While you were sleeping: Lift from Bank of America

Wednesday 19th October 2011

Bank of America results exceeded expectations, helping to bolster the mood on Wall Street after a more sombre tone earlier in Europe.

Bank of America’s battered shares rallied more than 6 percent on the company’s third-quarter profit of US$6.23 billion, and helped lift other financial stocks.

In afternoon trading in New York, the Dow Jones Industrial Average gained 0.82 percent, the Standard & Poor's 500 Index rose 1.15 percent and the Nasdaq Composite Index advanced 0.75 percent.

"Part of the reason financials are acting better than people were largely expecting ... is because though earnings are by historic standards very, very disappointing, they are not as bad as a lot of the naysayers were expecting them to be," Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey, told Reuters.

It wasn’t all roses in the sector today.

Goldman Sachs reported its second quarterly loss as a public company today, losing US$2.48 billion in its investing and lending group, almost half of it related to its stake in Industrial and Commercial Bank of China.

"The one glaring problem area was their investment account, and particularly their stake in the Chinese bank," Stanley J. G. Crouch, chief investment officer of Aegis Capital, told Reuters. "That's what really kind of imploded them."

Yet investors gave the company the benefit of the doubt, boosting the stock more than 3 percent.

“In the core business there are some encouraging signs,” William Fitzpatrick, a Milwaukee-based financial-services analyst at Manulife Asset Management, which owns Goldman Sachs stock, told Bloomberg News. “It was the private-equity business that weighed on results in the quarter.”

In Europe, the mood was more sombre. In Germany, investor confidence sank to the lowest in almost three years in October.

Moody's warned it might put a negative outlook on France's Aaa credit rating in the next three months.

And Italian financials came further under fire when Standard & Poor's today downgraded two dozen of the nation’s banks and financial institutions.

"In our opinion, renewed market tensions in the euro zone's periphery, particularly in Italy and dimming growth prospects have led to further deterioration in the operating environment for Italian banks," the ratings agency said in a statement.

The Stoxx 600 Index ended the day with a 0.4 percent decline.

Elsewhere too, data kept alive concern about the global outlook. China’s economy expanded 9.1 percent in the third quarter, slightly short of expectations.

“In China, I am concerned that growth could fall below 9 percent in the fourth quarter because they’re still rather restrictive in their monetary policy and inflation is still high,” Martin Huefner, chief economist at Assenagon in Munich, told Bloomberg.

Meanwhile, Federal Reserve chief Ben Bernanke said central banks might have to use monetary policy to combat asset bubbles. "The possibility that monetary policy could be used directly to support financial stability goals, at least on the margin, should not be ruled out," he said at a conference at the Boston Fed.

(BusinessDesk)

BusinessDesk.co.nz

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