Monday, December 8, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Auto aid on the way. Lawmakers are working to reach an agreement on automaker aid as early as this week, and are debating the finer details, including whether they should appoint a "car czar" and whether to replace current executives. The deal would provide at least $15B in short-term loans to General Motors (GM), Chrysler and Ford (F) to tide them over until March 31, 2009, though most of the funds will go to GM and Chrysler. (Ford had asked for a line of credit to be used if the recession turns out to be longer and deeper than expected.) Senator Chris Dodd, head of the Senate Banking Committee, called for GM CEO Rick Wagoner to be replaced as part of any aid deal, and Big Three automakers may have to trim their payrolls to secure the funds, which could further deepen the country's recession. GM +24%, F +22% pre-market.
  • Bourses back down. Deutsche Borse and NYSE Euronext (NYX) held exploratory talks about heightened cooperation and a possible merger, but sources say the talks have ended unsuccessfully. The same sources added that while talks on cooperation could resume, any efforts at a merger or takeover would be extremely difficult as the exchange operators face tough financial-market conditions and sharply differing valuations. Deutsche Borse said it 'constantly evaluates many options' to improve its business, and that if talks were indeed held with 'potential partner' NYSE, they 'ended without any result.' NYSE declined to comment. A merger would have created the world's biggest securities trading and clearing group, and been the most dramatic consolidation to date among the big exchange operators as they try to fend off fast-growing alternative trading platforms.
  • Insurer proposals move forward. A group working for the National Association of Insurance Commissioners [NAIC], a state insurance regulator, has green-lighted several proposals recently submitted by the life-insurance industry aimed at lowering insurers' capital and reserve requirements. Many of the proposals will eliminate redundant reserves, potentially freeing up as much as $22B-$28B industrywide. 'We recognize the economic situation' and the need to act urgently, said the head of the group which will makes its recommendations to the NAIC this week. Shares of life insurers have taken a beating in recent weeks on concerns they would have to raise capital on unfavorable terms, though Hartford Financial Services (HIG) and Prudential Financial (PRU) led a sector rally on Friday, in part on expectations of regulatory relief.
  • Thain wants on the money train. Merrill Lynch (MER) has suffered net losses of $11.7B this year, but CEO John Thain is pushing for a 2008 bonus of as much as $10M, saying he helped avert what could have been a much larger crisis for the firm. No decision has been reached yet, but sources say the compensation committee is leaning towards denying executive bonuses this year. Bank of America (BAC), with a reputation for thrift, said only that "we have no comment. They are still an independent company." On Friday, shareholders of both companies approved Bank of America's takeover of Merrill Lynch. Bank of America will surpass JPMorgan Chase (JPM) and Citigroup (C) as the largest U.S. bank with $2.7T of assets.
  • Tough times for newspapers, I. Facing tighter credit, falling advertising revenue and shrinking profits, The New York Times Company (NYT) plans to borrow up to $225M against its mid-Manhattan headquarters building to ease a potential cash flow squeeze. The company has over $1B in debt and one of its two revolving lines of credit, each with a ceiling of $400 million, is set to expire in May. S&P recently lowered its credit rating on the Times Company to below investment grade, and Moody's is considering a similar move.
  • Tough times for newspapers, II. The Tribune Company, the newspaper chain that owns The Chicago Tribune and The Los Angeles Times, could file for Chapter 11 as early as this week. With nearly $1B in interest payments due this year and a $512M debt payment due in June, the company has been in continued talks with lenders to restructure its debt, but sources say law firm Sidley Austin has been hired to advise the company on a possible bankruptcy while investment bank Lazard Ltd. has been hired as a financial adviser. Battered by dwindling advertising sales and unmanageable debt loads, the Tribune's deepening distress is reflective of industrywide problems.
  • Falling payrolls. The government released disheartening employment data on Friday. Non-farm payrolls fell by 533,000 in November, far worse than the 350,000 drop economists expected, and the biggest one-month drop since 1974. The loss was broad-based, spanning manufacturing, construction and most service industries. Excluding a small rise in government payrolls, private-sector employment plummeted even further. Unemployment jumped to 6.7% vs. 6.8% consensus, its highest since 1993. It was the 11th consecutive month of job losses, bringing the number of jobs eliminated this year to 1.91M.

Today's Markets

  • Asia markets closed heavily up. Nikkei +5.2% to 8,329. Hang Seng +8.7% to 15,045. Shanghai +3.6% to 2,091. BSE +2.2% to 9,163.
  • In Europe at midday, London +4.7%. Paris +6.7%. Frankfurt +6.3%.
  • U.S. futures: Dow +2.6%. S&P +3.1%. Nasdaq +2.5%. Crude +5.0% to $42.85. Gold +2.2% to $768.80.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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