Wednesday, January 7, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Fake profits shake Satyam. Satyam (SAY) shares are down over 70% in Indian trading after B. Ramalinga Raju, the company's founder and chairman, resigned and admitted over $1B of Satyam's balance sheet as of Sept. 30 was inflated non-existing cash and bank balances. In a letter to the board, Raju wrote that the inflated profits had accrued over the last several years and that he was making the announcement "with deep regret, and tremendous burden that I am carrying on my conscience." Managing director B. Rama Raju also resigned. As of 6:40am, U.S. shares were down 76.3% premarket as investors brace for the fallout from "India's Enron."
  • FOMC gloomy on inflation, GDP. Minutes from the Dec. 15-16 FOMC meeting were released yesterday and revealed a Fed worried that recovery won't come any time soon: "All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated... [and] projected to decline for 2009 as a whole." Officials expect unemployment to rise significantly into 2010, and for core inflation to slow considerably in 2009 and edge down further in 2010. Notably, Fed officials revived the possibility of setting an explicit target for inflation. FOMC members also discussed increasing emergency loans that have already doubled the Fed's balance sheet to $2.3T in the past year. (Read the FOMC minutes.)
  • Alcoa slashes and sells. Alcoa (AA) will cut over 15,000 jobs, slash capital expenditure by 50% and sell four business divisions as it scales back aluminum production in the face of the global recession. The largest U.S. aluminum producer, Alcoa will also freeze its global salaries and hiring. This is the third cut in as many months as Alcoa struggles to adapt to 'extraordinary times.' Alcoa is due to report FQ4 results early next week.
  • Europe shivers as Gazprom cuts gas supply. Russian energy giant Gazprom has cut all natural gas supplies to Ukraine, a nat-gas hub, in response to a price dispute. As a result, fuel shipments across Europe have been drastically reduced or stopped altogether for the first time in three years. Shortage fears sent U.K. gas prices up as much as 27% yesterday, while EU leaders called the reduced supplies 'completely unacceptable' amid continent-wide cold weather. Romania, Bulgaria, Greece, Macedonia and Turkey were all reporting a complete halt to Russian gas deliveries, while Germany, France and Italy have reported sharp reductions.
  • Suing Kuwait. Dow Chemical (DOW) announced it will sue Kuwait for over $2.5B for pulling out of their planned $17.4B petrochemical joint venture, and mentioned that two other parties have since expressed interest in the JV unit. "We will stay on strategy," CEO Andrew Liveris insisted. "The news of our demise is greatly exaggerated." But some wonder if Liveris is right, pointing to Dow's planned $15B acquisition of Rohm & Haas (ROH); without Kuwait's cash, Dow will have to take on even more debt (and possible face a ratings cut), find a new partner or sell non-core assets to make up the difference. Liveris suggested Dow is prepared to pay the penalty for missing next Monday’s deadline for the closure of the strategic Rohm & Haas takeover, but Dow will then have to pay an extra $100M for every month the deal is delayed.
  • Lenovo shares suspended. Shares of Lenovo (LNVGY.PK) were suspended from trading today amid market chatter that the PC giant is set to announce a major restructuring plan. The company said its shares were suspended pending the release of price-sensitive information, but didn't elaborate. Lenovo's sales are flagging in the face of the global economic downturn, and the world's No. 4 PC seller is losing market share to aggressive, smaller rivals like Acer, Asustek (AKCPF.PK) and Toshiba (TOSBF.PK).
  • BoA cashes in CCB profit. Bank of America (BAC) sold $2.8B of shares in China Construction Bank, or 13% of its stake, at a 12% discount to yesterday's closing price. BoA is trying to take advantage of almost $14B in paper profits from its CCB stake, after paying around $33B to buy Merrill Lynch. CCB fell 8.8% in Hong Kong.
  • Getting tough(er) on financial crimes. The Justice Department is strengthening a task force to counter mortgage-related crimes and ensure federal bailouts amid calls by lawmakers and critics to get more aggressive in fighting financial wrongdoing. Joining the Corporate Fraud Task Force will be officials from the Federal Reserve, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Department of Housing and Urban Development, and TARP's special inspector general.
  • Non-mfg ticks up slightly. Economic activity in the non-manufacturing sector increased by 3.3% in December to 40.6%, according to ISM, better than the 37.0% consensus. This marked the third month in a row of sector contraction, though the rate slowed slightly.
  • Home sales miss consensus. Pending home sales fell a more than expected 4% (vs. -1% consensus), NAR reported, citing mounting job losses and evaporating consumer confidence. NAR chief economist Yun said 2009 will depend heavily on the real-estate weighting of the much-anticipated Obama-boost.
  • Retail sales. Retail Chain Store Sales rose 1.4% from last week, ICSC reported, and fell 0.8% Y/Y. "Bargain shoppers were out in force between Christmas and New Year's taking advantage of retailers' need to clear out seasonal merchandise." According to Redbook, national chain store sales fell 0.6% in the first five weeks of December vs. the previous month and fell 1.3% vs. a year ago.

Earnings: Wednesday Before Open

  • Family Dollar Stores (FDO): FQ1 EPS of $0.42 beats by $0.02. Revenue of $1.75B (+4.2%) in-line. (PR)

Earnings: Tuesday After Close

  • Finish Line (FINL): FQ3 EPS of $0.16 misses by $0.03. Revenue of $257M (-4.4%) vs. $269M. (PR)
  • Global Payments (GPN): FQ2 EPS of $0.60 beats by $0.03. Revenue of $401M (+401%) vs. $405M. Sees 2009 EPS of $2.14-2.21 vs. $2.39. Shares -4.4%. (PR)

Today's Markets

  • Asia markets closed mostly down. Nikkei +1.7% to 9,239. Hang Seng -3.4% to 14,987. Shanghai -0.7% to 1,924. BSE, pulled down by the Satyam scandal, -7.25% to 9,587.
  • In Europe at midday, London -1.4%. Paris +0.06%. Frankfurt -0.9%.
  • U.S. futures: Dow -0.6%. S&P -0.7%. Nasdaq -0.4%. Crude -0.04% to $48.56. Gold -0.15% to $864.70.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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