Fri Oct 12, 2012 5:41pm EDT

n">(Reuters) - Two of the nation's biggest banks, Wells Fargo & Co and J.P. Morgan Chase & Co, made record profits over the last three months from a sharp rise in mortgage lending, though performance stumbles elsewhere left investors worried about how long those profits can last.

Both banks reported double-digit increases in third-quarter earnings on Friday, as record-low interest rates and an uptick in the housing market drove a boom in mortgages.

But analysts said those record earnings might not be sustainable, as each bank posted declining margins that suggest they may have a harder time earning as much in the future.

J.P. Morgan shares closed the day down 1.1 percent at $41.62, while Wells Fargo declined 2.6 percent to $34.25. Both underperformed the broader market, which was essentially flat.

The issue is the "net interest margin," or the spread between what the banks earn from loans and what they pay out on deposits. That margin contracted in both cases.

"You have a battle between net interest margin and mortgage banking," said Marty Mosby, an analyst at Guggenheim Securities, referring to the tension between profit-drivers now and potential future results.

MORTGAGES ON THE MOVE

The mortgage market dragged on banks during the worst of the financial crisis but has become a bright spot of late. After the Federal Reserve said in September it would buy huge quantities of mortgage bonds every month for the foreseeable future, rates fell sharply and loan applications soared.

Wells Fargo, by far the largest mortgage lender in the country - three times the size of its closest peer - made $139 billion in mortgages in the three months ending in September, up $50 billion from a year earlier.

There is a limit to that growth, though, warned J.P. Morgan Chief Executive Jamie Dimon.

"We don't expect to count on high margins and mortgage origination forever," Dimon said on Friday. The refinancing trend, he added, will continue "next quarter, maybe for a couple of quarters after that, but it won't last much longer."

SMALLER WHALES

Besides the good news about the housing market, J.P. Morgan also reported that losses are shrinking rapidly from the bad trades engineered by the so-called London Whale, which cost the bank almost $6 billion in the first half of the year.

The losses cast a harsh light on Dimon, the chief executive viewed by some as a potential leading candidate for U.S. Treasury secretary in a second Obama administration. He has apologized repeatedly, and at length, for failing to catch the problem before it grew so big.

The nation's largest bank by assets posted net income of $5.71 billion, or $1.40 a share, up 34 percent from a profit of $4.26 billion, or $1.02 a share, a year earlier.

Analysts on average had expected a profit of $1.24 a share, according to surveys by Thomson Reuters I/B/E/S. Barclays Capital said it was the 17th time in the last 18 quarters that the bank beat Wall Street's forecasts.

Net interest margin contracted to 2.43 percent in the quarter, 4 basis points less than the prior quarter and 23 basis points lower than a year earlier.

Wells Fargo, the nation's fourth-largest bank by deposits, earned $4.9 billion in the quarter, 22 percent more than a year earlier. Per-share earnings of 88 cents just beat the average Wall Street forecast of 87 cents, although revenue missed estimates by some $270 million.

Wells, Warren Buffett's favorite bank, stumbled on the net interest margin. It fell 25 basis points to 3.66 percent in the third quarter. That was a sharper drop than expected, though bank executives insisted they were unconcerned and that investors should focus on overall profitability.

Keefe, Bruyette & Woods analyst Frederick Cannon, in a research report for clients, said the strength in mortgages was good but the weakness in the interest margin was more important.

(Reporting by David Henry in New York and Rick Rothacker in Charlotte, N.C.; additional reporting by Dan Wilchins and Jed Horowitz in New York; writing by Ben Berkowitz; editing by Matthew Lewis)

View the original article here

1 of 2. Research in Motion (RIM) BlackBerry smartphone handsets are pictured in this illustration picture taken in Lavigny, Switzerland in this July 21, 2012 file photo.

TORONTO | Thu Sep 27, 2012 9:17pm EDT

TORONTO (Reuters) - Research In Motion Ltd reported a narrower-than-expected loss on Thursday and the struggling BlackBerry maker bolstered its cash reserves, sparking optimism ahead of the launch of its make-or-break line of next-generation smartphones.

Shares of RIM surged 20 percent in after-hours trade on indications the company will have plenty of cash to ramp up production of its new BlackBerry 10 devices and mount a robust marketing campaign for the revamped line, due in early 2013.

It was the biggest jump for the stock since a 50 percent surge in December 2003, underlining the importance of the BB10 launch. The company, which has fallen far behind its rivals in a smartphone market it once dominated, has staked its future on the BB10 and its completely redesigned operating system.

RIM's second fiscal quarter brought shareholders additional glimmers of hope, a break from a succession of dreadful quarterly reports. The company not only generated more revenue than Wall Street had forecast but it topped expectations on the number of devices shipped in the period, which ended on September 1.

"It's very impressive," said Jefferies & Co analyst Peter Misek. "I didn't expect they could execute on the business given the models they have in the market, but they obviously did really well in emerging markets."

RIM was also able to bolster its cash pile by collecting on cash owed to the company, drawing down inventories and cutting costs.

ONE-TIME PIONEER

A one-time smartphone pioneer, RIM has failed to keep pace with rivals such as Apple Inc and Samsung Electronics Co, and its stock price has tumbled about 70 percent over the past year while its market share shriveled.

But the latest quarter showed that RIM is still able to lure buyers for its lower-end smartphones in the more price-conscious emerging markets. And that has helped make up for ground the BlackBerry has lost to cutting-edge devices such as Apple's iPhone and Samsung's Galaxy S III in North America and Europe.

"RIM and its products, however obsolescent, are still relevant in the parts of the planet where most people live," said CCS Insight analyst John Jackson. "The bad news is that these results have little or no bearing on what remains true, and that is, RIM still needs to execute on BB10."

In an attempt to create a buzz, Chief Executive Thorsten Heins gave a preview of the new smartphone and its features to app developers at an event on Tuesday in San Jose, California.

Analysts said RIM struck the right chords at the event but cautioned that it is hard to evaluate how well the BB10 devices will work in real world conditions until they are on the market.

"We are now just a few months away from our launch and our teams are working night and day to meet the expectations we have of ourselves," said Heins on a conference call after the results were released on Thursday.

Heins said RIM executives have met with dozens of carriers in more than 16 countries in the last few weeks and the feedback on the new devices so far has been overwhelmingly positive.

QUARTERLY RESULTS

Shipments of BlackBerry smartphones were 7.4 million in the quarter, easily outpacing Wall Street's expectation of about 6.9 million.

The Waterloo, Ontario-based company reported a net loss of $235 million, or 45 cents a share, in its fiscal second quarter. That compared with a profit of $329 million, or 63 cents, in the same period a year earlier.

Excluding one-time restructuring-related items, the loss came in at $142 million, or 27 cents a share, in the quarter just ended.

Revenue rose to $2.9 billion, a gain of 2 percent from the fiscal first quarter, but the latest result was down about 30 percent from the same period a year earlier.

Analysts, on average, had expected RIM to report a loss of 46 cents a share, on revenues of $2.5 billion, according to Thomson Reuters I/B/E/S.

"You still have revenue declining 31 percent on a year-over-year basis but it's certainly not the train wreck that a lot of people feared," said BGC Partners analyst Colin Gillis. "They live to fight another day."

CASH PILE

RIM also increased its cash to about $2.3 billion from $2.2 billion in the fiscal first quarter.

"In the last two quarters RIM has done a really good job on collecting on receivables," said Sterne Agee analyst Shaw Wu, but he cautioned that this was not sustainable over the long run and RIM would have to return to a profitable business model for it to thrive once again.

While RIM has warned that it faces another operating loss in its fiscal third quarter, it expects its cash position to remain stable unless it is hit by restructuring charges.

Wu believes that the company can achieve this by continuing to draw down on its receivables, which stood just shy of $2.2 billion as of Sept 1.

RIM's chief financial officer said the company had entered into a new secured credit facility of $500 million which expires in September 2013, and in the first half RIM realized some $350 million of the up to $1 billion in cost savings it hopes to achieve in fiscal 2013, which ends on March 2 of next year.

The company, which earlier this year said it would cut about 5,000 jobs to save money, said it has already laid off roughly 2,500 workers.

"It's still bad, but it's a much smaller disaster than expected," said Wu. "These stocks all trade on expectations. Expectations were really low, and they were able to beat that."

RIM's U.S.-listed shares surged 20 percent to $8.55 in trade after the closing bell on Thursday.

(Additional reporting by Alastair Sharp, Allison Martell and Cameron French; Editing by Frank McGurty and Edmund Klamann)

View the original article here

A man looks at food at Khartoum's central food market July 18, 2012.

ROME | Thu Aug 9, 2012 5:11am EDT

ROME (Reuters) - The world could face a new food crisis of the kind seen in 2007/08 if countries resort to export bans, the UN's food agency warned on Thursday, after reporting a surge in global food prices due to a drought-fuelled grain price rally.

A mix of high oil prices, growing use of biofuels, bad weather, restrictive export policies and soaring grain futures markets pushed up prices of food in 2007/08, sparking violent protests in countries including Egypt, Cameroon and Haiti.

Concern about extreme hot and dry weather in the U.S. Midwest sent corn and soybean prices to record highs last month, driving overall food prices higher again and reversing the Food and Agriculture Organisation's expectations for steady declines this year.

"There is a potential for a situation to develop like we had back in 2007/08," FAO's senior economist and grain analyst Abdolreza Abbassian told Reuters.

"There is an expectation that this time around we will not pursue bad policies and intervene in the market by restrictions, and if that doesn't happen we will not see such a serious situation as 2007/08. But if those policies get repeated, anything is possible."

Grain markets have been boosted by speculation that Black Sea grain producers, particularly Russia might impose export restrictions after a drought there hit crops.

Markets drew a little comfort from official Russian comments on Wednesday that the country saw no grounds to ban grain exports this year but did not rule out protective export tariffs after the end of the 2012 calendar year.

The FAO Food Price Index, which measures monthly price changes for a food basket of cereals, oilseeds, dairy, meat and sugar, averaged 213 points in July against 201 points in June, the FAO said in its monthly index update.

The rise followed three months of declines. Although below a peak of 238 points in February 2011, when high food prices helped drive the Arab Spring uprisings in the Middle East and North Africa, the index is still higher now than during the food price crisis in 2007/08.

Higher food prices mean higher import bills for the poorest countries, which do not produce enough food domestically.

Charity Oxfam said that the surge in grain prices could drag millions of people around the world into conditions of hunger and malnourishment, in addition to nearly one billion who are already too poor to feed themselves.

Abbassian said the situation was still quite different from 2007/08, when crude oil prices were at record levels, adding to farmers' costs.

Abundant supplies of rice and sluggish economic growth should also ease the upward pressure on prices, but a lot will depend on how the weather develops for U.S. crops and how much demand will be rationed in coming months, he said.

The Rome-based food agency usually does not release the food price index this month but it has broken with tradition due to the exceptional market situation.

It did not update its supply and demand outlook for cereals on Thursday as it does during a normal release. The U.S. Department of Agriculture (USDA) will publish its August crop production and supply/demand report on Friday.

(Reporting By Catherine Hornby; editing by Veronica Brown and Keiron Henderson)

View the original article here