Tuesday, November 18, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Yang leaves Yahoo. Jerry Yang, Yahoo's (YHOO) beleaguered chief executive, will step down from his role as CEO as soon as the board can find a replacement. He will return to his previous role as Chief Yahoo where he will focus on strategy and technology. Yang was widely blamed by investors when a Microsoft (MSFT) bid fell through. Under his leadership, Yahoo also saw a search partnership with Google (GOOG) collapse, while months-long talks with Time Warner (TWX) failed to produce a deal on AOL. Investors now believe an acquisition by Microsoft is more likely than ever. Shares rose 4.4% in after hours trading on news of Yang's departure.
  • Colossal cuts at Citi. Citigroup (C) will significantly reduce its workforce, with plans to eliminate 52,000 jobs over the next year. The reductions include 9,100 jobs the bank began cutting last month, 16,900 new job cuts announced yesterday, and 26,000 positions Citi plans to shed through asset sales. In total, the cuts represent 15% of Citi's workforce. CEO Vikram Pandit accelerated cost cutting plans after the company's stock fell 19% last week to its lowest price in 12 years. Analysts warn the job slashing may not bring a 2009 profit, as large credit losses could potentially outweigh the savings from cost cutting. Shares closed down 6.6% yesterday to $8.89.
  • SEC snags Cuban. Dallas Mavericks owner Mark Cuban has been charged by the SEC for insider trading. According to the SEC, Cuban sold his 600,000 share stake in Mamma.com just after he was told confidentially that the company was about to issue low-priced shares. The sale, which dated to 2004, allowed Cuban to avoid more than $750,000 in losses. Cuban denied the claims and decried SEC officials for their 'facts be damned' attitude and 'win-at-any-cost ambitions.'
  • Insurers eye small banks, TARP eligibility. In a bid to gain access to the government's $700B rescue program, some U.S. life insurers are buying up tiny banks with the goal of becoming savings-and-loan holding companies eligible for TARP funds. In the last week alone, insurance firms including Lincoln National (LNC), Genworth Financial (GNW), Transamerica (AEG) and Hartford Financial Services (HIG) have all agreed to purchase savings-and-loans banks, though it is unclear whether insurers have received approval of government financing. Hartford's purchase of Federal Trust Corp. is valued at $10M, and Hartford estimates it's eligible for a federal infusion of $1.1B-$3.4B. Lincoln National is buying a savings-and-loan with just $7M in assets; a Lincoln spokeswoman said the company is likely eligible for up to $3B.
  • Paulson to reserve TARP money. Treasury's Henry Paulson is unlikely to tap the $410B of remaining TARP funds for substantial new programs. In an interview yesterday, Paulson said he prefers to keep the money in reserve for unexpected emergencies and to preserve 'the firepower' and 'the flexibility' of the remaining funds for President-elect Obama's new administration. He also commented on the progress TARP has created so far, saying "we've turned the corner in terms of stabilizing the system. There's no longer this worry out there that some systemic institution is going to fail." Paulson's comments likely rule out the use of TARP money to fight rising home foreclosures, a move some congressional members had called for.
  • BoA doubles up. Bank of America (BAC) will pay $7B to raise its stake in China Construction Bank Corp. to 19.1% from 10.75%. The announcement comes three weeks after Bank of America received $15B from the government, but the bank says it is not funding the purchase with TARP money. Investors "should be delighted that Bank of America is thinking long term about its options," says Daniel Rosen of Rhodium Group, and "isn't just barricaded in their shack out in the woods." Shares in China Construction fell 5.4% in Hong Kong on concerns Bank of America may sell stock it bought in 2005 after a lockup period on that stake ended last month.
  • Mining merger falls off a cliff. Cliffs Natural Resources (CLF) and Alpha Natural Resources (ANR) abandoned their planned $10B merger, citing the difficult economic environment, uncertainty in the steel industry and potential litigation costs. The merger would have created one of the largest U.S. mining companies. Harbinger Capital Partners, Cliff's largest shareholder, had been opposed to the deal, and says Cliffs should now focus on a sale that could see the company fetch at least $130/share. In after hours trading, Cliffs gained 5.8%, Alpha lost 7.6%.
  • New chance to buy Barclays stock. Barclays (BCS) offered institutional investors up to £500M ($750M) of stock that had originally been reserved for Persian Gulf funds. Sovereign wealth funds in Qatar and Abu Dhabi each agreed to release as much as 250 million pounds, or 17% of the preferred stock they had planned to buy. The move is meant to appease investors worried about diluted holdings after Barclays agreed to sell about a third of itself to Persian Gulf investors to meet new U.K. capital requirements. The company has also put its board up for re-election, and announced its executive directors would waive their bonuses. Shares -3.1% pre-market.
  • Ford leaves Mazda behind. Cash-starved Ford (F) will sell its 20% stake in Mazda (MZDAF.PK), divesting from the company in which it first invested in 1979. Mazda will buy back 6.87% of its shares from Ford for ¥17.9B ($185M) and keep them as treasury stock. The remaining stake will be bought by over 20 business partners, with the total sale yielding a gain of over $538M for Ford. Two board members will return to Ford, while Executive Vice President Philip Spender will remain at Mazda. Mazda CEO Hisakazu Imaki will cede his post to another executive vice president, Takashi Yamanouchi, to become chairman of the board.
  • Industrial output bounces back. Industrial production rose 1.3% in October, far better than the expected 0.2% increase, as mines and utilities rebounded from September's -3.7% slump. Still, some say the increase is likely just a temporary bounce after hurricanes Gustav and Ike lowered production in September, and that manufacturing remains in retrenchment and underlying trends are down. "The trend is clearly very, very weak," economist Joshua Shapiro said. "Export demand is falling apart, and domestic demand has already fallen apart. We'll stay in a recession at least until the early part of 2010." Capacity utilization was 76.4%, in-line with consensus.
  • Seven months to go. All 51 economists surveyed by the Philly Fed say we're in or on the brink of a recession that most say started in April, and will last for 14 months. They see payrolls shrinking by 222K per month during Q4 - nearly five times their previous outlook. The group estimates the size of a potential second economic stimulus package at $211B, which will begin to stimulate GDP growth in Q1 2009. They see GDP declining by 2.9% in Q4 and another 1.1% in Q1. Growth will resume in Q2, they say.
  • Manufacturing drops. NY State's Empire Manufacturing survey slipped to -25.4 in November from -24.6 in October. The results were better than the expected -26.0 reading, but still mark a record low in the survey’s seven-year history.

Earnings: Tuesday Before Open

  • Home Depot (HD): Q3 EPS of $0.45 beats by $0.07. Revenue of $17.8B (-6.2%) in-line. (PR)

Earnings: Monday After Close

  • Ctrip.com International (CTRP): Q3 EPS of $0.22 in-line. Revenue of $55M (+19.6%) in-line. Shares -9.3% in after hours trading. (PR)

Today's Markets

  • Asia markets closed broadly down. Nikkei -2.3% to 8,328. Hang Seng -4.5% to 12,916. Shanghai -6.3% to 1,902. BSE -3.8% to 8,937.
  • In Europe at midday, London -1.9%. Paris -1.7%. Frankfurt -2.3%.
  • U.S. futures: Dow -1.8%. S&P -2.0%. Nasdaq -2.4%. Crude -0.1% to $54.88. Gold -0.9% to $735.10.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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