Wall Street Breakfast: Must-Know News
- Citi sinks, mulls sale, spinoff. Citigroup's (C) stock fell 26% on Thursday, capping four days that saw the company lose half its value and bringing the company below the institutional threshold of $5/share. Pressure is increasing from investors and analysts to support the stock price by any means, including splitting or selling the company. The board will meet today to discuss Citi's options, amid mixed reports on whether a possible sale or spin-off will be considered. In the meantime, the company is pushing for the SEC to reinstate a ban on the short-selling of financial stocks. CEO Vikram Pandit assured employees that "we are entering 2009 in a strong position... We will be a long-term winner in this industry," but some of Citi's traders have begun to joke that the troubled bank should be renamed the Titanic.
- Christmas comes early for homeowners. Fannie Mae (FNM) and Freddie Mac (FRE) announced they will suspend foreclosures and evictions during the holiday season, beginning Nov. 26 until Jan. 9. The move is meant to provide more time to implement a loan modification program for struggling borrowers. The foreclosure hiatus, which will apply to occupied homes, could affect as many as 16,000 borrowers. Analyst Paul Miller aptly called it a 'giant time out,' adding he "wouldn't be surprised to see this across the board."
- FDIC keeps Fed in mind. The FDIC may exclude the shortest-term loans from a $1.4T debt-insurance program. FDIC officials are likely to recommend that loans that mature in 30 days or less, including overnight interbank loans at the rate targeted by the Federal Reserve, be omitted from the program. The exclusion would help the Fed avoid further interest rate swings; for two months, the Fed had failed to keep the federal funds rate near its target rate because of more than $1T of loans floating around the banking system. "The FDIC would not want to interfere with a market that has been working, functioning efficiently," said economist Lou Crandall. "It would have made the fed funds rate even more unpredictable."
- Community banks hear from regulators. Trying to head off the next phase in the credit crisis, the Office of the Comptroller of the Currency is keeping a closer watch on around 100 community banks with large exposures to weak commercial real-estate loans. The OCC categorized the community banks into three groups based on potential risk and the concentration of commercial real estate holdings, and have requested at-risk banks to create more specific plans to manage their exposure. "If they're not making progress on areas requiring attention," cautioned OCC spokesman Robert Garsson, "we're going to escalate our response." Other regulators, including the FDIC and the Office of Thrift Supervision, have ramped up their involvement as well, leading bankers to complain of a 'poisoned' examination atmosphere and regulators who are too harsh and inflexible.
- Alico up for sale. A consortium led by sovereign wealth fund China Investment Corp. is in talks to buy a stake of up to 49% in American Life Insurance Co. (Alico), a unit of AIG (AIG). The deal, which might be worth up to $10.6B, could position China to become a major player in the global insurance market. Sources say AIG has set a year-end deadline for the negotiations, as it looks to sell everything except for its U.S. property and casualty business, foreign general insurance and an ownership interest in foreign life operations. An AIG spokesman declined to comment.
- France's new fund. French President Nicolas Sarkozy unveiled a €20B ($25B) strategic investment fund, aimed at protecting French industry from foreign predators and a weakening economy. Sarkozy said the fund is ready to take stakes in large, strategically important companies that are vulnerable to foreign takeover, and will make its first investment in Daher, an aeronautics supplier. The fund will be subject to scrutiny by the European Commission to ensure it doesn't restrict the free flow of capital. Sarkozy also promised a stimulus package within the next several weeks that would focus on infrastructure, education and research.
- Bottom? What bottom? Stocks extended their slide, closing heavily down yet again (Dow -5.56%, S&P -6.7%, Nasdaq -5.1%). The S&P has fallen below its lowest finish in the 2000-2002 bear market, and is now trading at 1997 levels. Bear market selling has been exacerbated by late-day margin calls and concerns that the government's capital injection program isn't working.
- Quotables. "Some have chosen to scapegoat the Lehman failure as the cause of the deepening crisis in September, as opposed to a symptom. That is at best naive, and at worst disingenuous. The U.S. government had no authority to rescue Lehman Brothers." -Treasury's Henry Paulson
- Fewer financial jobs. JPMorgan Chase (JPM) begins another round of job cuts, though it is unclear how many positions will be slashed in addition to the 5,000 jobs the firm cut earlier this year. Forecasts remain dark for the financial industry as a whole. Some estimates see job cuts in the financial sector doubling to 350,000 worldwide by mid-2009. "This is the financial equivalent of World War II," said Brian Sullivan, CEO of search firm CTPartners. "It's unprecedented. You're seeing a seismic shift in the population of banking."
- Jobless claims rise. Initial Jobless Claims this week were 542,000, substantially worse than the 505,000 economists expected. The 4-week average of 506,500 was up 15,750.
- Leading Indicators fall. Leading Indicators fell 0.8% in October, worse than the 0.6% drop economists expected. "Stock prices, building permits, consumer expectations and the index of supplier deliveries made large negative contributions." Money supply and the interest rate spread kept the Conference Board's index from collapsing.
- Philly Fed. The Philadelphia Fed's prices paid index fell 38 points to -30.7, its first negative reading since mid-2003. The prices paid index has now fallen a dramatic 106 points over the past four months. The Philly Fed also found 69% of employers expect to employ fewer workers over the coming six months, 51% cite layoffs and 32% predict reducing work hours.
Earnings: Friday Before Open
- Canadian Solar (CSIQ): Q3 EPS of $0.41 misses by $0.13. Revenue of $252M (+159.1%) vs. $248M. (PR)
- Heinz (HNZ): FQ2 EPS of $0.81 beats by $0.11. Revenue of $2.61B (+3.5%) vs. $2.7B. (PR)
- J.M. Smucker Company (SJM): FQ2 EPS of $1.02 beats by $0.01. Revenue of $843M (+19.1%) vs. $796M. (PR)
Earnings: Thursday After Close
- Autodesk (ADSK): Q3 EPS of $0.56 beats by $0.03. Revenue of $607M in-line. Sees Q4 EPS of $0.28-0.34 vs $0.51 and revenue of $525-550M vs. $611M. "The sharp downturn in the global economy had a substantial impact on our results for the quarter." Shares -16.9% in after-hours trading. (PR)
- Brocade Communications Systems (BRCD): FQ4 EPS of $0.20 beats by $0.03. Revenue of $398M (+17.2%) vs. $389M. Shares +2.5% in after-hours trading. (PR)
- Dell (DELL): Q3 EPS of $0.37 beats by $0.06. Revenue of $15.16B (-3.1%) vs. $16.22B. Believes global IT end-user demand will continue to be challenging. Shares +5.4% in after-hours trading. (PR)
- Foot Locker (FL): Q3 EPS of $0.18 misses by $0.07. Revenue of $1.31B (-3.5%) in-line. Sees 2009 EPS of $0.50-0.63 vs. $0.82. (PR)
- Gap (GPS): Q3 EPS of $0.35 beats by $0.01. Revenue of $3.56B (-7.6%) in-line. Shares +4.0% in after-hours trading. (PR)
- Salesforce.com (CRM): Q3 EPS of $0.08 beats by $0.01. Revenue of $276.5M (+43%) vs. $273.5M. 4,100 new customers to 51,800 (+36%). Shares +4.25% in after-hours trading. (PR)
Today's Markets
- Asia markets closed mostly up. Nikkei +2.7% to 7,911. Hang Seng +2.9% to 12,659. Shanghai -0.7% to 1,969. BSE +5.5% to 8.915.
- In Europe, markets are higher at midday, but not by much. London +0.5%. Paris +0.15%. Frankfurt +0.25%.
- Dow +2.75% to 7690 (high: 7820). S&P +2.64% to 768 (high: 785). Nasdaq +2.81%. Crude +1.6% to $50.21. Gold +1.03% to $756.40.
Friday's Economic Calendar
Seeking Alpha editor Eli Hoffmann contributed to this post.
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