Business Blog Posts

Analysts on average expect the second-largest U.S. bank earned $1.16 a share, according to Thomson Reuters I/B/E/S. That compares with a year-earlier profit of 74 cents a share.

JPMorgan is the first of the major U.S. banks to report earnings and is expected to set an upbeat tone for the sector, showing an improvement in credit quality and only moderate trading losses. The bank is closely watched for its broad exposure to both consumer and investment banking.

A big driver for the improved performance is expected to be JPMorgan's credit card business, which lost $303 million in the first quarter of 2010, but seems to be turning around. In the fourth quarter, it earned $1.3 billion.

"It's not like credit is fantastic right now, but we're moving the right way pretty quickly," Jeff Harte, a bank analyst at Sandler O'Neill, said in an interview on Tuesday.

JPMorgan Chief Executive Jamie Dimon is often praised for avoiding the worst of the credit crunch through careful risk management in fixed income trading. But the bank suffered big losses from mortgage loans and other types of consumer credit.

The mortgage losses may continue for some time, but credit card lending appears to be improving and it was the bank's second most profitable unit in the fourth quarter. Financial regulatory reform may crimp future profits in this business.

Investment banking was the most profitable area, with a $1.5 billion profit. The business was tough in the first quarter, analysts said.

European debt fears, high oil prices and the nuclear crisis in Japan have made for a jittery trading environment. With the Dodd-Frank financial reform law limiting a bank's ability to use its own capital to trade for profit, Wall Street sales and trading revenues are likely to have slipped.

JPMorgan beefed up its commodities trading with the acquisition of the non-U.S. assets of RBS Sempra last year. Strength in that business could help dampen weakness elsewhere, Sandler O'Neill's Harte said.

JPMorgan's investment banking business should also benefit from increased corporate debt issuance and it is using its balance sheet to win investment banking business, said Paul Miller, a bank analyst at FBR Capital Markets.

"They've been very good at taking advantage of the liquidity in the system," said Miller.

JPMorgan attracted attention last month when it agreed to be the only bank making the initial commitment on a $20 billion bridge loan to help finance AT&T Inc's acquisition of T-Mobile USA from Deutsche Telekom AG.

The analysts with the best track record are forecasting earnings of $1.17 a share, according to Thomson Reuters StarMine SmartEstimate.

JPMorgan shares have risen nearly 8 percent over the course of the quarter.

(Reporting by Clare Baldwin; editing by Dan Wilchins)

Power companies, airlines and major manufacturers feared that regulators would force them to post collateral, or margin, with a bank when they hedge against risks such as changes in currencies, fuel costs or interest rates -- raising the cost of using swaps to lock in profits.

The proposals, issued by Commodity Futures Trading Commission and the Federal Deposit Insurance Corp for public comment, craft margin exemptions for the small slice of the derivatives market in which companies need highly customized swaps that can't be cleared through exchanges.

The proposals are part of last year's Dodd-Frank reform law aimed at curbing swap speculation of the sort that amplified the devastating 2007-2009 financial crisis, while still letting businesses hedge their risks.

"Corporate end-users are going to be encouraged by the direction that this is heading," said Paul Rowady, a senior analyst at research and advisory firm TABB Group.

But there were sufficient differences between the CFTC's plan and the one issued by the FDIC and other banking regulators, to keep some companies guessing about whether they will be fully exempt from having to post margin when using derivatives.

"I believe commercial end-users and many of the financial end-users will be dissatisfied with the lack of harmonization among the different regulatory bodies," CFTC Commissioner Scott O'Malia said before dissenting in the agency's 4-1 vote to seek public comment.

The CFTC's proposal applies to non-bank swap dealers and offers a clear margin exemption for corporations hedging their business risks.

The bank regulators' proposal applies to banks such as JPMorgan and Bank of America that serve as swap dealers, and does not offer a clear exemption for end users.

The latter proposal could force a corporation to post collateral if the bank selling a derivative found that the corporation was too much of a credit risk.

It is unclear how often banks would have to demand collateral from corporations, but the lack of a clear exemption drew ire from business groups.

"Despite the clear legislative history to the contrary, the regulators continue to misinterpret the Dodd-Frank Act as giving them authority to impose margin requirements on end-users," said a statement from the Coalition for Derivatives End-Users, an industry group.

Profits hang in the balance not only for corporate end-users, but also for the big financial companies that dominate the swaps market, including Citigroup, Goldman Sachs and HSBC. They could be hurt if they can no longer offer margin-free swap trades to corporations.

Nearly a third of all off-exchange derivatives trades last year were not secured by collateral, or margin, said the International Swaps and Derivatives Association.

SEEKING TO AVOID UNDUE BURDEN

Cisco's consumer division, in particular, has been a target of criticism by analysts, who have said it strays too far from the company's main business of selling routers and switches to the technology and telecommunications industries.

Cisco shares were up 1 cent at $17.48 in Nasdaq trading on Tuesday. Shares have lost a third of their value over the past year. Including that slide, Cisco has lost slightly more than half its value since the start of 2001, when it was almost worth $40 a share.

Chambers promised last week to make tough decisions about the direction of the company. Tuesday's news appears to be his first move. Among the steps, Cisco plans to shut down the Flip business and combine its Umi home teleconferencing service with its TelePresence business product.

The company also said it would cut 550 jobs in the fiscal fourth quarter, accounting for less than 1 percent of its workforce of about 73,000 employees.

Cisco originally bought the Flip business for $590 million in 2009.

The company plans to take a pre-tax charge of about $300 million for the overhaul. The charge is expected to be recognized in the third and fourth quarters of fiscal 2011.

Chambers has previously called on the company to focus on five areas: routing, switching and services; collaboration; data center virtualization; architectures; and video.

(Reporting by Paul Thomasch; Editing by Derek Caney)

* Investors are likely to be cautious after Japan raised the severity of the nuclear accident to the highest level, putting it on par with the Chernobyl 1986 disaster.

* Earnings news will be another focus, following Alcoa Inc (AA.N) reporting revenue that missed forecasts after the bell on Monday, sending its shares lower in post-market trade, despite reporting a first-quarter profit above expectations.

* Elsewhere, Chevron Corp (CVX.N), the second-largest U.S. oil company, said first-quarter exploration and production earnings would be higher than in the previous quarter.

* Brent crude extended overnight losses on concern high fuel prices will destroy demand and following Goldman Sachs recommendation on Monday to lock in trading profits.

* Looking at merger and acquisition news, two sources familiar with the matter told Reuters that Hewlett-Packard Co (HPQ.N) had considered buying business software company Tibco Software Inc (TIBX.O) until two weeks ago when talks fizzled.

* Staff at Taiwan unit Nan Shan Life Insurance Co Ltd have been urged by American International group Inc (AIG.N) to voice their support for its planned $2.16 billion sale, saying their silence has allowed "ill-intentioned groups" to create negative impressions over the much-delayed deal.

* A former private equity executive was sentenced to 13 years and four months in prison for his role in a real estate investment fraud that federal authorities have called a $255 million Ponzi scheme targeting Orthodox Jews.

* The Wall Street Journal reported that the Bank of America Corp's (BAC.N) internal auditors are reviewing why its chief financial officer and chief accounting officer were not consulted before the bank disclosed to investors that its dividend increase had been rejected by regulators.

* Amazon.com Inc (AMZN.O) said it is now offering a version of its Kindle device for $25 less, but that electronic book reader will include advertising.

* U.S. stocks mostly fell on Monday, with energy shares selling off on lower oil prices and concerns that company outlooks may fall short of expectations.

The Dow Jones industrial average .DJI rose 0.01 percent, the Standard & Poor's 500 Index .SPX fell 0.3 percent and the Nasdaq Composite Index .IXIC lost 0.3 percent.

* European shares fell on Tuesday after Japan raised the severity of its nuclear crisis to a level equal to that of Chernobyl, the world's worst nuclear disaster and on earnings concern after the revenue miss by Alcoa.

(Reporting by Joanne Frearson; Editing by Erica Billingham)

Revenue in the quarter rose 22 percent to $5.96 billion, helped by rising prices for aluminum and alumina -- the raw material for the metal -- but it lagged the Wall Street forecast of $6.08 billion.

Also, Alcoa's output of alumina, or aluminum oxide, used in the production of aluminum metal, dipped slightly in the first quarter to 4.0 million metric tons from 4.2 million in the fourth quarter of 2010.

The company's shares, which have risen almost 40 percent in the last six months, fell 3.4 percent to $17.17 in after-hours trading on the New York Stock Exchange.

"Alcoa's had a big run, so I don't think you're going to see a lot of upside from this number," said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

"What's really going to worry the market is top-line growth," said Alan Lancz, president of the Alan B. Lancz & Associates investment advisory firm in Toledo, Ohio.

"They've really improved margins as much as they can, and if you don't get the top-line growth now or it doesn't meet expectations, that leaves the market vulnerable." (For a graphic on Alcoa's earnings click on r.reuters.com/sub98r)

Chairman and Chief Executive Officer Klaus Kleinfeld told Wall Street analysts the company still expected global aluminum demand to grow by 12 percent this year with some industrial sectors, such as heavy trucks, growing even more.

"We expect the aerospace market to grow 7 percent in 2011 -- that's actually up 1 percent from our previous estimate," he said, adding it was driven by Boeing and Airbus having a production backlog of six years.

For the automotive sector, Kleinfeld said: "If the recovery continues to be strong, we expect overall on a global basis growth between 5 percent to 11 percent."

For heavy trucks and trailers, Alcoa has increased its growth estimate to a range of 5 percent to 10 percent and for North America, Kleinfeld said he was projecting truck and trailer growth at the rate of 45 percent to 50 percent this year.

The beverage can segment, he said, was expected to be flat globally, while the weakest sector is still commercial building and construction, with moderate weakness in North America and Europe despite healthy growth in China.

"In North America we expect further contraction of minus 4 percent to minus 8 percent. That pretty much shows that when it comes to commercial building and construction in North America, that's a pretty fragile market still."

In its earnings release, Alcoa said income from continuing operations, excluding special items, was 28 cents a share. That topped analysts' expectations of 27 cents a share, according to Thomson Reuters I/B/E/S.

Net first-quarter earnings were $308 million, or 27 cents per share, compared with a net loss of $201 million, or 20 cents per share in the same quarter of 2010, the Pittsburgh-based company said.