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THE WALL STREET JOURNAL

January 14, 2009, 3:16 pm
Scheduling Earnings Surprises
Posted by David Gaffen

It is said that investors don’t like uncertainty, but more than that, they don’t enjoy surprises – part of the reason the last half of 2008 was so exhausting.While the recent turmoil involving the financial-services industry does not rival October and November, this week brings two surprise earnings reports that were otherwise scheduled for next week: J.P. Morgan Chase & Co., due out Thursday, and Citigroup Inc., due out Friday.

The companies haven’t been terribly enlightening in terms of their reasons — J.P. Morgan said it had to do with getting the news out ahead of the presidential inauguration, and Citigroup said little — but it left analysts wondering, ensuring that the reports would garner even more attention. “When you think about it, the only way moving it makes sense is if the news is going to be better than people are expecting,” says Denise Shull, president of Trader Psyches, a consultant to hedge funds.

That may be true in the case of J.P. Morgan, which has emerged as one of the winners of the 2007-2008 meltdown of the sector. Citigroup is another matter, however, and their move comes amid the firm’s decision to sell a stake in its Smith Barney brokerage unit and another sharp decline in shares as investors question the company’s earnings prowess for coming quarters.

“Given all the chatter it seems like they’re trying to get ahead of a story that’s running away from them,” says Barry Ritholtz, director of equity research at Fusion IQ. “As you get this story that Citi is spinning apart, being devolved, the sense is that, ‘We want to have as much control over this as we can … let’s get the news out so we can control the narrative a little bit better.’”

That’s not to say Citi is expected to report good news. The Wall Street Journal reported that company is looking at the potential for a $10 billion operating loss for the fourth quarter, citing people familiar with the matter, and could face several more rough quarters as it tries to reorganize. Still, markets have had a way of running roughshod over the efforts by a company to assure investors that all is well, which is what happened to Bear Stearns and Lehman Brothers Holdings.

In those instances, assurances that liquidity concerns were being addressed and the company’s capital position was sound were not enough to assuage panicked investors, and with banking stocks enduring a rough week, it behooves Citi and others to address investors as quickly as possible.

“The key goes back to what Bear Stearns and Lehman Brothers seem to have forgotten,” says Mr. Ritholtz. “When your business model has some ephemera at its core and you are so reliant on other people’s good wishes and beliefs, you have to leave a big margin for error … you have to have the confidence of investors, clients and counterparties.”


http://blogs.wsj.com/marketbeat/2009/01/14/scheduling-earnings-surprises/



posted by Peter Greene