S&P MAINTAINS HOLD OPINION ON CITIGROUP (C; 16.23):
Citi posts third quarter operating loss of $0.71, vs. $0.44 EPS, $0.08 narrower than our estimate. Results include roughly $5 billion in securities writedowns vs. $7 billion the previous quarter. Still, we are wary of some of Citi's marks, particularly on low document securities. Tier one capital totaled 8.2%, 50 basis points lower than last quarter. Net chargeoffs rose 13.9% to $4.9 billion; Citi added roughly $4 billion to reserves over net chargeoffs to reflect further credit deterioration. Government-announced injection of capital eases our concerns. Will update after conference call. -S. Plesser
S&P KEEPS HOLD RECOMMENDATION ON SHARES OF MERRILL LYNCH (MER; 18.24):
Third quarter loss from continuing operations of $5.58, vs. loss of $2.82, is wider than our $3.19 estimate. Writedowns and losses from loans, CDOs, and other mortgages totaled $12.1 billion, but exposure to troubled assets declined sharply, and losses were offset by asset sales and liability reductions. Costs were up due to charges related to restructuring and its recent capital raising steps. We widen our 2008 loss estimate to $12.81 from $11.02, and lower our target price to $24 from $28, 1.3 times book value. We expect the pending acquisition by Bank of America (BAC; 24.00) to go forward. -M. Albrecht
S&P MAINTAINS HOLD RECOMMENDATION ON SHARES OF AMERICAN INTERNATIONAL GROUP (AIG; 2.43):
NY Attorney General Cuomo has issued a "cease and desist" letter to AIG's board, claiming certain payments and expenditure made by AIG violate N.Y. Debtor & Creditor Law 274. Though troubling, we are not surprised by AG Cuomo's actions. At this juncture, we believe investors should be more concerned about AIG's ability to sell enough assets to repay the Federal Reserve loans that we estimate exceeds $120 billion. We would not add to positions of these shares, which we classify as high risk. Our $4.50 target price implies a deep discount to historical averages. -C. Seifert
S&P MAINTAINS BUY OPINION ON NOKIA ADSS (NOK; 15.11):
NOK posts third quarter EPS of 0.33 euros, vs. 0.41 euros, above our 0.32 euro estimate. While unit handset sales were below our forecast, NOK's average selling prices were ahead of our expectation. Overall, operating margin was better than we projected, with handsets, networks, and navigation all strong, in our view. While encouraged with NOK's higher forecast for 2008 handset volume growth, we are disappointed that its smartphones lost some share during the third quarter. We are concerned that NOK will need to reduce prices to better compete. We will update following morning call. -C. Van der Elst
S&P MAINTAINS BUY RECOMMENDATION ON SHARES OF PNC FINANCIAL SERVICES (PNC; 61.50):
Third quarter EPS of $0.71, vs. $1.19, is below our $1.26 estimate. Noninterest income of $654 million is lower than our estimate of $920 million, on fair value markdowns. Provisions were in line with our forecasts. Credit quality remains good, in our opinion, with 1.16% of loans nonperforming and reserves of 1.20% of nonperforming assets. In addition, we believe Tier 1 capital of 8.20%, while below peer average of 9.0%, is acceptable. We are keeping our 12-month target price of $73, based on a premium-to-peers p-e multiple of 12.8 times our unchanged 2009 EPS estimate of $5.69. -E. Oja