Wednesday, December 24, 2008

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • SEC supposedly moving against Reserve. The SEC may bring an enforcement action against investment firm Reserve Management Co., Reserve's president Bruce Bent and his sons Arthur Bent III and Bruce Bent II, who are senior executives at the firm, or so the firm says (.pdf). Infamous for its Reserve Primary money-market fund, which 'broke the buck' in September, Reserve's statement declined to specify what the SEC's charges are and said only that the SEC alleges violations of 'certain provisions of the federal securities laws.' Reserve Management is already being sued by investment firm Ameriprise Financial Inc. which alleges that Reserve alerted several major institutional investors early that it was in danger of breaking the buck, and the company has already admitted it gave inaccurate information to investors about when exactly shares dipped below the $1 mark.
  • More banks tap TARP. American Express (AXP) and CIT Group (CIT) are the latest newly-converted bank holding companies to receive TARP funds. AmEx has preliminary approval to tap $3.39B of government funds in exchange for preferred shares and warrants. CIT received preliminary approval for $2.33B, also in exchange for preferred shares and warrants. Both companies declined to comment and didn't elaborate on how they intend to use the money.
  • IndyMac sale soon? The FDIC is making progress in its efforts to find a buyer for IndyMac, sources say, and expects to announce a deal by the end of the year and possibly as soon as today. IndyMac's failure could drain $8.9B from the FDIC's deposit-insurance fund, but the final figure depends on how much the regulator receives for IndyMac's assets in a deal that could potentially involve multiple buyers. An FDIC spokesman declined to comment.
  • Closing in on CDS clearing ops. NYSE Euronext (NYX) pulled slightly ahead yesterday in the race to build a central clearinghouse for the $54T credit-default swaps industry. NYSE Euronext launched a European CDS clearing operation this week, and the SEC granted it a key exemption extending access to U.S. market participants. The SEC has yet to approve rival offerings from CME Group (CME) and IntercontinentalExchange Inc. (ICE). Regulators involved in the process (from the SEC, the NY Fed and CFTC) had said all approvals would be coordinated to avoid any group gaining a competitive advantage.
  • All's well with Wachovia shareholders. Wachovia (WB) shareholders overwhelmingly approved the bank's sale to Wells Fargo (WFC), with 76% voting in favor of the government-brokered deal. Wachovia CEO Robert Steel will take a seat on Wells' board as of January 1. Three other Wachovia directors - John Baker, Donald James and Mackey McDonald - will join Wells's board once the deal closes, most likely at the end of the month.
  • Cerberus caps withdrawals. Cerberus Capital Management has suspended withdrawal requests from investors. Its flagship Cerberus Partners fund plans to pay 20% of year-end withdrawals in cash and freeze remaining investor withdrawals for up to a year. The firm suffered substantial losses in October and November after betting the wrong way on fixed-income markets; after a relatively flat Q3, the firm's $4B fund was down 15.8% as of Nov. 30.
  • Wal-Mart wage settlement. Wal-Mart (WMT) has agreed to pay up to $640M to settle 63 suits alleging it regularly underpaid employees. The agreements, which still need to be approved by a trial judge, will lead to a $250M after-tax charge during FQ4, but will also end years of embarrassing legal battles for Wal-Mart over its treatment of workers. If approved, Wal-Mart will face just 12 remaining cases.
  • GDP unrevised. Final Q3 GDP was in-line with consensus and with the government's preliminary figure with a 0.5% decrease. The main factor was a 3.8% drop in personal consumption (vs. -3.7% consensus). Q4 is expected to be significantly weaker, said White House spokesman Tony Fratto, "because of the credit crisis, the standstill in credit as markets froze up, and the financial market turmoil."
  • Corporate profits fall. Revised corporate profits fell by $18.5B in Q3, down from a preliminary estimate of -$14.6B, vs. a $60.2B decrease in Q2. Domestic profits were down $75.5B, worse than a preliminary estimate of $61.6B, vs. -$31B in Q2.
  • Retail sales. Retail chain store sales increased 2.6% from a week ago, ICSC reported, but declined 0.6% from the same week last year. The 2.6% rise is the biggest weekly gain in at least half a year. According to Redbook, national chain store sales fell 0.7% in the first three weeks of December vs. the previous month, and fell 1.1% vs. a year ago.
  • Home sales down. Existing Home Sales fell 8.6% in November from October to 4.49M/year - far lower than the 4.93M consensus. "The quickly deteriorating conditions in the job market, stock market, and consumer confidence in October and November have knocked down home sales to another level," NAR's Lawrence Yun said. New Home Sales (.pdf) fell as well, dropping 2.9% in November from October to 407K, short of the 415K consensus. Inventory climbed to 11.5 months from 11.1 months, while median price rose to $220,400 from $218.000. "Right now there's a tug-of-war in the home markets," commented PNC's Robert Dye. "On the one side we have falling home prices and falling mortgage rates... but on the other side we've got a rapidly deteriorating economy."
  • Consumers feel better, investors don't. Consumer confidence rose slightly in December as lower prices provided investor relief, the Reuters/University of Michigan Surveys of Consumers reported. The index's reading of 60.1 (vs. 55.3 in November) beat consensus of 58.6. Investors, on the other hand, felt less cheery. The State Street Investor Confidence Index fell 6.5 points to 48.0 in December after a sharp fall in confidence among North American investors. "We witnessed some of the largest reallocations away from risky assets that we have recorded over the last decade."
  • Mortgage apps soar. Mortgage applications rocketed 48% from a week ago, MBA reported, on a seasonally adjusted basis, and rose 124.6% Y/Y. The average interest rate on 30-year fixed-rate mortgages decreased to 5.04% from 5.18%.

Earnings: Tuesday After Close

  • Micron Technology (MU): FQ1 EPS of -$0.72 misses by $0.27. Revenue of $1.4B (-8.7%) vs. $1.32B. (PR)

Today's Markets

  • Asia markets close down on negative economic news. Nikkei -2.4% to 8,517. Hang Seng -0.3% to 14,184. Shanghai -1.8% to 1,864. BSE -1.2% to 9,569.
  • In Europe at midday, London -0.5%. Paris -0.7%. Frankfurt closed.
  • U.S. futures: Dow +0.02% to 8390. S&P +0.1%. Nasdaq +0.25%. Crude -4.2% to $37.33. Gold +0.1% to $839.10.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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