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Wednesday, July 22, 2009

Morgan Stanley, Wells Fargo: No Green Shoots

FN: After being up 6 of the last 7 trading days and now knocking on the underside of resistance, it's probably time for the Bulls to take a break. Losses from the financials who are not Goldman Sachs should inspire some profit taking and a more sober assessment of reality.

Morgan Stanley Loss Misses Estimates on Debt Costs (Update1): "Morgan Stanley reported a bigger second-quarter loss than analysts expected as costs to repay the U.S. government and charges from an improvement in the firm’s own debt overwhelmed revenue.

The loss from continuing operations was $159 million, or $1.37 a share, compared with earnings of $689 million, or 61 cents, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 19 analysts surveyed by Bloomberg was for a 54-cent loss. The results include a $2.3 billion accounting charge related to tighter credit spreads.

Chief Executive Officer John Mack raised $6.9 billion by selling stock in the quarter, paid $10 billion and an $850 million dividend to the U.S. government and took control of Citigroup Inc.’s Smith Barney brokerage division. All three of Morgan Stanley’s divisions lost money, while rising stock and bond markets fueled profits at competitors, including record earnings of $3.4 billion at Goldman Sachs Group Inc."

Wells Fargo Says Bad Loans Rise in Second Quarter; Shares Drop: "Wells Fargo & Co., the biggest U.S. home lender this year, said bad loans jumped in the second quarter as the recession made it harder for borrowers to keep up with payments. The shares dropped 5 percent in early trading.

Assets no longer collecting interest climbed 45 percent to $18.3 billion as of June 30 from the first quarter, the San Francisco-based bank said today in a statement. The increase was disclosed as Wells Fargo reported second-quarter net income soared 81 percent to a record $3.17 billion.

Wells Fargo added to credit reserves amid a 26-year high in unemployment and rising commercial real estate delinquencies. While the acquisition of Wachovia Corp. in January bolstered deposits and home lending, the bank must stanch losses from defaults in California and a portfolio of option adjustable-rate mortgages, ranked among the riskiest loans issued during the housing boom."

FN: So there was a 45% increase in assets no longer collecting interest! Holy shit! That is a serious deterioration in their balance sheet. $18.3 billion isn't exactly pocket change. Whatever happened to all them "green shoots"? The whacky world of accounting allows this bank to sit on $18.3 billion of defaulted debt while recording "second-quarter net income soared 81 percent to a record $3.17 billion". Uh huh. That makes perfect sense.

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