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The Zacks Analyst Blog Highlights: Citigroup, Deutsche Bank, HSBC Holdings, JPMorgan Chase and Microchip Technology

C DB JPM MCHP

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For Immediate Release

Chicago, IL – November 5, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Citigroup Inc. (C - Analyst Report), Deutsche Bank AG (DB - Analyst Report), HSBC Holdings Plc. , JPMorgan Chase & Co. (JPM - Analyst Report) and Microchip Technology Incorporated (MCHP - Analyst Report).

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Here are highlights from Friday’s Analyst Blog:

 

Big Banks Need More Capital Buffer

 

The Financial Stability Board (FSB) has specified four banks as extremely vital in the entire banking system. Also, FSB expects these banks to hold additional capital that would act as a buffer for absorbing any potential losses in adverse scenarios. These banks have been chosen on the basis of the 2011 data, related to their size, interrelations as well based on a host of other conditions.

These four banks include Citigroup Inc. (C - Analyst Report), Deutsche Bank AG (DB - Analyst Report), HSBC Holdings Plc. and JPMorgan Chase & Co. (JPM - Analyst Report). With the big banks being armed with adequate capital, any threat to the financial system at times of potential crisis can be avoided while the need for any government bailouts can be done away with.

According to the FSB, these four banks need to bear a capital surcharge of 2.5% over the statutory requirements specified in the Basel III accords. The other 24 banks included in the list of systemically important financial institutions should bear lesser surcharges ranging between 1% and 2%. Notably, in an effort to function smoothly, according to the Basel III accord, banks are required to retain capital corresponding to no less than 7% of the risk-weighted assets.  

However, the allocations are provisional and the final list will be chalked out in 2014, while the additional capital requirements for the global systemically important financial institutions will be phased in with the onset of 2016 and are scheduled to be completely met by 2019.

The list was drawn up as the FSB organized progress reports for a G-20 finance ministers meeting as well as the Central Bank governors in Mexico this weekend. Some of the reputed banks have been criticized for not taking adequate initiatives towards improving their risk profile.

These banks need to be administered carefully and supervisors need to adopt proactive measures. Alongside, the banks are required to systematically draw up a succession plan and an efficient assessment of the overall risk profile of the institutions should be conducted.

We believe such measures would serve as building blocks for efficient financial system overtime. Though in the short term, the strict capital norms may curb banks’ lending powers and they many need to overhaul their business, these steps are aimed at improving the bank’s overall health, reduce risk and less involvement of taxpayers money in rescuing them.

Currently, JPMorgan retains a Zacks #2 Rank, which translates into a short-term Buy rating while Citigroup, Deutsche Bank and HSBC maintain a Zacks #3 Rank, implying a short-term Hold recommendation.

 

 

 

Earnings Preview: Microchip Tech

 

Microchip Technology Incorporated (MCHP - Analyst Report) expects to report net sales of $407 million – $408 million in the second quarter of fiscal 2012.

Last month, the company lowered its forecast citing weak economic environment, which continues to adversely impact the company’s business as well as the overall semiconductor industry.

Microchip had earlier projected sales between $412 million and $430 in the second quarter. However, management stated that the lower-than-anticipated net sales activity in the September quarter was driven primarily by macroeconomic and industry conditions. 

This apart, Microchip did not provide any further details.

Consequently, earnings estimates for fiscal 2012 have declined significantly in the last few days as most analysts have decreased their estimates based on the company’s lowered guidance.

Six out of the eight analysts have reduced their estimates in the last 30 days resulting in a 12 cent decline in earnings estimates for fiscal 2013. For the second quarter of fiscal 2013, earnings estimates have gone down by 3 cents.

For fiscal 2014, four out of the seven analysts covering the stock lowered their estimates leading to a 14 cent decline in earnings estimates.

On August 2, 2012, Microchip acquired Standard MicroSystems Corporation to expand its smart mixed-signal connectivity solutions for embedded applications in markets such as automotive, industrial, computing, consumer and wireless audio. The integration process is underway and management expects the acquisition to be accretive to the bottom line in the September quarter. 

The company’s first quarter result missed the Zacks Consensus Estimate by a penny. Microchip generated net revenues of $352.1 million, up 3.9% sequentially but down 6.0% from the year-ago quarter. Europe continues to be weak with no signs of revival in the coming months. China, which is touted as the company’s growth engine, is also slowing down. Hence, a significant improvement in business is not in the cards in the near term.

Organic growth also remains a concern. We, therefore, prefer to be on the sidelines and maintain a Neutral recommendation on Microchip in the long run. However, we currently have a Zacks #4 Rank, which translates into a short-term rating of Sell.

 

 

 

 

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