Merrill Lynch announced that it was going to move its earnings conference call from a pre-market 8 am time slot to after the market closes. Of course, in the current climate this prompted all sorts of concerned or gleeful whispers (depending on whether you were long or short Merrill). The last Wall Street firm to opt for a post-market call was...wait for it...Bear Stearns.

So what's the real story? Is this a sinister development portending dire earnings news or does Merrill just hate its analysts and wants them to burn the midnight oil? After jump, BreakingViews.com's gets to the bottom of Merrill's time slot switcheroo.

Barclays said today that in spite of writedowns due to subprime, etc., it predicts that 2007 will exceed last year's profit, though just barely. Everyone (traders especially) thinks this is good news, and if we were talking about Citi it definitely would be, but making a pound more that least year means that Barclays earnings will have moved an insignificant 4 percent, compared to the gigantic growth seen in the last four years. Barclays's estimate is "broadly in line with" analysts' average estimate of about $14.7 billion (7.1 billion pounds), news which move the stock as much as 6.2 percent in London trading. Interesting. What I'm getting at is that Barclays is trying to cover up a record 75 percent increase in profit for 2007, so that whenever that actual numbers come out, they can say they "beat" analysts' expectations, and continue to recover from a 7-week losing streak. That or they're just trying to cushion the blow for the inevitable admission that those rumors about a $10 billion writedown were true. I can't decide which.

Barclays says on track for 4 pct 2007 profit rise [Reuters]

Barclays May Match 2006 Profit This Year [Bloomberg]

Despite a quarterly loss of $1.2 billion, compared to a profit of $647.6 million last year, Countrywide’s shares rose the most since May 2000 on the wishful thinking that the company will be profitable in the fourth quarter. Morgan Stanley’s Kenneth Posner said that his team feels “substantially more confident in the company’s liquidity after [their] first glance at the results.” Peter Plaut, an analyst at Sanno Point Capital Management even went so far as to call the mortgage lender “a survivor,” and congratulated it for turning results that “were not as bad as market participants anticipated.” President David Sambol characterized the Q3 loss as an “earnings trough,” and predicted that fourth-quarter profits could be anywhere from 25 to 75 cents per diluted share.

Countrywide Posts Loss, Shares Advance on Forecast [Bloomberg]
Countrywide Gets Off the Mat [MarketBeat]

Almost lost among the widespread relief that JP Morgan Chase didn't suffer a Citigroup or Bank of America like third quarter was the poor performance of the bank's commodities trading operations.

It's hard to believe, but it was just last year that Jamie Dimon was telling analysts that bulking up its commodities and asset-backed securities trading would diversify the banks trading business and smooth out volatility. In March of this year, JP Morgan's co-head of investment banking, William Winters, was telling investors that the bank expected energy trading to add somewhere between $100 million and $160 million in annual earnings in 2007. As late as June, JP Morgan was announcing plans the expand its commodity-trading staff by more than 30 percent, or 40 more people.

The plan hasn't quite worked out, and now might be a good time to ask what happened. Last year, the plan seemed to be working. The bank scored a windfall by scooping up the assets of Amaranth and then flipping them to Citadel. But shortly afterwards it lost several top commodities traders.

Parker Drew, who was recruited in 2005 to run the gas trading business after his own hedge fund folded, left the bank at the end of 2006. George Taylor, who ran the bank's energy business, left in May 2007, and shortly after words Trevor Woods, who had replaced Drew, left. Three others also followed Taylor out the door.

At the time of these high level departures, there was a lot of speculation that they were connected to the bank's role in the collapse of Amaranth. JP Morgan’s was the clearing firm for energy traders at Amaranth, and it's margin calls reportedly helped bring the hedge fund down. When the bank then bought Amaranth's positions as it struggled to meet margin calls and return money to investors, many raised an eyebrow at how the bank seemed to be profiting from the troubles of its client. There was speculation that the bank may have decided that some of its traders were on too many sides of Amaranth's collapse.

This was hardly an undisputed position, however. The bank said the departures had nothing to do with Amaranth. Others say the traders left because they were unhappy with their compensation following the massive profits the desk made for the bank in 2006.

In June, the bank hired Foster Smith from Deutsche Bank to head U.S. power and natural-gas trading. Deutsche was tied with JP Morgan as the fifth largest energy trading bank in 2006. It's clear that the energy trading operation's performance has been a huge disappointment for the bank, and that Smith seems to have stepped into a mess. We haven't found solid numbers on the energy trading performance, but JP Morgan describes it's commodities trading performance—a broader category—as "weak." That's still not much solid guidance about what went wrong but it's a starting place.

As we expected, Bank of America isn't taking a huge hit this morning from its earnings disappointment. It's down about 3.5% right now but still holding above the lows it hit in early August. Lots of people seem happy to concentrate on the positive signs and to write-off the losses as a function of "this summer's credit crunch."

Well, we're not going to spend all day on this but we thought we'd spend a bit more time dwelling on the negative. In particular, we're fascinated by how B or A's corporate lending business and credit market related sales and trading illustrate just how bad the credit crunch hit the banks in the third quarter. After quickly flicking through the supplemental financial slides, here are a few points that stuck out.

• Lower lending revenues and growth in risky and non-performing corporate loans. Revenue from corporate lending shrank from $179 million for the third quarter of 2006 to $175 million in this quarter. Risky, so-called "criticized" corporate loans grew from $1.4 billion to $1.5 billion. As a percentage of all corporate loans, however, this actually represents a slight improvement from 2006's third quarter, from 2.12% to 1.98%. They can't say the same for non-performing corporate loans, which grew in absolute terms—from $145 million to $269 million—and as a percentage—from 0.44% to 0.62%.

• A Third Quarter Reversal. B of A's lending balance sheet was steadily improving through the first half of 2007 but made a sharp reversal in the third quarter. To really get a sense of how the credit crunch hit the bank, it helps to look not just at the third-quarter to third-quarter comprables, but to see what happened from the second to the third quarter of this year. Non-performing corporate loans, for instance, grew ten-fold, from $21 million in the third quarter of last year to $269 million.

• Sales and Trading Revenue Falls Off A Cliff. Revenues from sales and trading in structured products and credit products made a sharp reversal in the third quarter, creating huge losses. B of A made $521 million from structured products sales and trading in the second quarter of this year, and lost $569 million in the third quarter. Losses in credit products sales and trading were so severe that they wiped out all the year-to-date gains from this business for B or A. To look at it another way, in the third quarter of this year B of A lost more than 3.5 times what it made in the third quarter of last year from trading and sales in credit products. Even if it recovers to last year's revenue levels in the fourth quarter, it will barely have made any money from this business in 2007.

• 93% Decline in Profits for Investment Banking. Profits at the corporate and investment-banking division were decimated. In the third quarter, they shrunk to $100 million from $1.43 billion a year earlier. That's a 93% drop. We'd ask why they are even in this business but it might be too late for that. On a revenue basis, they almost aren't. Wonder how much they'll pay out in bonuses to their investment bankers?

• Smaller Than Expected LBO Mark Down. It would be nice to know more about how the investment banking unit calculated the mark down on the value of its LBO financing. They're reporting a mark down of just $247 million. They are the number 2 lender for leveraged loans, so it's surprising that they haven't taken more of a hit in this area. Analysts at Citigroup had predicted a writedown of as much as $700 million. It's hard not to wonder whether there might be some rosy assumptions in their mark downs. But then again, with TXU loans pricing close to par, maybe this business isn't in for the hit many predicted.

Bank of America posted terrible quarterly results this morning, managing to achieve even worse results than most analysts had expected.

Perhaps even more distressing than the actual results is the vagueness about what caused the losses. Lots of blather about "dislocations." We should probably be grateful they didn't actually say that the markets were "misbehaving" or mention a "28 sigma event." Still when talking about this stuff Bank of America sounds like a quant fund manager in mid-August begging investors not to send in redemption notices.

The bank says it took a $607 million loss in trading revenue "due principally to the breakdowns in traditional pricing relationships, which made hedges ineffective, and the widening of credit spreads." Which we take to mean that they were massively short volatility. You can call that a hedge, we guess. But keep in mind that when you ask a whore in Beijing what her name is, she almost always replies, "I make a name for you. What you want to call me?"

The results also imply that financial engineering may have passed the point of human comprehension. Does anyone understand how to trade CDOs? If so, they don't work at Bank of America, which took a $527 million hit.

Just about the only bright(ish) spots on the earnings report was that Bank of America didn't take too large a hit from losses in buyout loans. And, of course, they aren't run by Chuck Prince. (As a side note, however, if B of A takes a large hit from the earnings report, which is might not since already people are saying trading revenues are unpredictable and might go up next quarter, it could lose it's place just ahead of Citigroup in the race for who has the bigger market cap.)

And, hey, who knows. Maybe The Entity will make everything okay.

Bank of America Third Quarter Earnings Per Share Decline 31% to 82 Cents [PR Newswire]

Both Goldman Sachs and Bear Stearns beat analyst expectations today: the former, in its unfailing ability to emerge from a building on fire while everyone else burned to a crisp, the latter, in its unfailing ability to push the bounds of failure. BS posted its biggest decline in over a decade, with third-quarter net income dropping 61 percent to $171 million ($1.16/share), from $438 million ($3.02/share) last year (total net revenue fell 38% to 1.3 billion, from $2.1 billion quarter on quarter).

In a press release, Jimmy Cayne made mention of “difficult securitization markets” and “high volatility,” though chose not to name check the pair of pink elephants (Bear Stearns High-Grade Structured Credit Strategies Master Fund Ltd., Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage Master Fund Ltd.) that gifted the firm with $200 million in losses.

Taking a cue from the CEO’s precipitously falling bridge scores, shares of BSC dropped 29% this year (though the stock was up 2.31% ($2.67) to $118.31 by noon today, after the company announced that it would be smooth sailing from here on out).

Matt Albrecht, an analyst at Standard & Poor's recommended a sell, but ever the glass half full kind of guy, spun a silk purse from a sow’s ear, noting: ``If there's a market turn, Bear Stearns has the most upside to go because its share price has dropped so much.” (Don’t even act like you’d pass up the chance to use such a fantastically old-timey proverb, given the opportunity.)

Bear Stearns Net Drops Most in Decade on Credit Rout [Bloomberg]
Press Release [Bear Stearns]

Is it even possible for an analyst to correctly estimate the earnings of a secretive investment bank like Goldman Sachs? If so, someone should tell the analysts how to do it.

Goldman blew them away again this morning. It not only beat expectations. It reported Wall Street's only profit gain, as Bloomberg reported this morning. A good piece of that profit gain was thanks to the sale of Horizon Wind Energy LLC, a Houston based alternative energy company that Goldman bought five years ago for $150 million and recently sold to a Portuguese power company for $2.1 billion.

Ironically, the man behind that purchase was Mark McGoldrick, who headed Goldman's special opportunities group. Earlier this year, McGoldrick left Goldman after becoming convinced that the firm wouldn't adequately compensate him or his group for the outsized gains they were earning.

This morning's earnings report is a nice little birthday present for Goldman topdog Lloyd Blankfein. As he blows out his candles on his ice-cream cake this afternoon, Blankfein should at least make a wish for McGoldrick, the man who helped make this birthday exta-special. Oh, and maybe wish a little something for whoever it was who shorted mortgages at Goldman and turned this summer's subprime-led credit crisis into a profit opportunity.

Goldman Profit Rises 79 Percent as Gain Boosts Trading Revenue [Bloomberg]
Goldman Sachs 8-K [SEC]

BarNLoungeclays announced today that the British bank posted a 14% increase in first-half net income, and said definitively that subprime mortgage defaults across the pond won’t hurt the investment bank this year. The chippies were able to protect their bottom line because as a group they are “very risk aware” and know that if you click your heels three times, subprime won’t affect profits (at least in 2007). 1st _ ½_P rose to 2.63 billion pounds ($5.35 billion, 40.1 pence/share), up from 2.3 billion pounds (35.1 pence/share) last year.

BarCap, conveniently located above Beer Bar, which Barclettes have not yet vouched for, will see a profit increase of at least 15% a year through 2008, and has limited risks in subprime mortgages, Barclays President Robert Diamond said. (Why, what have you heard?)

Barclays Says Subprime Risks Won't Reduce 2007 Profit [Bloomberg]

The Ford Motor Co. nailed a quarterly profit for the first time in two years, it was announced today. (Ford purists will be happy to know that in spite of gains, the automaker continued its red-hot losing streak in its core market of North American SUV/oil enthusiast). Ford, in the throes of a restructuring program that will close 16 plans and slash up to 45,000 jobs, made a net profit of $750 million (31 cents/share), versus last year’s $317 million (17 cents/share) loss. Profits from continuing operations handily beat the Street’s expectations of a loss of 37 cents/share with a 13 cents/share gain.

Profits were posted in all regions excluding North America, which lost $279 million, marking an improvement from last year’s $789 million loss. Ford said that profitability is not in the cards for North America until 2009, if ever.

Lest we take this as some sort of sign that the tide is turning for Ford’s Fjords, cynics should be pleased to note that the swing to profit may throw a wrench in F’s plans to F its workers during negotiations with the United Automobile Workers union this summer. That the automaker is not hurting for cash did not escape union prez Ron Gettelfinger, who the Times reports declined to comment on how Ford’s $12.6 billion 2006 loss would affect dialogue but noted, “They have a lot of cash, by the way.”

Ford swings to surprising 2nd-quarter profit [Reuters]

Happy Monday! Halliburton’s Q2 net income more than doubled from last year. If that doesn't get you going, I don't know what will. The non-profit reported net income of $1.53 billion ($1.62/share), up from 2006’s second quarter of $591 million (55 cents/share). The gain was due in large part to the April spinoff of KBR Inc, which generated a $933 million gain. Earnings from continuing operations in Iraq rose 19% (63 cents/share) and revenue shot up 20% to $3.74 billion, particularly from work in the Eastern Hemisphere.

The Bush administration said that in addition to the auspicious foresight that that opposite of successes in the Middle East would pick up speed this year, and it would be convenient to have a headquarters in Dubai, “well stimulation” proved profitable. Chief Executive Dave Lesar noted that well stimulations in the U.S. were a record for Halliburton last month. The last time Lesar felt so good was when he was (prematurely) told ‘Burton had won the contract to rebuild ground zero.

The one disappointment for the company was Canada, where Halliburton’s operations suffered in the second quarter by a "significant decline in activity and the spring breakup season." In order to drum up business up top, Bushie etc are planning on pulling out of Iraq and leaving a trail of falafel to Quebec so as to bait the enemy into invading Big C (i.e. getting “them” to “fight us” “over here” but not “here, here,” just “north of here”), which will in turn spawn a cornucopia of contracts for Hallie and pave Giuliani’s path to the White House and blow your mind with the ingenuity of it all.

Halliburton Quarterly Operating Profit Rises, Tops Street View [CNBC]
Halliburton's Net More Than Doubles [WSJ]

Profits at Jefferies shot up 48% during the second quarter, the firm said today. The surge was due in large part to everyone's favorite legalized crack-- investment banking fees. IB revenues were up 81% to a record $223.1 million from 2006's $122.9 million.

This is one of those “better than expected” moments. Analysts had pegged net income growth at 39 cents per share and it came in at 45 cents. That’s a 15 percent beat over expectations. Pretty nice but not quite worthy of a celebratory dwarf-toss.

Dick Handler, Chairman and CEO applauded 4/1-6/30 as the "best quarter in Jefferies' 45-year history."
Congrats, etc, but come on, Dick. Better than the first quarter of 1987? We think not.

UPDATE: A VP with the bank confirms: "All I can say is that while there won't be dwarfs, odds of strippers are high to very high."

Growth in investment banking boosts Jefferies [MarketWatch]
Jefferies Press Release

Well, yesterday sure was fun. The second day of the second round of earnings seasons came in like a lamb and went out like a laughing hyena. The lambs to the slaughter were Sears and Home Depot, who both issued profit warnings. But the hyenas were everywhere. Bernanke’s remarks sounded might be translated as someone saying “Ha-hah! There’s no way you are getting a rate cut this year!” Standard & Poors laughed at everyone who trusted their subprime debt products rating: “Suckers!” European currencies laughed at the dollar: “Puny American!”

Jim Cramer likes to say there’s always a bull market somewhere. We’re not sure about that. But we do know that there’s always a bull somewhere. And yesterday we found one of our favorite bulls sitting in Ulysses on Stone Street, hunched over a beer. He didn't look happy but he was full of happy talk.

“Well, housing is screwed and stocks are screwed and the dollar is screwed but this means that the Fed will have to start cutting rates sooner rather than later to hold off a complete catastrophe,” Mr. Pollyanna told us. "And that means now is an excellent buying opportunity!"

The worse things are the better they are, except when they get better and that’s a good sign too. And that was the signal that it was our turn to laugh.

What is wrong with the financial media? Goldman posts flat earnings and no apologies? We're the first to admit that one quarter of flat earnings isn't apocalyptic, especially for an outperformer like Goldman, but figuring Goldman's media pedestal we expected some turd polish. The problem with Goldman, clearly, is that it's set the bar too high for too long. Eventually, you can't keep beating your own records, or something, and Goldman is still in the best position out of any other bank, and look at how crappy some of these other earnings were (cough...Bear), and Goldman did come down with a nasty flu last quarter. After much distraction, here's the Financial Times' take:

But if you keep raising the bar, you eventually come in below it. And the hit to revenues from a slump in subprime mortgages is a reminder that, however good your traders, revenues come under pressure in tough markets.

Here's the Financial Times reaching out to Goldman, saying repeatedly, "It's not your fault, it's not your fault," then, after a long embrace, singing a heartfelt a cappella version of "You're the Best" from the Karate Kid II soundtrack.

Goldman Sachs (A bank so important it needs no headline modifiers) [Financial Times]

While total net revenue for Q2 rose to a record $2.51 billion, earnings for Bear Stearns dropped 33%, the bank’s first quarterly drop in two years, Bear reported today. Net income fell to $361.7 million ($2.52/share), versus last year’s $539.3 million ($3.72/share). Without the Bear Wagner Specialists $277 million (88 cents/share) charge, earnings would have been at $3.40/share.

Avoiding words like “subprime” and “mortgage,” CEO James Cayne said: “The diversity of our franchise is clearly demonstrated in the record net revenues generated this quarter…The Global Clearing Services and Wealth Management segments reported record performance while results were also very strong from debt and equity underwriting, equity derivatives and leveraged finance. Internationally, we continue to grow aggressively, hiring talented people, broadening our product platform and reaching new clients in multiple geographies."

In other BS news, High-Grade Structured Credit Strategies Enhanced Leverage Fund, a fund managed by Bear, is rushing to sell $3.86 billion in mortgage-backed bonds to prospective buyers today, which many believe is an effort by Bear Stearns traders to help a big losing hedge fund in the mortgage market. Since April 30, HGSCSELF has lost 23% of its value, and Bear recently angered investors by barring them from taking their money out of the sinking ship.

Meanwhile, Breaking Views thinks everyone should stop freaking out over the whole “mortgage-market turmoil” thing and likes Bear’s $17.4 billion valuation, and attraction as a takeover target.

Bear Stearns Press Release [Business Wire]
Earnings at Bear, Goldman Suffer Due to Subprime Mess [WSJ]
Bear Stearns Profit Drops 10 Percent as Mortgage Bonds Slump [Bloomberg]
Is Bear Stearns Cutting Its Losses? [BusinessWeek]
Bear Stearns' Subprime Bath [BusinessWeek]
Bear's Fund Is Facing Mortgage Losses [WSJ]
Bullish on Bear [Breaking Views]

Morgan Stanley posted net revenue gains of 29% this morning. Or, as everyone keeps saying, "They matched Goldman's numbers." But really you should stop doing that. Do you have any idea what this kind of constant comparison is doing to poor John Mack?

Picture it. The office is still dark. John Mack's understated tie is slightly askew. He is fiddling around with a small object in his pocket, perhaps a pill that long-ago fell out of its pil bottle and is now so covered with pocket lint that it is unidentifiable. He gazes out the window but it does no good. He still sees the stories blazing out across the brilliant blue sky above New York this morning. He still here's the voices in the silence. They keep saying, "Goldman Sachs. Goldman Sachs."

He turns suddenly. Where is that spike he used to smash phones with when he was on the trading floor? His eyes dart to his desk drawers. He knows exactly where it is. If he were the kind of person who muttered he would mutter, "We make record numbers, my boys on the trading floors clean-up and all everyone can do is talk about Goldman, Goldman, Goldman!" But John doesn't mutter. Instead he smiles.

He has spent many of the past years being underestimated. This is a form of underestimation, he tells himself. Slowly the chattering voices silence. The comparative headlines fade from the rooftops. He breathes deep and turns to his desk. His feet drag a bit as he walks. He's smiling now.

"I," is the first word that comes to his head. And the second word. "I," he thinks,"I am John Mack."

Morgan Stanley Net Rises to Record on Trading Gains [Bloomberg]

Credit Suisse bankers breathed a sigh of relief today as the third quarter numbers announced by the bank came in better than expected and seemed to dismiss fears that had circulated around the bank that it had suffered up to $900 million in trading losses. The Swiss bank said today that net revenues in its investment banking segment were down 5% compared to last year, primarily due to lower equity trading revenues. Revenues were also lower in equity underwriting and advisory fees, but the bank said declines in these segments were partially offset by increases in debt underwriting and fixed income trading revenues.

Although Credit Suisse declined to give the exact numbers and reasons for trading losses, the actual losses in equity trading revenue seem closer to the $240 million indicated by sources within the bank last week than the $900 million some had feared.

So how will the bank’s third-quarter performance affect bonuses at the bank? Today’s statement gives some indication when it notes that total operating expenses for the quarter decreased 1% “due primarily to lower compensation accruals in line with lower revenues…” Exactly what that statement means is a question Credit Suisse bankers are no doubt pondering this morning.

Credit Suisse Profit Declines 1.6% on Securities Unit [Bloomberg]

The Swiss can’t catch a break. Last week rumors insisted that Credit Swiss had suffered bigger than reported losses from derivatives trading. As we mentioned briefly in the Opening Bell this morning, today UBS unveiled its third-quarter financials showing a 21 percent drop in profits, led largely downward by its proprietary trading unit which seems to have made some bad bets in the market for US Treasuries. As signs of a slowing economy led many to expect there would be no further rate increases from the Federal Reserve, Treasuries shot upward. UBS apparently found itself on the wrong side of the trades.

The proprietary trading units of investment banks--where banks trade on their own account--are the divisions that most make the banks look like hedge funds, so its no surprise to see that these things blow up like hedge funds occassionally do. Later this week Credit Suisse will unveil it's quarterly numbers, and so we should see whether the rumors of trading losses there are right.

UBS Reports 21% Decline in Profit on Trading Slump [Bloomberg]

Gary Weiss, author of Wall Street Versus America, listened to the Overstock.Com conference call so you wouldn’t have to. Not surprisingly, CEO Patrick Byrne found time to talk about things other than his company’s $0.78 per share net loss in the second quarter. Things like dastardly short-sellers and how shareholders might prevent them from pushing the value of their stock down even further.

We’ll leave the details for you to read by clicking through to Gary’s blog on the link below. But if you're as lazy as we are on Fridays, you might appreciate skipping right to the conclusion.

Byrne's gambit won't work, by the way. History has proven that the only proven method of pushing up the share prices of bad companies is that they stop being bad. And Byrne just hasn't figured out a way to do that.

Burn! (As DealBreaker cub reporter Bess Levin likes to say.)

Byrne's Latest Gambit
[Gary-Weiss.Com]

The boys in blue shirts and khakis sold you people a lot of televisions and other gadgets last quarter, pushing their profits up 38 percent. This despite the fact that at least one Best Buy store in New York City recently discovered it had more than 80 additional employees who weren't actually doing anything at all. And, in fact, weren't actually employees. They just looked like employees.

Click the video for an explanation.

Best Buy Net Rises 38%, Beating Analysts' Estimates [Bloomberg]