Friday, March 18, 2005


US Financing Profits Cited As Weakness

Business Week Online has a story out today regarding the reliance on financing revenue in US businesses. Titled "Corporate America's New Achilles' Heel", the piece notes that firms have been relying on the "carry trade" which will likely disappear.

"Finance supplies 30% of all U.S. company profits, as of last Sept. 30, up from 21% a decade ago." And the companies involved may surprise you. "Deere & Co., the farm-equipment company, finance produces nearly one-fourth of earnings. Retailer Target Corp. usually gets about 15% of its profits from its credit cards..H&R Block Inc. made $678 million in pretax profits from mortgages -- more than it did from tax returns."

"The most obvious threat to this earnings parade is the sharply narrowing gap between short- and long-term interest rates that market mavens call the spread. Last April the spread..was an exceptionally high 2.4 percentage points. It's now down to 0.8 point, making lending much less profitable than before."

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