Monday, November 10, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Eli Hoffmann

  • China bailout brings global cheer. Asia, Europe and U.S. futures all moved higher Monday (see below) after China rolled out a $586B economic stimulus package to kick-start its slowing economy. "Over the past two months, the global financial crisis has been intensifying daily," the State Council said in its statement. "In expanding investment, we must be fast and heavy-handed." Analysts praised the long-awaited plan, but doubted it could prevent China's economy from slowing further amid global economic slowdown. The package includes corporate tax cuts and incentives for rural development and technical innovation. The government also promised a shift to a looser monetary policy. China's Q3 growth of 9% was its lowest level in five years. China's government relies on rapid growth to maintain political stability.
  • YouTube goes long. With an eye towards boosting advertising revenue, YouTube (GOOG) will begin showing full-length movies and TV shows from MGM Studios' (SNE, CMCSA) archives. YouTube features millions of home videos and some TV clips, but most videos are short and usually run ten minutes or less. The company has been experimenting with full-length shows for several months, and signed a similar deal with CBS (CBS) in October. The new partnership, to be announced later today, will put YouTube in more direct competition with online video site Hulu (NWS, GE).
  • AIG bailout balloons. The government raised its aid package to AIG (AIG) to $150B from a present $123B to reduce the troubled insurer's interest payments, allow more time to sell off assets, and save itself from collapse. Renegotiation of the government's bailout, which started out at $85B and gave taxpayers an 80% stake in AIG, came after AIG rapidly depleted the original sum. The details: The $85B, two-year loan at Libor +8.5% gets swapped for a $60B, five-year loan at Libor +3%. AIG will pay only 0.75% on the unborrowed portion of the loan, vs. a current 8.5%. The government will use its $700B Troubled Asset Relief Program facility to buy $40B in AIG preferred shares yielding 10%. The government's stake remains unchanged at 79.9%. The remaining $50B will be used to buy up AIG's balance-sheet-depleting distressed assets, placing them into two separate financing entities. Read the Fed's release.
  • Citi courts ?? Undaunted by its failure to acquire Wachovia (WB), Citigroup (C) is in advanced discussions to acquire an unnamed regional bank to compliment Citi's retail-banking unit, sources say. A deal could alleviate some of the internal strife that was exacerbated by Citigroup's botched attempt to buy Wachovia, as well as boosting Citi's deposit base - an alluring prospect in a period where funds are so scarce. Citigroup also comes armed with another $25B, courtesy of taxpayers. Oh, wait - they're not supposed to use government money for acquisitions.
  • Exelon strikes out. NRG Energy (NRG) rejected a $6.1B unsolicited takeover bid from Exelon (EXC), arguing the bid 'significantly undervalues' NRG and pointing to Exelon's recent credit downgrade and lack of secured financing. S&P cut Exelon's credit rating last month by one notch to BBB due to its "willingness to pursue an aggressive growth at the detriment of creditworthiness" in bidding for junk-rated NRG. A successful acquisition would have made Exelon the largest U.S. power producer. NRG left room open for a higher bid that would include debt refinancing.
  • G-20 consensus on need for action. After meeting this weekend, the G-20 agree to act 'urgently' to restore stability and support growth. The nations called on governments to cut interest rates and raise spending, and to employ 'all their policy flexibility,' both monetary and fiscal. "The solution to this crisis must be rapid," said Brazil's Finance Minister Guido Mantega, forecasting a 60-90 day timeline to new financial regulation. "We need to change the tire on the car while it's still moving."
  • Big Three bailout could open can of worms. House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid formally requested that Treasury Secretary Henry Paulson consider giving "temporary assistance to the auto industry" using its $700B bailout fund Saturday. The proposition is forcing a broad debate on Capitol Hill about how far the government should go to bail out failing industries, and where the money should come from. Premarket: GM -10.5%.
  • Astra aids hearts, investors. AstraZeneca (AZN) should see sales jump for Crestor, its cholesterol-lowering drug, after a new study showed the drug significantly reduced the risk of severe heart attacks. Crestor is already one of Astra's best-selling drugs, and is used by over 15M patients in 95 countries. The data should boost sales for the entire class of cholesterol-lowering drugs, including cheaper drugs that have already gone off patent. Shares +8% premarket.
  • Libor eases, again. Three month Libor slid 6 BPs to 2.24% - the lowest since Nov. 2004 and the 21st consecutive decline. Overnight lending was up 2 BPs to 0.35%, still 0.65% lower than the fed funds target rate of 1%.

Earnings: Monday Before Open

  • AIG (AIG): Q3 EPS of -$3.42 misses by $2.52. Includes more than $8B in writedowns. "Reported earnings are not indicative of the underlying core earnings power of our insurance businesses, which remain solidly capitalized," AIG says. Shares +28.3%. (PR)
  • Clear Channel Outdoor (CCO): Q3 EPS of $0.06 misses by $0.07. Revenue of $813M (-0.5%) vs. $838M. (PR)
  • DISH Network (DISH): Q3 EPS of $0.20 vs. consensus of $0.58. Revenue of $2.94B (+5.4%) in-line. (PR)
  • Frontier Communications (FTR): Q3 EPS of $0.15 misses by $0.01. Revenue of $558M (-3.1%) in-line. (PR)
  • HSBC (HBC): Says Q3 profits was ahead of 2007, with Asia growth the key driver. Takes a $4.2B impairment charge on its U.S. business. Tier-1 capital ratio rises to 8.9% from 8.8% in June. Shares -0.3% in London. (DJ)
  • Nortel (NT): Q3 EPS of -$0.30 in-line. Revenue of $2.32B (-14.3%) in-line. Sees full-year revenue and operating margin at the low end of previously announced ranges. Shares -3.3% in Frankfurt. (PR)
  • Southern Union (SUG): Q3 EPS of $0.40 beats by $0.07. Revenue of $657M (+25.1%) vs. $618M. Shares (PR)

Today's Markets

  • Asia markets were broadly higher, led by China. Nikkei +5.81% to 9,081. Hang Seng +3.52% to 14,745. Shanghai +7.27% to 1,875. BSE Sensex +5.74% to 10,536.
  • In Europe, bourses are trading up at midday. London +2.8%. Paris +3.4%. Frankfurt +3.3%.
  • U.S. futures indicate a higher open Monday. Dow +1.6% to 9137. S&P +1.8% to 953.50. Nasdaq +2%.
  • Crude +5.44% to $64.34. Gold +2.57% to $753.

Monday's Economic Calendar

Seeking Alpha editor Rachael Granby contributed to this post.

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