Asia Holds Their Gains Overnight, Europe Plays in the Flatline Territory, & U.S. Futures Trade Down on Banking Concerns

WFC & JPM get downgraded as loan loss provisions expected to hit depression levels and the IBM JAVA deal falls through

April 6 (Bloomberg) — U.S. stock futures fell as analyst Mike Mayo said bank loan losses will exceed levels in the Great Depression and concern grew that International Business Machines Corp.’s talks to buy Sun Microsystems Inc. have collapsed.

Wells Fargo & Co. and JPMorgan Chase & Co. slid more than 1.4 percent after Calyon Securities’ Mayo gave an “underweight” rating to banks and said new government actions to shore up the financial system may not help as much as expected. Sun Microsystems sank 24 percent as people familiar with the matter said negotiations with IBM have fallen apart.

Futures on the S&P 500 expiring in June retreated 0.4 percent to 836.90 as of 7:42 a.m. in New York. Dow Jones Industrial Average futures slipped 0.3 percent to 7,957 and Nasdaq-100 Index futures decreased 0.4 percent to 1,311. Stocks in Europe and Asia advanced.

Earnings at companies such as Alcoa Inc., which will kick off the first-quarter reporting season tomorrow, and Dow Chemical Co. may show the first signs of recovery in the second quarter after profits at S&P 500 Index members fell 37 percent in the first three months of 2009, according to estimates compiled by Bloomberg.

U.S. stocks capped the fourth straight week of gains April 3 after the economy showed signs of improvement and Group of 20 world leaders agreed on measures to halt the recession. The S&P 500 Index extended its rebound from a 12-year low to 25 percent.

Four-Week Advance

The four-week surge was spurred by Citigroup, Bank of America and JPMorgan Chase & Co., which said they made money in January and February, and Treasury Secretary Timothy Geithner’s plans to finance as much as $1 trillion in purchases of distressed assets from financial firms.

In 11 recessions since 1938, U.S. stocks have rebounded an average of five months before a recovery in earnings, according to data compiled by Bloomberg. The economy has contracted for 16 months, equaling the two longest slumps — between 1973-1975 and 1981-1982 — since the Great Depression.

American companies will end more than two years of declining income by the fourth quarter, according to analyst forecasts compiled by Bloomberg. Banks will be responsible for all of the 76 percent rebound in the final three months of the year, because without financial companies, the gain turns into a 4.5 percent decline, the data show.

Mike Mayo’s banking sector downgrade

April 6 (Bloomberg) — Mike Mayo, who left Deutsche Bank AG to join Calyon Securities, assigned an “underweight” rating to banks on expectations that loan losses will exceed levels from the Great Depression.

“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote in a report today. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”

Mayo gave “sell” ratings to BB&T Corp., Fifth Third Bancorp, KeyCorp, SunTrust Banks Inc. and U.S. Bancorp, while “underperform” ratings were assigned to Bank of America Corp., Citigroup Inc., Comerica Inc., JPMorgan Chase & Co., PNC Financial Services Group Inc. and Wells Fargo & Co.