S&P 500 earnings season enters its final stretch with 68 percent of the companies already reported and 60 companies expected to report this week. Consumer Discretionary, Financials and Consumer Staples will be the most active sectors with each having more than eight companies report this week.
Principal Financial Group (PFG) +1.19%
Set to announce fourth-quarter earnings after the bell, Principle Financial rose on news that regulators may allow insurers to reduce reserves in an effort to bolster its finances.
Principal Financial’s earnings results should reflect that they are suffering from investment losses, market declines and outflows. Yet, the company’s strong retirement services business should soften the blow of the weak insurance landscape.
The most important aspect of their report, however, will be the company’s investment portfolio. In recent quarters, Principal Financial has reiterated its confidence in its investment portfolio and the adequacy of its capital position. While current capital adequacy evaluations by the ratings agencies don’t factor in gross unrealized loss positions, Principal Financial would appear to have a small margin for error in terms of capital positions should that change.
To demonstrate its comfort that only a small fraction of the its $1.1 billion of unrealized losses are likely to turn into realized losses, Principal Financial added a new page of disclosure in its earnings reports showing some stress tests for cumulative after tax losses for CMBS and CMBS CDOs. Aside from CMBS, which has been the main focus, it would be nice to see the company’s allocation to BBB and below fixed maturity investments decrease from 43 percent. According to Credit Suisse, this is among the highest in the life insurance industry that averages 33 percent.
General Electric (GE) +13.87%
Shares of General Electric surged as investors placed bets ahead of the unveiling of the new financial rescue package and GE’s reconsideration of their dividend payment.
GE’s board of directors plan to reevaluate the company’s $1.24 per share dividend in the second half of 2009 citing the global recession, regulatory changes and ratings-service reviews of GE’s Aaa ratings. CEO Jeff Immelt said last week, “We are prepared to run it as a Double-A, we are prepared to run it as a Triple-A…I’m not going to change the way I run the business.”
Many analysts have advocated a dividend cut to give GE more flexibility with its cash. This camp wants to see GE investment in new and existing businesses so that they are stronger when the economy turns.
Quick Hits
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Peter Lazaroff, Junior Analyst
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