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By Christine Benz and Jeremy Glaser | 07-17-2014 04:00 PM

The Friday Five

This week: Financial-services firms post lukewarm earnings, two tech giants strike a deal, Time Warner turns down a foxy offer, and more.

Christine Benz: Hi, I'm Christine for Morningstar, and welcome to the Friday Five. Joining us as always to dig more deeply into five headlines of this week is Jeremy Glaser. He is markets editor for

Jeremy, it was a busy news week. Let's get into some of the business headlines from this past week. We had some of the big banks reporting earnings this week. How did it go for them?

Jeremy Glaser: We did. Generally, results looked OK, but not exceptional. Looking at some of the really big ones, JPMorgan, Bank of America, and some of the investment banks like Goldman Sachs and Morgan Stanley, I think it's a difficult environment for a lot of these banks to be operating, and you have very low interest rates, which could be challenging for earnings. Mortgage lending still remains a relatively slow. Again that could be a major headwind. So you are facing that, at the same time you are trying to still deal with some legacy legal issues, particularly for Bank of America, which continues to have these litigation costs come up, which really is hurting earnings.

But everything isn't all bad. A strong equity market certainly can be helpful for earnings at a lot of these corporations. Generally expenses are being kept in line. JPMorgan had to spend a little bit more for some new internal controls after some issues they had, but generally expenses look pretty good, and capital levels look pretty strong, too. So, generally speaking, having strong banks is good for the strength of that rest of the economy. That's certainly good to see, but right now it just doesn't seem like there are a lot of good investable ideas in that space just given some of the headwinds.

Benz: Valuations right now are so-so?

Glaser: Exactly.

Benz: Turning over to the technology sector, Microsoft announced a big round of job cuts. Let's talk about the catalyst for the job cuts and whether we think that this will help Microsoft's bottom line?

Glaser: Sure. This was a big announcement. People had expected Microsoft to make some of these cuts. CEO Satya Nadella kind of said that he needs to refocus the company a little bit, but at 18,000 jobs, that's 14% of the company's global workforce, that's a huge number. And that really is transformative. A lot of these job cuts are coming from former Nokia employees--Microsoft had their own phone division--getting rid of some of the redundancies there. We knew that was coming. They had said during the acquisition that they had expected to cut a number of jobs. So those, you really can see is just kind of right-sizing, but 30% of it, Microsoft is getting rid of a lot of middle managers, a lot of these layers that they are going to let go in order to create a more flat organizational structure.

Nadella really hopes that this is going to create some more innovation in the company, that's going to allow them to get things to the market faster, and that you won't have to go through so many layers of bureaucracy to get there. And Norman Young, who covers Microsoft for us, thinks that this could be a step in the right direction, but he expects there to be a lot of potential growing pains, or I should say shrinking pains, of laying off 14% of your workforce. It's not going to be an easy process and there could be some turbulence particularly in the near term as they kind of work out exactly how to do that and try to transform the company.

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