Daily Agenda: Another Earnings Season, Another Set of Declining Earnings

HSBC and AIG announce increased buybacks; Time Warner takes stake in Hulu; AIG trims hedge fund portfolio.


Michael Nagle

As this earnings reporting season presses on, the pattern of corporate leaders managing expectations lower appears to be set to continue with a fourth straight quarter of year-to-year declines in earnings for the S&P 500 in aggregate now likely. Despite resilient consumer activity buoyed by a strong labor market and historically low rates, sluggish capital investments and a struggling energy sector have brought the average lower. The silver lining for the second quarter has been the technology sector, with strong showings by bellwethers such as Alphabet (Google) and Facebook helping to support the equity market. Investors are now left to ponder how much longer the game of lowering the bar only to beat lessened targets can sustain positive market sentiment.

HSBC announces buyback. Earlier today HSBC Holdings reported second quarter pretax earnings 40 percent lower compared to the same period in 2015. Executives at the bank announced that some of the proceeds from the sale last month of the bank’s Brazil unit has been earmarked for a $2.5 billion stock repurchase program while the dividend will remain unchanged. The lender also announced that it would cease publish return-on-equity targets.

AIG reduces hedge fund allocations. In a filing made yesterday, American International Group revealed that allocations by the insurer to hedge funds have been reduced by nearly 25 percent as of June 30. In particular, the firm dropped equity-focused long-short and event-driven managers. The firm’s total exposure to hedge funds is now less than $2.5 billion. AIG reported a 6.3 percent year-over-year increase in profits for the second quarter, stronger than consensus analyst estimates. In addition, the insurer announced an addition $3 billion in its share repurchase program.

Time Warner buys stake in Hulu. Today Time Warner announced the acquisition of a 10 percent holding in online entertainment firm Hulu. The move comes as Time Warner’s network portfolio prepares for Hulu’s new live streaming service set to launch later this year. Financial details of the purchase were not released.

Standard Chartered returns to profit. First-half financial results published today by Standard Chartered included a profit that while 50 percent lower than earnings during the same period in 2015, represented a welcome return to the black after losses of nearly $4 billion during the second half of the year. The ratio of nonperforming loans at the U.K.–headquartered, Asia–focused lender also improved. Despite the rebound, bank CEO Bill Winters said that previous return on equity targets were no longer realistic during the accompanying investor call.

North Korea launches missile into Japanese waters. In the latest provocation by Pyongyang, North Korea early today local time test-launched a ballistic missile that fell into Japanese territorial waters. The act comes in the wake of North Korea’s statements of outrage following an agreement between the U.S. and South Korea to deploy an advanced antimissile defense system. The missile launch is the latest of several by North Korea in the past several months.