Asian stocks slide on bank worries

The New Age

Most Asian stock markets fell sharply Tuesday following heavy losses on US and European markets, where fresh jitters emerged over the health of the US banking sector.
Worries about rising bad debts overshadowed news of record earnings at Bank of America, prompting what analysts described as long overdue profit-taking.
Tokyo ended down 2.39 per cent, Sydney dropped 2.43 per cent and Hong Kong was down 3.72 per cent at midday, after the Dow Jones Industrial Average slumped 3.56 per cent in New York on Monday.
European bourses were mixed in early trade, a day after losing between two and four per cent. Paris shed 0.18 per cent but London opened 0.08 per cent higher.
Investors appeared to shrug off roaring profits from government-rescued Bank of America - the latest in a line of encouraging corporate results from US banks including Citigroup, JPMorgan Chase and Goldman Sachs.
Some analysts warned that markets have further to fall before the current correction ends.
'The rally in risky assets, in particular stocks, since early March has been excessive and only partially justified by fundamentals,' said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong.
The US and European banks are still in a mess, he added.
'Concerns over systemic stability are likely to re-emerge, which should drag down the entire market,' Kowalczyk said.
Many analysts said markets were ripe for a pullback. The Dow Jones index had risen 22.7 per cent over the past six weeks, the best performance over a similar period since 1938.
'We are witnessing an appropriate degree of reality. While the pace of global economic contraction is slowing, the fact of contraction appeared to have been ignored,' said Societe Generale analyst Patrick Bennett.
Investors brushed aside news that Bank of America recorded a profit of 4.2 billion dollars in the first quarter as the results were boosted by one-time gains.

Markets cheer Citigroup earnings

BBC NEWS

Citigroup has reported its first quarterly net profit in nearly two years, the latest US bank to see an improvement in its performance. It made a profit of $1.6bn (£1.1bn) compared to a loss of $5.1bn a year earlier. Revenues rose 99% to $24.8bn. However, once dividend payments to preferred shareholders were taken into account, it suffered a near-$1bn loss.

Shares in the banking giant rose 50 cents, or 12.5%, to $4.51 in trading before the market opened. "We had our best overall quarter since the second quarter of 2007," chief executive Vikram Pandit said. Citigroup made a pre-arranged $2.7bn dividend payment to preferred shareholders, and a $7.3bn credit loss from bad loans.

However, it gained from an accounting rule that allowed the bank to post a one-time gain of $2.5bn and an improvement in trading activity. It has also cut costs. Citi's results came hot on the heels of positive earnings reports from Wells Fargo, Goldman Sachs and JP Morgan. "Of course the fact that all of these have had such a strong first quarter has led to some tentative hopes that perhaps the banking sector crisis is bottoming," said Richard Hunter, head of UK equities at Hargreaves Lansdown.

Challenges remain The US Treasury holds a 40% stake in Citigroup, which has received a $45bn government bail-out. Citigroup said it had cut the size of its workforce to 309,000 people from 374,000 at its peak.

"It was slightly better than anticipated, but we probably underestimated how much government support would be a wind at their back," said Michael Holland, founder, Holland & Co. But Citi's problems are not over yet, he added. "There's no doubt the challenges are still enormous for Citigroup."

Google reports stronger profits

BBC News

Google, the internet search engine, has announced strong results for the first three months of this year. Net profit for the quarter was $1.42bn (£0.95bn), up 9% compared with the $1.31bn posted a year earlier. Revenues came in at $5.51bn, 6% higher than for the same period last year but a decrease of 3% on the last quarter. The results were better than many analysts had expected bearing in mind the recession in the US and the general downturn in advertising spending.

'Uncharted territory' "Google had a good quarter given the depth of the recession," said Google chief executive Eric Schmidt. "These results underline both the resilience of our business model and the ongoing potential of the web as users and advertisers shift online," he added. Mr Schmidt did, however, admit that Google had been affected by the economic downturn.

"We are in uncharted territory economically and Google is, absolutely, feeling the impact," he said. The strong results were largely due to Google.com, the company said. Google-owned sites generated revenues of $3.7bn. This represents a 9% increase year-on-year. Revenue from partner sites fell by 3%.

Revenues from outside the US totalled $2.88bn.The UK accounted for $733m. 'Positive surprise' Mr Schmidt said that Google was well positioned with regards to the advertising slowdown that has hit many companies hard. "Advertisers are still spending, but they are lowering their bids," said Mr Schmidt. "The shift to online advertising gives us a big advantage and outpaces any losses from [falling] economic activity," he added.

Analysts agreed with this prognosis. "As advertisers are getting better control of their budget and a better understanding of their business under these macro conditions, they are taking money away from newspaper and television and going back online to advertise, and Google gets a disproportionate part of the market," said Sameet Sinha at JMP Securities.
Mr Schmidt did sound a cautionary note when describing the second and third quarters as "seasonally weaker", but concluded optimistically that: "We are well placed for the recovery and will continue to invest for the long term." The results were well received by investors. "It was a good quarter. Revenues were in line with [Wall] street consensus," said Jason Avilo at Kaufman Bros.

Richard Fetyko at Merriman Curhan Ford said: "It looks pretty good. Revenues are in line, which I think will actually positively surprise people."