Thursday, December 11, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Bailout sputters its way to the Senate. In a late night session, the House of Representatives approved a $14B emergency loan package for automakers by a vote of 230-170. In exchange, the government will receive warrants equal to 20% of the loan value and will appoint a car czar who will be able to force the companies into bankruptcy if necessary. The compromise bill, which opens the door to long-term financing if the companies can agree on restructuring plans, will face strong resistance from Republicans in the narrowly divided Senate, despite President Bush's support of the bill. "I'm going to oppose the package because I think this is just the down payment on billions and billions to come, said Republican Senator Richard Shelby. "These are failed or failing companies." The Senate could vote as soon as today. In France, General Motors (GM) -2.9%, Ford (F) -0.4%. In Japan, Honda (HMC) +7.9%, Toyota (TM) +4.8%, Nissan (NSANY) +1.2%.
  • GMAC comes up short. Lender GMAC (GKM), jointly owned by General Motors (GM) and Cerberus, may abandon its efforts to become a bank holding company, casting renewed doubts on its ability to survive. GMAC is trying to persuade investors to swap bonds for lesser-valued debt, but has only received a fraction of the bonds it needs to reduce its debt and raise sufficient capital to be eligible for bank holding status. It has extended its $38B swap offer deadline to Friday, the third extension to date, and there is speculation the deadline will be extended again. Bondholders argue the plan doesn't require enough concessions from GMAC's owners, and some say GMAC's threat of not getting bank holding status is simply a negotiating tactic carrying the implicit threat of bankruptcy; GMAC has been shut out of the market for raising funds, and will have to significantly scale back lending and possibly shutter its mortgage unit if it doesn't gain access to Federal Reserve lending facilities and the market for FDIC insured bank debt.
  • BCE says bye to buyout. BCE Inc.'s (BCE) C$52B ($41B) takeover, set to close today, has fallen apart after Ontario Teachers’ Pension Plan and a group of U.S. private equity firms terminated the deal. The leveraged buyout deal would have left Canada’s largest phone company insolvent, said auditor KPMG. Under these circumstances, the buyers claim neither party owes a termination fee, but BCE may demand a C$1.2B breakup fee. BCE may have to buy back shares or restore its dividend to placate investors. The stock closed at C$23.02 yesterday in Toronto, down 46% from the offer price, and is down 5% today in German trading.
  • Picture sours at Kodak. Eastman Kodak (EK) withdrew its second-half and full year forecasts for 2008 revenue growth, citing the severity of the global slowdown and fluctuations in the dollar's value. Company executives will not receive a salary increase this year. Kodak had previously forecast full-year revenue in the range of $9.8B-$10B, and operating profit of $200M-$250M. Kodak, down more than 46% since mid-September, will issue a new forecast when it announces Q4 earnings on Jan. 29.
  • Hedge funds get trimmed. Hedge funds worldwide lost $64B of assets in November, according to Eurekahedge. Market declines made up $18B of the losses, while investor redemptions made up the remaining $46B. The Eurekahedge Hedge Fund Index showed hedge funds down 0.4% on average in November, marking the sixth straight month of declines. "It's very clear that there is going to be significant consolidation in the hedge-fund industry."
  • Oil recoil. Crude oil is expected to enter its own recession of sorts, the International Energy Agency said today, with a contraction in oil consumption for the first time in 25 years. The IEA expects 2008 global oil demand to slide by 0.2% to 85.8M barrels per day, down from earlier estimates of 87.8M barrels per day. Oil consumption in 2009 will be sluggish as well, growing just 0.5% from 2008. Demand weakness is most pronounced in the U.S. and Japan, the world's biggest and third-largest oil consumers.
  • Swiss rate cuts. The Swiss National Bank cut its interest rate to a four-year low of 0.5%, and signalled further actions are possible as the economy faces what could be its worst recession since 1982. The 50 basis points reduction was in-line with consensus estimates. The SNB decision brings it closer to being the first central bank in Europe to cut its benchmark rate to zero.
  • South Korea rate cuts. South Korea cut its benchmark interest rate to a record low of 3% in an effort to stave off the country's first recession since 1998, and warned the economy will cool rapidly as export growth slows. The 100 basis points reduction was larger than economists had expected, and Governor Lee Seong Tae left the door open to future cuts.
  • Wholesale inventories drop. Wholesale Inventories fell 1.1% in October, more than the -0.2% consensus, but remain up 8% on the year. Wholesale sales fell 4.1% from September, but were up 6.5% from last year.

Earnings: Thursday Before Open

  • Ciena (CIEN): FQ4 EPS of -$0.10 misses by $0.04. Revenue of $179.7M (-29%) vs. $198.8M. (PR)
  • Costco (COST): FQ1 EPS of $0.65 beats by $0.03. Revenue of $16.4B (+3.7%) vs. $16.7B. (PR)
  • Gildan Activewear (GIL): FQ4 EPS of $0.41 misses by $0.02. Revenue of $324.7M (+27.4%) vs. $341.4M. (PR)

Today's Markets

  • Asia markets closed mixed. Nikkei +0.7% to 8,721. Hang Seng +0.2% to 15,614. Shanghai -2.3% to 2,032. BSE -0.1% to 9,645.
  • In Europe at midday, London +0.5%. Paris +0.1. Frankfurt -0.4%.
  • U.S. futures: Dow +0.1%. S&P +0.4%. Nasdaq +0.5%. Crude +4.8% to $45.62. Gold +2.4% to $828.10.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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