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Subpar Earnings: Companies Blame
Housing, Credit Problems for Weakness
As companies prepare or release their quarterly earnings statements, many are blaming the subprime meltdown, housing slowdown and credit crunch for weaker-than-expected results. Here's a selection of companies that have cautioned of an impact in recent months. This chart will be updated as more companies report. Updated 11/20/07
Click on the category names to sort the columns.
Freddie Mac   Financial 11/20/2007 Reported a loss of $2 billion for the third quarter and said it is "seriously considering" a 50% cut in its fourth-quarter dividend. Also said it is considering ways to raise additional capital. 
Swiss Reinsurance   Financial 11/19/2007 Said it accrued subprime-related losses of 981 million Swiss francs (about $875 million) in October. 
HSBC   Financial 11/14/2007 Took $3.4 billion third-quarter impairment charge for U.S. consumer-finance business, adding to $4.1 billion in charges over the first half. Also, HSBC Finance boosted its credit-loss reserves against bad mortgages to $3.4 billion, from $2.6 billion  
Barclays   Financial 11/15/2007 Bank booked credit, mortgage and leveraged finance related charges and write-downs worth £500 million in the third quarter. Barclays booked an additional £800 million in net charges and write-downs in October, reflecting "the impact of rating agency downgrades on a broad range of CDOs and the subsequent market downturn," the bank said.  
Home Depot   Retailer 11/13/2007 "We are facing a tough environment as housing indicators continue to deteriorate," Chairman and Chief Executive Frank Black said. "Our financial performance in the third quarter reflects these tough conditions." The company reported a 27% decline in third-quarter net income and cut its fiscal-year earnings guidance.  
E*Trade Financial   Financial 11/09/2007 The company said that the value of its holdings of securities backed by home mortgages had fallen significantly and will lead to bigger than expected write-downs in the fourth quarter. E*Trade didn't quantify the losses, but said they would keep it from meeting its earnings target and said it couldn't provide a new one. In addition, E*Trade said the SEC has opened an informal inquiry related to issues with its loan and securities portfolios. 
IndyMac Bancorp   Financial 11/06/2007 "[D]eteriorating mortgage delinquencies and a declining housing market, combined with an unprecedented collapse in the secondary market for non-GSE loans and securities" led to loss for the quarter. Company reported $575 million, or $4.79 a share, in combined credit costs and spread widening charges.  
Credit Suisse   Financial 11/01/2007 "The extreme market conditions ... affected many of our businesses. However, our global diversification and balanced business mix helped us mitigate the impact on our overall performance. ... We are seeing encouraging signs that activity in the credit markets is increasing." The company said its third-quarter net slipped 31%, as it wrote down 2.2 billion Swiss francs ($1.9 billion) for unsold leveraged loans and structured products such as mortgage securities.  
GMAC Financial Services   Financial 11/01/2007 GMAC's ResCap unit posted an operating loss of $1.8 billion, which included a $455 million goodwill impairment charge. The unit saw a loss on sold mortgages of $569.6 million. GMAC expects "the challenges in the housing and mortgage markets will continue to prevail beyond the end of 2007."  
Deutsche Bank   Financial 10/31/2007 "The third quarter of 2007 was a period of exceptional turbulence in financial markets," said Chairman Josef Ackermann. The company took charges €603 million on leveraged loans and loan commitments (net of related fees), and €1.56 billion on relative value trading in both debt and equity, structured credit products and residential mortgage-backed securities.  
Countrywide  Financial 10/26/2007 "[U]nprecedented disruptions" in the mortgage market and the national housing slump lead to a $1.2 billion third-quarter loss. Countrywide reserved $934 million for bad loans in the third quarter, up from $38 million held during the same quarter last year.
AutoNation  Car seller 10/24/2007 "[C]hallenging economic environment" in the third quarter "for new vehicle sales driven largely by continued weakness in the housing market in our key markets of Florida and California." New vehicle unit sales for California and Florida declined 11%.
Centex  Home builder 10/23/2007 "Market conditions were extremely challenging during the quarter, reflecting the serious disruptions in the credit and mortgage markets that occurred during that period," said Chairman and CEO Tim Eller in a prepared statement. "In response, we meaningfully reduced prices in order to improve affordability for our home buyers." The company recorded $983 million in impairments and other land charges.
Wachovia   Financial 11/09/2007 Wachovia said the value of securities it owns that are backed by loans sank by about $1.1 billion in October. It also said it will record a loan-loss provision in the fourth quarter of between $500 million to $600 million, citing the housing-market downturn. In October, said "disruption in the fixed income markets in the third quarter ... clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well," said Chairman and CEO Ken Thompson. Third-quarter net income dropped 10% as loan-loss provisions quadrupled and the company recorded $1.3 billion in losses and write-downs. 
Bank of America   Financial 11/13/2007  Plans a pretax write-down of about $3 billion in the fourth quarter to reflect a drop in value of securities related to mortgages. Also said it will spend $600 million supporting in-house money market funds that are exposed to troubled financing entities called structured investment vehicles. The bank also will suffer a $300 million impairment of the value of a mezzanine investment. Back in October, Chairman and CEO Kenneth D. Lewis said: "While the significant dislocations in the capital markets have hurt most participants, we are still very disappointed in our third-quarter performance." The company recorded $247 million in write-downs related to leveraged buyout loans, $607 million in trading losses and sharply higher credit-loss provisions. 
Hershey   Food 10/18/2007 The credit crunch hurt the the company’s confectionary business, said Chief Operating Officer David West. “A lot of our distributors work on fairly thin margins ... and a couple of points' increase in interest rates really eats into their margin [so] that they have got to make a choice about what inventory to carry and what not,” he said. 
J.P. Morgan Chase    Financial 10/17/2007 "Our firm performed well overall in the third quarter, despite challenging credit and market conditions," said CEO Jamie Dimon. The company posted a 2.3% increase in quarterly net despite $1.3 billion in write-downs on leveraged loans and surging credit-loss provisions. 
Piper Jaffray    Financial 10/17/2007 "The turmoil in the credit markets created very challenging capital markets conditions in the third quarter. While our business is not focused on the ... subprime mortgages and LBO loan commitments, the fallout from the turbulence in these markets negatively impacted nearly all of our businesses," said CEO Andrew S. Duff. Revenue dropped 20% from a year earlier. 
International Business Machines    Technology 10/16/2007 Disappointing hardware and software results largely reflect a falloff in sales of mainframes, the company said. Mainframes are mostly bought by big banks, and the company also saw deferrals of big software orders also tied to the financial-services industry. 
Wells Fargo   Financial 10/16/2007 "Home equity produced higher losses, and will contribute to higher losses in the fourth quarter and probably into early 2008," said Howard Atkins, the bank's chief financial officer, in an interview. Wells Fargo's loan-loss provision surged 45% from a year earlier to $892 million, mainly due to problems with home-equity loans and auto loans. 
General Electric   Financial 09/18/2007 Said it expects a hit of $300 million to $400 million related to its planned exit from the subprime market, third time in as many quarters that GE's results will be affected by subprime woes.  
Merrill Lynch   Financial 10/24/2007 Took $7.9 billion in write-downs on collateralized debt obligations and subprime mortgages, greatly exceeding its earlier estimates. "We expect market conditions for subprime mortgage-related assets to continue to be uncertain and we are working to resolve the remaining impact from our positions," the company said.  
American International Group   Financial 11/07/2007 AIG said that it saw a $2.45 billion after-tax drop in the value of investments in assets that are backed at least in part by subprime mortgages. AIG still held those assets as of the end of the quarter, so those losses were not reflected in the company's net income. Also, the company said it realized an actual loss of $149 million in its portfolio of mortgage-backed securities. 
Morgan Stanley   Financial 11/07/2007 Morgan Stanley it will take a $3.7 billion write-down to reflect the drop in value of positions related to U.S. subprime mortgages over the past two months and said its remaining exposure comes to $6 billion. In September, it took a quartely loss of $940 million from the decreased market value of loans on its books as well as other financing commitments. 
CarMax  Car seller 09/19/2007 Cut its earnings estimate for fiscal 2008, blaming housing slump and subprime-mortgage crisis for slowing auto sales.  
FedEx  Transportation 09/20/2007  Cut earnings estimate, blaming slowing economy; says "freight business has been impacted by the slowing economy, especially the housing market." 
Bear Stearns  Financial 11/14/2007  Bear Stearns said it expects a write-down it estimated at about $1.2 billion after hedging and other offsetting gains. The losses relate to the company's heavy exposure to residential mortgages, mortgage securities and CDOs. In September, Bear said "significant reductions in both mortgage and credit-related revenues as volumes decreased while asset values declined" led to an 88% decline in quarterly fixed-income revenue to $117.6 million.  
Lennar  Home builder 09/25/2007 Swung to loss, cut 35% of work force. "Consumer confidence in housing has remained low, while the mortgage market has continued to redefine itself." 
Lowe's   Retailer 11/19/2007  Lowe's CEO Niblock said "Many external factors contributed to the weak sales environment, including a continuing housing correction, drought conditions in several U.S. markets, and slower than expected sales in Gulf Coast markets." The company posted a 10% decrease in quarterly net and again lowered fiscal-year expectations. The results came after warning in late September that Expects earningsfor its fiscal year ending Feb. 1 at the low end of an earlier forecast of $1.97 to $2.01 a share; blames a weaker housing market than most predicted, a subprime credit situation that was deeper than most realized, and deflation in lumber and plywood.  
KB Home  Home builder 09/27/2007 "Oversupply of unsold new and resale homes and downward pressure on new home values has worsened in many of our markets as tighter lending standards, low affordability and greater buyer caution suppress demand," said President and Chief Executive Jeffrey Mezger. Year-over-year revenue dropped 32% to $1.54 billion.
Citigroup  Financial 10/01/2007 "Dislocations in the mortgage-backed-securities and credit markets, and deterioration in the consumer-credit environment" will lead to 60% drop in third-quarter profit, company warns. Later, Citi posted a 57% slump in third-quarter net income, in line with its warning.
Nomura  Financial 10/15/2007  Firm plans to close its New York-based residential mortgage-backed securities business Nomura said it would take a loss of $621 million on write-downs of residential mortgages and an additional charge of about $85 million for restructuring the business. "This is an extremely regrettable result," said Nobuyuki Koga, Nomura's president and chief executive officer.
UBS  Financial 10/01/2007  "[T]he deterioration in the U.S. subprime residential mortgage-backed securities market, especially in August, was more sudden and more severe than in recent history, and markets became illiquid. This led to substantial valuation losses, including in securities with high credit ratings." The Swiss giant said it plans to write down as much as 4 billion Swiss francs, or $3.41 billion, in assets, including securities tied to U.S. subprime mortgages.
Deutsche Bank  Financial 10/03/2007 Plans a €700 million charge on leveraged loans and loan commitments in the third quarter, as well as a €1.5 billion charge on structured credit products, residential mortgage-backed securities and relative value trading in both credit and equities.
Levitt  Home builder 10/11/2007  Levitt said it expects to take pretax charges of about $160 million to $170 million associated with impairment charges on homebuilding inventory at Levitt & Sons unit, and the write-off of its investment and loans made to Levitt & Sons.
Washington Mutual  Financial 10/05/2007 "Weakening housing market and disruptions in the secondary market" will put third-quarter net 75% below the year-earlier level.
Sources: research

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