Friday, October 24, 2008

Microsoft Beats the Street; Greenspan "shocked" at Credit System Breakdown; Dow and S&P 500 Finish Higher

Microsoft (MSFT) reported a 2% rise in quarterly profit, driven by sales of new computer server software, and lowered its full-year earnings forecasts to account for a toughening economy.

Shares of Microsoft rose 5% in after-hours trade after the announcement. Microsoft posted a net profit of $4.37 billion, or 48 cents per diluted share, in its fiscal first quarter ended September 30 versus a profit of $4.29 billion, or 45 cents per diluted share, in the year-ago period. Revenue rose 9% to $15.06 billion.

Analysts, on average, were forecasting Microsoft to earn 47 cents per share on revenue of $14.8 billion, according to Reuters Estimates.

Microsoft, the world's largest software maker, cashed in on new releases of computer server software such as Windows Server 2008 operating system and database software SQL Server 2008.

Shares of Microsoft have fallen 19 percent since it last reported earnings on July 17. Microsoft stock closed at $22.32, up 3.67%, on the Nasdaq before rising to $23.35 in extended trade.

Greenspan "Shocked"

Former Federal Reserve Chairman Alan Greenspan told Congress on Thursday he is "shocked" at the breakdown in U.S. credit markets and said he was "partially" wrong to resist regulation of some securities.

Despite concerns he had in 2005 that risks were being underestimated by investors, "this crisis, however, has turned out to be much broader than anything I could have imagined," Greenspan said in remarks prepared for delivery to the House of Representatives Committee on Oversight and Government Reform.

"Those of us who have looked to the self-interest of lending institutions to protect shareholder's equity -- myself especially -- are in a state of shocked disbelief," said Greenspan, who stepped down from the Fed in 2006.

With a general election looming November 4, U.S. lawmakers were sharply divided along political lines in either blaming regulators or bickering for failure to prevent the crisis that has gripped financial markets around the world.

Democrats blamed the departments of the SEC (Chairman Cox was in attendance) and U.S. Treasury (former Secretary Snow also attended) for not having more regulation to guard against these problems.

Republicans, for their part, singled out government sponsored mortgage finance agencies Fannie Mae and Freddie Mac for their role in unsettling financial markets and faulted Congress, which has been led by the Democrats since 2006, for failing to pass measures to rein them in sooner. Republicans have angrily protested a decision by Democrats to not hold a hearing on the mortgage finance firms, which the government took over in September to restore financial health, until two weeks after the election.

Greenspan softened his longstanding opposition to many forms of financial market regulation, acknowledging in an exchange with Representative Waxman that he was "partially" wrong in his belief that some trading instruments, specifically credit default swaps, did not need oversight.

Waxman cited a series of public statements by Greenspan saying the market could handle regulation of derivatives without government intervention.

"My question is simple: Were you wrong?" Waxman asked.

Greenspan said he was "partially" wrong in the case of credit default swaps, complex trading instruments meant to act as insurance against default for bond buyers.

While Greenspan was once hailed as one of the most accomplished central bankers in U.S. history, the low interest rates during his final years at the Fed have been blamed for fueling the housing bubble and eventual crash that touched off the current financial crisis. His strong advocacy for limited regulation of financial markets has also been called into question as a result of the crisis.

The former Fed chair said that a securitization system that stimulated appetite for loans made to borrowers with spotty credit histories, was at the heart of the breakdown of credit markets.

"Without the excess demand from securitizers, subprime mortgage originations -- undeniably the original source of crisis -- would have been far smaller and defaults, accordingly, far fewer," he said.

A surge in demand for U.S. subprime securities, supported by unrealistically positive ratings by credit agencies, was the core of the problem, he added.

Greenspan proposed that that securitizers be required to retain "a meaningful part" of securities they issued. He said that regulatory reform will be necessary in the areas of fraud, settlement, and securitization to re-establish financial stability.

He backed the recently approved $700 billion bailout package, saying that without it, banks and other financial institutions would likely face a serious reduction in credit.

Greenspan also told lawmakers that regulators could not predict the future or make perfect decisions. "It's a very difficult problem with respect to supervision and regulation. We cannot expect perfection in any area where forecasting is required. We have to do our best but cannot expect infallibility or omniscience," he added.

Dow and S&P 500 Finish Higher

Stocks clawed back from five-year lows on Thursday, led by a bounce in energy and health-care stocks after oil recovered from a 16-month trough and top pharmaceutical companies posted reassuring earnings.

The Dow rose 172.04 points, or 2.02%, to end at 8,691.25. The S&P 500 Index gained 11.33 points, or 1.26%, to finish at 908.11. The Nasdaq was down 11.84 points, or 0.73%, to close at 1,603.91.

Sources: Reuters

No comments: