Friday, January 9, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Citi makes Senate friends on cramdowns. In an about-face for one of the nation's largest mortgage lenders, Citigroup (C) dropped its opposition to a Senate bill that would allow judges to order mortgage 'cramdowns,' setting new repayment terms for mortgage holders in bankruptcy court. Aimed at helping millions of homeowners with underwater mortgages, the bill marks a major shift of power from lenders to debtors, leaving banks worried that cramdowns will encourage bankruptcies even among those able to pay. By way of explaining Citi's swift turnaround on the issue, CEO Vikram Pandit cited 'today's exceptional economic environment,' and Citi's opposition was dropped on the condition no future mortgages would be included in the law. Legislators had sought out Citi's support, hoping banking industry support would help the bill be approved more quickly, and Citi was duly applauded for 'being open-minded' and 'playing a major leadership role.' Senate Democrats hope to include the bill in Obama's stimulus plan.
  • Treasury's critics get louder. In the harshest criticism to date of the Treasury's handling of TARP, a congressional oversight panel is releasing a draft report today noting 'significant gaps' in Treasury's ability to track billions of dollars of taxpayer money. According to the report's charges, the Treasury has failed to reveal its strategy for stabilizing the financial system, has done nothing to help homeowners and hasn't answered questions asked by a government watchdog. The report also faults the Treasury for having no standards for measuring the success of the program.
  • Obama forecasts bleak future without stimulus. Obama painted a grim picture of the country's economic future sans immediate stimulus action, saying he doesn't "believe it's too late to change course but it will be if we don't take dramatic action as soon as possible." Without a rapid fiscal stimulus package, he warned, the economy will become 'dramatically worse,' unemployment could reach double-digits and the recession 'could linger for years.' The speech marked the launch of what is expected to be an aggressive campaign to raise public support for the stimulus plan. (Read the full text of Obama's speech)
  • How much will Madoff investors see? Based on the value of Madoff's brokerage, and assets including real estate, boats and jewelry, scammed investors may have access to as little as $1B of Madoff's money to satisfy as much as $50B in claims. The bulk of any refunds would likely come from other clients who withdrew money from Madoff recently, and government payouts (SIPC, tax refunds). According to one calculation, average Madoff victims might eventually get back $0.20 on the dollar. Small, direct Madoff clients could get back much more thanks to SIPC payouts of up to $500,000 per account. Large, indirect Madoff clients might not get much of anything at all. Meanwhile, insurers who cover financial institutions may be on the hook for over $1B to cover the legal costs for investment managers who gave client money to Madoff.
  • Swiss secrets revealed. UBS (UBS) will close 19,000 secret offshore accounts of wealthy U.S. clients under pressure from federal authorities who suspect the IRS is getting ripped off (no!). Balances will transferred to other banks or UBS divisions, or else checks will be sent directly to clients - creating a damning paper trail. Here's how one UBS client puts it: "You can either take that check and throw it in the woods, or deposit it somewhere and get busted." Prosecutors suspect U.S. citizens have about $18B buried in UBS accounts (that's all?).
  • Lehman reaches P-E deal. Lehman Brothers has reached an agreement to spin out its private equity arm into an independent firm. As part of the deal, Lehman will retain a significant interest in the private equity business, called Lehman Brothers Merchant Banking, and South African billionaire Johann Rupert will assume $250 million in unfunded commitments to the fund. The move is part of Lehman's restructuring strategy of retaining a stake in its assets rather than selling them off wholesale in a weak market.
  • Citi takes a hit on petrochem exposure. Citigroup (C) expects to take a $1.4B pre-tax charge in its just-finished Q4 on its exposure to LyondellBasell. Citi ended December with around $2B of gross exposure to LyondellBasell, the world's third-largest petrochemical company whose U.S. operations filed for bankruptcy this week. The charge is mainly to boost loan reserves, Citi said.
  • Jobless claims. Initial Jobless Claims fell to 467,000 last week, down 24K from last week's 491K (revised), and far less than the 545K economists predicted. The 4-week moving average of 525,750 is down 27K. More jobless data is coming later today with nonfarm payrolls due out at 8:30. Economists predict the U.S. probably lost 525,000 jobs in December, capping the biggest collapse in employment since the end of WWII. Unemployment likely jumped to a 15-year high of 7%.

Earnings: Friday Before Open

  • R.R. Donnelley & Sons (RRD): Sees Q4 EPS of $0.51-0.61 vs. $0.78 consensus. Maintains dividend. (PR)

Earnings: Thursday After Close

  • Allscripts-Misys Healthcare Solutions (MDRX): FQ2 EPS of $0.14 beats by $0.01. Revenue of $173M (+4.3%) vs. $181M. Shares +4.2% after hours. (PR)
  • Apollo Group (APOL): FQ1 EPS of $1.12 beats by $0.14. Revenue of $971M (+24.4%) vs. $912M. Shares +8.8% after hours. (PR)
  • Lawson Software (LWSN): FQ2 EPS of $0.10 beats by $0.03. Revenue of $206M (-5.6%) in-line. Shares +2.9% after hours following a 9.6% fall during regular trading. (PR)

Today's Markets

  • Most Asian markets trended lower Friday. India led the losers on reverberation of the Satyam (SAY) scandal. Nikkei -0.45% to 8,837. Hang Seng -0.27% to 14,377. Shanghai +1.42% to 1,905. BSE -1.88% to 9,406.
  • Europe is down a drop at midday; markets are quiet in anticipation of the U.S. employment data. London -0.6%. Paris -0.2%. Frankfurt -0.15%.
  • U.S. stock futures are all lower, but have moved off overnight lows. Dow -0.4% to 8663. S&P -0.3% to 904. Nasdaq -0.5%. Crude -1.7% to $40.97. Gold +0.5% to $859.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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