Thursday, January 15, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • BoA gets another handout. Bank of America (BAC) is close to finalizing a deal in which the government will provide billions of dollars in aid to help the bank close its Merrill Lynch acquisition. BoA approached the Treasury in mid-December, sources say, warning that Merrill's larger-than-expected Q4 losses posed a problem in the acquisition process. Concerned the deal's failure would further hurt shaky financial markets, the Treasury agreed to help create a plan including additional funds from TARP. (BoA has already received $25B in federal rescue funds.) Details are still being finalized, and an announcement is expected on Tuesday when BoA reports quarterly earnings.
  • Apple's Jobs loss. Apple (AAPL) shares plunged over 7% in after hours trading yesterday on the surprise announcement that CEO Steve Jobs will take a medical leave until June. Only nine days ago, Jobs reluctantly released a public letter saying he had a non-life-threatening hormone imbalance and would continue in his role as CEO as he recovered. In a new, cryptic letter, Jobs called his health problems 'more complex than I originally thought.' COO Tim Cook, respected in the company for his expertise, will take over day-to-day operations. This is his second time at the helm of the company, having taken over when Jobs underwent cancer treatment in 2004. Many investors and analysts are worried Jobs' absence will hurt the company at a time when it's struggling to find the next big thing, though others believe Apple is sufficiently innovative and well-placed in the market to continue without its famed leader. The company will likely face several lawsuits from investors angered over Jobs failure to fully disclose his health problems.
  • Fund custodians under fire for Madoff losses. HSBC (HBC) and UBS (UBS) are potentially facing liabilities of up to $3.2B as the financial custodians of funds in Luxembourg and Ireland with Madoff-related losses. As custodians, the two banks were charged with overseeing the funds and managing cash inflows and payments to investors. A lawyer representing 10 French retail investors and two institutions that face Madoff-related losses at Luxembourg funds said "UBS didn’t do its job of knowing at all times where the assets were, and the same with HSBC," a failure of duty lawyers will have to prove to recoup investor money. The legal firm representing both HSBC and UBS said the funds were created by investors specifically looking to place money with Madoff, and as such the custodian had only 'a very, very, very small role to play.'
  • Lilly reaches drug settlement. Eli Lilly (LLY) agreed to a $1.42B settlement over criminal and civil charges that it illegally marketed Zyprexa, its blockbuster antipsychotic drug, for unauthorized patient use. Lilly was accused of pressing doctors for years to prescribe Zyprexa for children and the elderly, two groups for whom the drug is not federally approved and poses extra risks. Anticipating a settlement last fall, the company set aside $1.4B for that purpose. Lilly will also plead guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act.
  • Black report from Beige Book. Overall economic activity has continued to weaken across nearly all of the Federal Reserve districts, according to the Fed's Beige Book. Retail sales were generally negative, manufacturing decreased, construction weakened, lending remained tight and the labor market continued to soften. As if the report weren't already sufficiently depressing, the Fed noted that a 'substantial number of job reductions in the financial sector have yet to show up in payroll statistics.' (Read the full report)
  • Bartz searches for right MSFT approach. With Bartz as its new CEO, Yahoo (YHOO) is several steps closer to a search deal with Microsoft (MSFT), though sources from both companies said a deal is unlikely to be imminent. In a company-wide meeting, Bartz said she plans to spend considerable time researching whether to sell Yahoo's search business, but added that her 'gut' was to hold on to the business. Although Bartz's appointment is seen as a fresh start for the company, Microsoft is busy dealing with other problems, including cost cutting, that could get in the way of a sale or partnership.
  • Mortgage apps surge. Mortgage applications jumped 15.8% last week, MBA reported, as record-low interest rates spurred a 25.6% increase in refinances from the previous week. Refinances now account for 85.3% of all applications, up from 79.8%. The Average 30-year mortgage rate dropped to 4.89% from 5.07%.
  • Despite mortgage mods, foreclosures soar. Foreclosure filings jumped 81% in 2008 to 3.2M, RealtyTrac says, with one in every 54 U.S. households getting at least one foreclosure notice. "Clearly the foreclosure prevention programs implemented to date have not had any real success in slowing down this foreclosure tsunami," RealtyTrac's CEO James Saccacio said. Activity did slow by 4% in Q4, but jumped 17% in December from November - another signal mortgage moderations helped to temporarily slow, but not stop, foreclosures. On Wednesday, reported a 63.5% jump in foreclosures.
  • Retail sales fall. Retail sales fell 2.7% from November to $343.2B, according to the Census Bureau, and were 9.8% lower than a year ago. Consensus was for -1.2% M/M. Excluding auto sales, December was -3.1% M/M vs. estimates of -1.3%. "We finally saw confirmation of our original expectations that holiday retail spending would prove acutely weak, though even we underestimated the degree of weakness," one economist says of the larger than expected drop in retail sales. "Bad ugly and worse," says another.
  • Import/export prices. Import prices declined 4.2% in December from a month earlier, the fifth straight down month, vs. consensus of -5.3%. Export prices also fell for the fifth consecutive month, declining 2.3%. Import prices -9.3% on the year (fueled by a 47% drop in petroleum); exports -3.2%.

Earnings: Thursday Before Open

  • ASML Holding (ASML): Q4 net loss of €88M ($115.9M), slightly better than consensus of -€104M but a far cry from profit of €193M in the year earlier period. Sales of €494M (-48%). 2009 outlook is grim, as "the severity of the global economic downturn has caused semiconductor manufacturers to delay their investment plans." (PR)
  • JPMorgan (JPM): FQ4 EPS of $0.07 beats by $0.07. Revenue of $17.2B (-0.9%) vs. $18.8B. (PR)

Earnings: Wednesday After Close

  • Xilinx (XLNX): FQ3 EPS of $0.32 in-line. Revenue of $458M (-3.5%) vs. $444M. (PR)

Today's Markets

  • Asia markets closed heavily down following Wall Street losses. Nikkei -4.9% to 8,023. Hang Seng -3.4% to 13,243. Shanghai -0.45% to 1,920. BSE -3.45% to 9,047.
  • In Europe at midday, London -0.1%. Paris -0.4%. Frankfurt -0.05%.
  • U.S. futures: Dow +0.1%. S&P -0.3%. Nasdaq -1.4%. Crude +0.8% to $37.59. Gold +0.5% to $813.10.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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