All You Need to Know About Financials

Updated from July 29.

How much do you really know about the latest financial sector news?

The following are key insights from TheStreet.com.

From Visa Credits Debit Cards for Earnings Beat:

Visa (V) posted better-than-expected third-quarter earnings in its first full quarter as a public company, fueled by strong growth in its international credit and debit card businesses.

The San Francisco-based firm made $422 million, or 51 cents a share, compared with a pro forma profit of $299 million in the year-earlier period. Visa had its initial public offering in March. Prior to that the company was not required to report earnings according to GAAP rules.

"The company's strong financial performance and double-digit increases in payments volume and transactions in this current economic environment are further proof of the resiliency of our network business model," [CEO Joe Saunders] continued.

Read the full article.

From MasterCard, Visa Test Limits:

Investors in MasterCard (MA) and Visa will be listening to hear how the firms characterize the depth of the downturn in the U.S. and will be on the watch for any forward-looking comments on their businesses, observers say.

"This is the quarter when the resiliency of MasterCard's business model will be tested, as the various data points we monitor all tracked somewhat weaker/slower in the quarter," writes Howard Shapiro, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, in a research note where he trimmed his quarterly earnings estimates on the firm. "These include weak retail sales in the U.S. and slower growth in revolving debt, anecdotal signs of slowing volume growth internationally and a flat dollar versus major currencies."

Read the full article.

From Citi Faces $8B More in Writedowns: Analyst:

Deutsche Bank analyst Mike Mayo predicts that Citi (C) will take third-quarter writedowns of roughly $8 billion on its collateralized debt obligations, according to a note published early Tuesday [Jul. 29]. He also says that Citi may have to raise capital sooner rather than later as a result of the writedowns.

Citi still has $22.5 billion of net CDO exposure as of the end of June. It "could have another $7 billion of writedowns," Mayo writes. "In addition, we estimate a $1 billion loss on its remaining $2 billion exposure with monoline insurers."

Mayo cut his estimates by $1, and now predicts Citi to post a third-quarter loss of 59 cents a share. For the full year, Mayo expects Citi to post a loss of 80 cents a share.

Read the full article.

From Merrill to Raise Capital, Sell CDOs:

The brokerage firm [Merrill Lynch (MER)] said after the close of trading Monday [Jul. 28] that it will sell $30.6 billion of U.S. super senior ABS collateralized-debt obligations to an affiliate of Lone Star Funds for $6.7 billion. At the end of the second quarter, the CDOs were carried at $11.1 billion, and in connection with the sale, Merrill will record a pretax writedown of $4.4 billion in the third quarter.

All told, the move will cut Merrill's domestic super senior ABS CDO long exposures from $19.9 billion on June 27 to $8.8 billion.

The company also agreed to terminate its ABS CDO hedges with a unit of XL Capital (XL) and expects to discuss settling additional hedges with other monoline counterparties.

Aside from the CDO sale, Merrill said it would offer new stock to the public in an effort to raise $8.5 billion.

Read the full article. Plus, don't miss this related Merrill Lynch story: Merrill Sheds Profits, Bloomberg (Jul. 18: Merrill Lynch reported a loss of $4.7 billion, or $4.97 per share... It is the firm's fourth consecutive quarterly loss... Merrill posted $9.4 billion in writedowns and impairment charges, with negative net revenue of $2.1 billion. That figure compares with a positive $9.5 billion a year earlier.)

From Merrill's Debt Deal Not So Cut and Dry:

Merrill is still open to tons of risk.

The company really only took out 25% of $6.7 billion, or $1.675 billion of risk, off the balance sheet.

Read the full article.

Cramer: What Merrill and Lone Star Aren't Telling You (Video, Jul. 30)

Jim Cramer has the real story about the inner workings of the latest banking deal.

To watch the video, click the player below:

Plus, don't miss Cramer: Merrill, Sell the Whole Thing (Jul. 29) on TheStreet.com TV.

From Rally in Bank Stocks Doesn't Add Up:

Financial reports for many banks in the second quarter have looked remarkably consistent: sliding profits, mounting loan losses and soaring stocks.

Approximately 56% of the 39 financial companies in the S&P 500 that have posted results so far have beat earnings estimates, according to Thomson Reuters. Since the beginning of last week [Jul. 14-18], the Keefe Bruyette & Woods Bank Index, which tracks the top 100 banks, is up 35%.

Even some banks that posted larger-than-expected losses, such as Wachovia (WB), saw shares rise after it pointed out that a further public capital raise is so far unnecessary.

Still some analysts say that the rally will be short-lived as it had more to do with short-coverings ["All You Need to Know About Short-Selling"] than it had to do with investors buying bank stocks because of improved fundamentals in the group.

Banks are still slogging through declining credit trends, particularly as the pain surges past hard-hit subprime mortgages into other areas like home equity and certain prime loans, such as the popular option adjustable-rate mortgage. As home prices continue to decline -- significantly in some areas -- loss estimates are also likely to be higher than initially thought. The pain could extend into 2010, crimping bank earnings for quarters, if not years, to come, many say.

Read the full article.

From Wachovia Shares Plunge on Credit Hits:

Wachovia shares were plunging more than 10% Tuesday morning [Jul. 22] after the troubled bank posted a nearly $10 billion second-quarter loss, slashed its dividend and cut jobs.

"These bottom-line results are disappointing and unacceptable," said Wachovia Chairman Lanty Smith. "While to some degree they reflect industry headwinds and weaker macroeconomic conditions, they also reflect performance for which we at Wachovia accept responsibility. Our company is facing up to these issues, is addressing the challenges head-on and has redirected near-term strategic priorities."

To preserve capital, Wachovia plans to reduce its headcount by 6,350 employees, or roughly 5% of its workforce. The bank said it has already reduced its mortgage employee headcount by 2,000 through June, and plans to cut 4,400 employees in its mortgage segment over the next year, according to presentation slides Wachovia once again reduced its dividend by 86% to 5 cents a share, which will conserve roughly $700 million of capital each quarter. It also has decided to exit the wholesale mortgage origination channel, it said Tuesday.

"In the short term, the entire organization is focused on protecting, preserving and generating capital, reinforcing Wachovia's strong liquidity position, and reducing risk," CEO Robert Steel said in his first public comments as head of Wachovia.

Read the full article. Plus, don't miss this related story: Wachovia Falls on Downgrade, CFO Exit (Jul. 25).