Why Are These CEOs Feeling Fiscal Cliff Angst?
Although Wall Street’s expectations were kept low due to fears that the still struggling economy would hurt profits, so far this earnings season has been a surprise with better-than-anticipated financials. As a result, the S&P 500 is back to 5-year highs.
Even with these results, chief executives at the nation’s largest banking and manufacturing firms have not abandoned their economic concerns.
They fear that the fiscal cliff’s “day of reckoning” might have only been postponed. As CNBC reported, the the battle over the nation’s statutory debt ceiling and higher taxes could derail the economy’s recovery, a view shared by Fitch. The credit ratings firm said last Tuesday that the U.S. faces a “material risk” of losing its triple-A status if the August 2011 debt ceiling crisis is repeated. Congress’ resolution of the tax hikes and spending cuts known as the fiscal cliff at the end of December did little to convince Fitch’s head of sovereign ratings, David Riley, that the pressure on the country’s rating was decreasing. He warned that another debt ceiling dispute would weaken confidence in Washington, reported Reuters.
So far, several CEOs have kept their 2013 outlooks…
cautious. General Electric (NYSE:GE) “ended the year with a strong quarter despite the mixed global economic environment,” commented the conglomerate’s Chief Executive Officer Jeff Immelt in the earnings release that announced better-than-anticipated results.
The copmany reported Friday that earnings rose to $4.01 billion, or 38 cents per share for the three-month period, an increase from $3.73 billion, or 35 cents per share, in the year-ago quarter. Excluding one-time items, GE made a profit of 44 cents per share, a penny more than analysts polled by Thomson Reuters had predicted. Revenue also beat expectations, coming in at $39.33 billion, an increase of 3.6 percent from last year’s $37.97 billion. Analysts had estimated revenue of $38.76 billion.
Even with these results, Immelt said that his “outlook for developed markets remains uncertain.”
Morgan Stanley (NYSE:MS) also managed to beat expectations with quarterly results that showed improvement year-over-year in its wealth management and investment banking businesses. However, chief executive James Gorman told CNBC on Friday that the stock market could only “move higher” when the political strife in Washington is resolved.
“We have $1.8 trillion of assets,” Gorman said in an interview with “Squawk Box.” “On any day, 5 percent of that is looking to go to work. Ninety billion dollars is sitting there waiting to get into the market. If we see some confidence coming through from the political sector … this thing has legs.”
However, despite the overall positive trend, Citigroup (NYSE:C) reported comparatively poor results. Citing burdensome legal costs from its continuing mortgage woes and a challenging operating environment, Citigroup became the first bank to miss analysts’ estimates this quarter.
The bank reported fourth quarter profit of $1.2 billion, or 38 cents per share, and earnings of $2.2 billion, or 69 cents per share. Both figures fell significantly below quarterly profit and earnings forecasts; analysts polled by Thomson Reuters had predicted net income of $2.9 billion, or 96 cents per share.
“Our bottom line earnings reflect an environment that remains challenging,” said Chief Executive Officer Michael Corbat in his first earnings announcement since taking over the position in October. “It will take some time to work through the challenges of the current environment.”