Tuesday’s Links: Apple & IBM , Bank Earnings Beat, Yellen Grilled

Apple & IBM Partnership

jobsibm121230-1So long are the days of intense detestation for each other. Today, Apple CEO, Tim Cook, and IBM CEO, Ginni Rommety announced that their companies were partnering for the future. The main goal of this partnership is to create “Made-For-Business” apps for Apple’s iPhone, iPad, and Mac devices with the help of IBM’s big data and analytics. At first look, this partnership is a win-win as it helps IBM move towards capitalizing on the “mobility” driver of the technology sector and it helps Apple reach towards the enterprise market, a weaker area compared to its stronghold on the consumer market. Both company’s stocks were up after market hours on the announcement. 

Along with the partnership, Apple is looking to bring an iPhone with a larger screen to the market soon and recently hired a Tag Heuer exec for its future iWatch. This leads to a testing time for Samsung, whose earnings missed big on S4 sales last week. Apple reports 2Q 2014 earnings on July 22nd and is consensus analyst earnings have them coming in with $1.22 EPS for the quarter. Time to wait and see. 


Bank Earnings Beat

Speaking of earnings, which are for the most part kicking off this week, we saw Goldman Sachs and J.P. Morgan beat expecting earnings this morning pretty handedly. JPM reported EPS of $1.46 compared to consensus analyst estimates of ~$1.29. The beat came from their fixed income trading profits declining less than expected in a market that has been characterized by low volatility. 

Goldman crushed expectations and became the first bank so far to report higher revenue in 2Q14 than 2Q13. GS’s reported $4.1 EPS vs expectations of ~$3.2. Increased revenues from boosted activity in their investment banking and investment management arms were helpful with their beat. 

It’s not often that a company’s stock goes up on the same day it announces that it has to pay $7 billion dollars to end a government investigation, but today, that was just the case. Citigroup came out a relative winner today. On the same day it reported signing a $7 billion agreement to end government investigation into its MBS activities that helped cause the crisis, it reported EPS of $1.24 vs expectations of ~$1.05. Helping this earnings beat was the fact that its trading revenues fell less than expected, which seems to be the common theme among Wall Street banks so far this earnings season.


Yellen Grilled On JPM’s “Living Will” & Moves Markets

Screen Shot 2014-07-15 at 8.14.31 PMFederal Reserve Chairwoman Janet Yellen went in front of the Senate Banking Committee to deliver the semiannual monetary policy report today. A majority of the questions that were asked came to no surprise.

A summary of the questions:

  • “When will rates rise?”
  • “When will tapering officially end?
  • Is there a chance we could continue to buy more bonds after QE ends?”
  • What’s going on with the US labor market?”

These questions received the usual answers that we’ve been hearing for the last few months. 

Two noteworthy pieces did come out of Ms. Yellen’s testimony to Congress.

  1. The report singled out valuations on small-company, biotech, and social-media shares when she said their valuations appeared to be “stretched.” This sent the major indices down from their morning highs, especially the Russell 2000, and caused a sell-off in biotech and social media ETFs. 
  2. At the end of the testimony, Ms. Yellen was grilled by Elizabeth Warren on the state of J.P. Morgan’s “living will”. The phrase “living will” comes from a provision in the Dodd-Frank Act that requires Wall Street banks to create a report on their strategy for, “rapid and orderly resolution in the event of material financial distress or failure of the company.” Warren pointed out that compared to Lehman Brothers, whose bankruptcy helped trigger the crisis, J.P. Morgan is huge. Its $2.5 trillion in assets is three times larger than Lehman’s $639 billion at the time it went under and its 3,391 subsidiaries are 15 times as many as Lehman had. Clearly, this would lead to a much longer and more difficult process of liquidating and moving the bank’s assets in a quick and orderly fashion if disaster were to strike the company. I was hoping to hear more from Janet Yellen on this, however, Warren chose to cut her off several times before we could really get a full answer. 

 

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