Financial
KFG,
The Financial Services sector has been one that has been looked at heavily in the last 30 to 60 days of trading. It is a driver of the volatility index (VIX), as well as the general markets. Each day the market is relative more confident or more scared of the effects that subprime mortgages could have. The bulge bracket has been doing well as seen in their Q1 earnings - with two firms doing extremely well - Goldman Sachs and Morgan Stanley. It seems what put them over the top was their exposure (lack there of) to the subprime markets.
Citigroup: On Monday, the financial services gargantuan reported that it would cut 15,000 jobs and look in to moving more out of NY/London/Hong Kong and into India/Cincinatti/NJ. In addition to trimming some fat, they would take a $1billion restructuring charge. As an investor, I applaud this - they need to cut costs, and this is a suitable way to acheive that. And was this really a surprise at all coming from Chuck Prince - he recently bought on former American Express CFO, who is known for actions such as this.
But lets get back to the fundamentals - a stocks price represents the present value of future cash flows. The above changes can take many periods to make it into investors pockets in the form of dividends, capital appreciations, or share buyback. If they are taking away human capital, I do not see revenue growing any faster than before either, so I see at best flat NI in the near future. I think we should sell the stock and look for something better that can earn cash now.
More to come on MER as Q1 earnings get closer, but I am still very bullish on Stan O'Neal and his boys. (They earnings come out 3rd week of April)
The Financial Services sector has been one that has been looked at heavily in the last 30 to 60 days of trading. It is a driver of the volatility index (VIX), as well as the general markets. Each day the market is relative more confident or more scared of the effects that subprime mortgages could have. The bulge bracket has been doing well as seen in their Q1 earnings - with two firms doing extremely well - Goldman Sachs and Morgan Stanley. It seems what put them over the top was their exposure (lack there of) to the subprime markets.
Citigroup: On Monday, the financial services gargantuan reported that it would cut 15,000 jobs and look in to moving more out of NY/London/Hong Kong and into India/Cincinatti/NJ. In addition to trimming some fat, they would take a $1billion restructuring charge. As an investor, I applaud this - they need to cut costs, and this is a suitable way to acheive that. And was this really a surprise at all coming from Chuck Prince - he recently bought on former American Express CFO, who is known for actions such as this.
But lets get back to the fundamentals - a stocks price represents the present value of future cash flows. The above changes can take many periods to make it into investors pockets in the form of dividends, capital appreciations, or share buyback. If they are taking away human capital, I do not see revenue growing any faster than before either, so I see at best flat NI in the near future. I think we should sell the stock and look for something better that can earn cash now.
More to come on MER as Q1 earnings get closer, but I am still very bullish on Stan O'Neal and his boys. (They earnings come out 3rd week of April)
posted by Rich Golaszewski at
2:13 PM
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