Wednesday, January 21, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • New prez, new banking plan. President Obama's economic team is rushing to complete a bank-rescue plan that can be twinned with the $825B stimulus package working its way through Congress. Details are still sketchy, but the plan will likely include $50B+ to stem foreclosures, new capital injections for banks and efforts to deal with toxic assets, possibly through the combination of a 'bad bank' and government guarantees. In his inaugural speech, Obama called for 'bold and swift' action to resolve the crisis that cost the U.S. nearly 2.6M jobs last year. Shares of U.S. banks fell around 20% as some investors feared the government might ultimately need to nationalize the hardest hit financial institutions.
  • Geithner grill. Tim Geithner, Obama's pick for Treasury, will be grilled in Congress today on issues ranging from his past tax troubles to his solutions for fixing ailing financial markets. Still, despite Geithner's late payment of almost $50,000 in federal taxes and penalties, even critics concede his experience and ability. In prepared remarks, Geithner calls for 'reform' of TARP to help small businesses and families that are losing their homes and jobs, and says "the ultimate costs of this crisis will be greater if we do not act with sufficient strength now. In a crisis of this magnitude, the most prudent course is the most forceful course." The Finance Committee will vote on his nomination tomorrow.
  • Fiat deal needs federal aid. Fiat announced plans yesterday to take a 35% equity stake in Chrysler in exchange for access to Fiat technology. The deal is not yet final, however, because it's contingent on Chrysler getting an extra $3B from the government. A Chrysler spokeswoman said the $3B in loans is necessary for the company's viability. Assuming the government coughs up the extra money, the deal still presents several challenges. The linkup between the two companies is likely to be loose, without the full synergies of a merger, and Fiat's side of the deal may be cash-free but certainly isn't risk-free. A continued Chrysler slump could cost Fiat money, time and energy it can't afford to waste.
  • BHP closes mine, cuts jobs. Mining giant BHP Billiton (BHP) will cut 6,000 jobs and close a major nickel mine in Australia with a write-off of $1.6B. BHP had set itself apart from other miners recently by maintaining its production levels but a continued slide in commodity prices has forced the company's hand on job cuts and mine closures. CFO Alex Vanselow warned more mines could be closed and open mines could reduce output.
  • IBM sees sunny '09. IBM (IBM) posted better-than-expected Q4 earnings (more details below) and, unlike many of its high-tech rivals, forecasts a rosy 2009. Acknowledging the 'extremely difficult economic environment,' IBM expects continued benefits from growing profitability on its software and services businesses. IBM said customers are continuing to sign up for outsourcing and other services contracts despite the global slowdown. According to CEO Samuel J. Palmisano, the company is 'ahead of pace on our roadmap for $10 to $11 per share' in 2010.
  • Sony's Stringer battles 'old guard.' Tensions are rising at Sony (SNE) over a sweeping restructuring plan announced in December, with details of the plan expected to be announced today or tomorrow. Chairman and CEO Sir Howard Stringer is at odds with an 'old guard' of managers in the company's electronics division. Sources say Stringer wants to cut 16,000 jobs and undergo massive restructuring but has met with resistance. Much of the dispute centers on where the job cuts will fall and in which areas Sony should cut its production costs and rely more on sales of software built into its gadgets.
  • SEC wants its Apple a day. Sources say the SEC has opened a review of Apple (AAPL) over its (non)disclosures of CEO Steve Jobs' health. A review doesn't necessarily mean the commission sees evidence of wrongdoing, and to bring a case the SEC would probably have to show the company tried to benefit by withholding information about an unambiguous diagnosis. An Apple spokesman declined to comment.
  • Citi's penny payments. Citigroup (C) cut its common stock dividend to $0.01 from $0.16 as required by the government bailout it received in November. The dividend cut will save the company around $817.5M per quarter.
  • French bank aid. The French government will provide another €10.5B ($13.6B) in aid to the country's biggest lenders. In exchange, top execs will have to forgo bonuses.

Earnings: Wednesday Before Open

  • Air Products and Chemicals (APD): FQ1 EPS of $0.97 in-line. Revenue of $2.195B (-8.8%) vs. $2.192B. (PR)
  • Coach (COH): FQ2 EPS of $0.67 in-line. Revenue of $960.3M (-1.8%) vs. $959M. (PR)
  • United Technologies (UTX): Q4 EPS of $1.23 beats by $0.01. Revenue of $14.5B vs. $14.8B. (PR)

Earnings: Tuesday After Close

  • Bank of New York Mellon (BK): Q4 EPS of $0.65 misses by $0.04. Assets under custody fall 13% to $20.2T, down 10% from Q3. Securities losses of $1.24B vs. $191M last year and $162M last quarter. Unrealized loss on securities portfolio of $4.1B vs. $2.8B last quarter. (PR)
  • Cree (CREE): FQ2 EPS of $0.20 beats by $0.11. Revenue of $147.6M vs. $141.4M. Sees FQ3 EPS of $0.10-0.13 vs. $0.09 and revenue of $128-135M vs. $139M. (PR)
  • CSX (CSX): Q4 EPS of $0.90 misses by $0.01. Revenue of $2.7B in-line. (PR)
  • Fulton Financial (FULT): Q4 EPS of -$0.58 misses by $0.04. Revenue of $102.3M vs. $150.3M. (PR)
  • IBM (IBM): Q4 EPS of $3.28 beats by $0.25. Revenue of $27B vs. $28.15B. Sees 2009 EPS of at least $9.20 vs. $8.75. (PR)
  • Packaging Corp. of America (PKG): Q4 EPS of $0.30 beats by $0.05. Revenue of $546M (-5.9%) vs. $568M. (PR)

Today's Markets

  • Asia markets closed broadly down. Nikkei -2.0% to 7,902. Hang Seng -2.9% to 12,584. Shanghai -0.5% to 1,985. BSE -3.5% to 8,779.
  • In Europe at midday, London -1.6%. Paris -1.7%. Frankfurt -0.3%.
  • U.S. futures: Dow +1.1%. S&P +1.0%. Nasdaq +0.4%. Crude +1.4% to $41.40. Gold +0.4% to $858.70.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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