Others to Profit During J.C. Penney Turnaround: Analyst

A lot of retailers are going to profit as J.C. Penney continues its turnaround, Morgan Stanley analyst Michelle Clark told CNBC Thursday.

Penney [JCP  Loading...      ()   ] announced its new pricing strategy in January, as well as a plan to offer "stores within a store" and offer more exclusive goods from such brands as Martha Stewart, in whose company Penney bought a sizable stake.

CEO Ron Johnson told CNBC at that time the strategy is "the first key step in the transformation" of the retailer.

But in the short term, Clark said, other retailers across the board will be able to profit from Penney's transition.

"In the department store space, Macy’s will be a bigger beneficiary than Kohl's because they have a higher store overlap with J.C. Penney," Clark said. Macy’s [M  Loading...      ()   ] is "also executing from a product standpoint" because "Kohl's [KSS  Loading...      ()   ]

has not introduced enough new brands into its assortment."

In specialty retail, Gap's [GPS  Loading...      ()   ] Old Navy is likely to pick up market share, she continued, while Target [TGT  Loading...      ()   ] will benefit within the discount category. In the off-price sector TJX [TJX  Loading...      ()   ] and Ross Stores [ROST  Loading...      ()   ] will pick up  "J.C. Penney's price-conscious consumer."

"We also think the off-price retailers will pick up some of J.C. Penney's vendors as it looks to narrow down its vendor base," Clark said.

Expectations for Penney are high. Some analysts, including Piper Jaffrey's Jeff Klinefelter, believe Penney earnings won't see any "meaningful" bounce from the strategy until 2013.

At the same time, the bulls will point to Ron Johnson and J.C. Penney's management team as driving same-store sales growth this year, according to Morgan Stanley's Clark. She thinks the first-quarter earnings, due out in May, could disappoint.

"We think sales are underperforming expectations there," she said of Penney's. Macy's, by contrast, is gaining market share with its "exclusive brands and localization initiatives."

"It's one of the cheapest names" in the retail sector and "it's the one we would put money behind at current levels," she said.

Clark does not own shares of the companies but Morgan Stanley has received compensation for banking services at one or more of them.

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HSBC Set for $22 Billion Profit, Fueled by Asia

HSBC is expected to report the West's biggest banking profit for last year, fuelled by the East, while its rivals are struggling with faltering European and U.S. growth.

Europe's biggest bank [HSBA-LN  Loading...      ()   ] is not entirely untouched by the slowdown, so its fourth-quarter profits on Monday will show a hit from lower investment bank income due to the euro zone debt crisis and potentially higher U.S. bad debts, just as its third-quarter figures did.

But the bank should be far more resilient than rivals such as Royal Bank of Scotland [RBS-LN  Loading...      ()   ] and Lloyds [LLOY-LN  Loading...      ()   ] , who slumped to big losses last year.

HSBC could also stoke a row over high pay for bankers at a time when thousands of people losing their jobs are blaming the industry for current economic ills.

Chief Executive Stuart Gulliver was paid 6.2 million pounds ($9.7 million) in 2010 and an unnamed employee was paid 8.4 million pounds. Pay details for 2011 will be in the annual report, also released on Monday.

Gulliver is likely to get an annual bonus of about 3 million pounds, albeit below the maximum 3.75 million pounds stipulated in his contract, the Sunday Telegraph reported. He is expected to ask for it to be paid in deferred shares, the paper said.

HSBC is tipped to report a pretax profit of $22.2 billion for 2011, up 16 percent from the previous year, according to the average of 13 analysts polled by Thomson Reuters. That would include up to $4 billion of gains on the value of its own debt.

It is expected to fall short of its record profits of $24.2 billion in 2007, but top all other western banks that have reported for last year, including U.S. rival J.P. Morgan [JPM  Loading...      ()   ] , which made a $19 billion profit.

The world's most profitable banks in recent years have been China's ICBC [1398.HK  Loading...      ()   ] , which made $32 billion in 2010, and China Construction Bank [0939.HK  Loading...      ()   ] , which made $26.4 billion.

Gulliver is reshaping HSBC to cut annual costs by $3.5 billion, lift profitability and sharpen its focus on Asia.

Investors will also be watching bad debts in the United States, which jumped by almost $1 billion in the third quarter, the first rise in two years.

At the update in November, Gulliver warned the outlook for the global economy had deteriorated and was "very challenging", as problems in the west had hurt growth elsewhere.

Gulliver has struck 18 deals in the past year, trimming risk-weighted assets by more than $48 billion with the sale of its credit card business and some branches in the United States and deals in Russia, Poland, Latin America and elsewhere.

HSBC has also warned that new regulations might force it to leave Britain, saying they could cost it $2.5 billion a year. It has delayed a decision on whether to move back to Hong Kong or elsewhere until this year or next.

The UK government has since said requirements for banks to hold more loss-absorbing capital will only apply to UK operations, heeding HSBC's complaint.

Copyright 2012 Thomson Reuters. Click for restrictions.

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AIG Posts Huge Profit, Helped by Tax Benefit

American International Group reported its profit jumped 77 percent to $19.8 billion in the fourth quarter, helped by a big tax benefit after the bailed-out insurer determined that it was likely to post profits in the future.

AIG CEO Robert Benmosche said AIG is doing much better.

"Our reserves are in great shape," Benmosche told CNBC after the earnings release. "We’ve been saying that all year long. The fact is that our businesses are in great shape. People were worried about the AIG franchise ... People were waiting for a 'but.' There’s no 'buts' here, we’re doing well."

AIG had said during the previous quarter its fourth-quarter results would determine whether it could release a so-called valuation allowance against the tax assets. Having determined it's more likely than not to be consistently profitable in the future, it released most of the allowance in the quarter.

Essentially, that means AIG [AIG  Loading...      ()   ] will not pay tax on tens of billions of dollars of income in the coming years, thanks to benefits that stem from its financial crisis-era losses and the release of deferred tax assets.

Some of the allowance, related to the company's life-insurance business, was not released, a recognition that future profits are not as immediately certain there.

Net income shot up to $19.8 billion, or $10.43 per share, from $11.18 billion, or $16.60 per share, a year earlier. AIG's share count rose year over year, explaining the earnings-per-share discrepancy.

On an operating basis, the company earned 82 cents per share. Analysts had expected the company to earn 63 cents a share, according to Thomson Reuters.

Benmoshe told CNBC the company had $3.3 billion in catastrophe costs, "not outrageous" compared with other years.

He also said the U.S. Treasury Department, which still owns 77 percent of the insurer, wants to "get out as prudently and as quickly as they can." 

"Treasury wants to sell to make a profit for the American taxpayers. That's their goal, that's our goal and we're trying to achieve that," he said.

Benmoshe, who has cancer, said he is in no rush to have "a lot of idle time in my head" in retirement and so plans to stay on at AIG through this year and part of next year.

"I'm going to keep going until I can't," he said.

Following the release, the company's shares rose more than 5 percent. (Click here to get the latest quote for AIG.)

Reuters contributed to this report.

© 2012 CNBC, Inc. All Rights Reserved

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