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Credit Suisse Earnings Beat Analysts' Estimates; Shares Climb

By Elena Logutenkova

July 24 (Bloomberg) -- Credit Suisse Group AG, Switzerland's second-biggest bank, said earnings dropped 62 percent, less than analysts estimated, as the securities unit returned to profit and wealth management attracted the most new assets in two years.

Credit Suisse rose as much as 8.6 percent in Zurich trading today after reporting second-quarter net income of 1.22 billion Swiss francs ($1.18 billion), or 1.12 francs a share, compared with 3.19 billion francs, or 2.82 francs, a year earlier. Profit was almost double what analysts estimated.

Chief Executive Officer Brady Dougan cut leveraged loans and real estate assets by 68 percent over the past nine months to limit second-quarter writedowns to 22 million francs and said he will continue to manage the bank ``conservatively.'' Credit Suisse's wealth management unit got a net 15.4 billion francs in the quarter, after the 48-year-old American stepped up hiring of money managers while larger Zurich rival UBS AG reels from the biggest subprime mortgage losses of any European bank.

``Management decisions have been far better at Credit Suisse,'' said Ralph Silva, research director at Tower Group Plc in London, in an interview. ``They're taking a considerable number of clients away from UBS.''

Credit Suisse rose 2.35 francs, or 4.7 percent, to 52.25 francs by 10:29 a.m. The stock has lost 23 percent this year, compared with the 50 percent slump at UBS, the sixth-biggest loser in the 71-member Bloomberg Europe Banks and Financial Services Index.

`Challenging'

``We anticipate that the current challenging market conditions will persist over the near to medium term and we will continue to manage our business conservatively,'' Dougan said in the statement today.

The investment bank reported a pretax profit of 281 million francs, compared with 2.5 billion francs a year ago and a loss of 3.46 billion francs in the first quarter. Corporate and retail banking saw a 2.6 percent increase in pretax profit to 390 million francs. Profits at the wealth and asset management units fell 17 percent to 830 million francs and 44 percent to 167 million francs, respectively.

The investment bank wrote down the value of leveraged loans and commercial mortgage-backed securities by 86 million francs and 477 million francs, respectively, while booking gains on residential mortgage-backed securities and collateralized debt obligations of 33 million francs and 508 million francs. Credit Suisse had a fair-value loss of 503 million francs on its own debt as credit spreads narrowed.

Close to `Normal'

``I wouldn't say market prices have improved, but we were rightly positioned in the quarter,'' Chief Financial Officer Renato Fassbind said on a conference call. The positions are now close to ``normal,'' and the bank accrued a ``significant'' dividend, albeit below last year's level, he said.

Credit Suisse's tier 1 capital ratio rose to 10.2 percent by the end of the second quarter from 9.8 percent at the end of March. Return on equity fell to 13 percent from 30 percent a year earlier.

The bank follows New York-based Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. in reporting a profit for the second quarter. New York-based Citigroup Inc., the biggest U.S. bank by assets, had a net loss of $2.5 billion.

UBS said earlier this month that earnings were ``at or slightly below break-even,'' including about 3 billion francs of tax credits. Deutsche Bank AG, Germany's biggest bank, may report a second-quarter net income of 518 million euros ($814 million) on July 31, according to the median estimate of 13 analysts surveyed by Bloomberg.

Wealthy Clients

Subprime losses at UBS, which holds more assets for affluent clients than any other bank, and Merrill Lynch are helping private banks that haven't been hit as much. Growth in assets from affluent clients at UBS and Merrill slowed last year, while smaller private banks saw stronger growth, according to an annual survey released last month by Scorpio Partnership.

Money inflows at Credit Suisse's wealth management unit were the highest since the second quarter of 2006, after the bank added 120 advisers in the past three months. Credit Suisse said in January that it aims to hire about 1,000 wealth management advisers through 2010.

Julius Baer Holding AG, Switzerland's biggest independent money manager, said yesterday that wealthy clients added 8 billion francs in the first half of this year. Merrill reported $5 billion of net outflows in the second quarter and Citigroup suffered $11 billion of redemptions at its global wealth management unit.

``Credit Suisse Group remains our preferred investment bank, with a strong wealth management franchise with excellent net new money,'' Kian Abouhossein, an analyst at JPMorgan Chase & Co., said in a note to clients.

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

Qualcomm Advances After Raising Sales Target, Settling Dispute

By Susan Decker and Crayton Harrison

July 24 (Bloomberg) -- Qualcomm Inc., the world's biggest maker of mobile-phone chips, rose the most in more than eight years after increasing its 2008 sales and profit targets and settling a patent dispute with handset maker Nokia Oyj.

Revenue will amount to at least $10.3 billion, up from a previous forecast of as little as $10 billion, Qualcomm said today in a statement. Profit will be as much as $2.13 a share, an increase from $2.09 before.

Sales will advance as consumers buy more phones that surf the Web and download video at faster speeds, Chief Executive Officer Paul Jacobs said in the statement. Forging the new licensing deal with Nokia, the world's biggest maker of wireless phones, will give him access to some Nokia patents that are essential to certain handset standards.

The agreement ``removes an overhang, an unknown,'' said Cody Acree, an analyst at Stifel Nicolaus Inc. in Dallas who recommends keeping Qualcomm shares. ``The question recently had been that the Qualcomm-Nokia arbitration could basically be unsettled and then drag on for years.''

Settling with Nokia may add 7 cents to 13 cents a share to earnings in the fourth quarter, San Diego-based Qualcomm said today. Excluding that and some other items, profit in the fourth quarter will be 49 cents to 51 cents a share, with sales of as much as $2.7 billion.

Qualcomm rose $8.63, or 19 percent, to $53.45 in early trading after closing at $44.82 on the Nasdaq Stock Market yesterday. That would be the largest gain since December 1999.

Nokia Agreement

The 15-year agreement covers different mobile-phone standards and resolves all litigation including a Nokia complaint before the European Commission. Nokia will license all of Qualcomm's patents and won't use any of its patents against Qualcomm, the companies said yesterday in a joint statement.

Financial terms weren't disclosed. Nokia will pay an upfront fee and ongoing royalties to Qualcomm. Investors have feared that Qualcomm's inability to reach a new agreement with Nokia after an earlier contract expired last year might hurt its licensing agreements with other phone companies.

Nokia CEO Olli-Pekka Kallasvuo said in the statement that the financial effect on the Espoo, Finland-based company is ``positive'' and `` within Nokia's original expectations.''

Acree predicted that other companies will scour Qualcomm's earnings reports to see if Nokia was given a special discount on royalties. Competitors such as Motorola Inc., Samsung Electronics Co. and LG Electronics Inc. might want to negotiate better terms in their business dealings with Qualcomm based on what they discover about Nokia's payments, he said.

Know-How

An exchange of know-how between the world's biggest mobile- phone maker and the world's biggest maker of the chips that run wireless phones might mean new devices with faster Internet access and better graphics, the companies said.

Qualcomm will be able to integrate some of Nokia's technology into its chipsets, while Nokia can use Qualcomm's patented inventions for both its phone and infrastructure equipment.

Qualcomm, which gets most of its profits from licensing, stopped recording sales from royalties paid by Nokia after April 9, 2007, in its quarterly results, saying it would wait until a judgment or a settlement of its dispute. The company estimated last year that Nokia's royalties in 2008 would produce 25 cents to 30 cents a share in earnings.

Nokia will be paying lower royalty rates than it was under the earlier agreement, Chief Financial Officer Richard Simonson said in a phone interview. He declined to say how much. Nokia had argued that its rates should be lower than what they were under the old contract to reflect its contributions to the newer phone standards.

Win-Win

``This really is a case, to use that trite phrase, of win- win,'' Simonson said. ``Qualcomm can declare victory and I will support that. And the facts allow me to declare victory.''

Qualcomm shares rose after hours even before the settlement was announced. The postponement of a trial between the two in Delaware Chancery Court in Wilmington and a delay of Qualcomm's earnings report led to speculation an agreement might have been reached.

Qualcomm and Nokia have sued each other and filed complaints with regulators in Europe, North America and Asia to gain an edge in their licensing battle. The Delaware trial was set to resolve some licensing issues. Earlier yesterday, a German court ruled against Qualcomm in a patent-infringement case.

The Nokia settlement doesn't end Qualcomm's legal battles. Other companies have complaints before the European Commission, and Qualcomm is fighting in U.S. courts to overturn a possible ban on the imports of phones with its chips after Broadcom Corp. won a patent-infringement case.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Crayton Harrison in Dallas at tharrison5@bloomberg.net

AMR, UAL, Delta Gain on `Relief' Airline Cash Can Cover Losses

By Mary Schlangenstein

July 24 (Bloomberg) -- United Airlines and Continental Airlines Inc., reaping cash by selling frequent-flier miles to credit-card companies, may be easing investor concern that the industry lacks the reserves to weather losses lasting into 2009.

The Bloomberg U.S. Airlines Index jumped 29 percent in the past week even as seven of the eight largest carriers posted combined net losses of $6.2 billion. United parent UAL Corp. soared 69 percent on July 22 after reworking its credit-card agreement with JPMorgan Chase & Co.

``There was a certain level of relief associated with the cash that was raised, particularly at United,'' William Warlick, senior director of Fitch Ratings in Chicago, said yesterday in an interview. ``It's confirmation cash on the balance sheet is the name of the game right now.''

UAL's accord, including the sale of frequent-flier miles for $600 million, followed a credit-card deal last month by Continental and second-quarter moves by American Airlines parent AMR Corp. and Delta Air Lines Inc. to boost liquidity.

American, United, Delta and Continental -- the four biggest U.S. airlines, respectively -- all said they boosted cash last quarter. They're also part of industrywide cutbacks that include grounding at least 465 jets and eliminating 26,000 jobs.

The airlines index rose 5.5 percent yesterday, adding to a 16 percent increase the previous day that was the biggest in the benchmark's 9-year history. AMR has surged 64 percent since reporting a $1.45 billion net loss on July 16. UAL has more than doubled in that time, while Delta is up 46 percent and Continental has gained 61 percent. All had quarterly losses.

Cash Over Earnings

``As you get into these distressed situations like this industry is in, the amount of cash you have becomes more important than your earnings,'' said Roger King, a CreditSights Inc. debt analyst in New York.

AMR said it had $5.5 billion in cash and short-term investments as of June 30, while UAL had $2.7 billion, Delta had $3.3 billion and Continental had $3.4 billion. They may need it.

The industry's usual air-travel decline after Labor Day may be worsened this year by a slowing U.S. economy on top of continued high fuel prices, extending losses and possibly pushing some carriers near bankruptcy, Warlick said.

``Plans for the fall period have been laid out in terms of capacity reductions,'' said Bill Hochmuth, a fixed-income analyst at Thrivent Financial in Minneapolis, which manages funds holding shares in at least six big U.S. airlines. ``The environment has been changing so rapidly over the last few months with such volatility we just don't know how well the plans are going to hold. Monitoring liquidity right now is a big deal.''

Industrywide Outlook

Industrywide losses may reach $13 billion in 2008, the Air Transport Association trade group has estimated. Jet fuel has surged 71 percent in the past year to surpass labor as carriers' biggest expense.

Falling prices for oil, from which jet fuel is refined, also are creating a tailwind for airline stocks. Crude has dropped 7.5 percent in the past week to $124.48 a barrel in New York yesterday after closing at a record $145.29 on July 3.

UAL benefited in two ways from its credit-card agreement with JPMorgan Chase, as it freed up restricted cash under the new terms in addition to the sale of miles.

Continental said June 12 it would receive $235 million for the advance purchase of frequent-flier miles and $178 million for other marketing commitments with Chase Bank USA, a unit of JPMorgan Chase.

``I would expect there will be follow-on announcements,'' Fitch's Warlick said. ``It's a `me-too' industry. With respect to financing transactions, if one big carrier does it, I would be surprised if we didn't see similar announcements from others.''

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

Lilly 2Q earnings rise 44 pct as sales increase
Thursday July 24, 8:28 am ET
Eli Lilly profit increases 44 percent in 2nd qtr on rising sales, but cuts profit forecast


INDIANAPOLIS (AP) -- Drug and medical device maker Eli Lilly & Co. posted a 44 percent increase in second-quarter earnings as sales growth was helped in part by the weaker dollar.
Lilly reported net income of $958.8 million, or 88 cents per share, compared with $663.6 million, or 61 cents per share, in the same quarter last year.

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Excluding one-time costs for restructuring and other items, the company's earnings were 99 cents per share in the latest period.

Revenue increased 11 percent to $5.15 billion from $4.63 billion. A little over half that increase was due to the effects of the weaker dollar, and the rest to higher unit sales.

Analysts polled by Thomson Financial expected earnings of $1 per share on revenue of $5.03 billion. Such estimates typically exclude one-time items.

Sales of Lilly's top-selling drug, the antipsychotic Zyprexa, rose 2 percent to $1.24 billion. Antidepressant Cymbalta, Lilly's No. 2 seller, saw sales rise 26 percent to $654.4 million.

The company lowered its full-year earnings guidance, including one-time items, to between $3.79 and $3.94, down from prior estimates of $3.90 to $4.05.

Southwest 2Q profit up, sales rise 11 percent
Thursday July 24, 8:33 am ET
By David Koenig, AP Business Writer
Southwest Airlines 2nd-quarter earnings up on higher revenue and gains from hedging fuel costs


DALLAS (AP) -- Southwest Airlines Co. earned a profit in the second quarter and beat Wall Street expectations by continuing to rely on financial deals that lowered its fuel costs.
Revenue increased by 11 percent, as Southwest raised fares.

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But in a nod to high fuel costs and other problems facing the airline industry, growth-oriented Southwest said it might not grow at all next year.

Southwest said Thursday it earned $321 million, or 44 cents per share, up 15 percent from a year ago, when the airline earned $278 million, or 36 cents per share.

Excluding special items, Southwest said it would have earned $121 million, or 16 cents per share. That beat analysts' forecast of 12 cents per share, according to a survey by Thomson Financial.

Dallas-based Southwest posted its 69th straight profitable quarter while many other airlines lost money, and it is mostly because of fuel hedging -- financial transactions that Southwest uses to lock in lower prices for most of its fuel.

The transactions earned $511 million in the quarter, nearly double the company's entire profit.

Despite its string of profitable quarters, Southwest is under pressure to control costs and boost sales as its fuel-hedging contracts expire over the next few years.

"We cannot stand still," Chairman and Chief Executive Gary C. Kelly said. "We must continue to make the necessary adjustments to adapt to higher jet fuel prices and restore our profit margins."

Southwest has raised fares and cut service on less-productive routes while adding flights where it can take advantage of rivals' weakness, such as in Denver.

In a concession to high fuel costs, it has also scaled back growth plans to 4 percent or less for 2008 -- other carriers are slashing U.S. capacity -- and Kelly said it might not increase capacity next year.

Revenue in the second quarter rose to $2.87 billion from $2.58 billion a year earlier.

Even with fuel hedging, Southwest was hit by soaring energy costs. It paid an average $2.19 per gallon for jet fuel, but the going price on spot markets last week was nearly $4 per gallon. By comparison, American Airlines, with a much smaller fuel-hedging program, paid an average of $3.17 per gallon in the second quarter.

Southwest has hedged about 80 percent of its third-quarter fuel needs, down from 90 percent a year ago. The coverage falls to 70 percent next year, 40 percent in 2010 and 20 percent in 2011 and 2012 -- with steadily rising prices as well.

3M profit up 3 percent, tops estimates
Thursday July 24, 8:06 am ET


BOSTON (Reuters) - Diversified U.S. manufacturer 3M Co (NYSE:MMM - News) reported a 3 percent rise in quarterly earnings on Thursday, topping the average Wall Street forecast, as strong international demand more than offset a slowing U.S. economy.
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The company, whose products range from Scotch tape to optical films for liquid crystal displays, posted second-quarter profit of $945 million, or $1.33 per share, up from $917 million, or $1.25 per share, a year earlier.

Factoring out one-time items, profit was $1.39 per share. On that basis, analysts had expected $1.35, according to Reuters Estimates.

Revenue came to $6.74 billion, up nearly 10 percent from a year earlier.

3M held its full-year earnings forecast steady, calling for an increase of at least 10 percent over last year's $4.98 per share before one-time items. Analysts' average forecast is $5.46 per share.

St. Paul, Minnesota-based 3M has stopped providing quarterly profit guidance due to high volatility in demand for many of its products.

Its broad lineup of businesses, which range from high-tech industrial products such as chemicals used in aircraft maintenance to basic consumer goods like Post-it notes, make the company a bellwether of the U.S. economy. But with demand slowing in the United States, which now represents just a third of its revenue, 3M has been relying on growth in emerging markets.

Its shares are down about 16 percent this year, compared with a 12 percent decline in the Dow Jones industrial average (DJI:^DJI - News), of which it is a component.

(Reporting by Scott Malone; editing by John Wallace)

Automaker said it lost $8.7 billion in second quarter, with special charges.

Last Updated: July 24, 2008: 7:42 AM EDT


NEW YORK (CNNMoney.com) -- Ford Motor Co. announced plans to transform its vehicle lineup and reported a massive second-quarter loss on Thursday.

Ford (F, Fortune 500) said it lost $8.7 billion, or $3.88 per share, including pre-tax special charges primarily due to special charges related to the writedown of assets. This is compared to the year-earlier quarter, when the automaker announced a profit of $750 million, or 31 cents per share.

Revenue, excluding special items, fell to $38.6 billion from $44.2 billion a year earlier.

Ford also said it will make big changes to the vehicles it sells domestically - bringing six small cars made in Europe to the North American market.

Ford, like its American rival GM (GM, Fortune 500), has been hard-hit by economic weakness. In particular, rising gas prices have severely hampered consumer interest in big trucks and sport utility vehicles. In 2007, Ford lost its place as the No. 2 automaker in the U.S. to the Japanese automaker Toyota (TM).

As production winds down, Ford has been slashing production of SUVs and large trucks to meet the reduced demand and offering buyouts to its 54,000-strong workforce. Ford set a goal of cutting 15% of its work force by Aug. 1. But so far this year, only 4,200 workers have accepted the buyout offers.

On Monday, Ford said that a new round of buyout and early retirement offers had been made to workers at 17 facilities.

On Wednesday, the rival U.S. automaker Chrysler also announced that it was cutting 1,000 salaried jobs.

Ford's stock has fallen 10% so far this year. But it still managed to outperform the S&P, which has dropped 12%.