After starting the session lower, Wall Street managed to make some small gains, helped by an earnings report from Bank of America that helped offset a loss at Goldman Sachs.
By 3.45pm (London time), the Dow Jones was slightly positive, up 4 points at 11,401.09, while the S&P 500 was up 0.3% at 1204.6. In London, the FTSE 100 managed to pare most of its earlier losses, and was down 0.47% at 5411.25.
Goldman Sachs & Bank of America report earnings
It’s enough to make one lose one’s faith in capitalism when even the mighty Goldman Sachs fails to make a profit. The bank, once described by a now infamous BBC interviewee as the company that ‘rules the world’, reported a net loss in the third quarter of $428 million.
This is only the second time that the bank has suffered a loss since it listed on the New York Stock Exchange in 1999 (for reference, the last time it saw a quarterly loss was in the final three months of 2008).
Goldmans reported a loss in its propriety trading division of $2.5 billion. Nonetheless, shares in Goldman Sachs were up 2.85% at $99.66, possibly because of the fact that, unlike other banks, the ‘vampire squid’ did not revel openly in the fact that its numbers had been boosted by accounting gains (the so-called ‘debt value adjustments’).
However, the same cannot be said for Bank of America, which was happy to use accounting measures to boost its figures. The bank posted a net profit of $6.2 billion for the quarter, but the figures were improved by sale of a stake in China Construction Bank and also by debt value adjustments. The same tactic was employed by JPMorgan and Citigroup.
During the quarter, Bank of America shrank the size of its balance sheet, with the result that it surrendered its position as the largest bank by size of assets to JP Morgan. Still, the shares gained 7% to $6.46.
US producer price inflation returns
The current US earnings season may be broadly positive, but a jump in producer prices in September bodes less well for US companies.
Producer prices were up 0.8% during the month, far ahead of the expected 0.2% increase, although core PPI (which excludes things like food and energy that most people need to live) rose by just 0.2%.
The worrying thing is that rising costs are likely to be absorbed by US companies, since they are unlikely to pass on higher costs to the cash-strapped US consumer. This would result in a drop in margins and a fall in earnings in coming quarters.
Whitbread sees sales rise
Back in the UK spread betting market, restaurant and hotel operator Whitbread was up 0.2% at 1630p after pre-tax profits surged 25% in the first half of its year. Like-for-like sales were up 5.2% at its Premier Inn chain, while the ubiquitous Costa Coffee enjoyed a 6.7% increase in sales.
However, there was a drop in like-for-like sales at the restaurant arm, showing that British consumers remain hesitant about spending. Whitbread repeated its intention to expand its Premier Inn and Costa Coffee operations.
Bellway rings in the profits
Housebuilder Bellway lifted its final dividend by 30% to 12.5p, after its full-year profits were pushed higher by rising sale prices in the south of England. Pre-tax profit rose more than 50% to £67.2 million, despite a much-reduced level of activity compared to three years ago.
The company was cautiously optimistic about the future, with sales in the first nine weeks of its new financial year up 11%, compared to the same period in 2010. Bellway shares rose 2.36% to 693.5p.
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'Wall Street Spreads Rally on Bank of America Earnings Report', Article by IG Index, last update: 18-Oct-11
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