Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

• Treasury takes GMAC stake. The Treasury will buy a $5B stake in GMAC (GKM), owned by General Motors (GM) and Cerberus, and give GM a $1B loan so the automaker can help the lender reorganize as a bank holding company. The much-needed injection of capital will help GMAC expand its lending after a cash shortage earlier this year forced it to limit loans only to people with the best credit. GMAC, which financed around 35% of GM's retail customers last year, promised to put the funds to work 'right away.' This is good news for GM, as GMAC's failure could mean the loss of up to 40% of GM's 6,500 U.S. dealerships. (Read the Treasury's press release)
• Madoff moves to court. The federal court in Manhattan will begin hearings on the Madoff scam on Wednesday in a trial that is sure to be followed closely by both investors and an angered public. Louis Stanton, the judge handling the civil case against Madoff, is being urged to consider expanding the protections normally accorded to investors in the face of the 'devastating' circumstances of Madoff's scam. The civil case comes in addition to a federal criminal case accusing Madoff of securities fraud. Congress will begin its own investigation starting Monday as to why the SEC failed to discover Madoff's Ponzi scheme.
• Dow struggles after JV deal scrapped. Dow Chemical's (DOW) stock fell over 17% yesterday after Kuwait backed out of a planned joint venture, while Rohm & Haas (ROH), Dow's acquisition target, fell over 16%. Dow will now have to greatly increase its debt to proceed with the Rohm acquisition. As such, S&P cut Dow's credit rating to two notches above junk territory, while Moody's cut Dow's rating to three notches above junk. Dow may also be forced to cut its dividend as its borrowing costs could potentially soar to $2B from $500M. Alternately, the company could try to renegotiate the price of the Rohm deal or cancel the acquisition altogether.
• Merrill relies on legal suit. Merrill Lynch (MER) is suing Reliant Energy (RRI) for cancelling a $300M line of credit, claiming Reliant defaulted on an additional agreement that guarantees the power company's collateral obligations to trading partners. Reliant has said it believes it has the right to terminate the contract without triggering a default of the additional agreement, and has promised to fight Merrill's suit.
• Kerkorian speeds away from Ford. Billionaire investor Kirk Kerkorian has finished selling off his remaining shares in Ford (F) at a loss that could reach into the hundreds of millions of dollars. Earlier this year, Kerkorian's Tracinda Corp. held a 6.5% stake in the automaker, buying its stake at an average price per share of $7.10 and boosting investor enthusiasm in the stock. Since then, Ford's shares have continued to face downward pressure, and closed at $2.22 on Monday.
• BoJ may buy bad loans. The Japanese government and the Bank of Japan are considering a ¥10T ($110.3B) plan to buy bad loans and other financial assets from banks, the Japanese daily Sankei Shimbun reported. The program could be up and running by the end of March.
• Battered banks. U.S. banks and savings institutions are headed for their first overall quarterly loss since 1990, despite unprecedented federal help. Market conditions have severely deteriorated since Q3's combined profit of $1.7B, a 94% drop from the year before. "The earnings power for this industry has absolutely collapsed."
• Manufacturing tumbles. Manufacturing in the U.S. Midwest fell to its lowest in almost 12 years in November as steel and machinery production declined. The Chicago Fed's Midwest factory index dropped 1.6%, and fell 10.8% vs. a year ago. Bucking its recent trend was auto production, up 1.1%. More bad news came out of Dallas, as factory activity deteriorated further in December, according to the Texas Manufacturing Outlook Survey. New orders and capacity utilization fell precipitously, with declines outnumbering increases 5 to 1.

Today's Markets

• Asia markets closed mixed. Hang Seng -0.65% to 14,235. Shanghai -1.0% to 1,833. BSE +1.9% to 9,716. Nikkei +1.3% to 8,860. Closed tomorrow, the Nikkei ended 2008 with a 42% loss.
• In Europe at midday, London +0.8%. Paris +0.7%. Frankfurt +1.6%.
• U.S. futures: Dow +0.25%. S&P +0.4%. Nasdaq +0.6%. Crude -2.2% to $39.11. Gold -0.4% to $871.50.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:55 Redbook
  9:00S&P/Case-Shiller Home Price Index
  9:45 NAPM Chicago Business Barometer
  10:00 Consumer Confidence
  11:00 Kansas City Fed Mfg Survey
  3:00 PM Farm Prices
  5:00 PM ABC Consumer Confidence Index

Seeking Alpha editor Eli Hoffmann contributed to this post.

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