S&P 500 falls as cruise stocks sink, Delta reports huge loss, JPMorgan warns of loan losses

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the Indice S&P 500 (SNPINDEX: ^ GSPC) fell 22 points, or 0.63%, on Tuesday. Profit season has started, with banking and airline giants JPMorgan Chase (NYSE: JPM) and Delta Airlines (NYSE: DAL) reports today. Delta suffered a massive loss of $ 7 billion, while JPMorgan reported a profit of $ 9.4 billion, but both stocks fell as concerns over continued economic weakness cast a shadow over investors.

Worst stocks in today’s S&P 500 were cruise line operators Royal Caribbean (NYSE: RCL), Norwegian Cruise Line Holdings (NASDAQ: NCLH), and Carnival (NYSE: CCL), down 8% to 13% after Royal Caribbean said it was trying to raise an additional $ 1 billion to stay afloat.

The risks of a worsening recession are putting the big banks on alert. Image source: Getty Images.

JPMorgan may need an additional $ 20 billion in loss reserves

JPMorgan, the largest U.S. bank in terms of total assets, posted strong third quarter results at almost every level, including strong net income of $ 9.4 billion and a minuscule (in context of its massive size) of $ 611 million in loss provisions. Additionally, CEO Jamie Dimon said the $ 34 billion the bank has already set aside this year in loan loss reserves could be up to $ 10 billion more than needed, as long as the economy keeps continues to improve.

But Dimon also reminded investors that there is a lot of uncertainty, including the risk of a double-dip recession that could force JPMorgan to increase loss provisions by an additional $ 20 billion to nearly $ 55 billion. dollars. Management stressed that much of the economy’s resilience is due to the federal government providing trillions of dollars in financial incentives. Barring another stimulus bill, the economy faces many uncertainties as the coronavirus pandemic continues.

Cruise stocks flow on Carnival cash; Airlines stumble upon giant Delta loss

Royal Caribbean’s announcement of raising an additional $ 1 billion through sales of equities and convertible debt rocked investors in the cruise ship industry today, causing all three major lines to fall. . It wasn’t just that Royal Caribbean was raising money that rocked investors; it was the fact that the struggling cruise line continues to burn in its capital.

Even with improved bookings for 2021, the company is still burning $ 250 million to $ 290 million per month, meaning the $ 1 billion it raises will cover less than four months of operation. And he doesn’t schedule cruises until December 1, and potentially much later. The good news is that Royal Caribbean still has plenty of cash to work with, around $ 3 billion in cash and cash equivalents before raising that billion. Today’s reaction seems to be a good reminder that the industry is not yet out of the woods (or, more specifically, out of the ports).

While the airline industry is not as bad as the cruise lines, things are still pretty tough. Delta was the first major carrier to report profits, reporting a whopping $ 6.9 billion loss in the third quarter. Adjusted operating revenue was $ 2.6 billion, 79% lower than last year, with passenger revenue down 83%. In addition, the company believes it could take two years or more before the operating environment returns to normal.

Delta also continued to burn cash at a staggering rate, $ 24 million per day during the quarter, although a portion of that included payroll costs that were covered by cash provided to the airline industry. during the last round of economic stimulus. Barring any future incentives for airlines to keep their employees on the job, Delta and its peers will lay off thousands of employees as part of cost-cutting efforts.

Delta has $ 21.6 billion in cash, cash and cash equivalents, and available credit. But unlike the cruise industry, which remains largely closed, airline activity has picked up, although it is still down more than 70% from last year.



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