Posted by: Howard Silverblatt on February 22, 2008
American International Group (AIG) announced that they will release their 10K, which will include their Q4 EPS, after the close of business Thursday, February 28th and then have their earnings conference on Friday, February 29th - an unusual sequence of events. Their pre-announcement on February 11th that their auditors had found material weakness in their internal controls that would escalate an expected $1 billion charge to a $5 billion charge has not been built into many of the street estimates (another story), so the charges classification, description and interpretation will be of interest to many. Related, a strong drink will be had by many when this year’s round of audits is over.
Another reason AIG is so critical is that it may be the last major issue with “charges” (at least we hope so) to post their Q4 EPS. Therefore, the Q4 index EPS will be able to be used (but not closed until the retailers report is published) with a much higher degree of confidence.
The two other Financial issues of interest still open are Freddie Mac, which declares before the opening on 2/28 (with an expected charge), and Fannie Mae, which may not declare for a while, were both downgraded by Merrill Lynch today from neutral to sell.
As far as Q1 goes, concern has now been replaced by long faces regarding a continuation of the now familiar charges, as well new ones caused by LBO loans, inventory write downs for non-Financials, and of course the general economy - where a more cautious consumer can’t be good for retail sales or margins. However, we won’t have long to wait if we wish to ‘get real’ since some of those November fiscal Financial issues end their Q1 period in a week. For them the comparisons for their Level 1, 2 and 3 will be November 30th vs. February 29th, a time when neither housing nor liquidity has improved.
On the bright side we should all feel a little richer come mid-year, when those stimulus and tax refunds come in, and the Fed cuts begin to be felt. The question remaining however is this: Is it enough to jump start the economy, or is it just another short term fix for a spending junkie? In my opinion, one good sign is the fact that so many people used their holiday gift cards from Wal-Mart on basic staples (like food) instead of on discretionary items (like TVs).