Chancellor: The illusion of debt-fuelled earnings

By Edward Chancellor
November 18, 2015

Low borrowing costs enabled acquisitive drugmaker Valeant to ratchet up EPS with leverage. Earlier episodes of financial engineering - like Japan’s zaitech and the 1960s conglomerate boom - came unstuck after rates rose and stocks fell. It won’t be any different this time.

Apple: a tech company with Chinese characteristics

October 27, 2015

Almost a quarter of sales – and two-thirds of revenue growth – came from China. Apple’s new iPhone installment plan could bump this up even further. Chief Executive Tim Cook’s bet on the Middle Kingdom is yielding impressive dividends, but carries existential political risks.

GM’s bumper Q3 exposes broader carmaker concerns

October 21, 2015

The Motown giant earned $1.4 billion and posted a record pre-tax margin. Fears about U.S. and China profit and rising competition from Silicon Valley persist, though, hobbling stocks across the industry. But GM’s discount to rivals is looking increasingly unwarranted.

Goldman Sachs Q3 too sluggish for a thoroughbred

October 15, 2015

The bank’s $1.4 bln profit only missed estimates by a hair. But steep revenue drops in bonds and equities knocked its return on equity down to 7 pct for the quarter. That’s Citi and BofA territory. Goldman’s intentionally edgier business model requires better returns.

Citigroup may finally deserve more investor love

October 15, 2015

The $150 bln mega-bank weathered choppy third-quarter markets better than some. Sure, its $4.3 bln profit only provided an 8 pct annualized return on equity, but that’s an industry problem. Citi is the only big U.S. bank trading below its tangible book value. That’s unjustified.

ABN Amro’s IPO could prove sweetly timed

August 21, 2015

The Dutch bank’s second-quarter earnings doubled to 600 mln euros, justifying state zeal for a reprivatisation. ABN’s first sale may end up a third below the government’s in-price, like the UK’s selloff of RBS. But with the domestic economy firing, pressing ahead makes sense.

Apple has time on its side

July 21, 2015

The iPhone’s frenetic Chinese growth powered a 33 pct rise in revenue. Marginally softened forecasts for the next few months nevertheless knocked $50 bln off Apple’s value. Minimal information about Watch sales also disappointed. A little patience, however, will go a long way.

Goldman for once may miss mega-bank sprawl

July 16, 2015

Legal costs whacked the Wall Street firm’s Q2 earnings. More worrying was the far worse showing than rivals in fixed-income trading. Broader institutions such as Citi, BofA and JPMorgan gain a cushion from areas like treasury services. Goldman’s focus isn’t always an advantage.

BofA earnings best in years but tougher task ahead

July 15, 2015

The bank run by Brian Moynihan cranked out a second-quarter profit of $5 bln as costs hit their lowest level since 2008. Return on equity remains subpar, though. Without some one-off extras, BofA’s core earnings would need to rise almost 40 pct to beat its cost of capital.

Morgan Stanley rains on its own parade

January 20, 2015

The Wall Street firm was progressing nicely in the first nine months of 2014. A dismal fourth quarter, though, exposed cracks that boss James Gorman still needs to fix. Hitting a 10 pct ROE this year may be possible, but could require the Fed’s helping hand on capital return.