Higher stock underwriting revenue boosts Goldman profit

(GNN) - Goldman Sachs Group Inc GS.N posted a 5 percent rise in quarterly profit, spurred by higher revenue from stock underwriting and a smaller decline in fixed-income trading than many on Wall Street had predicted.

The bank's stock was up 0.7 percent at $168.17 on Tuesday morning on the New York Stock Exchange.

Goldman posted net income for shareholders of $1.95 billion, or $4.10 per share, in the three months ended June 30, up from $1.86 billion or $3.70 per share in the same period a year earlier.

Analysts on average had expected earnings of $3.05 per share, according to Thomson Reuters I/B/E/S.

Institutional investors have been shying away from the bond market because of a lack of strong opinions about interest rates and currency moves.

Rival banks Citigroup Inc C.N and JPMorgan Chase & Co JPM.N said a pickup in trading volume in June helped offset slowness in April and May.

"The sustainability of that trend is in question," said Brian Kleinhanzl, a research analyst at Keefe, Bruyette & Woods who rates Goldman a "market perform."

JPMorgan said on Tuesday that the June improvement in bond trading has not carried over to July.

Goldman's net revenue from fixed-income, currency and commodity trading for customers, known as FICC, fell 10 percent to $2.22 billion.

Analysts had expected a bigger decline. Bernstein Research analyst Brad Hintz had estimated $1.8 billion in fixed-income trading revenue for the quarter.

In May, JPMorgan Chase & Co and Citigroup forecasted declines in overall trading revenue closer to 20 percent for the second quarter, compared with the same period last year.

Goldman's net revenue in its investing and lending division jumped 46 percent to $2.07 billion. This included net gains of $1.25 billion from investments in equities.

The bank was also helped by better results in investment banking, where it ranked No. 1 in mergers and acquisitions, as well as equity underwriting, for the first half of 2014, according to Thomson Reuters data.

In equity underwriting, the bank's revenue rose 47 percent to $545 million, helped by Goldman's work on deals including the initial public offering of Ally Financial. ALLY.N

Investment banking revenue overall, which includes M&A, debt underwriting and stock underwriting, rose 15 percent to $1.78 billion.

Goldman executives often say that investment banking is the center of its broader franchise, because those clients also generate revenue for its trading, investment management and lending businesses.

The bank makes most of its money from trading and investing in capital markets. This sets it apart from JPMorgan Chase & Co, Citigroup and Bank of America Corp BAC.N, which have big consumer and corporate lending businesses.

JPMorgan, the biggest U.S. bank by assets, on Tuesday reported an 8 percent decline in second-quarter profit as a pullback in trading of bonds and currencies by big institutions hit revenue in its securities trading business.

On Monday, Citigroup reported a 16 percent drop in trading revenue.

(GNN)(Reuters)(AIP)(Reporting by Anil D'Silva in Bangalore and Lauren Tara LaCapra in New York; editing by Saumyadeb Chakrabarty, Dan Wilchins, and Matthew Lewis)

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Albemarle to buy rival Rockwood for lithium boost

(GNN) - Chemicals maker Albemarle Corp (ALB.N) said it would buy rival Rockwood Holdings Inc (ROC.N) for $6.2 billion to tap fast-growing demand for lithium products used in mobile phone and automobile batteries.
Rockwood shares rose nearly 14 percent to $86 at market open on Tuesday in heavy volume, slightly above Albemarle's offer of $85.53 per share. Albemarle shares rose 5 percent to $76.02.

"Growth prospects for lithium are better than for any of Albermale's existing businesses," said Suntrust Robinson Humphrey analyst James Sheehan. "They want to capture the upside potential from electrification of automobiles that's likely to occur over the next several years."

U.S. sales of electric vehicles soared to 167,617 in 2013 from 345 in 2010, according to a report published in January by the U.S. Department of Transportation-funded Electric Vehicle Transportation Center. (bit.ly/1wpRMi6)

The deal will give Albemarle access to Rockwood's assets in the Atacama Desert, Chile, providing a low-cost base for lithium production.

The combined company will also have a strong presence across three other high-margin businesses — supplying catalysts to refineries, bromine for use in offshore drilling and emission control, and surface treatment products to the automobile and aeroplane industries.

The deal diversifies Albemarle's portfolio away from bromine, which is in transition between growth cycles, and catalysts, which have very lumpy order patterns, Jefferies analyst Laurence Alexander wrote in a note.

Rockwood shareholders will get $50.65 in cash and 0.4803 Albemarle shares for each share they own. Albemarle said it had secured financing from BofA Merrill Lynch to fund the cash portion of the deal.

Albemarle expects about $100 million in annual savings by 2016 from the deal.

Rockwood, under ex-CEO Seifi Ghasemi, hived off its clay-additives and titanium-dioxide businesses to narrow its focus on lithium and metal surface treatments.

EARNINGS CATALYST
Albemarle said it expected the Rockwood deal, which will likely close in the first quarter of 2015, to add to cash earnings per share in the first year and to adjusted earnings per share in the second year.

The company, which is due to report second-quarter results on July 30, estimated adjusted earnings per share of $1.08 to $1.11. Analysts on average were expecting a profit of 99 cents per share, according to Thomson Reuters I/B/E/S. BofA Merrill Lynch is Albemarle's financial adviser. Lazard and Citi are advising Rockwood.

Shearman & Sterling LLP, Troutman Sanders LLP, Kelley Drye & Warren LLP are Albemarle's legal advisers. Simpson Thacher & Bartlett LLP is Rockwood's legal adviser.

Shares of Albemarle, which said it would suspend its share buyback program, gave up their early gains and were down about 2 percent in morning trade on the New York Stock Exchange.

Rockwood shares were up 10 percent. About 740,000 shares changed hands by 1040 ET, more than three times their 50-day moving day average volume.

(GNN)(Reuters)(AIP)(Editing by Sriraj Kalluvila)

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Citi, U.S. $7 billion settlement announcement expected Monday

(GNN) - Citigroup agreed to pay $7 billion to resolve a U.S. government investigation into shoddy mortgage-backed securities the bank sold in the run-up to the 2008 financial crisis in a settlement set to be announced on Monday, sources said.

The $7 billion includes $4 billion in cash to the U.S. Department of Justice, $2.5 billion in consumer relief, more than $200 million to the Federal Deposit Insurance Corporation and just under $300 million to settle probes by five states, said sources familiar with the negotiations.

Spokespeople for the Justice Department and the bank declined comment. Representatives of attorneys general of New York, Delaware, California, Massachusetts and Illinois, the states said to be involved, did not immediately return requests for comment. Nor did the FDIC.

The settlement, signed over the weekend, caps months of negotiations, during which the government demanded $12 billion and threatened to sue Citigroup, according to the sources.

The deal is scheduled to be announced on Monday morning when Citigroup executives also will report second-quarter results before the stock market opens in New York, the sources said.

The $7 billion has surprised stock analysts and people inside the bank, who expected Citigroup to resolve the investigations for much less.

Citigroup is the second major bank to settle with authorities since President Barack Obama ordered the formation of a task force to investigate the sale and packaging of toxic home loans, which were at the center of the 2008 financial crisis. The Justice Department issued more than a dozen subpoenas to financial institutions in early 2012.

Bank of America Corp also has been negotiating with the Justice Department over similar claims.

JPMorgan Chase & Co, the largest U.S. bank, last year agreed to pay $13 billion to settle government probes over the packaging of toxic mortgages, including by Bear Stearns and Washington Mutual, which the bank acquired during the crisis.

The $13 billion JPMorgan accord was comprised of a $2 billion penalty to the Justice Department, $4 billion in consumer relief, $4 billion to the Federal Housing Finance Agency, and $3 billion to other authorities.

Citigroup's penalty to the Justice Department is twice what JPMorgan paid, though it had handled far fewer mortgage-backed securities, because investigators found more evidence of defective loans in the bank's securities and more awareness of the wrongdoing at the time, the sources said.

At the same time, the Citigroup settlement covers the bank's potential exposure for tens of billions of dollars' worth of collateralized debt obligations, the sources said. JPMorgan got no such release in its deal.

LONG NEGOTIATIONS

Negotiations with Citigroup, the third largest U.S. bank, began with a meeting in Brooklyn in November, the day the JPMorgan settlement was announced, one source said.

In late April, the bank offered $363 million, the sources said. At a May 2 meeting in Washington, the government demanded the bank increase its offer, sources said, and Citi responded with $700 million.

Justice did not consider the offer realistic, according to sources. Citi then came up with $1 billion in cash and $2 billion in consumer relief, one source said.

But by then, Justice made a demand of $12 billion, sources said.

Negotiations reached a fevered pitch the week of June 9, with Citigroup requesting to meet with U.S. Attorney General Eric Holder several times that week, only to be rebuffed, one source said.

The Department of Justice gave Citigroup until June 13 to come back with a serious offer. By that Sunday, Citigroup agreed to pay $3.6 billion in cash, $2.5 billion in consumer relief and $900 million more to cover probes by five states and the FDIC, one source said.

The department threatened to sue Citigroup, but on June 17 postponed a planned announcement, sources said.

Top Justice Department officials were preoccupied with the capture of a suspect in the 2012 attack on U.S. diplomatic facilities in Benghazi, Libya, and other commitments, sources said.

The bank then worked on the consumer relief portion and Tony West, the No. 3 Justice Department official, negotiated for Citi to settle with the states and FDIC for $500 million, rather than $900 million, one source said.

The $400 million difference was moved into the Justice Department's bucket, where it was no longer tax deductible as a business expense, the source said.

IMPACT ON RESULTS
How much the deal will reduce Citigroup's quarterly results on Monday depends on various factors.

Citigroup has not disclosed how much of the legal cost it has already incurred by booking reserves. Analysts have estimated its legal reserves at between $2 billion and $3.5 billion.

Citigroup said in May that possible litigation losses in excess of its reserves could be as much as $5 billion.

Analysts, on average, have expected Citigroup to report on Monday that it earned $1.09 a share in the second-quarter, down nearly 13 percent from a year earlier, according to a survey by Thomson Reuters. It's not clear whether the estimates had been updated to include the expected settlement. (Reuters)(AIP)(Reporting by Karen Freifeld in New York and Aruna Viswanatha in Washington; Additional reporting by David Henry in New York; Editing by Frances Kerry and Sandra Maler)