Banks Bounce Back

Markets soared Thursday following a spate of good news from an unlikely sector, the banks. Wells Fargo is predicting a record first quarter profit, the Wall Street Journal reports, sending its shares a staggering 27 percent higher and lifting with it the entire financial services sector. More positive news could come later this month when the Obama administration releases details on the banks' stress tests. For now, the Treasury Department is asking the banks to remain mum on the stress tests, Reuters reports, even though details of passing marks seem to be leaking out. With such a turnaround in sentiment (the markets have now recorded five straight positive weeks), why not go out and test the markets with a new share offering? That's the thinking of Goldman Sachs, the WSJ reports in a front-page piece. Goldman is mulling a multibillion-dollar share offering to investors "as part of an effort to repay a $10 billion government loan," the newspaper reports, citing people in the know. An announcement could come as soon as next week around; Goldman is due to report "solid first-quarter earnings Tuesday," the newspaper writes.

More good news from the banking sector came from abroad yesterday after Britain's Barclays announced the sale of its iShares subsidiary to private-equity group CVC Capital for $4.2 billion, the Financial Times reports. The deal may spark some controversy, the newspaper added, as Barclays president Bob Diamond is expected to pocket $6.9 million in cash from the deal; Barclays' brass had "waived their rights to any bonuses in 2008 after the bank was last autumn forced to raise £7bn in capital from investors in the Middle East."

Ah, but we knew the good times couldn't last long. On Friday morning, shares in Japanese banks fell sharply on news that Sumitomo Mitsui Financial Group needs to raise 800 billion yen ($8 billion) to shore up its finances. "The size of the deal, 800 billion yen, is much bigger than anyone expected," Kristine Li, bank analyst at KBC Securities in Tokyo, told Reuters.

While the banking sector looks to be resurgent, the same cannot be said of retailers. There are very few bright spots in the March retail report, the New York Times writes. Using the Goldman Sachs retail composite index, overall retail industry sales fell 2.1 percent year-on-year, the newspaper reports. Big box discounters like Wal-Mart are muddling through, showing modest gains. But one-time darling Abercrombie & Fitch saw sales fall 34 percent. Why? A&F wasn't aggressive enough in its discounting. The overall figures prompted a curious metaphor from one analyst who apparently is a big fan of Animal Planet. "The retail mouse is in the economic python and it’s just going to take six months to get out," Mike Moriarty, a partner at A.T. Kearney told the NYT. "Retail is at the mercy of the economy."

The strains of covering the sinking retail sector are starting to show elsewhere in the reportage. In an even more curious report, the Los Angeles Times blames the retail sectors woes on, of all things, the Gregorian calendar. "Major chain stores were negatively affected last month by a shift in the calendar that moved Easter to April and caused there to be one fewer Saturday in March," it writes, leading off its analysis. It cites the International Council of Shopping Centers, which insists we look at the figures another way: If March had more Saturdays (let's assume five here), then "sales were actually stronger than reported when adjusting for the calendar shift." Naturally.

Another day in the auto industry and another day of major change. The NYT picks up on a Detroit News story earlier in the week to report that Toyota is considering a consolidation of its North American operations that would put its sales, engineering, and manufacturing operations under one executive. At present, each division has its own staff and set of executives, which might be considered a little wasteful during these tight times - not least because Toyota is set to announce a $3.5 billion loss for the past fiscal year, while U.S. sales are down 37 percent compared with 2008. GM, meanwhile, is dramatically scaling back its offer to bondholders as it struggles to restructure ahead of a government-imposed bankruptcy deadline. The NYT and WSJ report that bondholders, including big investment firms as well as individual investors, hold about $28 billion of unsecured debt. Just a few weeks ago GM was offering to restructure those bonds through a mix of equity, new debt, and a small amount of cash. Now the Obama taskforce has come down hard and is pushing GM to squeeze its bondholders by offering only equity instead of cash or new debt. How is the auto industry woes sitting with the U.S. public? Not so well if a new CNN Money poll is to be believed. "Three out of four Americans would rather see General Motors and Chrysler face bankruptcy than watch the government pour yet another round of bailout cash into the big U.S. automakers," it reports.

Motorola Inc.'s former chief financial officer, Paul Liska, claims he was fired after he questioned the accuracy of financial forecasts for its troubled cell phone unit, both the WSJ and Business Week report. Liska makes his claims in an unlawful dismissal suit filed back in February but sealed by the court until this week. Liska claims that "in a little over 90 days (beginning in late September), Mobile Devices' internal forecasts for 2009 radically changed, with projected unit volume down 40 million units (40%), sales down $7 billion (47%), and operating earnings down $625 million (500%)." According to the court filing, Liska says he developed, "concerns that the executives within the Mobile Devices Business were, intentionally or recklessly, materially misstating its 2009 forecasts and strategic plan." Motorola says it won't comment while the case is still in litigation.

And, finally, a little sympathy for those of you who flew Delta Airlines to Atlanta in February. The U.S. Department of Transportation calculated that the six daily Delta flights into Atlanta's Hartsfield-Jackson were late 80 percent of the time, the Atlanta Journal Constitution reports. The DoT singled out Delta in its most recent list of 20 chronically late flights nationwide. But the report was actually positive news for the nation's weary air travelers. "Overall, airlines improved their on-time performance in February, the DoT said, with an on-time arrival rate of 82.6 percent in February, up from 68.6 percent a year earlier," the newspaper writes. The Hartsfield-Jackson airport, too, saw on-time arrival times improve in February, even with the perennially tardy Delta flights.