Morgan Stanley and Bank of America Kick Off The Earnings Season, While AIG, Yahoo!, and Freeport-McMoRan Grab Headlines

After a three-day weekend, U.S. stocks have started the week on a positive note, with major indices in green teritorry during the first hours of trading. The earnings season in under way again, with two major banks reporting their 2015 fourth quarter results today: Morgan Stanley (NYSE:MS) and Bank of America Corp (NYSE:BAC). Let’s find out how investors reacted to their reports and also find out what got them talking about American International Group Inc (NYSE:AIG), Yahoo! Inc. (NASDAQ:YHOO), and Freeport-McMoRan Inc (NYSE:FCX).

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American International Group Inc (NYSE:AIG) is in the spotlight again as activist Carl Icahn is putting more pressure on the company to break up, pointing to Metlife Inc (NYSE:MET)’s recently announced plans to slim down. In a letter to AIG’s board of directors, Icahn shared his fears that AIG management is not willing to undertake bold steps and will only announce small, incremental changes when their next update is released. He is advocating for AIG to become a “smaller, simpler company,” arguing that a break-up of the company into smaller businesses would rid it of its “systemically important financial institution” label, which implies higher capital requirements. The management of AIG has opposed the proposal, saying a split would lead to a larger tax bill and reduce the potential for cost cutting and freeing up capital.

“AIG continues to take steps to narrow its focus, improve its financial performance, and return capital to shareholders. AIG maintains an active dialogue with shareholders, including Carl Icahn. As previously announced, on January 26, AIG will provide an update on its strategy and its proactive plan to drive shareholder value,” the company said in a recent statement.

American International Group Inc (NYSE:AIG) made the top 15 most popular stocks among the funds we follow, with 94 of them reporting a long position in the stock at the end of September, down from 99 a quarter earlier. John Paulson is also betting big on AIG, having reported a position that amassed 14.6 million shares as of the end of the quarter.

Yahoo! Inc. (NASDAQ:YHOO) is up by 1% today as investors are hoping for a potential sale of the company’s core assets. A recent report by Barron’s suggests the stock could gain as much as 35% should the company proceed to sell its internet business and its stakes in Alibaba Group Holding Ltd (NYSE:BABA) and Yahoo! Japan. Barron’s Andrew Bary believes Yahoo! shares would be worth somewhere between $40 and $47 apiece, should its management give in to investor demands and make those changes, compared with the $30 level the stock is currently at.

A number of hedge funds sought to distance themselves from Yahoo! Inc. (NASDAQ:YHOO) during the third quarter, as the total number of long Yahoo! positions among the funds we track decreased to 89 by the end of September from 104 at the end of the second quarter. On the other hand, Kenneth Mario Garschina’s Mason Capital Management reported a 152% increase to its holding of the stock, to 16.3 million shares, the largest stake among the funds we follow.

Shares of Morgan Stanley (NYSE:MS) are trending today after the company reported its financial results for the fourth quarter. The company posted revenue of $7.7 billion, beating estimates of $7.67 billion, and adjusted earnings of $0.43 per share, surpassing analysts’ expectations of $0.33 per share. Morgan Stanley’s fixed income division had another disappointing quarter however, reporting net sales of $550 million, down from $599 million a year before. The company’s management has decided to reduce the division’s headcount by 25% and further cut infrastructure costs.

Morgan Stanley (NYSE:MS) gained a vote of confidence from hedge funds during the third quarter, as the number of funds holding Morgan Stanley shares as of the end of September increased to 57 from 48 a quarter earlier. Ric Dillon is bullish on the stock, having increased his investment by 11% during the quarter. His fund, Diamond Hill Capital, reported ownership of 9.02 million shares in its latest 13F filing.

Investors are not too happy with the latest report from Bank of America Corp (NYSE:BAC), as the company posted mixed results for the fourth quarter. Revenue came in at $19.5 billion, falling short of expectations of $19.9 billion, while earnings per share of $0.28 did top analyst estimates of $0.27 per share. Although the stock opened higher, it quickly turned south, and has now slid by nearly 2% today.

“We saw solid customer activity in loan growth, deposits, and wealth management asset flows, and we returned more capital to our shareholders. As we build on this progress, we will continue to invest in the future and manage expenses,” said Brian Moynihan BofA’s Chief Executive Officer.

Hedge fund sentiment towards Bank of America Corp (NYSE:BAC) also gained a boost during the third quarter, with 108 funds reporting a stake in the company as of the end of September, up from 95 as of the end of June. Peter Rathjens, Bruce Clarke and John Campbell, the managers of Arrowstreet Capital, more than doubled their stake in the company, taking it to 27.6 million shares at the end of September.

Shares of Freeport-McMoRan Inc (NYSE:FCX) are down by more than 7%, after the head of the company’s Indonesian business resigned on Monday. After a nine-year stint with the company, Mr. Maroef Sjamsoeddin resigned for personal reasons according to Freeport’s CEO, Richard Adkerson, who is to assume the interim position. With the company currently in the midst of negotiations with the Indonesian government to extend its contract, the departure of Sjamsoeddin has set investors aback. Only a month ago, James R. Moffett, a key figure in the company’s management and an important link between the company and its Indonesian business also surprised investors with a sudden resignation.

At the end of September, approximately 14% of Freeport-McMoRan Inc (NYSE:FCX)’s common stock was held by 44 top funds, up from 41 at the end of the second quarter. Rob Citrone and Carl Icahn both initiated positions in the stock during the quarter, with their funds reporting ownership of 17.1 million shares and 100 million shares respectively.

Disclosure: None