Stock Market Predictions

Morgan Stanley falls hard on concerns about Europe

Stock Market Predictions

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)

JPMorgan, BofA sued over mortgage debt losses

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The plaintiff Sealink Funding Ltd said it lost money after buying nearly $2.4 billion of residential mortgage-backed securities (RMBS) from JPMorgan and $1.6 billion from Bank of America from 2005 to 2007, relying on offering materials that were misleading about the quality of the underlying loans.

According to court papers, Sealink is an Irish entity that oversees risky RMBS that contributed to the near collapse of Germany's Landesbank Sachsen AG.

Another plaintiff, Germany's Landesbank Baden-Wurttemberg, raised similar claims in a separate lawsuit against JPMorgan over $500 million of RMBS that it said it bought.

The lawsuits accuse the banks of packaging large amounts of high-risk mortgages by such issuers as Countrywide Financial now owned by Bank of America, and Bear Stearns and Washington Mutual, now owned by JPMorgan, in pursuit of higher profit.

"This misconduct has resulted in astounding rates of default on the loans underlying the defendants' RMBS and massive downgrades of the (investors') certificates, the vast majority of which are now considered 'junk,'" the lawsuits said.

The investors are seeking compensatory and punitive damages in the lawsuits, all filed Thursday in the New York State Supreme Court in Manhattan.

Bank of America spokesman Lawrence Grayson said the bank will defend against its lawsuit by Sealink, which "appears to be another sophisticated investor looking for someone to blame" for losses caused by a downturn in the economy.

JPMorgan spokeswoman Jennifer Zuccarelli declined to comment. Bernstein Litowitz Bernstein & Grossmann, which represents Sealink and Landesbank Baden-Wurttemberg, did not respond to a request for comment.

In a separate lawsuit filed on Thursday in the same court, Britain's Barclays Plc was sued by Germany's HSH Nordbank AG, which said it lost $40 million after being misled into buying risky RMBS.

Barclays spokeswoman Kristin Friel declined to comment.

Banks face many lawsuits by mortgage securities investors seeking to hold them responsible for losses on debt that once seemed safe but turned toxic once the housing and credit crises began more than four years ago.

Bank of America is seeking court approval of an $8.5 billion global settlement covering investors in mortgage pools with $174 billion of unpaid Countrywide principal balances.

That bank and JPMorgan are also among lenders negotiating with regulators including all 50 state attorneys general on a multibillion-dollar accord addressing foreclosure abuses.

The cases are all in the New York State Supreme Court, New York County. They are HSH Nordbank AG et al v. Barclays Bank Plc et al, No. 652678/2011; Sealink Funding Ltd v. Countrywide Financial Corp et al, No. 652679/2011; Landesbank Baden-Wurrtemberg et al v. Bear Stearns & Co et al, No. 652680/2011; and Sealink Funding Ltd v. Bear Stearns & Co et al, No. 652681/2011.

(Reporting by Jonathan Stempel in New York, editing by Gerald E. McCormick, Matthew Lewis, Gary Hill)

Buffett backs Bank of America, buying more stocks

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Buffett, in a CNBC interview, said the repurchases will not stop the company from making acquisitions or spending on infrastructure for its portfolio of companies.

The "Oracle of Omaha" also reiterated his support for Bank of America Corp even as he acknowledged it will take the bank time to solve its problems.

Buffett said Berkshire bought a net $4 billion of common stock on the market in the third quarter as sharp declines presented opportunities to invest cheaply.

But it is the investment in its own shares that stunned the market. Berkshire announced the program Monday, saying it would pay up to 10 percent above book value for stock. Investors said the program meant Berkshire was probably undervalued by 30 percent or more.

Buffett said the paperwork to start the buybacks was completed on Thursday.

Berkshire Class A shares were down 0.9 percent at $108,202 in afternoon trade on Friday, in line with broader market declines, though the stock is still up sharply from the pre-buyback levels of late last week.

BACKING BofA

While Berkshire has said it could spend heavily on shares, Buffett said on Friday the company would still make acquisitions and would end up spending $7 billion this year on plant and equipment for its portfolio of companies.

As he has all year long, he said such investments were a bet on the economic strength of the United States. "It's very, very unlikely we'll go back into a recession," Buffett said.

That confidence was part of his reasoning for the deal with Bank of America, which gave him a lucrative dividend and a pile of unusually long-lasting warrants as well.

Bank of America is "a fabulous business, but it's got a lot of problems from the past," he said, acknowledging that CEO Brian Moynihan will need years to fix them.

Bank of America is cutting 30,000 jobs in the first phase of an expense reduction program called "New BAC," a play on the company's ticker symbol. The bank is also shedding assets to raise capital to meet new industry standards that begin to take effect in 2013.

Buffett was on the NYSE floor to help mark the 50th anniversary of his portfolio company, Business Wire, yet he is also in New York to host a fundraiser for President Barack Obama, who has adopted his plan for the rich to pay a higher rate of tax than they do now.

Buffett -- who said the White House had asked for permission to put his name on the plan -- estimated that about 50,000 people nationwide would pay more taxes under the proposal.

(Reporting by Ben Berkowitz in New York, additional reporting by Joe Rauch in Charlotte; editing by John Wallace, Ted Kerr and Matthew Lewis)

Arch Coal cuts 2011 adjusted profit outlook; shares fall

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Arch shares were trading down 11 percent at $13.00 after the bell. They closed at $14.58 on Friday on the New York Stock Exchange.

The company lowered its 2011 adjusted earnings per share outlook to $1-$1.40 per share, from its prior estimate of $1.75-$2.15.

Analysts expected the company to earn $2.02 a share, according to Thomson Global Markets I/B/E/S.

Mountain Laurel's longwall was idled for about 45 days after a roof fall in August, due to geologic conditions.

(Reporting by Vaishnavi Bala in Bangalore; Editing by Sriraj Kalluvila)

McGraw-Hill and CME eye indexes JV: source

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A deal would bring together some of the oldest and most widely followed U.S. indexes including the Dow Jones Industrial Average and the S&P 500.

Under the terms of the deal being discussed, McGraw-Hill would own the majority of the joint venture and manage it, while CME would own about 25 percent, the source said.

News Corp's Dow Jones & Co would also own a minor stake, the source said.

The deal has not been finalized and the terms could change, the source said, adding that the talks have been going on for more than a year.

McGraw-Hill and CME declined to comment. News Corp was not immediately available for comment. The story was first reported by the Wall Street Journal.

Standard & Poor's maintains the S&P 500, which was created more than 50 years ago and is one of the most widely followed indexes of large-cap American stocks.

Dow Jones Indexes include the well-known Dow Jones Industrial average of 30 blue chip stocks. The brand was created in 1896 by Charles Dow, a company founder.

Dow and S&P create and license indexes that investors and others use to measure the performance of various markets.

Chicago-based CME Group, the world's largest derivatives exchange operator, offers futures and options contracts based on many indexes and pays fees for licensing rights, where it doesn't already own them. CME bought 90 percent of the Dow Jones' namesake indexes business last year.

Earlier this month McGraw-Hill said it would divide itself into a markets data company that includes its Standard & Poor's ratings businesses and an education company for textbook publishing.

The breakup announcement followed public demands starting in July from the Ontario Teacher's Pension Fund and hedge fund Jana Partners LLC for a broad reorganization.

(Reporting by Paritosh Bansal; editing by Carol Bishopric.)

DOJ seeks trustee in Solyndra bankruptcy

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Just days after the company's September 6 bankruptcy filing, the Federal Bureau of Investigation raided Solyndra's headquarters in Fremont, California. And Congress is investigating the role political connections played in securing a government loan guarantee for Solyndra, which was visited by U.S. President Barack Obama last year.

Solyndra Chief Executive Brian Harrison and CFO W.G. Stover refused to answer several questions about the company at a Congressional hearing last week.

A Chapter 11 trustee is responsible for management of an estate's property, operation of the business and possibly the filing of a reorganization plan.

In a court filing on Friday, the Justice Department's bankruptcy representative said it was not making any allegations of wrongdoing.

Still, executives have a fiduciary duty to provide information about the company's operations, it said. Executives should reveal whether the company paid bonuses after management realized the company's poor financial condition, it said, as well as whether financial information submitted to creditors was accurate.

"Transparency and disclosure are the linchpins of the bankruptcy system," the DOJ filing said.

In addition to Harrison and Stover's appearance before Congress, a Solyndra lawyer declined to provide information about the extent and nature of Solyndra's contracts with customers to the DOJ bankruptcy representative, the filing said.

A Solyndra representative, along with attorneys for Harrison and Stover, could not immediately be reached for comment on Friday.

Solyndra executives' assertion of their right to avoid self-incrimination is "incompatible" with their duty to act in the best interests of the estate and its creditors, the department said in its filing.

As an alternative to the appointment of a Chapter 11 trustee, the Justice Department asked the Delaware bankruptcy court to convert the Solyndra bankruptcy to a Chapter 7, or liquidation.

Separately, Stirling Energy Systems filed for Chapter 7 liquidation last week, yet another in a string of solar companies to seek bankruptcy protection.

The Scottsdale, Arizona-based company was working on technology that concentrates the sun's rays onto an engine that creates electricity. The technology was to run in two solar plants under development from Tessera Solar, a company that shared a majority owner, NTR, with Stirling.

Tessera sold both those plants.

Stirling had assets in the $1 million-$10 million range and liabilities in the $50 million-$100 million range, it said in court filings.

(Reporting by Dan Levine and Sarah McBride in San Francisco; editing by Andre Grenon and Richard Chang)

Ingersoll Rand cuts profit view, shares tumble

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The warning sent shares of the U.S. maker of air conditioners and locks down as much as 18 percent to their lowest level in more than two years, and came as Wall Street is getting nervous that corporate profit growth may be slowing.

Analysts, on average, look for the companies that make up the widely watched Standard & Poor's 500 index .SPX to report 13.5 percent earnings growth in the third quarter, down from an average forecast of 17 percent as of July 1.

"You don't have to be a rocket scientist to know that residential markets were not going to be doing anything substantial for a company's results," said Eli Lustgarten, an analyst at Longbow Research. "This (Ingersoll forecast) is a warning sign, to show you that improving profits and beating guidance is not going to be easy for a while."

Electric products maker Cooper Industries Plc (CBE.N) also cited weak demand for products used in residential and commercial buildings when it cut its third-quarter forecast earlier this month.

Ingersoll's troubles are twofold: The second-half recovery in consumer demand for air conditioning and security systems that it expected has not materialized, and consumers who have replaced air conditioners or heaters have opted for lower-priced units, rather than the more profitable, and more expensive, high-efficiency systems, analysts said.

The Ingersoll cut could be the start of a wave of earnings warnings in the industrial sector, which is grappling with weak demand in the United States and Europe, one analyst said.

"My feeling is this is the first of many in the industrial space in the next couple of weeks," said Eric Landry, an analyst at Morningstar in Chicago.

Ingersoll, which is headquartered in Davidson, North Carolina, but incorporated in Dublin, generates 67 percent of its revenue in North America. That makes it more reliant on its home market than bigger U.S. industrials, including General Electric Co (GE.N), United Technologies Corp (UTX.N) and Honeywell International Inc (HON.N), which have used growth in Asia and the Middle East to offset sluggish U.S. spending.

Ingersoll shares were down $4.21, or 13 percent, at $27.75 in early-afternoon trading, the sharpest decline on the New York Stock Exchange. They touched a low of $26.13 earlier in the session. The earlier low marked Ingersoll's biggest one-day drop since the 1987 "Black Monday" stock market crash.

The Standard & Poor's capital-goods industry index .GSPIC was down 1.9 percent, and U.S. stocks were broadly lower as investors worried the global economy is slowing.

Q3 PROFIT COULD DROP

Ingersoll, which makes Schlage locks and Trane air conditioners, cut its third-quarter profit forecast to a range of 77 cents to 80 cents per share. At its midpoint, that is down 12.8 percent from the company's prior forecast and would represent a decline from 80 cents per share in the year-earlier third quarter.

Analysts were expecting the company to post a profit of 91 cents a share for the quarter before special items, according to Thomson Global Markets I/B/E/S.

For the year, Ingersoll now expects earnings of $2.70 to $2.80 per share. At its midpoint, that is down 8 percent from prior guidance and below the $2.96 per share Wall Street had looked for.

The Ingersoll warning did not catch investors entirely unawares. Nomura analyst Shannon O'Callaghan earlier this month cut his third-quarter forecasts on a range of big industrials, including Ingersoll, GE, SPX Corp (SPW.N) and 3M Co (MMM.N), warning that he expected forecast cuts.

Not all the recent news from the sector has been as bleak. Last week Honeywell said its third-quarter earnings would likely come in at the high end of its forecast range of 96 cents to $1.01 per share.

(Reporting by Scott Malone in Boston, additional reporting by Mike Tarsala in New York and Fareha Khan in Bangalore; Editing by Derek Caney and John Wallace)

Amazon tablet costs $209.63 to make, IHS estimates

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Amazon's billionaire Chief Executive Jeff Bezos unveiled the Kindle Fire at the lower-than-expected price on Wednesday.

The launch sparked concern about a price war at the lower end of the tablet market, currently dominated by devices running on Google Inc's Android operating system from companies such as Samsung Electronics Co Ltd, Motorola Mobility Holdings Inc and HTC Corp.

IHS iSuppli said the components that go into the Kindle Fire cost $191.65. Additional manufacturing expenses bring the total cost to $209.63.

Based on IHS iSuppli's estimates, the company may lose just under $10 on each Fire it sells.

An Amazon spokesman did not comment on IHS's estimates on Friday afternoon.

Since the Fire was unveiled on Wednesday, investors and analysts have speculated Amazon may be selling the device at cost or a loss. The IHS report is one of the first efforts to put meat on the bones of such speculation.

Gene Munster, an analyst at PiperJaffray, estimated earlier this week that Amazon would lose roughly $50 on each Kindle Fire sale.

RAZOR BLADE MODEL

Amazon is hoping the device encourages users to buy more products and services from the company, making up for the upfront losses, according to Wayne Lam, an analyst at IHS iSuppli.

This is a version of the "razor-blade" model in which Procter & Gamble unit Gillette sells razors at a loss and makes up the difference from profitable sales of blades later, Lam explained.

In Amazon's case, the Kindle Fire will stimulate demand for the company's digital content and boost sales of physical goods on its e-commerce websites, according to IHS iSuppli.

"When further costs outside of materials and manufacturing are added in -- and the $199 price of the tablet is factored along with the expected sales of digital content per device -- Amazon is likely to generate a marginal profit of $10 on each Kindle Fire sold," the research firm added.

CAUTIOUS

Amazon's digital music and video business has never gained much traction, said Russ Crupnick, senior entertainment industry analyst for The NPD Group, who noted most people download music and video from Apple Inc's iTunes service, while video streaming is dominated by Netflix Inc.

Kindle Fire users are unlikely to buy a lot more of Amazon's digital music and video with their new device, Crupnick added.

"How long will it take for consumers to get on board with the total tablet entertainment experience?" he said. "I'm cautious."

Even on the successful iPad, users do not download a lot more music and video, Crupnick noted.

So far, tablets are mostly used to access video games such as Angry Birds and for downloading other apps -- and that is where Amazon has the best chance to recoup some of its upfront losses on the Fire, he added.

(Reporting by Alistair Barr; editing by Andre Grenon)

Alibaba's Ma: "very interested" in buying Yahoo

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Asked whether Alibaba might like to pick up the ailing U.S. Internet company, Ma told an audience at Stanford University that he would be "very interested in Yahoo."

The former English schoolteacher later added that, were he to have his way, he would be eager to acquire all of Yahoo, not just the stake it owns in Alibaba.

"The whole piece of Yahoo," Ma said in answer to a question from the audience about what part of Yahoo he was interested in. "China is already ours, right? It's already in my pocket."

Yahoo shares leaped 5 percent to $13.80 in after-hours trading.

Acquiring Yahoo could help Ma expand his online empire into one of the world's most important Internet markets.

Ma also said he planned to spend the next year in the United States learning more about the country and the market. An Alibaba spokeswoman said Ma would be based in the San Francisco Bay area, but would travel across the country and would continue his operational duties as chairman and CEO of the Alibaba Group.

Ma, who was speaking at the China 2.0 conference at Stanford, said he had not visited Yahoo to discuss a deal since he arrived in the United States 15 days ago.

"We are probably one of the very few companies that really understand Yahoo USA very well," he said, referring to his company's long-running relationship with Yahoo, which dates back to 2005.

That relationship has grown strained in recent years. Ma's attempts to buy back some of Yahoo's roughly 40 percent stake in his company were rebuffed by former Yahoo Chief Executive Carol Bartz, who was fired earlier this month.

Yahoo has received inquiries from multiple parties about "potential options," but the struggling company is expected to take months to decide its future. It has retained Allen & Co to help it conduct a long-term "strategic review.

Private equity firm Silver Lake Partners is among the parties that have been in touch with Allen & Co, according to a source familiar with the matter.

Yahoo's board has also started to look for a permanent CEO, but provided no details on its progress, or whether it hired an executive recruiting firm to oversee the search.

At an all-hands meeting the day after Bartz was fired, Yahoo founder Jerry Yang said the company was not for sale, according to another source familiar with the matter. But analysts are staking good odds that Yahoo could eventually be acquired.

Ma said he couldn't predict when a deal to acquire Yahoo might take place.

"It's more complicated than we thought. And there's so many people interested in that. And we are also talking to them and they are talking to us," he said.

"I cross my fingers, just to say we are very, very interested," Ma said.

(Reporting by Alexei Oreskovic; editing by Andre Grenon, Gary Hill.)

Kodak denies bankruptcy plan but shares plummet

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Kodak, which delivered the first consumer camera in 1888, denied it had a bankruptcy plan, saying it was committed to meeting its obligations and is still looking for ways to "monetize" its patent portfolio.

Once synonymous with photography, Kodak has struggled with the move to digital cameras and failed to turn a profit since 2007. It has been exploring a sale of its digital imaging patents, worth an estimated $2 billion, and hired investment bank Lazard in July to explore options.

Rochester, New York-based Kodak said it has "no intention of filing for bankruptcy," after its shares plunged as much as 68 percent to 54 cents before recovering slightly to close down 53.8 percent at 78 cents on the New York Stock Exchange.

The company's market value plummeted to roughly $210 million on Friday, down from a lofty height of $31 billion in February 1997, as shown by regulatory filings. The cost to insure Kodak's debt with credit default swaps (CDS) surged on Friday as investors priced in greater bankruptcy risk.

Kodak had already scared markets on Monday when it tapped a credit line but refused to divulge its cash position. The stock dived to a 38-year low that day.

Then investors took fright again Friday after Bloomberg reported that potential buyers for its patent portfolio were cautious about going ahead with a bid as they could risk having Kodak creditors sue them after a bankruptcy filing.

Mark Kaufman, an analyst at Rafferty Capital Markets, said that Kodak urgently needed to seal a patent deal.

"I don't believe bankruptcy is inevitable. This is a pretty valuable portfolio, they should get a good price," he said. "They need to get this (sale) out of the way. They need to sell this portfolio, raise some type of cash."

The company said in July that it hired Lazard to advise on strategic options for its patents -- increasingly seen as lucrative assets. Bankrupt Canadian company Nortel fetched $4.5 billion in a patent sale in June, also run by Lazard. Google Inc agreed in August to buy Motorola Mobility for $12.5 billion primarily for its patent portfolio.

One expert -- Robert Miller, a professor at Villanova University School of Law -- said filing for bankruptcy may actually end up boosting the value of a patent sale.

Even if the company holds a robust, public auction outside of bankruptcy, the headache of litigation still looms if Kodak goes bankrupt later, said Miller.

Selling the assets as part of a bankruptcy court-supervised auction would solve that concern, Miller said.

Kodak confirmed that it has hired Jones Day but did not explain why, beyond saying it was "not unusual for a company in transformation to explore all options."

Investors for the company have been up in arms about everything from its share price decline to its management.

One shareholder had asked the company's board on Thursday to start a sales process while others sharply criticized Chief Executive Antonio Perez.

The company's board is not considering replacing Perez at this time, according to a story in the Wall Street Journal, which cited two people familiar with the matter.

Kodak CDS costs rose to 70 percent Friday from 61 percent Thursday, data provider Markit said. That means it would cost $7.0 million in upfront payments, plus $500,000 a year to insure $10 million debt if Kodak debt for five years.

"This is pretty expensive insurance at this point and the reason it's so expensive is that people believe there's a high likelihood of default," said Markit analyst Otis Casey.

(Additional reporting by Paul Thomasch, Nicholas Brown, Dena Aubin, Caroline Humer, Nadia Damouni, Phil Wahba and Jonathan Stempel; editing by Gerald E. McCormick, Matthew Lewis, Gary Hill)