SABIC misses forecasts as U.S. chemical demand falters

RIYADH (Reuters) - Saudi Basic Industries Corp. (2010.SE) (SABIC) missed fourth-quarter earnings forecasts on Saturday and said the U.S. mortgage crisis had hurt demand for chemicals, ending a run of record profits that began in 2006.

Higher input costs from a surge in oil prices to record highs also weighed on earnings at the world's largest chemical-maker by market value, SABIC Chief Executive Officer Mohamed al-Mady told Reuters.

The company may have also taken a hit from the cost of financing its $11.6 billion acquisition of GE Plastics, analysts said. SABIC included a full quarter of GE Plastics earnings in its financials for first time in the three months to December 31.

SABIC, also the Gulf's largest steel maker, said fourth-quarter profit rose 12.3 percent to 6.87 billion riyals ($1.83 billion). Analysts' forecasts ranged from 8.38 billion riyals to 9.1 billion riyals, according to a Reuters survey.

SABIC has reported record profit in each of the five preceding quarters on surging global demand for its chemicals, steel and fertilizer.

"Right now there is a correction in demand," Chief Executive Officer Mohamed al-Mady told Reuters.

"We noticed a drop in demand from the U.S. market mainly from the automotive and the construction sectors, which has weakened prices. The problem in the U.S. also affected consumer goods," Mady said in a telephone interview.

Demand also faltered in Europe, though the downturn was not as sharp as in the United States, Mady said, declining to give details. SABIC did not published detail financial statements.

SABIC has been bracing for slowing growth in United States, but Mady said in December he expected India, China and the Middle East to offset the decline in the U.S. demand.

NEGATIVE IMPACT

Expectations for SABIC's fourth quarter earnings received a boost when affiliate Saudi Arabian Fertilisers Co (2020.SE) (SAFCO) more than doubled fourth-quarter profit on higher output and prices. SABIC owns 42 percent of SAFCO.

"We were expecting strong growth because of the SAFCO results," said Talal al-Tawari, head of the GCC equities division at Gulf Investment Corp.

"SABIC is the indicator for the whole Saudi market and if its results are disappointing to investors it will definitely have a negative impact," he said.

Shares of SABIC rose 1.76 percent ahead of the results release after trading hours. The stock had surged more than 58 percent in the fourth-quarter, outperforming the index (.SASI), whose 42.7 percent gain in the three-month period was the biggest in the Arab world.

SABIC's earnings may have been affected by financing costs of its $11.6 billion acquisition of GE Plastics in August from General Electric Co (GE.N), said Abdullah al-Rashoud, chief executive officer of KSB Capital Group in Riyadh. KSB had forecast a profit of 8.84 billion riyals.

SABIC came to market to fund the GE transaction as the global credit crisis triggered by defaults on U.S. subprime mortgages, or homeloans for people with a poor credit history, drove up borrowing costs.

High oil prices, which hit a record $100 a barrel in the fourth quarter squeezed SABIC's margins. Mady said. Crude prices are used as a benchmark for the pricing of Naphta, used to produce petrochemicals, as well as of other feedstocks.

"The subprime crisis had an impact on our business, but we have to wait and see the full extent of the damage," he said.

"SABIC is ready to cope with any reversal in growth cycle," he added.

For 2007 SABIC made a net profit of 27 billion riyals an increase of 33 percent from 2006. Full-year earnings per share were 10.81 riyals versus 8.12 riyals by the end of 2006, it said in a statement.

SABIC's board said it would propose giving investors one free share for every five they hold and a cash dividend of 2 riyals a share.

Earnings won't bail out market this time

NEW YORK - In Roman mythology, Janus is the god of doorways, and January is in turn the doorway of the year. For Wall Street, this first month of 2008 has brought none of the optimism that the myth implies — instead, a disappointing stream of economic and earnings reports has investors dreading what's still to come.

With investors worried that the credit crisis is worsening and that a recession is all but likely, the Standard & Poor's 500 index fell nearly 10 percent in the first 18 days of 2008. This month is shaping up to be the worst January on record for the well-tracked index since 1970, when blue chips shed 7.65 percent.

And Wall Street analysts warn investors not to expect corporate earnings to bail out stocks. About 60 members of the S&P 500 have reported results, most of them failing to surpass Wall Street projections.

"We keep waiting to see that other shoe drop, and so far corporate earnings are doing terribly," said Howard Silverblatt, S&P's senior index analyst. "Because of all the bank write-offs, the fourth quarter is basically history."

Major global banks and brokerages wrote down about $90 billion worth of bad debt during the fourth quarter because of exposure to risky subprime mortgage securities. And, more importantly, top banking executives still aren't willing to say they've reached bottom.

Disappointing results from financials like Citigroup Inc. and Merrill Lynch & Co. weighed on Wall Street this past week, and contributed to the market's huge swoon that took the S&P 500 down 5.4 percent and the Dow Jones industrials down 4.02 percent. There were some bright spots — both IBM Corp. and General Electric Corp. surpassed expectations and put investors at ease about their prospects for 2008 — but overall, the market's sentiment about earnings was bleak.

Silverblatt and other analysts believe investors should focus on what companies are saying about this year — not what happened during the last three months of 2007. What companies have to say about capital spending — money set aside for everything from buying computers to building new factories — will be a key indicator for how they feel about the future.

But while the market does look to the future, the disappointments of the fourth quarter — and companies including chip maker Intel Corp. were among them — can't help but pull investor sentiment down.

"I think it is unlikely to see a dramatic pickup in the number of companies beating expectations," said Michael Thompson, director of research at Thomson Financial. "I don't think it gets a lot worse, and I'm not sure I would try and raise expectations that ratio will improve dramatically."

But, he warns, "it's still early." With the bulk of the financial companies out of the way, there are still a little more than 400 blue chip companies left to report. Industry leaders like Apple Inc., DuPont Co., and Johnson & Johnson post results.

Analysts will also be examining contributions from overseas operations, which again are expected to be the biggest contributor to earnings during the quarter. The second half's profit decline would have been even sharper if it wasn't for robust international growth and weakness in the dollar.

Overseas earnings were up 20 percent year-over-year during the third quarter. And that might continue for some companies — especially since the Federal Reserve's series of interest rate cuts have caused the dollar to slide against its counterparts in Europe and Asia.

That's been a boon for companies like IBM, which does about 65 percent of its business outside of the United States. The company said Thursday its 10 percent revenue growth would have been cut to 4 percent if it wasn't for the dollar's rut.

But companies may not be able to depend on overseas operations to help their earnings for much longer.

"U.S. corporate earnings are not only susceptible to further downside pressure at home — they are also exposed to mounting problems overseas, notably in Europe," said Joe Quinlan, Bank of America's chief market strategist of global wealth. "Remember, in the face of deteriorating earnings in the U.S. last year, robust global earnings saved the day."

Engines lift GE's fourth-quarter profit

HARTFORD, Conn. - General Electric Co. delivered some cheer Friday to investors worried about a slowing economy, saying its quarterly profit rose 4 percent and reaffirming its outlook for 2008.

The conglomerate's big-ticket business — jet engines, railroad locomotives, and water treatment plants — powered GE's profit, posting $3.4 billion, or 26 percent more than the fourth quarter of 2006. It also gave GE a global reach that should help blunt the impact of a possible U.S. recession.

"Every place we went, there's a need for power, there's a need for planes, and there's just no signs that this global infrastructure boom is slowing at all," chief executive Jeff Immelt told investors in a conference call.

Total net income rose to $6.7 billion, or 66 cents a share, in the fourth-quarter ended Dec. 31, from $6.44 billion, or 62 cents a year earlier. Earnings from continuing operations climbed to 68 cents a share in the latest period, from 58 cents in the prior-year period.

Revenue jumped 18 percent, to nearly $48.6 billion. The company said more than half of its revenue is from outside the U.S.

Eric Boyce, portfolio manager at Hester Capital Management in Austin, Texas, said GE's performance was assuring.

"Investors are looking for some lifelines. They want to see a large multinational blue chip company come out and say things are not so bad and GE did that this morning," he said.

GE shares rose $1.10, or 3.3 percent, to $34.31 Friday.

Quarterly profit fell slightly below the average forecast of analysts surveyed by Thomson Financial, while revenue topped Wall Street's outlook of $47.28 billion. GE, meanwhile, had forecast a quarterly profit of 67 cents to 69 cents per share.

Immelt told analysts that GE met expectations.

"We said we were going to deliver a good EPS of 68 cents, up 17 percent. And that's what we've done," he said.

However, for 2007, net earnings of $22.2 billion came in below analysts' expectations of $22.4 billion, even though they rose 7 percent year-over-year.

Revenue, meanwhile, increased 14 percent to $172.7 billion for 2007, beating expectations of $171.4 billion, according to analysts surveyed by Thomson Financial.

In what one analyst said is a harbinger of future business, GE's total orders rose 18 percent, to $27 billion for the quarter, and climbed 18 percent to $98 billion for the year. Total backlog grew $19 billion year-over-year, a 42 percent increase.

"That's indicative of the future. That's what people are excited about," said Tony Boase, an analyst at First American Funds in Minneapolis.

Matt Collins, an analyst at Edward Jones in St. Louis, said Immelt is "definitely bullish on global infrastructure play."

"The question is how long does it last and how does the U.S. recession impact the rest of the world?" he asked.

Immelt said the U.S. consumer is "going to be tough."

GE will have lower gains in 2008, "but we're still seeing great global growth in assets and margins," he said.

GE, which makes transportation equipment, offers financial services and operates television network NBC, said it booked 20 percent or more profit growth from its energy, aviation, oil and gas, transportation and water segments during the fourth quarter.

The company said its financial services earnings grew 37 percent globally, as strong risk management helped the business weather volatile market conditions.

Citing regulatory changes and other factors, GE reported profits at the health care business dropped by 4 percent in the fourth quarter, to $1.03 billion.

However, quarterly profit at NBC rose to $923 million, up by 10 percent from the same quarter last year. The writer's strike had "no noticeable impact," chief financial officer Keith Sherin told analysts.

Looking ahead, GE said it expects to earn at least $2.42 a share from continuing operations in 2008, compared with Wall Street's consensus estimates of $2.43 a share. For the first quarter, the company also backed guidance for profit of 50 cents to 53 cents per share from continuing operations. Wall Street is predicting profit of 51 cents per share.

Schlumberger 4Q profit up, disappoints

HOUSTON - Oilfield services provider Schlumberger Ltd. opened the earnings season for oil-sector companies Friday, reporting a 22 percent rise in fourth-quarter profit but failing to meet Wall Street expectations.

Its share price fell almost 4 percent Friday, continuing a recent trend that has sent the stock down almost 20 percent since the start of the year.

Fourth-quarter results were driven by demand in the Eastern Hemisphere and Latin America, but North American profits disappointed.

What's more, Schlumberger chairman and chief executive Andrew Gould gave a cautious near-term outlook, and analysts said the news doesn't bode well for others in the services sector.

"Shorter-term growth presents a more complex picture than the immediate past," Gould said in conference call with analysts.

Schlumberger reported a net profit of $1.38 billion, or $1.12 per share, compared to a year-earlier profit of $1.13 billion, or 92 cents per share. Revenue rose to $6.25 billion from $5.35 billion a year earlier.

Analysts surveyed by Thomson Financial on average expected a profit of $1.13 per share on revenue of $6.14 billion.

However, Tudor Pickering Holt & Co. Securities noted the company's results benefited by 4 cents from an asset sale and tax-rate help, so the figure comparable to the Wall Street estimate was $1.08 a share.

Schlumberger "is the best in the business ... but doesn't feel like it right now," Tudor Pickering said in a note.

Its shares fell $2.99, or 3.6 percent, to $79.52 Friday.

The company, which helps oil and natural gas companies extract hydrocarbons through a variety of services, equipment and expertise, said lower pricing in U.S. land operations and seasonal weather factors contributed to less-than-satisfactory margins in the fourth quarter.

In a note, Raymond James & Associates said North American margins were about 25 percent in the most-recent quarter, well off Raymond James' forecast of 31 percent.

Schlumberger said absent any severe weather for the remainder of winter, natural gas drilling is not expected to vary greatly from recent levels.

On a positive note, the company said land activity outside North America is expected to remain strong, as is global seismic exploration.

"Within this context, technology that assists our customers in mitigating risk in exploration and development projects, increasing recovery factors and improving operational efficiency will remain at a premium," Gould said.

He also presented a more positive long-term outlook, saying the significant number of exploration licenses awarded in the past three years, an expanding rig fleet and increased capital spending budgets are "clear indicators of future growth."

"It is our view that only a global economic recession that lowers demand can flatten this trend," Gould said.

The company said revenue at its oilfield services division amounted to $5.4 billion in the fourth quarter, up 18 percent from a year ago. Sales rose 40 percent in Latin America and 30 percent in the Middle East and Asia but fell 7 percent in North America.

WesternGeco, the company's seismic arm, posted revenue of $798 million in the fourth quarter, 11 percent higher than the fourth quarter of 2006. WesternGeco gathers seismic data that's used by oil companies as they explore for new oil and natural gas deposits and monitor production from existing wells.

But analysts said margins at both divisions were disappointing.

Schlumberger has benefited in recent quarters from strong demand because of high oil prices, which reached $100 a barrel last month. Its stock price rose more than 50 percent last year.

But the stock has dipped of late, along with others in the sector, amid fears a slowing economy could diminish demand for oil.

For all of 2007, Schlumberger said net income rose to $5.18 billion, or $4.20 a share, versus $3.71 billion, or $3.01 a share, in 2006. Revenue increased to $23.3 billion from $19.2 billion a year ago.

Schlumberger rival Halliburton Co. is scheduled to report fourth-quarter results Jan. 28. U.S. oil majors begin reporting next week, with ConocoPhillips slated to release results Wednesday.

Recession fears to weigh on earnings reports

NEW YORK (Reuters) - A heavy gloom hanging over Wall Street may deepen next week unless such bellwether companies as Apple and United Technologies provide investors with hope that the U.S. economy can avert recession.

A slew of major corporations, also including Bank of America Corp (BAC.N), Microsoft Corp (MSFT.O) and AT&T Inc (T.N), will release their quarterly earnings in a shortened trading week that has scant economic data scheduled for release.

Markets will be closed on Monday for Martin Luther King Jr. Day.

"Earnings next week are the only thing that the market has to hang its hat on. With the market in such a fragile condition, those earnings better be good or we could see some severe selling," said Richard Sparks, senior equities analyst with Schaeffer's Investment Research in Cincinnati, on Friday.

Investors took little solace this past week from a $150 billion White House rescue plan as stocks fell on enormous losses at Citigroup, the top U.S. bank, and Merrill Lynch, the world's largest brokerage, and economic data signaled the U.S. economy was headed for recession.

U.S. stocks, as measured by the broad Standard & Poor's 500 Index, are off 9.7 percent so far in January -- their worst start of a year ever. If markets again slide like they did this week, stocks will be in bear territory -- a 20 percent drop from their peak in October.

One major stock index -- the Russell 2000 Index (.RUT) of small-cap stocks -- passed that milestone last week. A fall in the S&P 500 of about 5.5 percent next week would put it in bear territory. Its 5.4 percent fall this week was the biggest weekly percentage drop since July 2002.

On Friday, the S&P 500 fell 8.06 points, or 0.60 percent, to a 16-month low of 1,325.19. Both the Dow Jones industrial average (.DJI) -- off 59.91 points, or 0.49 percent, to 12,099.30 -- and the Nasdaq Composite Index (.IXIC) -- down 6.88 points, or 0.29 percent, at 2,340.02 -- hit 10-month lows.

For the week, the Dow fell 4.02 percent and the Nasdaq 4.10 percent.

In light of the economic outlook companies are going to be cautious regarding their guidance, said Owen Fitzpatrick, head of U.S. equities at Deutsche Bank Private Wealth Management.

In addition, the sharp sell-off seen in recent weeks might not be over, Fitzpatrick said.

"The market seems to be to some extent capitulating," he said. "I think we're finding a bottom, and that's not to say we might not find another one."

Among companies slated to report are financial heavyweights Bank of America and Wachovia Corp (WB.N) on Tuesday; technology bellwethers Apple (AAPL.O), on Tuesday, eBay Inc (EBAY.O) and Motorola Inc (MOT.N) on Wednesday, and AT&T, on Thursday. Among major industrials and big oil, UTX (UTX.N) and ConocoPhillips (COP.N) report on Wednesday and Caterpillar Inc (CAT.N)Friday.

Investors will sift data to assess the pulse of the nation's economic health from first-time claims for state unemployment insurance benefits and existing-home sales for December, both to be released on Thursday.

The forecast for jobless claims is 325,000, while the pace of existing home sales is expected to show an annual rate of 4.95 million, according to Reuters polls.

The sell-off has been so steep that stock valuations look reasonable and may suggest large-caps do not have much further to fall, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

To be sure, Ablin said, the Russell 2000 is one of the most overvalued major index in the world and could tumble perhaps another 40 percent, he said.

"From a valuation basis of large caps, we're reasonably close to fair value depending on what the assumption of earnings is," Ablin said.

Even if earnings growth is negative in 2008, "maybe that means we have to come down another 5 percent," Ablin said. "But I don't see the bottom falling out," he said.

Companies that make up the S&P 500 are expected to post earnings growth of 15.3 percent in 2008, according to Reuters Estimates. At the beginning of the week, the S&P 500 was trading at 13.82 times forward earnings, Reuters Estimates said, below a historic average of about 15 percent.

But in a time of market turbulence sentiment will trump fundamental analysis of stocks.

"If people don't feel like buying, they're not going to buy and we'll overshoot and maybe the market ultimately gets cheap," Ablin said. "I would say right now we do still have negative skew."

IBM forecasts strong earnings

BOSTON - Stellar performance overseas prompted IBM Corp. to upgrade its outlook for 2008 despite economic uncertainty at home, raising the question of whether an increasingly diverse IBM still should be considered a bellwether for other U.S. tech companies.

Investors responded to Thursday's report by sending IBM shares up $2.79, or nearly 3 percent, to $103.89 in midday trading Friday.

While many companies are warning of a recession in the U.S. and issuing cautious guidance, IBM advised analysts to increase their expectations. Chief Financial Officer Mark Loughridge said earnings should be $8.20 to $8.30 per share this year, well ahead of the $7.94 analysts had been forecasting.

The optimism was striking because of the cloudy economic backdrop and IBM's reliance on the troubled financial-services industry for more than one-fourth of its revenue. Plus, IBM is typically conservative on such predictions.

"They certainly defied conventional wisdom," said Shaw Wu, an analyst with American Technology Research.

Loughridge acknowledged that "we have an uncertain economic environment that we're working through along with the rest of the business world." But he expects IBM to be carried by its aggressive investments to expand its sales efforts in developing markets. He said the chance to help establish computing networks in such places as Eastern Europe, Vietnam and China amounted to "the gold rush of the 21st century."

Analysts were particularly struck by Loughridge's revelation that more than one-fifth of IBM's revenue now comes from countries where IBM's sales are growing better than 10 percent. By comparison, IBM's U.S. revenue rose just 2 percent.

And many analysts expect worldwide spending on information technology overall to grow at the low end of its usual range this year.

In other words, IBM's optimism reflects the particulars of its size and ever-more international focus — and might not say much about the prospects for most other tech companies. Even Intel Corp., which gets 75 percent of its revenue outside the U.S. — more than IBM's 65 percent — issued financial guidance this week that was cautious because of U.S. economic pressures.

IBM is "kind of a unique case," Wu said. "There's not a lot of guys having this capability. IBM might not be the best barometer anymore."

In the last three months of 2007, IBM earned $3.95 billion, or $2.80 per share, on revenue of $28.9 billion. The net profit rose 12 percent from a year earlier, when IBM made $3.54 billion, $2.31 per share, on revenue of $26.3 billion.

IBM's 10 percent revenue gain would have been 4 percent if not for weakness in the dollar. Payments in other currencies now translate into more dollars.

IBM had released the per-share and revenue figures Monday because the numbers were well beyond Wall Street's forecasts. Analysts surveyed by Thomson Financial had been expecting $2.60 per share on revenue of $27.8 billion.

Thursday's report revealed IBM's net numbers and segment details, showing that the Armonk, N.Y.-based company continues to increase its reliance on software, its most profitable product line.

The software division's revenue rose 12 percent to $6.3 billion. The gain would have been 6 percent if not for weakness in the dollar.

Services revenue leaped 17 percent to $14.9 billion. The increase would have been 10 percent at constant dollar values.

In another closely watched measure, IBM services unit signed $15.4 billion in new contracts in the fourth quarter, down 13 percent. Those signings reflect revenue that will flow to the company in the coming years.

The hardware division's revenue dropped 4 percent to $6.8 billion. The revenue figure would have been flat from a year earlier if not for IBM's 2007 sale of its printing division.

A weak spot was IBM's crucial mainframe business, which saw a 15 percent sales decline. Loughridge said customers appeared to be waiting for a new mainframe model being released this winter.

For all of 2007, IBM earned $10.4 billion, $7.18 per share, on revenue of $98.8 billion. Those figures all rose from 2006, when IBM made $9.5 billion, $6.11 per share, on revenue of $91.4 billion. The revenue gain of 8 percent would have been 4 percent at constant currency values.

Wipro's quarterly profit rises 11 pct

NEW DELHI - India's third-largest software company Wipro Ltd. said Friday that its net income for the October-December quarter rose 11 percent from a year ago due to strong outsourcing orders.

Net income for the fiscal third quarter rose to $210 million (8.26 billion rupees) from 7.45 billion rupees in the same period last year.

"Our top ten customers grew at a healthy rate and we won a good set of new clients," Chairman Azim Premji said, adding that results were satisfying and the company saw good momentum in all its businesses.

Still, profit growth slowed from the 16.7-percent rise of the previous quarter.

"The company is seeing strong business in its main market, the U.S., but some of our clients are facing pressures to curtail costs.," Chief Financial Officer Suresh Senapaty told reporters.

"The rising rupee and some salary increases added to the negative impact on operating margins in the quarter, but we managed to offset most of it by getting pricing increases and controlling costs," he said.

Wipro's sales totaled $1.33 billion (52.36 billion rupees) during the third-quarter, up 32 percent from the same period a year earlier.

The results were slightly lower than the average 8.70 billion rupees in net profit and 52.54 billion rupees in revenue forecast by eight analysts polled by Dow Jones Newswires.

The earning numbers conform to U.S. accounting standards.

AMD shares climb after upbeat 4Q results

SAN FRANCISCO - Considering the devastating two years Advanced Micro Devices Inc. has endured, investors braced themselves for more bad news in the fourth quarter after rival Intel Corp. disappointed Wall Street with lackluster results.

The slowdown they feared didn't materialize.

Instead, Sunnyvale-based AMD managed to post a narrower loss than analysts expected on signs that AMD is driving down costs and protecting its share of the microprocessor market from an Intel onslaught.

AMD shares rose 71 cents, or 11.2 percent, to $7.05 in morning trading Friday.

"Obviously, they turned in a truly excellent quarter," said JoAnne Feeney, senior research analyst with FTN Midwest Securities Corp. "They've continued the progress they began making a couple of quarters ago. It should assuage the fears of a lot of investors about the company's ability to execute."

Still bleeding from the costly acquisition of a graphics chip company, AMD absorbed heavy charges connected to the deal in the fourth quarter that dragged down its results.

However, AMD executives stoked shareholder optimism by reiterating their pledge to return the company to profitability by the second half of this year. In addition, they said the flaws plaguing AMD's new line of server chips have been fixed and samples will ship to customers in two to three weeks.

AMD's new Opteron server chip, critical to its financial recovery, launched in September. But technical glitches delayed a full release.

AMD's losses in 2007 were staggering, capping a brutal two-year stretch in which the company's market value has plunged from more than $20 billion to $3.5 billion today. The stock has fallen from over $40 a share in early 2006 to nearly $5 in recent weeks.

For the full year, AMD lost $3.38 billion, $2 billion of which were non-cash charges. Revenues were $6 billion.

The fourth quarter was one of AMD's toughest.

For the three months ended Dec. 29, AMD lost $1.77 billion, or $3.06 per share. That compares with a loss of $576 million, or $1.08 per share, in the same period a year ago.

AMD is the world's No. 2 maker of microprocessors, the brains of personal computers. The company has faltered under intense pressure from Intel and the acquisition of graphics chip maker ATI Technologies Inc., which AMD bought for $5.6 billion but recently said is now worth far less than that.

AMD for the first time put a price tag on how far ATI's value has declined — effectively saying it's now worth about 30 percent less. Heavy charges for that decline dragged down results in the latest quarter.

AMD incurred charges in the fourth quarter of $1.67 billion, or $2.89 per share, mostly related to writing down the value of ATI.

Those charges were not included in analysts' expectations, AMD said. Stripping out those charges, AMD lost 17 cents per share. Analysts surveyed by Thomson Financial were expecting a loss of 36 cents per share.

Sales for the period were $1.77 billion, in line with Wall Street's estimates. Higher average selling prices and double-digit percentage increases in the number of chips sold, compared with the third quarter, helped shore up the company's bottom line.

Analysts had long questioned the wisdom of the ATI acquisition, which bolstered AMD's graphics capabilities and added valuable "chipset" technologies to its product lineup. Chipsets are responsible for sending data from the microprocessor to the rest of the computer.

AMD reduced the value of ATI's goodwill — its intangible assets such as reputation — by $1.6 billion.

Johnson Controls 1Q profit increases

MILWAUKEE - Building and auto systems maker Johnson Controls Inc. said Friday its fiscal first-quarter profit rose 45 percent on growth across all divisions.

Earnings grew to $235 million, or 39 cents per share, in the three months ended Dec. 31 compared with $162 million, or 27 cents per share, a year ago.

Income from continuing operations increased to $235 million, or 39 cents per share, from $168 million, or 28 cents per share.

Quarterly revenue climbed 16 percent to $9.48 billion from $8.21 billion in the prior-year period.

Analysts polled by Thomson Financial predicted net income of 37 cents per share on sales of $9.1 billion. The estimates typically exclude one-time items.

Building efficiency sales rose 11 percent to $3.2 billion, while power solutions revenue jumped 55 percent to $1.7 billion. Automotive experience sales increased 9 percent to $4.6 billion.

The company maintained its full-year 2008 forecast for earnings of $2.45 per share to $2.50 per share and revenue of approximately $38 billion. It expects second-quarter net income between 46 cents and 48 cents per share.

Analysts predict 2008 profit of $2.49 per share on sales of $38.12 billion and second-quarter net income of 46 cents per share.

Its shares rose 51 cents to $34.27 in morning trading Friday.

Johnson Controls quarterly earnings rise

CHICAGO (Reuters) - Diversified manufacturer Johnson Controls Inc (JCI.N) said on Friday that quarterly earnings jumped 45 percent on strength in its building controls and automotive interiors businesses.

Johnson Controls left intact its forecast for double-digit earnings and sales growth for its fiscal 2008, which started on October 1.

Net income rose to $235 million, or 39 cents per share, in its first quarter ended December 31, from $162 million, or 27 cents per share, a year earlier.

Earnings from continuing operations also were 39 cents per share. On that basis, analysts, on average, expected the Milwaukee-based company to report earnings of 37 cents per share, according to Reuters Estimates.

Revenue was up 15.5 percent to $9.48 billion, while analysts looked for $9.14 billion.

The company sees second-quarter earnings from continuing operations of 46 cents to 48 cents per share, while analysts expect 46 cents.

Johnson Controls forecast fiscal 2008 earnings of $2.45 to $2.50 per share from continuing operations and sales growth of 10 percent to about $38 billion. Analysts were looking for $2.49 per share on revenue of $38.16 billion.

GE profit meets expectations

BOSTON (Reuters) - General Electric Co (GE.N) posted a 4 percent rise in net profit on Friday, matching Wall Street expectations, with strong demand for heavy equipment from outside the United States offsetting the effects of a slowing domestic economy.

The second-largest U.S. company by market capitalization said profit rose at all of its units but health care, which was weighed by a U.S. regulatory change.

With global credit markets in turmoil and most major Wall Street banks suffering big losses, GE saw profits rise at its commercial finance and GE Money consumer finance arms. Executives said it had been able to demand higher interest rates for loans.

GE confirmed its forecast of "at least" 10 percent 2008 profit growth overall.

Its shares, which had fallen sharply on Thursday amid a broad U.S. sell-off, bounced back Friday, up 4 percent.

Fourth-quarter profit at GE increased to $6.7 billion or 66 cents per share, from $6.44 billion, or 62 cents per share, a year earlier. Profit from continuing operations was 68 cents per diluted share, meeting Wall Street expectations, according to Reuters Estimates.

'WELL POSITIONED'

"We think we're very well positioned in the world that we see today," Chairman and Chief Executive Jeff Immelt said on a conference call with investors.

While saying he saw "no sign" of a slowdown in demand for infrastructure products, Immelt acknowledged, "The U.S. economy has slowed. Housing has been tough. The consumer is feeling some strain right now."

Keith Sherin, the chief financial officer, said in an interview the company aimed to cut $1 billion in costs from its supply chain this year, through raising prices, moving to lower-cost locations and redesigning products, to prepare for a slowing economy.

But, he noted, even as the U.S. economy shows signs of weakening, activity remained robust for GE in the Middle East, Asia, Latin America and Eastern Europe.

"Not everything is gloom and doom," Sherin said. "There is a big global economy out there, and there is an awful lot of economic action."

The Fairfield, Connecticut-based company said revenue came to $48.59 billion, up 17.7 percent from $41.28 billion a year earlier, while analysts had expected $47.25 billion.

"The revenues came in higher than expected, infrastructure came in strong," said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group, which counts GE among its holdings. "All the segments performed in line or better than expected."

For the first time, GE generated more than half its annual revenue outside the United States.

DOMESTIC 'WEAKNESS'

"Clearly foreign operations delivered the bulk of the strength in the quarter. I think that's a seminal event," said Tim Ghriskey, chief investment officer at Solaris Asset Management, which holds GE shares. "It also indicates there is weakness on the domestic side."

The strongest profit growth -- 26 percent -- came from GE's infrastructure arm, which makes products including jet engines and electricity-producing turbines. Health care was down 4 percent in the quarter, in part due to a U.S. law changing the way medical equipment is reimbursed.

GE sees first-quarter 2008 profit from continuing operations at 50 cents to 53 cents per share. It said it expects profit to rise at five of its six units, but warned profit at GE Money could be down 20 percent in the quarter.

Immelt said GE's plan to sell its private label credit card business or create a joint venture for it was on track.

"We've had some expressions of interest," he said.

GE also said in a filing with the U.S. Securities and Exchange Commission that an internal review of how its aviation unit accounted for profits found some errors that resulted in the lowering of its 2002 net profit by $585 million and raising profit in the following four years.

Shares of GE, which trails Exxon Mobil Corp (XOM.N) in market capitalization, were up $1.35 to $34.56 on the New York Stock Exchange. On Thursday, they fell to $32.92, their lowest point since August 2006.

The shares, which ended last year basically flat, are down 7.1 percent so far this year, less of a drop than the 7.8 percent slide in the Dow Jones industrial average (.DJI) and the 8.9 percent decline for the Standard & Poor's 500 index

Merrill Lynch posts steep loss

NEW YORK - John Thain, presiding over his first set of earnings on Thursday as the new leader of Merrill Lynch & Co., cleared the decks with some $15 billion of subprime mortgage related write-downs that led to the largest quarterly loss since the brokerage was founded 94 years ago.

And, while it was among the most aggressive moves on Wall Street to deal with bad bets on subprime mortgages, Thain's still not ready to say the worst of the credit crisis is over.

With a possible recession looming, the world's largest brokerage and other Wall Street investment houses might still be saddled with unforeseen turmoil. While taking steps to minimize future disruptions, Thain is still wary about challenges that face the global financial markets.

"We will continue to take risks — you don't make money if you don't take risk," Thain said. "But the risk will be sized appropriate for the business. Nobody should be taking risks that wipe out the entire annual earnings of a business, and certainly not the entire firm."

That's exactly what happened under former CEO Stan O'Neal, whose heavy bets in subprime mortgage securities backfired as homeowners defaulted on their loans at an alarming rate. That strategy led to a nearly $10 billion loss during the fourth quarter, on top of $2.31 billion during the previous period.

Merrill Lynch posted a net loss after preferred dividends of $9.91 billion, or $12.01 per share, compared to a profit of $2.3 billion, or $2.41 per share, a year earlier. It also recorded negative revenue of $8.19 billion, down from revenue of $8.39 billion a year earlier.

The New York-based brokerage marked down $11.5 billion from mortgage-backed securities, and an additional $3.1 billion in adjustments to hedge positions on them.

Exposure to risky collateralized debt obligations, or CDOs, was $4.8 billion at the end of 2007, down from $15.8 billion three months earlier. For the same periods, exposure to subprime-residential mortgages fell to $2.71 billion from $5.66 billion.

Thain said he doesn't "anticipate further problems of this magnitude" from Merrill's mortgage-related investments. "There has to be something incredibly bad out there to have this happen again, and our whole goals is to get 2007 behind us," he said.

The huge housing-driven shortfalls come as weak economic data have intensified fears of a recession, and have increased pressure on the government for an economic stimulus plan.

There's growing evidence that the late payments and defaults that torpedoed the mortgage industry might be bleeding into other parts of the economy. Consumers are falling behind on all kinds of loan payments — like automobiles, credit cards and home-equity lines — that could tip the economy's scale toward recession.

Merrill Lynch joins rival Wall Street investment houses Morgan Stanley and Bear Stearns Cos. in posting losses in the last three months of fiscal 2007. Citigroup Inc., the nation's largest bank, reported on Tuesday a quarterly loss of almost $10 billion, the largest in its 196-year history.

"We believe risky assets (at Merrill) were conservatively marked, the exposures are still significant, and further deterioration in pricing so far in January means write-downs may not be over," said Roger Freeman, an analyst with Lehman Brothers, in a note to clients.

Thain, who was CEO of NYSE Euronext and a former Goldman Sachs Group Inc. president, said he's taking steps to help identify where the problems are. He brought in a new co-head of risk management, who was a former Goldman executive, and is also bringing in a senior executive to oversee all trading to get better control over the business.

He's also pledged to clear the brokerage's books and shore up its capital base to better position it amid the credit market turmoil. Merrill Lynch secured almost $13 billion worth of fresh capital, mostly from foreign wealth funds in Singapore, Korea, and Kuwait.

It also addressed the balance-sheet woes by selling a commercial-finance unit, and could make more divestitures in future quarters.

Merrill Lynch also plans some layoffs later this year, though Thain said they "are not going to be significant" and will be a "small number" of the company's 64,200 employees.

The brokerage also plans to move some trading assets into funds that will be sold to outside investors — essentially removing them from the company's books. Merrill is raising money for a real-estate fund in the Pacific Rim and hopes to create some private equity, and possibly infrastructure, funds.

Steps taken by Thain so far have gotten a good reception from credit rating agencies, which all affirmed their ratings on Thursday but kept their outlooks at negative. Moody's Investors Service, Fitch Ratings and Standard & Poor's all are concerned about risk management at the firm — but saw Thain's arrival as favorable.

And while Thain tries to put back together America's biggest brokerage house, there's one thing he can't avoid — its faltering stock price.

Merrill Lynch shares tumbled $5.64, or 10.2 percent, to $49.45 Thursday when Wall Street tumbled after a regional Federal Reserve report showed a sharp decline in manufacturing activity and as investors feared that downgrades of key bond insurers could trigger further trouble with souring debt.

Merrill's shares have fallen almost 50 percent since their high of $98.68 last year, wiping out some $40 billion in shareholder value along the way.

Thain was cognizant that shareholders — dissatisfied with the stock's performance — might not be so patient. He wasn't shy about telling analysts to recommend the stock.

"I assume that you all will help by telling how cheap our stock is," he told them during a conference call.

Industry turmoil slams Washington Mutual

SEATTLE - Turmoil in the mortgage and credit markets in the second half of 2007 decimated Washington Mutual Inc.'s fourth-quarter performance and dragged the country's largest savings and loan into the red for the year.

WaMu had been preparing Wall Street for the hit, caused by the plummeting value of its mortgage portfolio and the growing number of people who can't repay their debts, since December.

The year was so bad that Kerry Killinger, WaMu's chief executive officer, said in a conference call Thursday he would not accept a bonus.

And then he told analysts that 2008 won't be much better.

Investors must have expected worse. After hours, shares climbed back from a 7 percent drop to $12.46 in the regular session, before the results were announced.

For the quarter, WaMu said it swung to a loss of $1.87 billion, or $2.19 per share, after a profit of $1.06 billion, or $1.10 per share last year.

Those earnings included a write-down of $1.6 billion to account for the sinking value of its home loan portfolio, and $1.53 billion to cover future loan losses — more than four times what WaMu set aside for unpaid loans in the year-ago quarter.

Revenue fell 5 percent to $3.41 billion in the quarter, behind Wall Street's expectation of $3.51 billion.

"Clearly, the current downturn in housing is acute and deeper than expected. We continue to see declining home prices, elevated inventories of unsold homes and increased foreclosure activity," Killinger said, particularly in California and Florida, where WaMu's mortgage customers are concentrated.

The report was grim, but Howard Shapiro, an analyst for Fox-Pitt Cochran Caronia, said he thought it would be worse.

"There was a big sigh of relief," he said. "If they can get through this next year, then I think they'll stay viable."

WaMu's mortgage division was hit hardest in the quarter. Its home loans volume sank 97 percent to $19.09 billion compared with the fourth quarter of 2006, and the division's net loss totaled $1.96 billion, compared with a loss of $124 million in the year-ago quarter.

But it was WaMu's credit card division results and outlook that most surprised Shapiro. WaMu said card services net income sank 35 percent to $92 million in the quarter. Killinger said rising unemployment pushed up delinquency rates and credit losses.

For 2008, Killinger forecast continued high unemployment would cause slower growth rates for managed credit card receivables, as well as higher loss rates. The CEO said WaMu would cut back on marketing credit cards, except in bank branches and on its Web sites.

"We're obviously concerned about that," said Shapiro.

The brighter spots in WaMu's quarter were its commercial loans business and its retail banking operations — the branches and Web sites that support checking and savings accounts for individuals and businesses. While net income for both divisions fell compared with a year ago, Shapiro called the credit quality of its commercial loan portfolio "pristine," and noted the rising fees in the retail banking division.

For 2007, WaMu posted a loss of $67 million, or 12 cents per share, on $11.11 billion in revenue, compared to a profit of $3.56 billion, or $3.64 per share, on $13.68 billion in revenue in 2006.

Analysts were looking for a profit of 59 cents per share on $13.78 billion in sales.

In December, WaMu said it expected loan loss provisions to total as much as $2 billion a quarter in 2008, a forecast executives affirmed Thursday.

The Seattle-based bank also said in December it would shutter its subprime lending business and control expenses with layoffs and a dividend cut. WaMu reported Thursday that subprime mortgages accounted for $18.6 billion, or 7 percent, of its $244.4 billion loan portfolio.

Shares of WaMu edged up 3 cents to $12.49 in after-hours electronic trading, after sinking 93 cents, or 7 percent, to close at $12.46.

Seagate 2Q profit jumps by $263 million

SAN FRANCISCO - Fueled by insatiable consumer and business demand for storage, hard-drive maker Seagate Technology's fiscal second-quarter earnings nearly tripled as shipments rose 20 percent year over year, the company said Thursday.

Seagate Chief Executive Officer Bill Watkins said the company couldn't meet demand in every segment of its business during the quarter, and he predicted his industry — which supplies the storage components in everything from computers and gaming consoles to digital video recorders — will continue to see robust demand.

"None of us are seeing the macroeconomic impacts on the storage business," Watkins said in a phone interview. "Consumer spending numbers for the U.S. were poor — people weren't buying dresses or new homes — but they were buying electronics."

For the quarter ended Dec. 28, the world's largest drive maker earned $403 million, or 73 cents per share, up 188 percent from $140 million, or 23 cents per share, in the year-earlier quarter.

Excluding special items, Seagate said it would have earned 76 cents per share for the period. Analysts polled by Thomson Financial expected adjusted earnings of 75 cents per share.

Revenue rose 14 percent to $3.42 billion from $3 billion in last year's second quarter, falling short of analyst expectations of $3.49 billion.

The company reported disk drive unit shipments of about 50 million for the quarter. Company officials said in a conference call with analysts Thursday that Seagate likely could have shipped even more had they ramped up more quickly to release a 250-gigabyte hard drive for laptop computers. The notebook drive was released toward the end of the quarter when competitors were already shipping what had become a popular drive that quarter for PC makers.

But Seagate officials said they expect overall demand to remain strong and forecast Seagate's sales would increase by about 15 percent in its fiscal third quarter. But, Watkins said, "with all the noise of a recession, we just want to be conservative."

For its third fiscal quarter, Seagate predicted income of 57 cents to 61 cents per share on revenue of $3.2 billion and $3.3 billion. Excluding about $27 million in one-time items, Seagate predicted earnings will fall between 62 cents to 66 cents per share. Analysts were expecting adjusted earnings of 62 cents per share on sales of $3.3 billion in the company's fiscal third quarter.

Shelby Seyrafi, analyst at Caris & Co., agreed with Seagate's assessment of a somewhat tougher quarter ahead with competitive pricing battles that will reduce gross margins.

"The good times are over for now because of the economy," Seyrafi said.

Shares of Seagate closed at $21.60, down $1.38 or about 6 percent, and they shed another 52 cents or 2 percent in after-hours trading following the release of the quarterly report.

Seagate is based in the Cayman Islands but operates out of Scotts Valley, Calif.

Investor's Corner: Focus On Earnings And Sales, Not Yields

Stocks that pay dividends yields may sound attractive to investors.

After all, getting a few extra percentage points on top of the capital appreciation (when you are right) may be the financial equivalent of having a cherry on top of your sundae.

But while dividends are a nice bonus, and income stocks make sense for some portfolios, don't base your selection just on yields.

IBD's studies of the best-performing stocks found yields have little bearing on stocks' success.

Instead, investors can reap the best gains by focusing on companies showing the strongest earnings and sales growth, other solid fundamentals and institutional sponsorship.

It's a firm's ability to deliver quarter after quarter and year after year of robust profit and revenue increases that will ultimately drive share prices higher.

How much growth should you look for? Quarterly earnings should be up at least 25%.

Likewise, sales should also be strong. Insist on quarterly gains of at least 25%. Look for strong annual gains, too.

You want to see that business is actually booming and that the bottom line isn't being boosted by lower costs.

Mosaic (NYSE:MOS - News), a maker of phosphate and potash fertilizers, recently reported a 433% surge in quarterly earnings and a 44% jump in sales. The stock, a big winner in 2007, pays no dividend.

You typically don't see growth numbers like these in stocks that pay dividends.

Why? Typically, companies enjoying strong growth prefer to reinvest their earnings back into the business to further their growth.

Companies that offer dividends, by comparison, tend to be mature enterprises, whose best growth periods are behind them.

Also, many dividend-paying companies are in relatively stable industries such as utilities, and REITs.

In 2003, the government cut the tax rate on dividends, and dividends expanded. Yet, there was little if any impact on stock returns.

A study by the Federal Reserve found that stocks that pay no dividend outperformed those that do, by a small margin.

Although it's nice to sit back and collect a dividend check each quarter, beware of the risks.

Bad news or even general market weakness can wipe out a year's worth of dividends in a heartbeat.

Also, companies can trim their payouts or eliminate them when they come under financial stress.

The fallout in the subprime mortgage industry has been hard on many financial firms. Some have been forced to slash their payouts.

On Jan. 8, mortgage bond insurer MBIA (NYSE:MBI - News), already weakening, gave bad news on its dividend.

It slashed its quarterly payout by 62% to 13 cents a share from 34 cents in an attempt to preserve cash. The stock plunged 21% on the news.

GM eyes labor cost cuts, improved earnings

DETROIT (Reuters) - General Motors Corp (GM.N) said on Thursday it sees significantly improved operating earnings and cash flow in the next two to three years, but expects high fuel prices and declining consumer confidence to be a drag on U.S. sales this year.

GM said in a presentation to Wall Street analysts that it plans to reduce its annual U.S. labor costs by about $5 billion by 2011, mainly through the labor agreement reached with the United Auto Workers union last year.

The new UAW contract allows the U.S. automaker to shift hourly retiree health-care liabilities to a union-run trust fund and hire new workers at lower pay.

GM said it expects to cut U.S. hourly and salaried pension and health-care spending to an average of $1 billion a year from 2010, down from $7 billion a year over the last 15 years.

GM also said it aims to reduce structural costs as a percentage of revenue beyond 2010, with a target of 23 percent by 2012. GM said structural costs are below 30 percent, compared with 34 percent in 2005.

GM has cut $9 billion in annual structural costs from 2005 through 2007.

Chief Executive Rick Wagoner said GM would face challenges in 2008, including weak U.S. auto industry sales, high fuel prices, high commodity and steel prices, and mounting regulatory requirements.

"This has been a turnaround so far without any tailwind from the industry," Wagoner told analysts in Dearborn, Michigan.

"In fact, the U.S. industry importantly is running at a million units lower than when we started the turnaround and frankly the outlook for '08 is uncertain and a lot of people view it negatively," Wagoner said.

GM Chief Financial Office Fritz Henderson said the automaker had adequate liquidity through 2008 to sustain operations, capital spending and employee buyouts even under a downside scenario on U.S. industry vehicle sales.

GM estimated its liquidity at the end of 2007 was more than $27 billion.

GM expects U.S. industry sales to come in slightly above 16 million this year, while it projects global industry volume to grow to a record 73 million vehicles, up 2 million from 2007.

MORE CAPACITY CUTS POSSIBLE

Despite this year's projected weakness, GM expects to increase revenue in all of its regions in 2008 and "sees the probability of a stronger U.S. industry in 2009 and beyond."

A return of U.S. auto sales to historical trends in 2010 to about the 17 million mark, for example, would be worth $1 billion to $1.5 billion in additional pretax income, GM said.

Wagoner told analysts that at current U.S. auto industry volumes, GM would need to cut capacity further at assembly plants and supporting powertrain and stamping facilities.

The U.S. auto industry has been running at about 1 million vehicles below what it was two years ago when GM set capacity plans, Wagoner said.

"At this point, I would say we were watching that closely and actions will be frankly dependent on the development of our views on U.S. industry trends and product mix trends, so stay tuned on that," Wagoner said.

The automaker also said it launched another buyout program in January. Workers who accept the offers would leave the company starting in March.

GM said it plans to launch a second phase of buyouts in February.

The buyouts are being offered to 46,000 employees, GM said.

GM has already idled a number of U.S. plants and under a 2006 deal with the UAW, more than 34,000 workers left GM after accepting buyout packages ranging from $35,000 to $140,000.

Separately, GM said it expects U.S. finance company GMAC, in which it holds a 49 percent stake, to be profitable in 2008, driven by reduced losses at its ResCap mortgage lending unit.

GMAC said in a regulatory filing with the U.S. Securities and Exchange Commission that it is "adequately capitalized," has liquidity that is at "relatively high historical levels," and needs no further capital injections for 2007.

TD Ameritrade 1Q profit up 65 percent

OMAHA, Neb. - Online brokerage TD Ameritrade Holding Corp. said Thursday that its net income soared 65 percent in its fiscal first quarter as trading activity increased and asset-based revenue continued to grow.

The Omaha-based company reported $240.8 million in net income, or 40 cents per share, in the quarter that ended Dec. 31. That's up from $145.6 million, or 24 cents per share, in the same period a year ago.

Revenue increased 20 percent, to $641.6 million, from last year's October-December figure of $535.2 million.

Analysts polled by Thomson Financial had expected a profit of 39 cents per share on revenue of $622.63 million.

Ameritrade's shares slipped 70 cents to $18.29 in midday trading.

Ameritrade's results exceeded the revised forecast company officials offered last month when they predicted earnings of 39 cents per share in the quarter. The company's original forecast called for earnings between 27 cents and 33 cents per share.

On Thursday, the company said it expects to earn between $1.23 and $1.41 per share this year.

Ameritrade has been able to draw customers away from rival E-Trade Financial Corp., which has been hurt by its investments in home loans. Analysts had predicted that Ameritrade and Charles Schwab Corp. could benefit from E-Trade's problems as its customers left in search of more-stable companies.

Ameritrade CEO Joe Moglia said about $2.3 billion, or about 25 percent, of the net new assets Ameritrade received during the quarter came from E-Trade customers who were moving their money.

During a conference call with analysts, Ameritrade officials emphasized what they said was their conservative approach to credit risks.

Credit Suisse analyst Howard Chen said in a research note that Ameritrade's fiscal year appears to be off to a solid start.

"We believe that TD Ameritrade has been a primary beneficiary of the disruptions at E-Trade," Chen said.

Ameritrade said it handled an average of 321,736 trades a day during the quarter, up from an average of 237,528 trades a day in the year-earlier quarter and 277,852 trades a day in the quarter that ended Sept. 30.

That led to a 34 percent increase in revenue from transaction fees. Ameritrade generated $260.3 million in transaction-based revenue in the quarter, up from $193.6 million a year ago.

More than half of Ameritrade's revenue came from asset-based fees, including money earned on deposit accounts and various investment products. The company said it generated $372.9 million on asset-based fees in the quarter, up 14 percent from the $327.2 million asset-based fees generated a year ago.

Ameritrade's acquisition of TD Waterhouse Group's U.S. retail securities business in January 2006 drove the increase in the company's asset-based revenue over the past two years.

Moglia said the company's efforts to capture a larger share of its customers' wallets is starting to pay off.

"Our sales efforts are gaining notable traction as our branches and service centers are focused on expanding relationships with clients," Moglia said.

Moglia has said the company wants one day to generate about 70 percent of its revenue from asset-based sources, which are more stable than transaction-based fees. In the most recent quarter, Ameritrade generated 58 percent of its revenue from asset-based sources.

Bank of NY Mellon 4Q profit falls

NEW YORK - The Bank of New York Mellon Corp.'s fourth-quarter profit tumbled 68 percent due to its exposure to assets backed by mortgages and a tough comparison to last year, when the bank gained $1.4 billion after unloading its retail operations.

Its core businesses — managing assets and providing middleman services between investors and other financial institutions — performed well, though. The bank's stock fell around 1 percent in midday trading.

The trust bank, because it runs funds for companies and wealthy individuals rather than retail banks for the mass market, has avoided exposure to the consumer problems other banks have.

Still, it was vulnerable to mortgage defaults through products called collateralized debt obligations, or CDOs. The bank's exposure to those pools of mortgage-backed debt resulted in a $118 million write-down in the latest quarter, or $200 million pretax.

Also during the fourth quarter, the bank brought a debt vehicle it had managed onto its balance sheet, as many banks have done. That decision resulted in a $180 million charge.

Goldman Sachs analyst Lori Appelbaum noted the bank's credit markdowns were "clearly more pronounced than peers." Bank of New York Mellon invested significantly fewer dollar in CDOs than other banks did, but percentage-wise, it marked them down by more — 53 percent.

Appelbaum wrote there is some risk of further markdowns in the first quarter, but "underneath all the credit noise core trends were mostly favorable — the merger integration is on track."

Net income totaled $520 million, or 45 cents a share, in the period from October to December, down sharply from $1.63 billion, or $2.27 a share, in the same period a year earlier. In 2006, Bank of New York Mellon got a big boost in profit after JPMorgan acquired its retail banking business in exchange for JPMorgan's corporate trust business.

Income from continuing operations was 67 cents per share, excluding a one-time merger-and-integration expense and a charge for restructuring and consolidating the assets of Three Rivers Funding Corp. In the same period a year earlier earnings from continuing operations were 61 cents a share.

Writing down the value of its CDOs and restructuring the Three Rivers conduit were done to reduce risk and exit businesses outside its core operations, said CEO Robert P. Kelly.

"I still see a role for credit, but over time, less so than we have traditionally," Kelly told analysts in a conference call.

The valuation of its securities — which comprise about $50 billion of its $200 billion balance sheet — "assumes housing will fall another 12 to 15 percent before things bottom out" over the next couple years, Kelly said in an interview with the Associated Press.

Revenue in the latest quarter totaled $3.81 billion, more than double the prior year's $1.89 billion.

Shares fell about 50 cents, or 1.11 percent, to $45.59 in morning trading.

Analysts polled by Thomson Financial, on average, predicted higher fourth-quarter earnings of 69 cents per share, and lower revenue of $3.75 billion. Analysts' estimates typically exclude one-time charges.

Bank of New York Mellon's assets under management rose 11 percent to $1.1 trillion; asset and wealth management fees climbed 14 percent to $887 million; and asset servicing fees increased 36 percent to $809 million.

For 2007, Bank of New York Mellon's net income totaled $2.04 billion, or $2.18 a share, down from $2.85 billion, or $3.94 a share, in 2006.

By the year's end, Bank of New York Mellon held investment securities totaling $48.7 billion, $41.6 of which were highly rated mortgage and asset-backed securities. The CDOs in that portfolio had previously amounted to $379 million; the $200 million pretax write-down means the bank held $179 million in its CDOs as of Dec. 31.

The bank said exposure in its money market funds to the troubled funds known as "structured investment vehicles" is around 2 percent, and will be closer to 1 percent in six months.

Kelly said a U.S. recession could slow down revenue growth a bit, but that he believes the company is better positioned than its peers, particularly due to its operations overseas.

Bank of NY Mellon profit falls, but tops forecasts

NEW YORK (Reuters) - Bank of New York Mellon Corp (BK.N) said on Thursday quarterly profit fell 72 percent amid disruptions from capital and credit markets, but results topped forecasts as fees from asset management and institutional clients grew at a double-digit pace.

In the second quarter since the July merger of Bank of New York Co and Mellon Financial Corp, net income totaled $520 million, or 45 cents per share.

Profit for the separate companies was $1.86 billion a year earlier, including a $1.38 billion gain at the former Bank of New York from the swap of its branch network for JPMorgan Chase & Co's (JPM.N) corporate trust unit.

Excluding several special items, operating profit was 77 cents per share, 7 cents above the average analyst forecast, according to Reuters Estimates.

Revenue totaled $3.8 billion, topping the average forecast of $3.76 billion. Fees grew 25 percent from securities servicing and 14 percent in asset management.

"Core trends were solid as almost every revenue line item advanced," wrote Lehman Brothers Inc analyst Jason Goldberg.

The bank's shares were up $1.56, or 3.5 percent, to $46.65 in morning trading on the New York Stock Exchange.

WRITE-DOWNS

The bank took a charge of $118 million, or 10 cents per share, to write down 47 percent of the value of collateralized debt obligations, a complex security often tied to mortgages. CDOs have caused losses at many financial companies, including Citigroup Inc (C.N) and Merrill Lynch & Co (MER.N).

Bank of New York also took a charge of $180 million, or 16 cents per share, to move a conduit, Three Rivers Funding Corp, onto its balance sheet, citing widening credit spreads.

"These write-downs assume a really severe housing market over the next couple of years," Chief Executive Robert Kelly said on a conference call. The company said it expects to recoup the charge for the conduit over the next several years.

Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, was surprised at the write-downs. "Though CDO problems may not be an ongoing event, it is part of their business and investors can't overlook it," he said.

But Cassidy also said, "Core businesses such as asset management and servicing grew nicely. They also shot the lights out on foreign exchange." He rates the bank "sector perform."

Profit from continuing operations was $700 million, or 61 cents per share. It was 67 cents per share excluding merger costs, and 77 cents per share also excluding the CDO write-down.

Bank of New York set plans to buy back up to 35 million shares, a little over 3 percent of the total outstanding.

SERVICING, ASSET MANAGEMENT GROW

Among other custody banks, quarterly profit fell 28 percent at Boston's State Street Corp (STT.N) and 27 percent at Chicago's Northern Trust Corp (NTRS.O), both reflecting one-time charges. At JPMorgan Chase & Co (JPM.N), a large custodian better known for retail and investment banking, profit fell 34 percent.

Bank of New York's $18.3 billion purchase of Pittsburgh-based Mellon created the world's largest provider of back-office and other custody services for institutional investors, now handling $23.1 trillion of assets. It also created a large asset manager, now overseeing $1.1 trillion.

Bank of New York's business was weighted toward securities servicing, which consists of holding securities and processing trades for institutional investors. Mellon's was weighted toward asset management, including the Dreyfus mutual funds.

In an interview, Kelly said the bank is looking for asset management acquisitions. He also plans to boost marketing spending 5 percent because the name recognition of the company among many prospective clients, despite its size, is "very low."

Fees from securities servicing totaled $1.56 billion in the fourth quarter, up from $1.25 billion at the separate companies a year earlier, as foreign exchange fees nearly doubled. Asset and wealth management fees rose to $887 million from $775 million. Expenses rose 8 percent.

Founded in 1784 by Alexander Hamilton, Bank of New York is the oldest U.S. banking company. Mellon was founded in 1869 and grew to prominence under financier Andrew Mellon.

Merrill posts worst quarter in its history

NEW YORK (Reuters) - Merrill Lynch & Co Inc (MER.N) reported about $16 billion in mortgage-related writedowns and adjustments on Thursday in the worst quarter of the company's history.

Merrill shares fell 8.3 percent to $50.51 as investors worried about more write-downs and the company's exposure to capital-strapped bond insurers.

The start of a booming year for investment banking fees and big bets on subprime mortgages ended in dismal fashion. Merrill's fourth-quarter net loss was $9.8 billion, or $12.01 a share, compared to year-ago profit of $2.3 billion, or $2.41 a share.

For 2007, Merrill lost about $8 billion on second-half write-downs and adjustments of about $24 billion. Lax risk management led to the ouster of Stan O'Neal as chief executive while nearly halving the company's market capitalization.

Recently named CEO John Thain said in a conference call the world's largest brokerage will ease risk taking but that it has enough capital to move forward after $12.8 billion in infusions from U.S. and foreign investors.

But Thain said he could not promise the company will avoid further write-downs on subprime mortgage-related positions.

He called the fourth-quarter results "unacceptable."

Thain said there would be no dramatic job cuts and added that the company is not interested in selling its stakes in Bloomberg LP and asset manager BlackRock Inc (BLK.N).

Analysts expected Merrill's fourth-quarter write-down to land anywhere from $10 billion to $15 billion.

Actual damages included $11.5 billion in write-downs on U.S. collateralized debt obligations and subprime mortgage-related securities. The company also had to make a negative adjustment of $3.1 billion to reflect soured hedges with bond insurers.

In addition, Merrill took write-downs of $900 million on exposure to Alt-A loans, which are a slightly better credit risk than subprime mortgages, and on mortgages outside the United States. The company also wrote-down $356 million worth of exposure to leveraged loans and commercial real estate.

"The loss seems higher than expected," said Peter Boockvar, an equity strategist at Miller Tabak & Co in New York. "The write-down, I guess, was large, about in line. But we knew that it was going to be bad."

Merrill shares are down 45 percent over the past year.

Fourth-quarter results eclipsed the $2.3 billion loss in the third quarter when Merrill recorded $8.4 billion in write-downs.

"I expected a large (loss) number and it was," said Rose Grant, a portfolio manager at Eastern Investment Advisors in Boston, which has $2 billion under management. "We were looking for a 'kitchen sink' quarter, where we can get these problems behind us and look at other areas of the business and see where the earnings are coming from. We're about 80 percent there."

Overshadowed by Merrill's credit implosion were stellar results from the company's brokerage and investment banking operations.

Investment banking revenue climbed 22 percent to $4.9 billion in 2007. Meanwhile, Merrill's global wealth management division, which includes its army of brokers, produced net revenue of $14 billion, up 18 percent from the prior year.

Bank of America analyst Michael Hecht said despite Merrill's stumbles it is still in position to keep its best employees and attract new talent.

The wealth management franchise attracted $30 billion in new money from clients in the fourth quarter. Total clients assets stood at $1.8 trillion at year's end.

CORRECTED: Merrill Lynch takes about $16 billion in writedowns

NEW YORK (Reuters) - Merrill Lynch & Co Inc (MER.N) on Thursday posted a quarterly loss of nearly $10 billion after writedowns and adjustments totaling about $16 billion as bad subprime mortgage bets forced the brokerage to sell stakes in the company to foreign investors to raise capital.

Recently named Chief Executive John Thain said in a conference call the world's largest brokerage will ease risk-taking but that it has enough capital to move forward after $12.8 billion in capital infusions from U.S. and foreign investors.

 

Merrill shares were down 2.7 percent in premarket electronic trading in what analysts said was uncertainty about whether there could be still more writedowns ahead in coming quarters.

"The loss seems higher-than-expected," said Peter Boockvar, an equity stategist at Miller Tabak & Co in New York. "The writedown, I guess was large, about in line. But we knew that it was going to be bad."

Analysts expected Merrill's write-down to land anywhere from $10 billion to $15 billion. For the year, Merrill's subprime mortgage-related losses totaled nearly $23 billion.

Asked if the latest writedowns meant the company was wiping the slate clean, Boockvar said: "Prices (on mortgage related securities) continue to drop. So yeah, the slate is clean for today, but prices continue to drop. It's just marking to market."

Merrill reported a fourth-quarter net loss of $9.8 billion, or $12.01 a share, the largest in the company's history. It turned a profit of $2.3 billion, or $2.41 a share, in the year-ago period.

The results eclipse the $2.3 billion loss in the third quarter when Merrill recorded an $8.4 billion write-down.

In a statement, Thain called the results "clearly unacceptable." But in the past month, Merrill has fortified its balance sheet with nearly $13 billion in capital infusions from U.S. and Asian investors.