- Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. -- didn't fare as well during a fiscal third quarter rocked by credit- and mortgage-related turbulence.
The following is a scorecard of how they did:
_ Goldman Sachs: Goldman said profit spiked 79 percent to $2.85 billion, trouncing Wall Street expectations. It booked about $1.5 billion in loan losses in the quarter, though it offset losses with the $900 million sale of holdings in a power company.
_ Morgan Stanley: The nation's No. 2 investment bank reported profit fell 17 percent to $1.54 billion. Loan markdowns in the quarter cost it $940 million. It also had $480 million in losses from computer-driven trading strategies.
_ Lehman Brothers: The No. 4 investment bank reported profit decreased a smaller-than-expected 3.2 percent to $887 million. It marked down $700 million on assets that lost value.
_ Bear Stearns: The No. 5 investment bank reported profit plunged 62 percent to $166.1 million. Revenue in the fixed income business, Bear's biggest, plunged 88 percent. It also racked up $200 million from hedge fund losses, and wrote down $700 million for loans.
Merrill Lynch & Co., the third-largest U.S. investment bank, will report results next month.
Showing posts with label Lehman Brothers. Show all posts
Showing posts with label Lehman Brothers. Show all posts
Thursday, September 20, 2007
Tuesday, September 18, 2007
Lehman Beats Estimates, Limits Losses on Mortgages
Sept. 18 (Bloomberg) -- Lehman Brothers Holdings Inc., the largest U.S. underwriter of mortgage-backed bonds, reported a smaller profit decline than analysts estimated after it limited losses on home loans and leveraged-buyout financing.
``The worst of this credit correction is behind us,'' Chief Financial Officer Chris O'Meara said in a conference call with analysts. Yields on many fixed-income assets now look ``attractive,'' and current markets present ``trading opportunities,'' he said.
U.S. stocks rose, led by shares of investment banks, after Lehman reported a 3 percent decline in third-quarter profits and said that hedging in financial markets capped losses on leveraged loans and mortgage holdings at $700 million. Chief Executive Officer Richard Fuld's strategy of diversifying beyond fixed income helped Lehman reap record fees from arranging mergers and money management.
Net income declined to $887 million, or $1.54 a share, in the third quarter from $916 million, or $1.57, a year earlier, the New York-based company said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was $1.48 a share.
Revenue from fixed-income trading fell 47 percent to $1.06 billion in the quarter, while investment-banking revenue rose 48 percent to $1.07 billion. Revenue from equities jumped 64 percent to $1.37 billion. Total revenue rose 3 percent to $4.3 billion.
Overseas Growth
Lehman advised on $107 billion of corporate takeovers in the past three months, up 11 percent from a year earlier, and underwrote $5.5 billion of stock offerings, up 35 percent, data compiled by Bloomberg show. The firm had a $1 billion backlog of investment banking fees at the end of the quarter, O'Meara said.
Asset management and retail brokerage fees increased 33 percent to $802 million. The firm collected 53 percent of its revenue outside the U.S., the first time overseas markets accounted for more than half.
``Lehman has done a better job of diversifying away from the fixed income and hedge fund dependency,'' said Peter Kovalski, who helps manage $12 billion, including Lehman shares, at Alpine Woods Investments in Purchase, New York. ``They have been investing more in their international business.''
Return on equity decreased to 17 percent as of Aug. 31 from 21 percent a year ago.
Lehman shares rose $2.19, or 3.7 percent, to $60.81 at 1:05 p.m. in New York Stock Exchange composite trading. They had declined 25 percent this year through yesterday, the second-worst performance after Bear Stearns Cos. among the industry's five largest firms.
Slowing U.S. Economy
All face the prospect of slowing U.S. economic growth, as a two-year housing decline worsens, according to David Berson, chief economist of Fannie Mae, the largest mortgage buyer. The number of Americans who may lose their homes to foreclosure more than doubled in August from a year earlier because subprime borrowers with adjustable-rate mortgages saw their monthly payments rise, RealtyTrac Inc. said today.
Lehman's bigger rival Morgan Stanley reports results tomorrow, followed by Goldman Sachs Group Inc. and Bear Stearns on Sept. 20. Merrill Lynch & Co.'s earnings will be published next month.
``Lehman's results show the remarkable capabilities of the investment banks to weather market storms,'' said David Easthope, an analyst at Celent, a Boston-based financial consulting firm.
Lehman said ``very substantial valuation reductions'' in its loan portfolio, triggered by the global credit contraction, were offset by hedges and increases in other assets.
Loan Commitments Drop
The $700 million writedown will be ``well received'' by investors, Wachovia Corp. analyst Douglas Sipkin said in a report today. The firm's bottom line was ``very impressive'' given the credit-market turmoil in July and August.
Lehman ended the third quarter with $27 billion in lending commitments for leveraged buyouts, down from $44 billion at the end of the previous three-month period, according to O'Meara, the finance chief. The current figure includes $10 billion of new commitments, he said.
Credit-default swaps on Lehman fell about 15 basis points to 103 basis points, according to CMA Datavision in London. That means the cost to protect $10 million of Lehman bonds from default for five years fell to $103,000.
Credit-default swaps were conceived to protect bondholders against default and pay the buyer face value in exchange for the underlying securities should a company fail to adhere to its debt agreements.
One-Time Charge
The subprime mortgage market ground to a halt after U.S. mortgages entering foreclosure rose to a record high in the second quarter. Lehman, which is cutting about 2,000 mortgage- related jobs, makes money lending to homeowners and packaging mortgages into bonds.
Revenue from that business has dropped as investor appetite for such securities dwindled. Lehman ended the quarter with $6.3 billion of subprime-mortgage assets, O'Meara said. Subprime home loans are made to borrowers with bad credit scores or heavy debt loads.
Expenses for the quarter included a one-time charge of $44 million for restructuring the mortgage business, Lehman said today. That lowered earnings per share by 6 cents.
Subprime losses spread to other credit markets in July as investors fled from high-risk, high-yield corporate debt to U.S. Treasuries. Lehman may have to fund $16 billion of loan commitments to leveraged buyouts at a loss because investors are reluctant to buy that type of debt, Citigroup Inc. analyst Prashant Bhatia estimated last month.
``The worst of this credit correction is behind us,'' Chief Financial Officer Chris O'Meara said in a conference call with analysts. Yields on many fixed-income assets now look ``attractive,'' and current markets present ``trading opportunities,'' he said.
U.S. stocks rose, led by shares of investment banks, after Lehman reported a 3 percent decline in third-quarter profits and said that hedging in financial markets capped losses on leveraged loans and mortgage holdings at $700 million. Chief Executive Officer Richard Fuld's strategy of diversifying beyond fixed income helped Lehman reap record fees from arranging mergers and money management.
Net income declined to $887 million, or $1.54 a share, in the third quarter from $916 million, or $1.57, a year earlier, the New York-based company said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was $1.48 a share.
Revenue from fixed-income trading fell 47 percent to $1.06 billion in the quarter, while investment-banking revenue rose 48 percent to $1.07 billion. Revenue from equities jumped 64 percent to $1.37 billion. Total revenue rose 3 percent to $4.3 billion.
Overseas Growth
Lehman advised on $107 billion of corporate takeovers in the past three months, up 11 percent from a year earlier, and underwrote $5.5 billion of stock offerings, up 35 percent, data compiled by Bloomberg show. The firm had a $1 billion backlog of investment banking fees at the end of the quarter, O'Meara said.
Asset management and retail brokerage fees increased 33 percent to $802 million. The firm collected 53 percent of its revenue outside the U.S., the first time overseas markets accounted for more than half.
``Lehman has done a better job of diversifying away from the fixed income and hedge fund dependency,'' said Peter Kovalski, who helps manage $12 billion, including Lehman shares, at Alpine Woods Investments in Purchase, New York. ``They have been investing more in their international business.''
Return on equity decreased to 17 percent as of Aug. 31 from 21 percent a year ago.
Lehman shares rose $2.19, or 3.7 percent, to $60.81 at 1:05 p.m. in New York Stock Exchange composite trading. They had declined 25 percent this year through yesterday, the second-worst performance after Bear Stearns Cos. among the industry's five largest firms.
Slowing U.S. Economy
All face the prospect of slowing U.S. economic growth, as a two-year housing decline worsens, according to David Berson, chief economist of Fannie Mae, the largest mortgage buyer. The number of Americans who may lose their homes to foreclosure more than doubled in August from a year earlier because subprime borrowers with adjustable-rate mortgages saw their monthly payments rise, RealtyTrac Inc. said today.
Lehman's bigger rival Morgan Stanley reports results tomorrow, followed by Goldman Sachs Group Inc. and Bear Stearns on Sept. 20. Merrill Lynch & Co.'s earnings will be published next month.
``Lehman's results show the remarkable capabilities of the investment banks to weather market storms,'' said David Easthope, an analyst at Celent, a Boston-based financial consulting firm.
Lehman said ``very substantial valuation reductions'' in its loan portfolio, triggered by the global credit contraction, were offset by hedges and increases in other assets.
Loan Commitments Drop
The $700 million writedown will be ``well received'' by investors, Wachovia Corp. analyst Douglas Sipkin said in a report today. The firm's bottom line was ``very impressive'' given the credit-market turmoil in July and August.
Lehman ended the third quarter with $27 billion in lending commitments for leveraged buyouts, down from $44 billion at the end of the previous three-month period, according to O'Meara, the finance chief. The current figure includes $10 billion of new commitments, he said.
Credit-default swaps on Lehman fell about 15 basis points to 103 basis points, according to CMA Datavision in London. That means the cost to protect $10 million of Lehman bonds from default for five years fell to $103,000.
Credit-default swaps were conceived to protect bondholders against default and pay the buyer face value in exchange for the underlying securities should a company fail to adhere to its debt agreements.
One-Time Charge
The subprime mortgage market ground to a halt after U.S. mortgages entering foreclosure rose to a record high in the second quarter. Lehman, which is cutting about 2,000 mortgage- related jobs, makes money lending to homeowners and packaging mortgages into bonds.
Revenue from that business has dropped as investor appetite for such securities dwindled. Lehman ended the quarter with $6.3 billion of subprime-mortgage assets, O'Meara said. Subprime home loans are made to borrowers with bad credit scores or heavy debt loads.
Expenses for the quarter included a one-time charge of $44 million for restructuring the mortgage business, Lehman said today. That lowered earnings per share by 6 cents.
Subprime losses spread to other credit markets in July as investors fled from high-risk, high-yield corporate debt to U.S. Treasuries. Lehman may have to fund $16 billion of loan commitments to leveraged buyouts at a loss because investors are reluctant to buy that type of debt, Citigroup Inc. analyst Prashant Bhatia estimated last month.
Monday, September 17, 2007
PHH Sale to GE, Blackstone May Collapse as Banks Balk
Sept. 17 (Bloomberg) -- PHH Corp., the New Jersey-based mortgage lender that agreed to be bought by General Electric Co. and Blackstone Group LP, said the $1.8 billion sale may unravel as lenders back away from some leveraged buyouts.
JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. told Blackstone they may fall $750 million short in funding its part of the deal, PHH said today in a statement. GE, which plans to keep the company's vehicle-leasing unit, may pull out if Blackstone can't get financing. PHH's shares fell 15 percent, the most since it went public in January 2005.
PHH is the second company in a week to warn that an LBO may be derailed as banks seek to renege on lending commitments for smaller buyouts while sticking with big deals such as Kohlberg Kravis Roberts & Co.'s $26 billion takeover of First Data Corp. Reddy Ice Holdings Inc. said Sept. 12 that Morgan Stanley may back out of selling debt for GSO Capital Partners LP's purchase of the company.
``There will be some deals that won't get done, but it won't be the big names,'' billionaire financier Wilbur Ross, whose New York-based WL Ross & Co. invests in distressed companies, said today in an interview. ``Some of the smaller deals have better escape hatches.''
While Blackstone is looking for new loans, ``it is not optimistic at this time that its efforts will be successful,'' PHH said in the statement. Banks are seeking to sell as much as $320 billion in debt for leveraged buyouts. Financing has dried up amid a worldwide shortage of credit, especially for home lenders because of record U.S. foreclosures.
No Obligation
``We continue to hope that Blackstone will succeed in arranging its financing so the merger can be completed,'' Stephen White, a spokesman for Fairfield, Connecticut-based GE, said in an interview today. ``But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger.''
PHH shares fell $4.26 to $24.24 at 4:02 p.m. in New York Stock Exchange composite trading. They have lost 16 percent this year, compared with the 1.5 percent decline by the Russell 2000 Index. PHH shareholders are set to vote Sept. 26 on the proposed LBO.
GE, the second-largest company by market value, agreed in March to buy PHH and resell the mortgage unit to New York-based Blackstone, manager of the biggest buyout fund. PHH told GE that it expects the company to ``fulfill its obligations under the merger agreement,'' according to the statement.
PHH, based in the Philadelphia suburb of Mount Laurel, New Jersey, has provided mortgages and related services such as billing for other financial companies to offer under their own brands, including American Express Co. and Charles Schwab Corp.
Pennant Opposition
Pennant Capital Management LLC, PHH's largest shareholder, opposes the sale, saying the company could get more for investors. Pennant owns 9.4 percent of PHH, according to an Aug. 10 filing with the U.S. Securities and Exchange Commission.
Pennant argued in letters to PHH's board in June and August that a separation of the two divisions through a tax-free spin off would yield a better price than the proposed sale to GE and Blackstone. Chatham, New Jersey based Pennant in its Aug. 10 letter estimated PHH would be valued at about $60 in two years if the sale didn't go through.
``There is far more value in PHH than the $31.50 offer,'' Alan Fournier, Pennant's managing member, said in a telephone interview today. ``The fleet business is worth the vast majority of the current share price and the mortgage servicing rights of the mortgage business have become more valuable, not less valuable, over the past six months.''
Blackstone spokesman John Ford declined to comment, as did JPMorgan spokesman Brian Marchiony and Lehman spokeswoman Kerri Cohen. PHH spokeswoman Karen McCallson didn't return a call seeking comment.
Reddy Ice
Reddy Ice, the largest U.S. maker of packaged ice, said in a Sept. 12 filing that Morgan Stanley may back out of financing the $681.7 million deal because the merger agreement was altered without its consent.
The stand-offs follow a successful renegotiation at Home Depot Inc. Banks last month threatened to back out of financing Atlanta-based Home Depot's sale of its contractor-supply unit to buyers including Bain Capital LLC, Clayton Dubilier & Rice and Carlyle Group. Home Depot eventually agreed to lower its price and the buyers increased their cash commitments to the transaction.
GE Mortgage Plans
General Electric intends to exit its mortgage business, the subprime and Alt-A lender WMC Mortgage, the company said on July 13. Subprime home loans, which have the highest risk of default, are made to people with the lowest credit scores. Rather than become a consolidator in the mortgage market, GE decided to exit after three years in the industry, Chief Executive Officer Jeffrey Immelt said told investors in a July conference call.
There were ``too many other better choices'' than investing in the home-loan industry, Immelt said. ``And I just simply wanted to get this off the table vis-a-vis the things that investors have to think about with GE.''
At least 110 mortgage companies have halted loans, closed or sold themselves since the start of 2006, including 90 this year. Buyouts of mortgage companies including Accredited Home Lenders Holding Co. have collapsed as overdue payments rose and U.S. housing sales slumped.
``We look forward to putting the merger discussion behinds us so we can pursue avenues that would unlock much more value over time,'' Pennant's Fournier said.
JPMorgan Chase & Co. and Lehman Brothers Holdings Inc. told Blackstone they may fall $750 million short in funding its part of the deal, PHH said today in a statement. GE, which plans to keep the company's vehicle-leasing unit, may pull out if Blackstone can't get financing. PHH's shares fell 15 percent, the most since it went public in January 2005.
PHH is the second company in a week to warn that an LBO may be derailed as banks seek to renege on lending commitments for smaller buyouts while sticking with big deals such as Kohlberg Kravis Roberts & Co.'s $26 billion takeover of First Data Corp. Reddy Ice Holdings Inc. said Sept. 12 that Morgan Stanley may back out of selling debt for GSO Capital Partners LP's purchase of the company.
``There will be some deals that won't get done, but it won't be the big names,'' billionaire financier Wilbur Ross, whose New York-based WL Ross & Co. invests in distressed companies, said today in an interview. ``Some of the smaller deals have better escape hatches.''
While Blackstone is looking for new loans, ``it is not optimistic at this time that its efforts will be successful,'' PHH said in the statement. Banks are seeking to sell as much as $320 billion in debt for leveraged buyouts. Financing has dried up amid a worldwide shortage of credit, especially for home lenders because of record U.S. foreclosures.
No Obligation
``We continue to hope that Blackstone will succeed in arranging its financing so the merger can be completed,'' Stephen White, a spokesman for Fairfield, Connecticut-based GE, said in an interview today. ``But if Blackstone is unable to complete its purchase, GE will not be obligated to complete the merger.''
PHH shares fell $4.26 to $24.24 at 4:02 p.m. in New York Stock Exchange composite trading. They have lost 16 percent this year, compared with the 1.5 percent decline by the Russell 2000 Index. PHH shareholders are set to vote Sept. 26 on the proposed LBO.
GE, the second-largest company by market value, agreed in March to buy PHH and resell the mortgage unit to New York-based Blackstone, manager of the biggest buyout fund. PHH told GE that it expects the company to ``fulfill its obligations under the merger agreement,'' according to the statement.
PHH, based in the Philadelphia suburb of Mount Laurel, New Jersey, has provided mortgages and related services such as billing for other financial companies to offer under their own brands, including American Express Co. and Charles Schwab Corp.
Pennant Opposition
Pennant Capital Management LLC, PHH's largest shareholder, opposes the sale, saying the company could get more for investors. Pennant owns 9.4 percent of PHH, according to an Aug. 10 filing with the U.S. Securities and Exchange Commission.
Pennant argued in letters to PHH's board in June and August that a separation of the two divisions through a tax-free spin off would yield a better price than the proposed sale to GE and Blackstone. Chatham, New Jersey based Pennant in its Aug. 10 letter estimated PHH would be valued at about $60 in two years if the sale didn't go through.
``There is far more value in PHH than the $31.50 offer,'' Alan Fournier, Pennant's managing member, said in a telephone interview today. ``The fleet business is worth the vast majority of the current share price and the mortgage servicing rights of the mortgage business have become more valuable, not less valuable, over the past six months.''
Blackstone spokesman John Ford declined to comment, as did JPMorgan spokesman Brian Marchiony and Lehman spokeswoman Kerri Cohen. PHH spokeswoman Karen McCallson didn't return a call seeking comment.
Reddy Ice
Reddy Ice, the largest U.S. maker of packaged ice, said in a Sept. 12 filing that Morgan Stanley may back out of financing the $681.7 million deal because the merger agreement was altered without its consent.
The stand-offs follow a successful renegotiation at Home Depot Inc. Banks last month threatened to back out of financing Atlanta-based Home Depot's sale of its contractor-supply unit to buyers including Bain Capital LLC, Clayton Dubilier & Rice and Carlyle Group. Home Depot eventually agreed to lower its price and the buyers increased their cash commitments to the transaction.
GE Mortgage Plans
General Electric intends to exit its mortgage business, the subprime and Alt-A lender WMC Mortgage, the company said on July 13. Subprime home loans, which have the highest risk of default, are made to people with the lowest credit scores. Rather than become a consolidator in the mortgage market, GE decided to exit after three years in the industry, Chief Executive Officer Jeffrey Immelt said told investors in a July conference call.
There were ``too many other better choices'' than investing in the home-loan industry, Immelt said. ``And I just simply wanted to get this off the table vis-a-vis the things that investors have to think about with GE.''
At least 110 mortgage companies have halted loans, closed or sold themselves since the start of 2006, including 90 this year. Buyouts of mortgage companies including Accredited Home Lenders Holding Co. have collapsed as overdue payments rose and U.S. housing sales slumped.
``We look forward to putting the merger discussion behinds us so we can pursue avenues that would unlock much more value over time,'' Pennant's Fournier said.
Sunday, September 16, 2007
US Investment Banks Will Report Earnings
NEW YORK (AP) - On Wall Street, now more so than any time in recent memory, everyone is holding their breath and fearing the worst.
Four of the biggest U.S. investment banks will report third-quarter earnings in the next several days. Everyone -- from traders on the floor of the New York Stock Exchange to highly paid bankers perched in corner offices -- is looking for any kind of sign these financial institutions have weathered one of the rockiest markets in years.
Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc., and Bear Stearns Cos. have been squeezed by turmoil in the mortgage industry and tightening credit conditions. Their results will provide a badly needed first glimpse into the health of the global financial market.
The investment banks, along with other financial firms, make up about a quarter of the Standard & Poor's 500 index. It is a long-held belief that this group must show strength in order for the blue chip index to advance -- and anything less could extend the volatile conditions that marred most of the summer. As it stands, the firms on average lost about 20 percent during the quarter -- with Bear Stearns leading them with a 31 percent decline.
"They are terribly, terribly important," said Quincy Krosby, chief economist for The Hartford. "I don't think you can have a truly sustainable rally unless the financials stabilize. For the retail investor, the earnings will give general guidance for where we are in unraveling the crisis."
Individual investors have been nervously watching their 401(k) and stock portfolios tumble, as the financial industry began to shudder from the pressure of weakening investments and dwindling access to capital.
There is widespread fear that banks are not only sitting on bad loans and wrong-way trades, but they might also detail stalling takeover activity and a dearth in corporate debt financing. Accounting rules that let firms place a value on assets based solely on their best guess of the worth could muddy the waters further.
Richard X. Bove, an analyst with Punk Ziegel & Co. who has been among the industry's toughest critics, said there is a likelihood the banks' auditors have met with the Securities and Exchange Commission about what must be divulged on their balance sheets. He points out that regulators would be "willing to go the extra mile to keep them in reasonable shape," and that it might be some time before investors get more accurate information.
"If history is any gauge, you'll have to wait for their quarterly filing to the Securities and Exchange Commission to find out what is really going on with these companies," Bove said. "It's going to be tough to make judgments."
Quarterly reports filed to the SEC, also known as 10-Qs, must be submitted to the regulator within 45 days of the end of the quarter. These documents typically offer more detail than what is released in earnings reports.
Lehman Brothers reports on Tuesday, and analysts like Bove will be looking for how much troubled debt is on the firms' books. In August, Lehman shuttered most of its mortgage business.
Morgan Stanley, which has very little exposure to subprime mortgages, is known as one of the most aggressive traders on the street. Its report on Wednesday will also be well followed.
Goldman's report on Thursday will be a barometer of the overall industry because it is the most diverse investment bank, and it might have used volatile market conditions to make shrewd trades. The firm acknowledged last month that its flagship hedge fund suffered steep losses.
Bear Stearns also reports on Thursday, and Wall Street will be looking for how its vast fixed-income business performed during the past few months. Two Bear Stearns hedge funds collapsed into bankruptcy this summer after wrong-way bets on mortgage debt.
Merrill Lynch & Co., the world's largest brokerage, will report its results in October. However, on Friday the broker said it recorded adjustments to the value of certain investments in the third quarter, acknowledging they lost value as the debt markets remain in seizure.
But regardless of how this week's results pan out, Wall Street's big players might be thrown a lifeline. The Federal Reserve, which has been injecting cash into the banking system to help stabilize it, will meet on Tuesday to ponder a much-anticipated interest rate cut.
The full effects of interest rate cuts typically aren't felt in the financial system for up to a year. However, should central bankers lower rates, it might infuse enough enthusiasm into the credit markets to provide and instant psychological boost for the banks.
"People get worn out by the crisis itself," The Hartford's Krosby said.
Four of the biggest U.S. investment banks will report third-quarter earnings in the next several days. Everyone -- from traders on the floor of the New York Stock Exchange to highly paid bankers perched in corner offices -- is looking for any kind of sign these financial institutions have weathered one of the rockiest markets in years.
Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc., and Bear Stearns Cos. have been squeezed by turmoil in the mortgage industry and tightening credit conditions. Their results will provide a badly needed first glimpse into the health of the global financial market.
The investment banks, along with other financial firms, make up about a quarter of the Standard & Poor's 500 index. It is a long-held belief that this group must show strength in order for the blue chip index to advance -- and anything less could extend the volatile conditions that marred most of the summer. As it stands, the firms on average lost about 20 percent during the quarter -- with Bear Stearns leading them with a 31 percent decline.
"They are terribly, terribly important," said Quincy Krosby, chief economist for The Hartford. "I don't think you can have a truly sustainable rally unless the financials stabilize. For the retail investor, the earnings will give general guidance for where we are in unraveling the crisis."
Individual investors have been nervously watching their 401(k) and stock portfolios tumble, as the financial industry began to shudder from the pressure of weakening investments and dwindling access to capital.
There is widespread fear that banks are not only sitting on bad loans and wrong-way trades, but they might also detail stalling takeover activity and a dearth in corporate debt financing. Accounting rules that let firms place a value on assets based solely on their best guess of the worth could muddy the waters further.
Richard X. Bove, an analyst with Punk Ziegel & Co. who has been among the industry's toughest critics, said there is a likelihood the banks' auditors have met with the Securities and Exchange Commission about what must be divulged on their balance sheets. He points out that regulators would be "willing to go the extra mile to keep them in reasonable shape," and that it might be some time before investors get more accurate information.
"If history is any gauge, you'll have to wait for their quarterly filing to the Securities and Exchange Commission to find out what is really going on with these companies," Bove said. "It's going to be tough to make judgments."
Quarterly reports filed to the SEC, also known as 10-Qs, must be submitted to the regulator within 45 days of the end of the quarter. These documents typically offer more detail than what is released in earnings reports.
Lehman Brothers reports on Tuesday, and analysts like Bove will be looking for how much troubled debt is on the firms' books. In August, Lehman shuttered most of its mortgage business.
Morgan Stanley, which has very little exposure to subprime mortgages, is known as one of the most aggressive traders on the street. Its report on Wednesday will also be well followed.
Goldman's report on Thursday will be a barometer of the overall industry because it is the most diverse investment bank, and it might have used volatile market conditions to make shrewd trades. The firm acknowledged last month that its flagship hedge fund suffered steep losses.
Bear Stearns also reports on Thursday, and Wall Street will be looking for how its vast fixed-income business performed during the past few months. Two Bear Stearns hedge funds collapsed into bankruptcy this summer after wrong-way bets on mortgage debt.
Merrill Lynch & Co., the world's largest brokerage, will report its results in October. However, on Friday the broker said it recorded adjustments to the value of certain investments in the third quarter, acknowledging they lost value as the debt markets remain in seizure.
But regardless of how this week's results pan out, Wall Street's big players might be thrown a lifeline. The Federal Reserve, which has been injecting cash into the banking system to help stabilize it, will meet on Tuesday to ponder a much-anticipated interest rate cut.
The full effects of interest rate cuts typically aren't felt in the financial system for up to a year. However, should central bankers lower rates, it might infuse enough enthusiasm into the credit markets to provide and instant psychological boost for the banks.
"People get worn out by the crisis itself," The Hartford's Krosby said.
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