Market briefing --- Matt (slow)
NYSE --- Deb (fast)
Wachovia --- Carmen (fast)
welcome to “world financial report.” i am matt nesto. as we said, securities firms in the spotlight right now. morgan stanley, goldman sachs, both expected to report a doubling of their profits when they report their second-quarter numbers before the start of trade tomorrow morning. morgan stanley, for them it’s all about a rise in investment banking business, more demand for merger advice and new equity sales probably increased profit there to $1.2 billion, working out to $1.06 a share for the nation’s second biggest broker. over at goldman, a focus tomorrow will be on how much risk the firm’s traders took last quarter. goldman has benefited more than any of its rivals by using the firm’s own money to make bets on currencies and commodities. the nation’s third biggest brokerage or securities firm probably boosted its profit to $1 billion, $1 1.95 a share. rivals bear stearns and lehman brothers reported stronger-than-expected bond trading profits with their numbers when they came out last week. we’ll have more on morgan stanley and goldman sachs later in the program. the closing numbers withered in the summertime heat, the longest day of the year, the vernal equinox. looking at the intraday chart, that says it all, that and this next stat, volume. the third slowest trading day of the year. that includes days like good friday, the day before good friday, very slow, 1.3 billion for the nasdaq, as well. on to the bond market we go. the new screen showing all kinds of information here. crude down as iraq resumed partial exports to one of two pipelines shut last week after a terrorist attack. crude oil for july delivery fell $1.12, or 1.9%, $37.63, the nymex close. prices have fallen 11% from a record $42.45 a barrel reached june 2. a win per h.m.o. companies today, but didn’t help share prices. deborah kostroun has details at the big board.
>> that’s right, matt. the supreme court today handed down a major victory for the health insurance industry because they unanimously ruled that patients unhappy with coverage decisions cannot sue% -their insurers in state court. however, you did see the h.m.o. index getting hit hard, relating to a couple of cases against aetna and cigna involving members who sued health plans under the 1997 texas healthcare liability act but now the supreme court saying this is probably going to have to be resolved by congress and that actually could be seen as riskier for many of these companies. so although it was a win for the h.m.o. stocks, it looks like it’s going to have to be dealt with by congress. looking at telecom, the biggest laggard in the s&p 500 today. there was an article in “barron’s” saying that telephone, cable and satellite prices likely to decline as they compete with each other and fail to meet their own growth goals, according to a telecom analyst with friedman, billings, ramsey group. so a lot of competition there. one of the things that the analyst was talking about that many of these companies going to be poaching into each other’s businesses like cable providers under attack from satellite companies and we saw this today in a news story. cablevision, the largest cable television operator in the new york area, saying it began offering a $90-a-month package of tv, telephone and web access and that coming out today. another big story as we heard of mergers in the bank industry, simon property group, world’s largest manager of shopping malls, agreed to buy chelsea property group, owner of factory outlet shopping centers, for $3.5 billion in cash and stock.
>> thank you, deborah. wachovia’s $14 billion agreement to buy southtrust will give it the largest market share in north carolina, virginia, georgia and south carolina. carmen roberts, no stranger to that part of the world, joins us with the devil in the details.
>> as deborah mentioned, another bank deal, we have bank deals and mergers and acquisitions coming this year. bloomberg data showing that bank mergers announced this year have reached $102 billion, almost 50% more than 2003’s total. the wachovia-southtrust deal is the second biggest bank mergey anonced this year following j.p. morgan’s buyout of bank one. wachovia, the fourth largest bank, has agreed to pay more than $14 billion in stock for southtrust, valuing it at a 20% premium to friday’s closing price. kevin fitzsimmons says that looking at the deal short term, wachovia overpaid.
>> however, i throw the caveat that you get what you pay for and southtrust is one of the most stellar franchises in the southeast so i think over the long term you can argue that that it really enhances the franchise value.
>> analyst with blaylock and partners says wachovia is paying far less than the 42% premium j.p. morgan paid for bank one. he says the acquisition enhances wachovia’s position in florida and speeds entry into texas where it plans to open 250 offices. fitzsimmons who does not own any bank share, agrees.
>> it gives you the 60 branches in texas, allows you to bulk up in florida and georgia and get cost savings while you’re at it.
>> after the deal closes, the bank expects to cut $255 million in expenses as well as 4,300 jobs. shares of wachovia, which gained 14% in the past year, fell 4% today. southtrust shares rose 13%, giving them a 20% gain for the year. buying southtrust of birmingham, alabama, gives wachovia $5,300 in assets. robert maneri says that the purchase gives wachovia a bank with credit quality and stellar earnings and southtrust’s earnings have climbed for more than 10 straight years, quite a record and something that wachovia is happy to get ahold of.
>> no question and willing to pay up for, which brings us to our next topic. we’ll take a closer look at banks and how they moved today. we often look at the philadelphia banking index. if you look at it today, it actually finished inconclusive, 10 up, 14 down of the 24 members there today. the percentage movers, no surprise, the active stocks, southtrust and wachovia, 13 up, 4% down. and mossed―modest gains there. the one-year numbers more telling with southtrust having been, prior to the 13% jump today, had been an outperformer versus the index. guess which line is southtrust? hint―yellow. if you look at the orange line, that’s wachovia. you can see it now very close over the past 12 months with a 12.8% -- excuse me, listen.1% -- 11.1% line, slightly lower than the banking index. now we’ll talk about the money. the estimated p.e., 9.1 times, washington mutual. wachovia trading at 10.5 times. this deal was done at 16.7 times southtrust’s estimated 2005 earnings, a 35% premium to the average for the banking index. also, the book value, volume two, price to book, we saw it done at about 3.1 times, that, too, about a 35% premium to the average. and then last but not least, you think a 20% gain in your shares of southtrust is impressive, if you have the inside track like somebody did here with the $35 call options that expired, then you made 1,000 percent in three days. the volume is up 15-fold.
