Royal Bank of Scotland just announced around 20 billion pounds in goodwill writedowns. Interesting to watch their share price--when they made the final announcement their share price actually rose about 30%. That's not the whole story though. They first warned the markets about large impending losses a few weeks ago and their share price dropped about 90%. When companies announce impairments, sometimes the impairment is already priced into their share price, other times it is is not.
Fifth Third Bancorp shares dropped 29% after announcing close to a billion in impairment. However the shares were partially pushed lower by their CEO's comments about the rest of the year.
Regions Financial shares fell 24% after a $6 billion in goodwill writedowns. Hartford Financial shares were down 16% after a $2 billion goodwill hit. Companies usually argue that goodwill impairment has no impact and it is almost always described as a non-cash charge. Stock markets usually anticipate the write-down. However companies need to watch their lending covenants. Some companies may be downgraded after announcing impairments since impairments reduce assets, potentially causing problems with lenders and rating agencies. Moody's put Weyerhaueser under review after a goodwill impairment charge of close to $1 billion, stating that goodwill impairment charges "may reduce covenant headroom" under their credit facilities. This means that Moodys thinks that Weyerhauser is less credit-worthy because it has fewer assets on its balance sheet to make it worthy of receiving more lending.
No comments:
Post a Comment