Early earnings reports from the nation's biggest banks are showing that there's still one major hurdle the market needs to overcome before a recovery can be taken seriously.
Credit concerns, be they at the consumer or commercial level, continue to bedevil banks and the broader economy.
As unemployment grows and the real estate contagion spreads to the commercial sector, institutions like Bank of America [BAC 8.02 -2.58 (-24.34%) ], which reported earnings Monday that reflected intense credit pressures, will continue to struggle.
"We have been and remain cautious on financials and banks in particular. That's our stance for well over a year," said Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. "This rally not withstanding, we continue to hold that negative stance and it's because of those credit concerns."
On their surface, BofA earnings easily beat Wall Street estimates with a profit of 44 cents per share against expectations of just 4 cents.
But the company set aside $13.38 billion in losses for the quarter, and a statement from CEO Ken Lewis that the bank faces "extremely difficult challenges, primarily from deteriorating credit quality," was seen as reflective of other similar institutions. Stocks across the sector plunged Monday.
The commercial loan and real estate operations are seen as particularly weak as that part of the real estate market is expected to come under intense pressure through 2009. more...
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