Each week QFINANCE will endeavor to bring you some of the biggest news stories from the past five days in finance and business, as well as some of the most fascinating websites and links that have crossed our path. We hope you'll enjoy reading, we hope you'll have a great weekend and we hope that you'll come back each Friday to brush up on your finance and business knowledge.
Monday October 24
According to recent data compiled by Financial News, accounting technicalities helped to disguise losses suffered by Wall Street’s investment bank in the third quarter of this year. The results of many US banks, which were announced last week and exceeded analysts’ expectations, have been put under closer scrutiny by Financial News, with some fascinating conclusions being drawn and cover-ups being revealed. By stripping out the effect of a debt valuation adjustment (DVA) – a regular feature of results, but one that was particularly acute this year – you push the numbers of some major players, including the investment banking division of Bank of America Merill Lynch (BAML), into the red. This flip turns pre-tax profit of $730m into a loss of $970m. The same assessment of Morgan Stanley’s institutional securities business drops from pre-tax earnings numbers of $3.34bn to just $23m, only just breaking even. Goldman Sachs $73bn loss would fall further to $1.18bn, JP Morgan’s investment bank would lose nearly $2bn in its pre-tax profit and Citi’s securities and banking division plunges from $2.97bn to $1.08bn. The DVA accounting change, which is meant to reflect the changing value of banks’ debt, affects results each year and has in the past resulted in gains as well as losses, but it makes this quarter’s number especially difficult to compare with others.
Read about the banks' close dodge and DVA in more depth here.
Tuesday October 25
Online retail giant Amazon was under close scrutiny on Tuesday evening as it revealed its outlook for the crucial holiday season quarter. The figures released were much weaker than investors expected and the stock dropped twelve per cent in extended trading. Concerns were voiced that Amazon was losing the revenue momentum that made the company favorable despite razor-thin profit margins. Amazon stated that its third-quarter net income was only $63m (£39.4m), compared with $231m last year, and that revenue was up 44 per cent from the same time last year, although this still did not reach estimations from analysts. Jeff Bezos, Amazon chief, said that a $200m operating loss could be expected for the remainder of this year on a potential $250m operating profit, due largely to heavy spending on its new Kindle Fire tablet and other initiatives.
Read about the development of Amazon and the vital Christmas predictions in more depth here.
Wednesday October 26
In February this year Stephen Elop, the new chief executive of Finnish mobile phone maker Nokia, said that the company was on a “burning platform” and could either burn and die or take a risk and jump into the icy waters below. Now it has decided to gamble on a future with Microsoft. The company will do battle with Apple’s iPhone technology and Google’s Android software by choosing to feature the new Windows Phone 7.5 operating system (also dubbed Mango) on their Lumia 800 and Lumia 710 handsets. These are due to be shipped very soon and potential available in November, which has led many to believe that it will be a serious competitor in the Christmas season. Nokia is set to spend £80 million promoting these new Lumia handsets, three times the budget set for a launch of any of their other phones. With £30 million spent in Britain alone, the company is certainly looking to swim to shore, and then possibly build a large colony on the island.
Read about Nokia's gamble on Microsoft's Mango operating system in more depth here.
Thursday October 27
It seemed pointless to mention anything about the eurozone debt crisis in the previous entries. To summarize: stuff got delayed, people got nervous and some Italian fellas had a fight. But on Thursday, finally, EU leaders took decisive action to remedy the crisis, which included a brand new bail-out for Greece of €100bn in the new year and an increase in the firepower of the main European bail-out fund to roughly €1 trillian (£872bn). Despite talks breaking down at points between holders of Greek debt and the eurozone representatives, eventually they settled on a loss, or “haircut” of 50% for debt holders to convert their existing bonds to new loans. German chancellor Angela Merkel said that the swap would take place in January and Nicolas Sarkozy, the French President, stated that private sector investors would refinance Greek’s remaining debt at preferential rates. He also said that governments would find €30bn from the private sectors to accompany the €100bn found so far. The European Financial Stability Facility (EFSF) could find its firepower multiplied by four or five times, which could add up to €1tn – or US$1,4tn in Sarkozy’s words.
Read about the decisive moves made by EU leaders in more depth here.
…and world markets rejoiced.
Read about this here.
Friday October 28
New information from the Incomes Data Services (IDS) has been released today that shows that the pay for the directors of the UK’s top businesses has risen by 50% over the past year. The pay research company said that this takes the average pay for a director of a FTSE 100 company to just short of £2.7m. The survey looked into the cumulative amount covering salary, benefits and bonuses, which was discovered to be, in many cases, higher than the chief executive, the person running the company. Directors’ bonus payments rose by an average of 23%, from £737,000 in 2010 to £906,000. The same study showed that base salaries rose by just 3.2%, which was actually above the median rise recorded by IDS for average pay settlements of 2.6% for private sector workers. Latest consumer price inflation figures showed inflation to be at 5.2%. The Unite union’s general secretary Len McCluskey stated that this was “obscene” and that “the Government should strongly consider giving shareholders greater legal powers to questions and curb these excessive remuneration packages.” No doubt plenty of quotes will be being gathered from protestors that are part of Occupy Wall Street, or those outside St. Paul’s Cathedral in London.
Read the full report on this study here.
Read the QFINANCE blogs about the Occupy Wall Street movement on the two links below:
Democracy for sale: Occupy Wall Street is right, our politicians and banks have failed us.
The dukes and earls in America’s Great Tower of Bulls**t are starting to blink a little.
Come back next Friday for another report on the world of business and finance.
More from the week:
6th Annual Conference on Corporate Anti-Fraud
Since JFPS Group stepped into the Corporate Anti-Fraud conference in 2006, we aim to be the best Anti-Fraud conference in China and have attracted 500+ senior executives to discuss the hottest issues and best practices. JFPS Group will bring together anti-fraud professionals, thought leaders and industry experts from diverse industries to discuss relevant and timely topics about today’s financial challenges, corporate governance and fraud in high risk areas. Meanwhile, we may offer more fraud investigation tools, resources and techniques than ever before.
30,000 – Bank of America
30,000 – HSBC
15,000 – Lloyds Banking Group
3,500 – UBS (with further 1,700 expected)
2,000 – Credit Suisse
2,000 – RBS
1,400 – Barclays
1,400 – State Street
1,400 – Goldman Sachs
1,000 – JPMorgan
500 – Deutsche Bank
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