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Goldman Sachs, Royal Bank of Scotland, Fannie Mae, General Electric, First Horizon National and Commerce Bancshares

^{Published on 2010-07-19 14:10:35 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: The Goldman Sachs Group Inc. (NYSE: [ GS ]), Royal Bank of Scotland Group plc (NYSE: [ RBS ]), Fannie Mae (NYSE: [ FNMA ]), General Electric Company (NYSE: [ GE ]), First Horizon National Corporation (NYSE: [ FHN ]) and Commerce Bancshares Inc. (Nasdaq: [ CBSH ]).

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Here are highlights from Fridaya™s Analyst Blog:

Goldman Agrees to Pay Fine

The Goldman Sachs Group Inc. (NYSE: [ GS ]) announced that it would pay $550 million to the Securities and Exchange Commission (SEC) to settle a civil fraud suit linked to mortgage investments, which was filed in April. The SEC had alleged that Goldman sold mortgage-related investments without advising buyers that the securities had been gambled by a client who was betting on them to fail.

SEC claimed that Goldman created an investment vehicle named Abacus 2007-AC1 in February 2007, comprising subprime mortgage-backed securities. It was created just at the time when the housing markets started to crumble.

Further, the investors were told by Goldman that the mortgage bonds would be selected by an independent manager. However, according to the charges, Goldman asked its client Paulson & Co. to select those mortgage bonds that they believed were most likely to decline in value. Later, Goldman sold those bonds to investors such as foreign banks, pension funds and insurance companies.

Consequently, the value of Abacus portfolios declined. The European banks and other investors lost more than $1 billion, while Paulson made money from bets against the mortgage bonds.

Though Goldman denied the accusations of the SEC, the company confessed that the Abacus product omitted the information on marketing practices and that it failed itself to disclose the inbuilt risk factors including the vital role of Paulson in the portfolio selection process.

The settlement involved a civil penalty of $535 million and required Goldman to pay $15 million of profits from the Abacus deal. The amount of $250 million would be returned to the two banks that had invested in Abacus, including $150 million to IKB Deutsche Industriebank AG, a German bank, and $100 million to the Royal Bank of Scotland Group plc (NYSE: [ RBS ]). Goldman paid the rest of the $300 million to the United States Treasury as a fine.

However, the settlement is yet to be approved by Judge Barbara S. Jones of Federal District Court in Manhattan. If approved, it would be one of the largest penalties in Wall Street history, although Goldmana™s sentiments would not be hurt much as it has earned profits of $13.39 billion in the first quarter.

The SEC will, however, not free Goldman from legal hassles, as it would continue to scrutinize other products like collateralized debt obligations, issued by Goldman and other banks and would also review the Abacus deal for further findings.

Other Lawsuits

Goldman has been subject to a number of litigations of late. Recently on July 12, Liberty Mutual Insurance Co. had sued Goldman for misleading it to buy the preferred stock of Fannie Mae (NYSE: [ FNMA ]), which became practically valueless. Liberty Mutual had invested $62.5 million to buy the stock.

Last month, the securities regulator Financial Industry Regulatory Authority (FINRA) ordered Goldman to pay $20.6 million to settle claims with the creditors of a failed hedge fund. The creditors claimed that Goldman should have known about its clearing brokerage client Bayou Hedge Fundsa™ fraudulent activities in connection with a Ponzi scheme.

In addition, Goldman and some of its top officers and directors were charged recently with securities fraud, and a class action lawsuit has already been filed by Pomerantz Haudek Grossman & Gross LLP in the United States District Court, Southern District of New York.

GE Beats Estimates

General Electric Company (NYSE: [ GE ]) reported earnings per share from continuing operations of 30 cents for the second quarter of 2010, exceeding the Zacks Consensus Estimate of 27 cents. Segment profit increased 8% compared to the prior-year quarter with 93% growth at GE Capital, 13% at NBC Universal and 59% at Home & Business Solutions. This was sufficient to offset an 11% earnings decline at Technology Infrastructure.

Revenues were lower by 4% year over year for the quarter at $37.4 billion. This was due to lower earning assets at GE Capital as well as divestment of industrial assets and weaker-than-expected equipment sales. Total company orders were $19.2 billion in the quarter, up 8% year over year.

Equipment order bookings surged 17%, which were helped by growth rates of 20% and 14%, respectively, at Energy Infrastructure and Technology Infrastructure. The total order backlog at the end of the quarter was approximately flat compared to the corresponding prior-year quarter. Order growth at Oil and Gas and Healthcare segments was robust.

At GE Capital, losses and impairments were lower while income was higher with pre-tax earnings of $0.7 billion.

First Horizon Turns to Profit

First Horizon National Corporation (NYSE: [ FHN ]) turned to profitability in its second quarter after reporting losses in the past eight quarters.

The company reported net income of $2.7 million or 1 cent per share, which compares favorably with the Zacks Consensus Estimate at a loss of 9 cents. The company incurred a net loss of $27.7 million or 12 cents per share in the prior quarter and a loss of 54 cents in the year-ago quarter.

The better-than-expected results were primarily driven by a decrease in loan loss provisions and an increase in mortgage banking income. However, the sluggish economic recovery continues to remain an overhang on the company's results. There was weak demand for loans while fee income remained under pressure as well.

Provisions for loan losses shrank to $70.0 million from $105.0 million in the prior quarter and from $260.0 million in the year-earlier quarter.

CBSH Beats Estimates

Commerce Bancshares Inc. (Nasdaq: [ CBSH ]) reported its second quarter 2010 earnings per share of 71 cents, substantially ahead of the Zacks Consensus Estimate of 58 cents and significantly ahead of 53 cents in the prior quarter and 46 cents in the year-ago quarter.

Better-than-expected results in the reported quarter benefited from a decline in provision for loan losses, non-performing assets and net charges-offs, along with sound expense control. However, overall loan demand remained weak, which may affect the future interest income of the company.

Net income was $59.7 million, up from $44.2 million in the prior quarter and $37.0 million in the year-ago quarter.

Taxable-equivalent net interest income increased 0.2% from the prior quarter and 3.4% year over year to $167.8 million. Sequential increase was primarily due to lower interest costs on other borrowings and deposits, which was offset by a lower interest earned on investment securities and average loans.

Average loans (excluding loans held for sale) slashed 1.9% from the prior quarter and 9.7% year over year to $9.78 billion, reflecting lower loan balances in all categories except business loans, which increased on an average by $50.2 million. Available for-sale investment securities (excluding fair value adjustments) were up 0.03% from the prior quarter and 25.2% year over year to $6.1 billion.

Average deposits spiked up 3.1% sequentially and 2.3% year over year to $13.4 billion, primarily attributable to a growth in money market, business demand deposits and interest checking accounts.

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