FLASH - EARNINGS UPDATE 4/17 - Updated All Day

Net income falls 13%, $1.67 .vs. $1.84. Damage appears to be in net interest margin and credit losses, nonperforming loans up almost double.. Lots of loans to automobile dealers (credit quality problems won't spread outside housing eh?)

Key Corp beat earnings, but their stock is getting hammered (down almost 6%.) Some credit quality deterioration is evident. Key has a lot of boat loans that have two or so years of life on them (since issue) at this point - there's not been much activity in the boat market lately, but they were, a couple of years ago, a big lender in that space. Apparently the street doesn't like the internals (the headline looks damn good).

Missed big but showing a lot of bravado. We'll see what the street thinks of this one - the instant reaction was WAY down, then it popped back up. We'll see what the morning holds. This is a popular short target - these guys sell "network marketing" vitamins and such, and lots of people think they're crazily overpriced.

Down 20% earnings, 86 cents .vs. 98 cents, 1Q Net down 20%. Increased dividend to 55 cents. Somehow I don't think the market is going to like that miss very much..... Loan loss revisions up BIG - $234m .vs. $82M. Cutting subprime market portfolio value bigtime as well (looks like close to half!) Big increases in non-performing loan numbers, but interestingly enough, reserve percentages dropped. Hmmm..... Instant reaction aftermarket was a pop of about a buck - we'll see what we get on a followthrough basis once the full report is out and people can read it.... plus the conference call. I suspect the CC will be more than a bit interesting as this smells like engineered earnings to me. The morning will be interesting too, I'm sure. Hope you didn't place any really BIG bets in the aftermarket before the CC.... CC notes.... EPS cont ops claimed up 36%; dividend increased by 1 cent. "while not at our full earnings potential..... quarter that was challenged by environmental factors...." "very strong account growth and customer growth in retail banking" "home loans we were encouraged by improved performance in our prime business; increased subprime credit spreads, driving the loss of 113m in subprime loans..... totalled $164mln after tax including writedowns" "grew managed card receivables by 18%" "increased efficiencies by 7% including a cut in employees by 18%" "largest and most profitable business retail banking - up 4% from 4Q2006." "attracting customers with free checking then cross-selling them other products (obviously not free :) ) has proven successful" "increased depositor and retail banking fees - up 15% (heh, if you can get people to pay higher fees, I guess that's good)" "Card services group net income up 24% YOY, influenced by higher than average level of securitizations (hmmmmm...)" "Added 720,000 new credit card accounts" "CC 30+ days delinquencies 5.15%; net credit losses of 6.31%, up from 5.3% on linked quarter basis" "Expect that as the economy slows both delinquency and loss rates will increase in coming quarters." "Home loans group recorded net loss 113m 1Q, 120ish in 4Q. Driven by subprime" "GoS in prime loans improved, app volume increased (how about fundings?)" "Longer term, we will benefit from the shakeout of weaker, irrational competitors" "Long term asset growth opportunity remains limited so long as the inverted yield curve remains." "Loans held for sale were significantly impacted by liquidity - totalled $160mln pretax" "Subprime residuals decreased by $88mln pretax; now $105mln (holy shit, that's a MAJOR haircut!)" "Subprime pricing now has a weighted average coupon of 9% and no loans over 95% LTV" "No performing assets was 1.02% as total, up 80 basis points QOQ" "Net chargeoffs of $183mln, up 43mln from Q4" "Subprime non-performing is over 7% (aieeee!)" "Actual chargeoffs remain relatively stable" "Other portfolios have strong credit" "Provisions for loss decreased in CC from 275mln to 106mln (card securitization claimed as the reason - here's the bomb kids - that's how they got the "nice" earnings number)" "Net chargeoffs increased both for morts and HELOCs and is expected to increase somewhat going forward." "The forward curve does not anticipate rate decreases by the FED" "Further softening of the housing market provisioning for loss must be increased - 1.1-1.2b to 1.3-1.5b" "Other fee increase expected to remain up 10-12%" "Subprime not expected to recover in the near term" "Housing market contracting - market price corrections are inevitable." "Secondary market liquidity has been reduced for all players. Essentially all 2004 and 2005 subprime residuals have been sold." "1Q 2007 subprime production was down 51% from 4Q 2006" "We will continue to provide credit to consumers who need and deserve it" "Our cardservices and commercial portfolios are performing very well" "Subprime: Delinquency probs increase, taken appropriate steps - totals $20.4 bln - LTV 66% on remaining balances, only 2% over 90%" "ALT-A: Originated for sale. Vol 25.3bln, 21.4bln sold, 6.1bln held for sale, residuals just 21mln. Limited credit exposure claimed" "Option ARMs 58.1bln, FICO 699, estimated LTV 59% as they sold 2/3rds of production volume. Only 1% has LTV over 90% at origination (how about now?) HELOC: 53.4bln, original LTV 71%, FICO 729." "Delinquencies expected to rise over the year but are satisfied with credit performance" Q&A: "Morgan Stanley: Home mortgage had losses one would not expect to continue; should we expect it to return to profitability in 2Q Ans: There is uncertainty out in the marketplace, we are seeing encouraging signs in the prime business; early signs of credit in subprime looks better. The variable we cannot control is what happens to capital markets and credit spreads which have widened to extreme levels; we will not speculate what the capital markets will do. Expect return to profitability in loans later in year." "Piper Jaffrey: More color on prime side of business; big chunk sold a year ago, margin improvement requests, continuing into second Q, etc ANS: Sold volume include hybrid loans, will take down absolute level of GoS; GoS margins improving on OptionArms (they call this prime?) - added - home loans group has been working to make this a more efficient business. Claims evidence of "lfight to quality" in prime products - NOTE - THEY APPEAR TO BE IDENTIFYING OPTION ARM AND ALT A AS PRIME! "Home equity loss provision lowered due to methodology change - ANS: Absolute level of reserve was not changed, we don't give specifics on methodology" "Lehman: Annualizing most recent chargeoff numbers and splitting off about 8 basis for loans, 34 for HELOC (notes big jump in HELOC chargoeffs), 100 for subprime; is provision down in 08 assuming no negative economic change? ANS: Lots of things have changed this quarter and while we're seeing increase in NPAs we're trying to factor that in - we will have to wait and see how economy continues to perform. Too early to comment on 2008." "No plans to shut down subprime channel" "We're pretty comfortable but cautious" "Card Svcs Bus: Securitazation impact - fee income much stronger than expected - ANS: gain on sale through securitization, provisions down $167mln, reflects timing of securitization. Did no securitization in 4Q, all done here" "Charge off / credit quality on card business - ANS - Feel good about the credit and card business; correlated to unemployment, trends and roll rates are quite good. Expect net credit losses will be somewhat higher over time than this quarter." "Receivables growing 2-2.5x industry average - explain? ANS: Related to Providian merger; marketing cost cheaper to Wamu customers than reaching out, WAMU skews to higher FICO than Providian, WAMU customers perform at higher than stated FICO" "Merrill: Portfolio restructuring impact reconcile higher NPAs and lower provisioning for losses (hahaha - there it is! Now - what's the answer?) Answer: Recommend you focus on the non-card piece, did go up, in total it looks like the provisioning is going down which is due to the timing of securitization of the credit card receivables. (In other words, it wasn't REALLY as good as it looked - thanks for catching us) " "We're not prepared to discuss the level of severity of impairment of subprime writedowns in the future" "Subprime second portfolio - do you intend to dispose? Answer: Production that was FICOs over 700, good sized LTVs, put in that bucket, is high-quality portfolio, we feel good about it" "UBS: Clarity on NIM - half came from restructuring (!) 2 basis from non-interest bearing, rest from repricing" "GIC: Credit card losses; if I take the managed and on-balance sheet I think I get more losses than you provided for (!!) ANS: Losses have actually done well; net credit losses were up slightly. (that sounded like a non-answer to me?)" "Valuation of residuals - what assumptions are you using for losses? Ans: We do not go through specifics on valuation. Took haircut in 4Q, took another this quarter." "Prepayment speed on OptionARM ANS: Has slowed down a bit, does not have numbers; has not changed significantly from last year." "Charge off rates - how do you account? ANS: Schedules WM15 and 16 pointed to, amount is growing, approx $220m of increase was subprime (rest that they call "prime" but is really ALT-A! - house price appreciation?! considered?! uh, prices are DECREASING!) " "HELOC CLTV update, and are piggyback? ANS: Not piggyback, HELOC FICO 729 (not what he asked), chargeoffs current 20bp, 32% have over 80% CLTV." "Are you done downsizing staff and outsourceing? ANS: Never done improving productivity; major restructuring is over; we selectively add jobs offshore and consider best location to locate people domestically"

Net income up 8%. Up fairly strong in the aftermarket. Not enough detail to know where the increase came from - is it here, or is it overseas? IBM has a lot of overseas exposure, so the business mix will tell us quite a bit.

Q1 Revenue $1.67b .vs. $1.57b, Non-GAAP EPS 17 cents; "Real" EPS 10 cents. Guidance for Q2 is inline. First blush on the street doesn't like that report at all; they're getting shellaced in the aftermarket right now, trading at under $30! 7% haircut instantly. Apparently people expected far better.