Monday, December 22, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Reprieve for automakers. General Motors (GM) and Chrysler received word of their long-awaited bailout on Friday, with a White House promise of $13.4B and the possibility of another $4B in February if the firms make progress with their restructuring. More good news for the automakers arrived Saturday when the Canadian government and province of Ontario agreed to supply $3.3B in loans to the Canadian units of GM and Chrysler. GM will begin talks with the UAW, bondholders, banks and suppliers, with UAW officials bracing for 'unpopular sacrifices.' Chrysler has provided few details on how it plans to overhaul its operations, but parent company Cerberus released a statement raising the possibility it would give up its 80.1% stake in the troubled automaker to the UAW and other creditors.
  • Developers hold out the tin cup. Now that automakers have their bailout, U.S. property developers are pushing to be next in line. A record $530B of commercial real estate debt is coming due over the next three years, with around $160B maturing in the next year alone. Developers are warning that with tight credit and limited cash flows, thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies. To head off a potential crisis, the industry is requesting to be included in the $200B loan program which the government created for car loans, student loans and credit-card debt. Treasury and Fed officials said they would consider including commercial real estate debt, but doing so would likely require additional Treasury funds and, in any case, the $200B initiative is not likely to be operational until February.
  • Irish bank bailout. Ireland will spend €5.5B ($7.7B) bailing out its three largest banks to keep the country's financial services industry from collapsing. Anglo Irish Bank (AGIBY.PK) will receive €1.5B in return for preference shares paying a fixed 10% annual dividend and 75% of its voting rights. Allied Irish Banks (AIB) and Bank of Ireland (IRE) will get €2B each in exchange for shares paying an 8% dividend and 25% of voting rights on 'key issues.' In Dublin, Anglo Irish +2.9%, Allied Irish +21%, Bank of Ireland +38%. (full bailout terms (.pdf))
  • Toyota tumbles. Reflecting the growing troubles of the global auto industry, Toyota (TM) is forecasting its first operating loss in 71 years, prompting Moody's to consider downgrading the firm's AAA rating. In a statement released today, the world's second largest automaker expects a ¥150B ($1.7B) loss in the year ending in March vs. earlier forecasts of a ¥600B profit. "We’re facing an unprecedented emergency situation,” said President Katsuaki Watanabe. “Unfortunately, we can’t see the bottom.” Shares -2.4% premarket.
  • Wal-Mart goes south. While other retailers are suffering, Wal-Mart (WMT) is looking to expand. On Friday, it offered to buy Distribucion y Servicio D&S, a major Chilean retail chain, at a 33% premium to where D&S closed Thursday. The move would make Wal-Mart the largest grocer in Chile. If Wal-Mart fails to acquire at least 50.1% of D&S stock, it will cancel the offer. In the unlikely event that all shares are tendered, the deal will cost Wal-Mart $2.8B.
  • AIG sells Hartford unit. AIG (AIG) sold its Hartford Steam Boiler unit to Munich Re for $742M today, significantly less than the $1.2B AIG paid to acquire the unit eight years ago. Subject to regulatory approval, the deal is expected to close by Q1 2009, and marks AIG's first major sale as it tries to pay back up to $60B in government loans.
  • Japan lowers outlook. Using strong language last seen in 2002, Japan's Cabinet Office reported "the economy is worsening," and lowered its assessment of the economy for the third month. Recently released data shows Japan's recession is deepening: Japan's exports fell a record 26.7% in November; sentiment among Japan’s largest manufacturers fell the most in 34 years; the number of jobs available dropped to the lowest level since May 2004; and consumer sentiment is at a record low.

Today's Markets

  • Asia markets closed mostly lower on a grim economic outlook. Nikkei +1.6% to 8,724. Hang Seng -3.3% to 14,622. Shanghai -1.5% to 1,988. BSE -1.7% to 9,928.
  • In Europe at midday, stocks are heading down. London -1.8%. Paris -1.2%. Frankfurt -0.9%.
  • U.S. futures: Dow +0.3%. S&P +0.2%. Nasdaq -0.02%. Crude +0.6% to $42.60. Gold +0.9% to $845.30.

Monday's Economic Calendar

  • No events scheduled
  • Notable earnings before Monday's open: WAG
  • Notable earnings after Monday's close: RHT, TIBX

Seeking Alpha editor Eli Hoffmann contributed to this post.

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