Interview: A breakdown for Citigroup reported third-quarter profit
>> the merrill numbers are due tomorrow. citigroup out earlier today. it had a record profit helped by a sale of its insurance business, also a surge in investment banking. margaret popper covers wall street for us at bloomberg tv and joins us with a breakdown. margaret?
>> thank you. citigroup reported third-quarter profit of $31.4 billion, an increase of almost 34% last year, at $7.14 billion. without the sale of the insurance unit, and $222 million in charges from hurricane katrina, the bank made $1.01 a share. two cents more than analysts predicted. sandler o’neill analyst jeff harte credits investment banking.
>> the biggest driver of the outperformance was the investment bank, both trading and investment banking but that will probably lead to the bigger question on the conference call, with revenues coming in so strong, why did overall results just come in line?
>> investment banking profit jumped 24% as bond trading revenue climbed 53% and equity trading revenue rose 78% compared with last year’s third quarter. m&a fees were up 63% and revenue from underwriting stock issues climbed 45%. the consumer bank did not fare quite so well. net income fell 13% during the quarter. the biggest drag on earnings, profit on loans, fell 23% as the fed raised interest rates. credit card net income fell 7% as bankruptcies rose. so far this year, citigroup shares have fallen $3.37 or 6.99%. ellen?
>> let’s talk about the disconnect. there’s always a disconnect, it seems, particularly with the financials between what analysts were looking for and what the company actually reports. how did this play out in this particular case?
>> i think what analysts expected when i talked to them, actually, what they said was that they were expecting a big drop because of the consumer bank and that in fact that didn’t play out. if you looked at the total net income figures, they were talking about a 6% decline, not just what we see on the earnings per share numbers. citi managed to beat by two cents a share because they were able to grow their credit card receivables and nobody was really expecting that to be able to offset the fact that there are more bankruptcies because consumers want to get in before the bankruptcy law changes.
>> the rush before today.
>> yes.
>> let’s look forward because we have merrill lynch out before the open tomorrow. what kind of numbers are analysts looking for?
>> analysts have forecast for merrill that the earnings will grow 27% while. while impressive, that’s less than its rivals. if you look at merrill lynch and consider that it’s the second biggest u.s. securities firm by market value, analysts are expecting it to have the smallest earnings gain in the third quarter. chief executive stanley o’neal said a a year ago he would boost market share in investment banking with selective hiring but so far merrill’s market share has been falling. merrill has slid in the rankings over the past year from eighth to -- -- - to eighth from first. wachovia analyst expects a 15% return on equity from merrill this year, seven points below its peer group average of 17% to 18%. analysts forecast merrill’s earnings rose to almost $1.2 billion, or $1.19 a share, a third-quarter record, but merrill’s 27% gain would be less than what was reported by bear stearns, morgan stanley, lehman brothers or goldman sachs. that’s not counting morgan stanley’s billion dollar write-off of its aircraft leasing business, of course. merrill lynch is a passive minority investor in bloomberg lp, the parent of bloomberg news. ellen?
>> thanks so much. we’ll get those numbers tomorrow as they cross. in the meantime, heading into a quick commercial break, we’ll return with the latest on world and national news. also, some changes at “nightline.”
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Interview: Economist with Wachovia
>> welcome back to “after the bell.” i’m ellen braitman, 30 after the hour. recapping the day on wall street, benchmark indexes ending the day with gains. the dow up just shy of 61 points, 10,348. there you have shares of altria as well as g.m. giving a boost to the dow industrials. the s&p rising 3.5 points. 1190, the latest for the s&p. the nasdaq up five points to 2070. note that with the major benchmarks, it is the first back-to-back gains we’ve seen so far this month. so far for october. and you recently, last week, had the benchmark indexes trading near five-month lows. it was on concerns about energy prices, about higher inflation and anticipation the fed will continue to raise rates. now, with today’s gains, you have the benchmark indexes recording their first back-to-back gains we’ve seen so far this month. there is a change at the top for the consumer products maker newell rubbermaid. chief executive joseph galley resigned after sales fell for 10 consecutive quarters and his plan to turn around the company failed. his position is being filled kemp regional by board member mark ketchum. newell shares dropped 13% since galli took over and he began investing in products such as pens and cookware. shares surged on the back of the news, up 8.7%. higher energy costs have led to a downturn in manufacturing growth in new york state. a federal reserve survey shows expansion this month slipped to the lowest reading since june. and september’s index was revised lower. 10-year treasuries declined and that was because an inflation component of that report on manufacturing in new york increased to the highest we’ve seen this year. the 10-year down 3/32, 4.49% is that current yield. as for the five-year, the yield at 4.35%. here’s a look at the two-year treasury note, yield at 4.27%. here’s a look at what we’ve seen in the currency market . the dollar gaining against the yen. in fact, most other currencies today. came after china and speaking with the top global finance ministers, remained vague about how it would allow, that is, freer trading of currencies. the dollar gaining today. fed chairman alan greenspan and 10 other policymakers slated to give speeches this week and they may underscore concerns about the potential for faster inflation. we have a key inflation report coming out tomorrow, the producer price index. helping us take a look at what all of this may mean for investors is gina martin, economist with wachovia. joining us right now from charlotte, north carolina. gina, thanks so much for joining us.
>> glad to be here. thank you.
>> we had that new york state manufacturing report today come in weaker than expected but that inflation component, troublesome for some investors. is that perhaps a sign of what we could see from the p.p.i. report tomorrow?
>> i think so. absolutely. last week, we found out that consumer prices are increasing faster than we had hoped. though core consumer prices remained contained. i don’t think we’re going to get quite as lucky as we look at wholesale prices. i think producer prices are increasing across the board. when you think about the core producer price index, those energy costs are running into core producer prices quicker than they’re going to consumers so i think we’ll have strong numbers tomorrow.
>> when i look at the numbers and i’d like for you to give them to us in terms of your inflation outlook, you’re a little bit ahead of the average estimate among economists. tell us your number and why you’re perhaps seeing more inflation than some other economists.
>> sure. the consensus forecast for overall p.p.i. is for 5.8% year-over-year increase. i would not be surprised to see 6% tomorrow. i think that the energy costs are very strong. post-katrina, we saw lumber prices increase quickly, cement costs continue to go higher as well as construction materials across the board. prices went higher on anticipation of stronger demand and supply shortages so we have that working against us as far as inflation goes. and then energy costs, very obvious one, were significantly higher in september so we’re quite a bit stronger in our expectations.
>> given that, given your inflation outlook and the data we’ve had and will have tomorrow, with all of these speeches coming up from fed officials in coming days, how blunt do you think they will be about expectations for rate increases and about the inflation outlook?
>> well, the story out of the fed right now is inflation, inflation, inflation. that seems to be all we’re hearing about. so i think they’ll be very blunt, quite frankly. we’re forecasting that the fed will continue increasing over the next four straight meetings, another 25 basis points in each meeting so we’re looking at november-december and into the next year, as well, in january and march. so we think the fed will forecast and be very blunt about their expectations, inflation is very scary to them and they will do everything they can to fight it.
>> what, then is, your take on current yields? you have the 10-year at 4.49%. we’ve seen a significant move in recent weeks. how well matched do you think that is to your inflation outlook?
>> pretty well matched. i think the 10-year is reflecting these inflation concerns. we think the 10-year will end the year still below 5% and a lot of that is because the inflation concerns start to moderate and get replaced with growth concerns going into the holiday season. i think that consumers will continue shpg through the holiday season but as we get into january, february, it looks like consumers will have significant pullbacks in their spending especially on the discretionary side as they nice higher heating oil and natural gas costs so as growth concerns start to outweigh inflation concerns, the 10-year may not show nearly as much propensity to increase in yield.
>> gina, thanks so much for joining us.
>> thank you.
>> gina martin with wachovia. we want to note for our viewers that fed chairman alan greenspan will speak on energy to business groups in tokyo at 9:30 new york time. we’ll have all the details in our asia coverage tonight on bloomberg news. still ahead, the president of leapfrog, an educational toy company. he’ll talk to us about a new product the company has the market as well as his outlook for the holiday season. stay with us.
