Traders getting comfortable with Grexit

Greek Finance Minister Yanis Varoufakis arrives at a European Union finance ministers meeting in Brussels February 17, 2015.

The trading day begins again and will end later today, but Greece goes on forever.

How fed up is the trading community with Greece? I attended a hedge fund “idea dinner” last night, where roughly 15 investment professionals exchanged trading ideas, both long and short.

When it came to the subject of Greece, most just shrugged. A surprising number thought it would be good in the long run if Greece defaulted and left the euro zone.

But most didn’t want to talk about it.

That about summarizes the trading community attitude: so fed up they don’t want to talk about it anymore. So fed up they seem to have run out of things to say about it.

“Volumes are terrible and traders are fed up w/ Greece,” one hedge fund friend messaged me. “If they get kicked out…maybe that’s a negative event, but who knows?”

Here’s how confused things are on Greece: Traders aren’t even sure what resolution would be best for the markets.

“The market isn’t trading worse because there is a firm belief that whenever there is an event driven by a policy decision that decision will go the way the market wants, even if the market doesn’t know what it wants…like Greece,” one trader told me.

“We want resolution? What is a resolution?”

That’s how confused things are. But I think traders who thinks “Let ’em go. Let ’em default” are kidding themselves.

Proponents of a Greek exit have talked themselves, out of sheer exhaustion, into believing that:

1) allowing Greece to go back to the drachma will make the country more competitive and turn it into some kind of dirt-cheap tourist mecca;

2) the idea of contagion is overblown, because European banks own very little Greek debt and the European Central Bank will just increase the size of its quantitative easing program to manage its way through the crisis. The Greek exit will bring the remaining members closer together.

Having witnessed the 2008 crisis firsthand and the unforeseen effects of contagion, I’m not buying into any of this.

How about this as an alternative vision:

1) a failed state sitting on the edge of Europe;

2) hundreds of thousands of impoverished Greek citizens fleeing the country, causing destabilization in one of the least stable parts of the world (the Balkans);

3) a Russian naval fleet in Athens harbor.

Sound crazy? It’s not. That’s why even the dreaded “muddle through” option is more desirable than a default and exit.

And my bet is muddle through will happen, again.

There’s another (political) reason why “muddle through” is a very real option: Since most of the debt is owned by sovereign countries and large institutions like the IMF, it would be the job of politicians—many of whom are still in office—to explain to their electorate why they just lost a pot of money to the Greeks when they default.

“Muddle through” will push the deals that created much of the debt further into the history books. New political leaders, who didn’t make those deals, will find it easier to take the losses everyone believes are coming.

All this makes one long for the relative transparency of a Federal Reserve meeting, which, thankfully, is now upon us.

In A.I.G. case, surprise ruling that could end all bailouts

For years, critics of the bailouts during the financial crisis argued that the rescue efforts weren’t harsh enough. The chief executives of failing institutions should have lost their jobs. Shareholders should have suffered more pain. Taxpayers should have received substantial compensation for the risk they took.

All that did come to pass in one case: the bailout of the American International Group, the large insurer and symbol of the crisis. Yet on Monday, a judge in Washington decided that the government’s actions were too severe, and the rescue was illegal.

When the Federal Reserve propped up A.I.G. in September 2008, unlike its approach with most of the big banks, it threw out the company’s chief executive and took control of 79.9 percent of the company, nearly wiping out many of its shareholders. Taxpayers got all of their money back, and then some, receiving a profit of more than $20 billion.

But in a stunning ruling, Judge Thomas C. Wheeler of the United States Court of Federal Claims said on Monday that those terms were too “draconian.” In other words, he suggested taxpayers should have offered A.I.G. a more generous deal.

The judge’s decision could have far-reaching consequences should another financial crisis occur — and if history is any guide, one will. Legal experts say that the ruling, coupled with certain provisions of the Dodd-Frank financial overhaul law enacted after the crisis, makes it unlikely the government would ever rescue a failing institution, even if an intervention was warranted.

Should that happen, and the government decides it is handcuffed by the law from any intervention, taxpayers can thank Maurice Greenberg, the company’s former chief executive and one of its largest shareholders. He sued the government on behalf of shareholders, contending its takeover was illegal and unfair to investors. The judge largely sided with Mr. Greenberg, confounding many legal experts who considered the case a long shot. A federal judge had previously thrown the case out of court, calling Mr. Greenberg’s accusations “worthy of an Oliver Stone movie.”

However, Judge Wheeler had a more sympathetic ear than his peers. He determined that the takeover of A.I.G. was orchestrated to “maximize the benefits to the government and to the taxpaying public.” Contrary to the conventional wisdom — and common sense — he said that goal was troubling. “The government’s unduly harsh treatment of A.I.G. in comparison to other institutions seemingly was misguided and had no legitimate purpose,” he wrote.

Still, the judge did not award any monetary damages to Mr. Greenberg, making it a moral victory, but not an economic one. Mr. Greenberg had sought $40 billion and has spent millions bringing his case.

Judge Wheeler determined that Mr. Greenberg and the other shareholders did not suffer any economic damage because “if the government had done nothing, the shareholders would have been left with 100 percent of nothing.” The judge cited John Studzinski, vice chairman of the Blackstone Group and an adviser to A.I.G., who had instructed the board to accept the government’s offer in 2008, telling the room of directors: “Twenty percent of something [is] better than 100 percent of nothing.”

Continue reading the main story Inexplicably, that line of logic did not extend to the judge’s ruling that the government had unfairly taken advantage of A.I.G. by requiring tough loan terms, including the equity stake and a 12 percent interest rate.

“No matter how rationally A.I.G.’s board addressed its alternatives that night, and notwithstanding that A.I.G. had a team of outstanding professional advisers, the fact remains that A.I.G. was at the government’s mercy,” the judge wrote.

Judge Paul A. Engelmayer of Federal District Court in Manhattan, who had previously thrown out the case, had said that the claim that A.I.G.’s board was under the control of the government was specious. By the logic of Mr. Greenberg’s case, the judge had written, “a loan shark whose usurious interest rate is agreed to by a small business so that it may stay afloat could equally be said to have had actual control over that business so as to compel its agreement to a loan.”

Dennis Kelleher, president and chief executive of Better Markets, an advocacy group for financial reform, called Judge Wheeler’s ruling perplexing.

“The court bizarrely expressed repeated sympathy for A.I.G. while failing to properly weigh the economic wreckage suffered by the American people,” Mr. Kelleher said in an email. “It’s the U.S. taxpayers that have been victimized here by A.I.G. when it acted recklessly, precipitated the crash of the financial system, took a $185 billion bailout, and then gave bonuses to some of the very same people who irresponsibly sold the derivatives that blew up the company.”

Judge Wheeler’s analysis, in comparing how A.I.G.’s rescue was handled relative to the big banks, appears to ignore the realities of the regulatory oversight rules at the time. The judge criticized the government for taking control of A.I.G. while not doing so for the banks. But the Fed did not have regulatory oversight of A.I.G., which is an insurance company, and therefore couldn’t maintain the same kind of control it did over the banks. Similarly, the judge criticized the Fed for creating a trust to hold the shares of A.I.G. because the Fed technically can’t own equity in companies. “The creation of the trust in an attempt to circumvent the legal restriction on holding corporate equity is a classic elevation of form over substance.”

The government was sticking to its guns on Monday. “The court confirmed today that A.I.G. shareholders were not harmed by those actions,” the Treasury Department said in a statement. “We disagree with the court’s conclusion regarding the Federal Reserve’s legal authority and continue to believe that the government acted well within legal bounds.”

While the ruling is likely to be appealed, possibly all the way to the Supreme Court, the head-scratching decision will undoubtedly have an effect on future bailouts, intended or unintended.

Hester Peirce, a senior research fellow at the Mercatus Center at George Mason University, who is reportedly among the candidates for a Republican seat on the Securities and Exchange Commission, wrote last year that if Mr. Greenberg prevailed in his case, “it would strike a blow to too-big-to-fail by adding to the bailout calculus the specter of subsequent courtroom payouts to allegedly aggrieved shareholders.

Early voting for Jeb Bush as Wall Street bucks flow to GOP contender

Jeb Bush

Republican candidate Jeb Bush only just formally launched his presidential bid in Miami, but his campaign has already attracted a robust roster of Wall Street donors.

Supporters from the financial community include private equity executives, hedge fund managers, bankers and more, based on a CNBC analysis of fundraising gala invitations and media reports. A few of these marquee names were willing to sing Bush’s praises publicly.

Read MoreJeb Bush announces bid for 2016 presidential run

“He’s a deeply substantive, compassionate person who is a proven problem solver,” said Kenneth Juster, a managing director at New York-based private equity firm Warburg Pincus. Juster is a part-time policy advisor to the Bush campaign, and recently traveled with the candidate to Europe.

Others in the private equity community to support Bush include Kolberg Kravis Roberts (KKR) executives Henry Kravis, Alex Navab, Ken Mehlman and Zack Pack; David Knower, chief operating officer of a Cerberus Capital Management unit in Germany; Marc Spilker, until last year the president of Apollo Global Management; Brad Freeman of Freeman Spogli; Andrew Saul of Saul Partners; Anthony de Nicola of Welsh, Carson, Anderson & Stowe; and Barry Volpert of Crestview Partners.

From hedge funds and other so-called alternative investors, there’s Scott Kapnick, CEO of JPMorgan Chase investment unit Highbridge Capital Management; Sander Gerber of Hudson Bay Capital Management; Neuberger Berman Group CEO George Walker (a Bush cousin); and Richard Kayne of Kayne Anderson Capital Advisors.

Read MoreHedge fund managers stung by ‘class warfare’ rhetoric

And from banking there’s Timothy O’Hara, head of investment banking for equities at Credit Suisse; Jeffrey Bunzel, head of equity capital markets for the Americas at Deutsche Bank; former Barclays CEO and now Africa investor Bob Diamond; former BNY-Mellon executive John Meserve; and Bob Foresman, CEO of Barclays Russia.

Many of these individuals either declined to comment to CNBC, or did not immediately reply to a request for comment

“I’ve met with all the other candidates, and Jeb has the greatest depth of knowledge on policy and execution—by far,” said one hedge fund manager who asked to remain nameless.

The person cited several reasons for his backing Bush’s candidacy that included being the best person to beat Hillary Clinton; his reduction of taxes and the size of government as governor of Florida; and his ability to reach multicultural voters, given his embrace of Hispanic culture.

Part of the financial community’s support for Bush appears to be in response to Wall Street bashing by other politicians.

“He understands the positive role that the financial community plays in the economy,” Juster of Warburg Pincus said. “It is distressing that some people paint all of Wall Street as somehow hurting America.”

As the son and brother of two former presidents ramps up his campaign, more support is expected.

A key Bush fundraising vehicle, a so-called super political action committee named Right to Rise, initially targeted $100 million from donors. However, the amount the PAC actually raised may have fall short, according to a recent Washington Post report. Bush has yet to release any data on his fundraising efforts.

Many financial donors will be on hand at a fundraising breakfast in New York on June 24. Tickets require as much as $27,000 in combined fundraising, according to an invite obtained by the Washington Post.

A spokesman for the Bush campaign did not respond to a request for comment.

“I think Jeb will have widespread support from the investment community,” said Fred Malek, founder of investment firm Thayer Lodging and the financial chairman of the Republican Governors Association.

Given that position, Malek has not committed to any candidate. Still, he has hosted events this year for Jeb Bush and fellow Republican—Wisconsin governor Scott Walker—at his home in McLean, Virginia that allowed other potential donors to get to know them (no money was given to attend the events, according to Malek).

“He has a proven record as a governor,” Malek told CNBC.

“A lot of candidates can talk the talk, but he’s demonstrated that he can walk the walk as well, and I think that’s widely admired and appreciated not only on Wall Street but by the whole business community,” he added.

Fed’s worst nightmare: The ‘ghost of 1937’

Janet Yellen
In trying to steer the economy of 2015, the Federal Reserve is fighting the foreboding spirit of 1937.

Wall Street strategists, in fact, are worried that the U.S. central bank is so cautious over not making the mistakes of a long-ago ancestor that it may miss a solid opportunity to normalize monetary policy after seven years of decidedly abnormal times.

“Many policymakers and market observers assert that the risk of the Fed raising rates too early exceeds that of moving too late. This is the specter of 1937, when the Fed raised rates prematurely and exacerbated the Great Depression,” Michael Arone, managing director and chief investment strategist at State Street Global Advisors, said in an analysis for clients titled “Why the Federal Reserve Needs to Bury the Ghost of 1937.”

“Most investors assume the prevailing lower-for-longer consensus is bullish for both equities and bonds,” he added. However, Arone said his “view is that a tardy Fed has a good chance of proving bearish for bonds and, longer term, for equities as well.”

The Fed’s Open Market Committee gathers this week at a meeting that only a few months ago was expected to include the first rate increase in nine years. However, slower-than-expected economic growth has taken some of the urgency off the expected tightening.

Now, traders at the Chicago Mercantile Exchange aren’t pricing in a hike until December. While Arone said he doesn’t think the Fed should move now, he believes the risks of waiting too long outweigh those of tightening too soon.

“Risks in this environment are growing, not shrinking,” he said. “The longer the Fed stays on this path, the more aggressively it may have to tighten and the crueler the asset price adjustment will be when it finally comes.”

What’s causing much of the consternation is fear that, like 1937, a desire to avoid bubbles and normalize rates will come too soon and plunge the economy back into a slump. The Fed took its short-term rates target down to zero amid the financial crisis and the Great Recession, and has been there since late 2008.

However, that recession officially ended in 2009, yet the central bank has not moved on policy. In addition to zero rates, it has boosted up its balance sheet to $4.5 trillion in a liquidity program whose effect has been to pump up the stock market by 220 percent.

Arone insists the 1937 versus 2015 comparison is not a valid one: Back then, consumer prices were falling and unemployment was rising, whereas the dynamic is the exact opposite now. The more relevant comparison, he said, would be 1999, where the Fed kept its foot on its pedal during the runaway dot-com bubble.

Read MoreHow the Fed screwed up the bond market

“The Fed waited too long to raise rates in 1999. Inflation already started accelerating before the first rate hike,” he said. “As a result, it had to tighten faster than would have otherwise been necessary. Five quarter-point rate hikes later and just nine months after the first hike, the stock market bubble burst.”

The hope for this time, obviously, is that the road proves smoother.

One obvious reason for collective skittishness is that the Fed has never been down the easing road quite this far. While it’s done plenty in the past to grease the monetary skids, staying this low for this long and expanding the balance sheet so far is without precedent.

Consequently, the escape route is going to be bumpy. The best investors likely can hope for is that it’s not as bad as other times in the past.

“The Fed’s exit from zero in 2015 will prove far less dramatic than in 1937: investors today have been raised on a dovish not a hawkish Fed; inflation is perceived to be under control, underscoring Fed credibility; and investor faith in economic recovery is bolstered by a virtuous cycle of rising housing activity, bank lending and small-business activity,” Michael Hartnett, chief market strategist at Bank of America Merrill Lynch, said in a note that expresses the most optimistic aspects of Wall Street sentiment.

“Our tactical view is that until the U.S. macro is unambiguously robust enough to allow the Fed to hike safely, investors will be cursed by mediocre returns, vicious trading rotation and flash crashes,” he added.

Indeed, companies that have counted on cheap debt to keep borrowing costs low and pump up earnings face a more challenging future. Hartnett advises clients to watch bank stocks; if they gain in a rising-rate environment, then Fed policy is working. If not, look out.

Economic conditions have changed dramatically since the zero rate policy began. Household net worth has gone from $62.5 trillion in 2010 to $84.9 trillion in 2015. Unemployment—albeit with a big assist from a tumbling labor force participation rate—has fallen from 10 percent to 5.5 percent.

The consumer credit default rate has fallen below 1 percent from 5.5 percent in May 2009, according to S&P Capital IQ, which believes the path is clear for the Fed to hike in 2015.

Though it’s against the backdrop of an economy that is likely to miss hopes for a 3 percent gain this year, the conditions are a far cry from what inspired the crisis-level policies.

“Near-zero rates no doubt helped end the Great Recession,” said State Street’s Arone. “But the U.S. economy is no longer under emergency conditions or facing the perils of 1937. Why then does it still require emergency monetary policy?”

Investors eye Greece despite debt talks breakdown

A man reads a newspaper next to a kiosk in Thessaloniki on 4 June, 2015.

 

The collapse of debt negotiations over the weekend caused Greek stocks to fall more than 5 percent Monday, leading to losses of more than 1 percent on U.S. exchanges. But a small group of hedge funds continues to view uncertainty in Greece as a chance to make money.

“While the ongoing negotiations are likely to result in volatility, regardless of the outcome there should be attractive European recovery opportunities in both Greece and Europe more broadly,” Gregory Schneiderman, a portfolio manager at $8 billion hedge fund allocator Aurora Investment Management, said in an email Friday.

Schneiderman noted that Greece was not a common position for hedge funds and that investors only see “a limited number of actionable opportunities” directly related to the troubled country.

Hedge funds to bet on a Greek recovery include Third Point and Alden Global Capital via their respective Greek recovery-focused funds, and Perry Capital and Knighthead Capital Management are among those that own Greek government bonds, people familiar with the situation told CNBC.com on Friday.

York Capital Management, Greylock Capital Management and Eaglevale Partners are in on the bullish Greek trade, including both stocks and bonds, according to a CNBC.com report in February.

Representatives for all the firms mentioned either declined to comment or did not respond to requests.

“Greece has a very, very compelling argument from a risk-reward standpoint,” said one investor Friday.

Securities are certainly cheap. Local stocks are down 56 percent over the last 12 months. Financial stocks owned by some hedge funds earlier this year, including Alpha Bank and Piraeus Bank, are down even more (66 percent and 82 percent, respectively). Government bonds also trade at about half their face value.

The fund manager expects the country to stay in the European Uniongiven that most Greeks want to remain and thereby avoid the likely severe economic blow of adopting a new currency. If the current government defaults, it would likely be voted out of power in favor of politicians who would make a deal with European officials anyway, according to the person.

“It’s not how we think the next few weeks go,” the person said, “but rather what the end result is.”

No damages awarded in lawsuit over AIG bailout: Court ruling

AIG headquarters in New York City.

A U.S. judge on Monday ruled the U.S. government does not owe Maurice “Hank” Greenberg and other American International Groupshareholders any damages over the company’s 2008 bailout.

AIG shares traded about 2 percent higher on the day following the news of the ruling.

Former AIG CEO Greenberg, through his company Starr International Co, sued the U.S. government in 2011, arguing the terms of the initial $85 billion loan package were unduly onerous, including an almost 80 percent U.S. stake in AIG.

Read MoreBernanke defends AIG bailout in court

Judge Thomas Wheeler of the U.S. Court of Federal Claims ruled in favor of Greenberg on the issue of law, but Greenberg had sought as much as $50 billion in damages on behalf of Starr and about 270,000 other shareholders.

Starr International was AIG’s largest shareholder at the time of the bailout, with a 12 percent stake.

 

Standard Pacific-Ryland: a rare home building merger

A contractor works on a townhouse under construction.

 

Home builder Ryland announced it would merge with Standard Pacific, creating the fourth largest builder by revenue. The deal is expected to close in the fall.

Standard Pacific will undertake a 1-for-5 reverse stock split. After the split, Ryland shareholders will receive 1.0191 shares of Standard Pacific stock for each Ryland share.

Though billed as a “merger of equals,” Ryland will hold a 41-percent stake while Standard Pacific will have a 59-percent stake.

Mergers of home builders are fairly rare events. The last real merger of size in this space was between PulteGroup and Centex in 2009, though in 2013 Tri Pointe Homes acquired the land assets of Weyerhaeuser.

Read MoreHome builder confidence hits highest level of year, up 5 points

Why are mergers fairly rare in the home building space? Builders don’t like to buy each other because what they really want is the land. That’s what is scarce. So why pay a premium for operations when all they want is land? Just buy the land.

Still, in some circumstances, the deal would make sense when you need scale fast. You get the purchasing power of a bigger guy. More negotiating power with subcontractors.

It would also make sense if you thought the home building market was in for a period of slow growth.

What does Ryland get out of this deal?

  1. Diversification: more sales in California. Sales would go from 9 percent of revenues to 27 percent today, with lower exposure to the Midwest and Mid-Atlantic regions.
  2. More land, the endgame of all builders.
  3. Higher-end product: more exposure to move-up buyers.

Read More‘Move-up’ buyers drive San Diego housing

What does Standard Pacific get? There’s a slightly unique situation because MatlinPatterson, the distressed private equity firm that has a big stake in Standard Pacific (it owns 41 percent), may be viewing this as an exit strategy by providing much better liquidity.

Would somebody else step in? This apparently was not a shopped deal. However, that doesn’t mean no one else would be interested.

For example, Taylor Morrison gets a significant portion of its revenue from California. I mentioned earlier that Tri Pointe Homes, which is controlled by Barry Sternlicht, bought the Weyerhaeuser land a couple years ago. It gets a significant portion of its revenues from California as well.

The big question is whether this will start another wave of consolidation in home building.

One thing’s for sure: There is not much of a premium here. At Friday’s closing price of $8.36, with the 1-5 stock split ($41.80), times the premium (1.0191) gives you roughly $42.59, which is almost exactly what Ryland closed at on Friday ($42.79)

Early movers: CVS, MU, LOW, BABA, TWTR, RYL & more

Traders work on the floor of the New York Stock Exchange.

Check out which companies are making headlines before the bell:

CVS Health—CVS will acquire and operate Target’s more than 1,600 pharmacies in an approximately $1.9 billion deal. The pharmacies will continue to be operated in Target stores under the CVS brand.

Micron Technology—Morgan Stanley downgraded the chip maker’s stock to “underweight” from “equal-weight,” saying a seasonal surge in orders looks like it will take place later than usual and weaker than originally expected.

Lowe’s—Wedbush upgraded the home improvement retailer’s stock to “outperform” from “neutral,” saying Lowe’s should be a winner if interest rates remain low and that its currently discounted valuation provides the opportunity for greater upside versus Home Depot.

Alibaba—The China e-commerce company announced it would start a subscription video service in that country in two months.

Twitter—Prince Alwaleed bin Talal, a major investor in Twitter, issued a statement to CNBC saying he would support chairman Jack Dorsey—soon to become interim CEO—if he wanted to take the job on a permanent basis. Earlier, the Financial Times had reported the prince was against the idea of Dorsey being the permanent CEO.

Ryland, Standard Pacific—The two will merge to form the fourth largest homebuilder in the United States. Standard Pacific will put a 1-for-5 reverse stock split into effect, and then give Ryland shareholders a little more than one Standard Pacific share for each Ryland share they now hold.

United Technologies—United Technologies will either spin off or sell its Sikorsky Aircraft division, and plans to make that decision by the end of the third quarter.

St. Jude Medical—St. Jude received FDA approval for a new brain implant that helps reduce symptoms of Parkinson’s disease.

Boeing—Boeing said it is in talks with potential buyers for its five remaining C-17 cargo planes. Boeing expects to sign deals before the fourth quarter.

Comcast—The company’s Universal Pictures unit saw its “Jurassic World” take in $204.6 million in North American ticket sales over the weekend, the second biggest opening on record behind 2012’s “Marvel’s The Avengers.”

Bluebird Bio—Bluebird said its experimental gene therapy for sickle-cell anemia got encouraging results in a one-patient study involving a French teenager.

 

The cost of a strong dollar: Billions in corporate damage

Sheets of one dollar bills run through the printing press at the Bureau of Engraving and Printing in Washington, DC.

The market knew it would be ugly. Now, it’s become clear just how much havoc the strong dollar is wreaking on corporate America.

In the first three months of the year, companies in North America lost nearly $29 billion because of currency swings, according to FiREapps, a company that advises businesses on managing their currency exposure.

It’s not just the strong dollar, however. A pickup in currency volatility around the globe is costing corporations everywhere.

If you add losses European companies faced from currency swings, most notably the Russian ruble’s dramatic plunge, companies lost $31 billion in the quarter. The drag on North American and European profits was 57 percent greater than last quarter’s impact and four times as much as the same quarter a year ago.

No wonder companies from a diverse set of industries—including 3M,Pfizer, Ford and Facebook—have complained about it.

“As long as economies around the world remain weak and central banks there see intervention as a successful stimulus tool, then we should expect to see continued currency volatility,” according to FiREapps Q1 2015 Currency Impact Report.

Just last week South Korea and New Zealand surprised the markets by cutting interest rates to fight slow growth and low inflation.

For North American companies, the main culprit is the euro, with 142 of the 279 companies hit by such losses blaming the currency’s decline. The euro plunged 11 percent during the quarter, dragging down American company sales more than they did during the height of the European debt crisis.

“Here we are less than three years later and for most major U.S. dollar currency pairs, volatility has surpassed the height of the euro crisis – as have the negative impacts reported by U.S.-based multinationals,” according to FiREapps.

Other specific currencies cited by companies for inflicting pain include the Japanese yen, Russian ruble, Brazilian real and British pound.

“The variety of currency culprits reported by corporates in North America and Europe reflects the complexity of currency risk management for multinational corporations,” says FiREapps.

The darkest before the dawn?

When it comes to handling currency risk, companies have different and sometimes opaque strategies. Proctor and Gamble, which derives most of its sales outside the U.S, was among the hardest hit by what CEO A.G. Lafley called in its April earnings report “unprecedented currency devaluations.”

Lafley added: “As we have done before, we’ll offset foreign exchange over time through a combination of pricing, mix enhancement and cost reduction.”

PepsiCo gets little less than half of its sales abroad, including 7 percent from Russia, whose currency plummeted nearly 40 percent in the last year. The company doesn’t hedge its potential losses from overseas sales.

Instead, the beverage maker said it would “continue to take actions to manage through the current volatile macroeconomic environment by taking responsible pricing actions,” CEO Indra Nooyi said in the company’s first quarter earnings release. Such actions include tightly controlling costs, and optimizing our global sourcing to minimize and mitigate the impacts of the current foreign exchange challenges.”

Rival Coca-Cola, which has even greater international exposure than Pepsi, does hedge foreign sales in major markets like the euro and yen. It also took advantage of historically low interest rates in Europe during the first quarter by selling $9.5 billion worth of new bonds, in one of the biggest euro bond sales by an American company ever. That also helped offset the revenue exposure.

“The currency impact on income before taxes was less than our original expectations due to slightly more than a $0.01 benefit related to foreign currency re-measurement gains associated with the euro-denominated debt issuance,” according to the company.

No matter how effective those hedges and strategies to offset the losses may be, nearly all American companies with any foreign sales, are taking hits from foreign exchange.

There is, however, a silver lining to all the currency carnage: the worst of it may be behind us.

While analysts still predict heightened volatility in the months ahead, the current quarter could offer companies some relief. So far, the dollar has actually weakened in the second quarter, by nearly 5 percent against the euro—helping reverse some of the most intense strong dollar headwinds in corporate history.

Here’s why financials are moving higher: David Darst

David Darst

Financial stocks were the best performing sector of the week, and it wasn’t just because investors were gearing up for a rising interest rate environment, Wall Street veteran David Darst said Friday.

The financials were down 2.7 percent as of April 1 but have “roared ahead” by 9.8 percent since then, according to the KBW Bank Index, the independent investment consultant said in an interview with CNBC’s “Closing Bell.”

While the sector tends to do well when interest rates are rising, there are number of other factors that are also propelling it higher, Darst noted.

Those factors include a stronger dollar, the fact that the banks are offering stock buybacks and dividend increases, and improved earnings.

“They’re making better loans today than they used to, less credit write-offs,” said Darst, former chief investment strategist at Morgan Stanley Wealth Management.

Read MoreUS Bancorp CEO: We’re excited for higher rates

Lastly, he said the sector’s price-to-book value is the lowest of all the 10 S&P 500 groups.

When it comes to investing in the financials, Darst would look at dividend payouts and said he wouldn’t neglect the Canadian banks.

“Nobody pays attention to the Canadian banks,” he added. “The World Economic Forum says they’re the strongest banks in the world.”

The top five Canadian banks have a combined yield of 4.07 percent with a 14 or 15 price-earnings ratio, he noted.