Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Eli Hoffmann

• GM, Chrysler deal on hold. Reluctant to broaden its $700B financial bailout, the Treasury turned down a request by General Motors (GM) for up to $10B to help finance a merger with Chrysler, sources say. Instead, it will try to speed up the Energy Department's $25B loan program for fuel-efficient vehicles. Some think the refusal is politically motivated, and say the pair hopes to move forward with talks after Tuesday's election, when the extent of the government's role in a merger should become clearer. While Obama basically supported a government guarantee of their debt last week, McCain's position remains unclear.
• Thousands of banks pursue rescue cash. Not long ago, many banks worried taking on government money through its $700B TARP framework would give investors the impression they were in need of a bailout. In an abrupt change of attitude, officials now say up to 1,800 publicly-traded banks - and potentially thousands more private banks - could apply for government investments in coming weeks as institutions worry they will be judged as too unhealthy to qualify, or lacking the savvy to deploy cheap government capital, if they don't try for the money. Some bankers worry the $125B now earmarked for 'other' banks won't suffice.
• Panasonic denies deal rumors. Despite reports over the weekend, notably from the Nikkei newspaper, that Panasonic (PC) had reached a preliminary agreement to buy Sanyo Electric (SANYY.PK), Panasonic says no decision has been made. Reuters had reported that the presidents of the two companies met last month and agreed on a deal in principle but hadn't agreed on other details like price. Japanese media reported Panasonic was in talks with Sanyo's major shareholders, including Goldman Sachs (GS), to buy a controlling stake in the world's largest producer of rechargeable batteries. If a deal is ultimately agreed upon, the merger would challenge Hitachi (HIT) as Japan's largest electronics maker.
• Brazil's Banco Itau (ITU) and Unibanco (UBB) agreed to merge their operations, creating Brazil's largest financial group. [DJ]
• Lacker wary on inflation. The Fed can't forget about inflation as it battles recession, nor leave interest rates too low too long, voting governor Jeffrey Lacker said Monday. "As a recovery begins, the path of least resistance is often to hold the policy rate at a low level until it is completely clear that recuperation is complete," he said. "The risk associated with that path is that inflation may not moderate obediently during the downturn, and may firm with the ensuing recovery." On the R question, he said, "Up until the summer it was a fairly mild recession... How deep, how steep, and (how) long it's going to be is uncertain. We don't know if it's going to be a garden variety recession or something steeper. I think it's most likely to be of a fairly moderate size"
• Airline prospects soar. The biggest U.S. airlines stand to return to profitability next year - a stunning unround for an industry that appeared to be heading toward mass bankruptcy and/or game-changing consolidation just months ago. Crude's now off more than 50% from its summer highs, so the steps large carriers took to trim costs and increase revenue in the hope of staying afloat will now drive 2009 earnings to unexpected levels. Outstanding questions: How much will the economic downturn eat away at the industry's customer base, and how long will carriers stay lean once the cash starts flowing?
• Gas gets cheaper. U.S. gasoline prices have decreased for 46 days in a row to a 19-month low - $2.45/gallon - according to the AAA. GasBuddy founder Jason Toews says prices could hit $2.20 by December, but will likely head back up in January as drivers get back behind the wheel and crude prices bottom. "There's only so far that crude oil prices can go. A lot of major oil fields are not profitable below $60 a barrel for oil," he says.
• KKR delays IPO. Famed private equity firm Kohlberg Kravis Roberts & Co. has pushed off its IPO until next year. "As the decline in KPE's (its European arm, KKR Private Equity) quarterly NAV evidences, some of our investments faced reduced valuations during the third quarter as a result of the extraordinary turbulence in the global capital markets," co-founder George Roberts said. It looks to join publicly-traded rivals Blackstone (BX) and Fortress Investment Group (FIG).
• Back to work at Boeing. 74% of Boeing's (BA) machinists accepted a 15% pay hike Sunday, ending an eight-week strike that cost the planemaker over half a billion dollars and $5.6B in revenue. Analysts say that although Boeing doesn't appear to have lost any orders, it could take a year or more for the firm to make up the lost time.
• JPMorgan, mortgage savior. Late Friday, JPMorgan (JPM) launched an ambitious plan to renegotiate 400,000 mortgages worth $70B in the hopes of saving homeowners from foreclosure. The move suggests banks may be better off with mass modifications rather than foreclosures and/or case-by-case negotiations.
• Mortgage rates on the rise. Rates on 30-year mortgages spiked last week as rising Treasury yields put pressure on home loans linked to government debt. 30-year fixed-rate mortgages averaged 6.46% last week, up from 6.04% a week earlier. 15-year mortgages rose to 6.19% from 5.72%. One year ago, 30-year rates were 6.26% and 15-year mortgages were 5.98% - though at the time the fed funds target, now 1%, stood at 4.5%.

Earnings: Monday Before Open

• American Tower (AMT): Q3 EPS of $0.15 beats by $0.01. Revenue of $409M (+11.3%) vs. $102M. (PR)
• DryShips (DRYS): Q3 EPS of $3.53 misses by $0.07. Revenue of $329M (+119.3%) vs. $306M. "The lack of financing of global trade has temporarily brought the spot market to a virtual standstill, but we expect this situation to normalize as the credit crunch subsides and stockpiles are gradually but steadily drawn down." (PR)
• Oshkosh Truck (OSK): FQ4 EPS of $0.72 beats by $0.05. Revenue of $1.9B (+5.8%) vs. $1.82B. Expects continued weakness in economies worldwide to significantly affect sales in 2009. (PR)
• PMI Group (PMI): Q3 EPS of -$1.83 beats by $0.60. Revenue of $225M (-6.1%) vs. $289M. Shares +8.4% premarket. (PR)
• Ryanair (RYAAY): H1 profit fell 47% to €214.6M, but its passenger base grew 19% from April to September and could gain another 9% as travellers switch to low-cost airlines. The firm expects profits to recover if oil remains below $80/barrel. (BBC)

Today's Markets

• Most of Asia closed higher Monday. Hang Seng +2.69% to 14,345. Shanghai -0.52% to 1,720. BSE Sensex +5.62% to 10,338. Nikkei closed.
• In Europe, shares are marginally higher at midday. London +0.3%. Paris +0.3%. Frankfurt +0.5%.
• U.S. futures are higher at 7:00. Dow +0.47% to 9342. S&P +0.47% to 971.50. Nasdaq +0.11%. Crude +0.34% to $68.11. Gold +2.9% to $739.

Monday's Economic Calendar

• 10:00 Construction Spending
  10:00 ISM Manufacturing Index
• Notable earnings before Monday's open: AMT, AYE, BLC, COL, DRYS, DVA, GT, ICON, MFA, OSK, PMI, SPG, SRP, SYY.
• Notable earnings after Monday's close: ADP, APC, CRK, EOG, ERJ, EXTR, FST, HCN, HLF, MA, MHK, OTEX, PBI, PFG, POM, SM, UDR, VIA.

Seeking Alpha editor Rachael Granby contributed to this post.

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