What's Important in the Financial World (5/1/2012) Financials Lift DJIA for Q1, Bank of America Layoffs

BP’s (NYSE: BP) profits fell as it continues to struggle with the Deepwater Horizon catastrophe. The incident and subsequent oil spill may cost the UK company as much as $20 billion in settlements with private interests. Fines by the U.S. government could range into the billions of dollars as well. The total charge BP has taken against the potential liabilities was $37.2 billion as of March 31. Despite a large increase in oil prices that helped the results of other oil giants, including Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX), BP’s profit for the first quarter was $5.9 billion, down from $7.2 billion in the same period last year. BP bragged about its new exploration and refinery prospects. The comments continue to be overshadowed by the largest mistake made by any multinational oil company in more than a generation.

Austerity vs. Stimulus

Germany continues its lonely quest for austerity as the key to the repair of EU finances. The position might not mean much if the region’s largest economy were not the cornerstone of bailout capital. According to the Financial Times, Germany’s finance minister Wolfgang Schäuble said, “The first precondition in order to have sustainable growth everywhere in Europe is fiscal consolidation. If now we talk about growth, it shouldn’t be understood as a change of direction. That would be a mistake.” The comments must have been taken as an insult because the finance minister of troubled Spain, Luis de Guindos, was present. His nation has an unemployment rate of over 24% and has moved into a recession. He and leaders of other weak nations in the region have argued that austerity be mixed with some level of stimulus. François Hollande, who likely will be the next president of France, has pushed for stimulus as well. Germany’s opposition will not be turned aside. It has too much money.

Bank of America Layoffs

The Wall Street Journal reported a rumor that Bank of America (NYSE: BAC) will cut as many as 2,000 jobs, primarily at its investment bank and commercial units. If this happens it is another sign that Wall St. firms in general have been hurt by a downturn in underwriting, M&A and business loans. Some estimates say that there are tens of thousand of jobs at risk at the largest investment banks, which include Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS). Bank of America has been particularly troubled by its weak balance sheet and fights with state and federal governments over its mortgage and mortgage financial instrument practices. Last year, Bank of America said it would cut 30,000 jobs. What were among the bank’s most-profitable units are now struggling as well.

Dow Rally Continues

The S&P 500 was down slightly last month, as was the NASDAQ. For each, it was the first drop since November. The DJIA rose a tiny amount, which kept its multimonth rally alive. The NASDAQ’s prospects would have been worse if it were not for the success of the shares in Apple (NASDAQ: AAPL) and, to a smaller extent, Google (NASDAQ: GOOG). Some experts say that the presence of the two companies in the index distorts its prospects. The improvement of the DJIA was driven by an increase in financial shares, especially JP Morgan (NYSE: JPM) and American Express (NYSE: AXP), as well as in tech giant Microsoft (NASDAQ: MSFT).

Douglas A. McIntyre