Monday, February 23, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Citigroup moves closer to Nationalgroup. Sources say federal officials and Citigroup (C) are in talks that could result in the government holding as much as 40% of Citigroup's common stock. Bank executives, who proposed the plan to regulators, hope the stake will be closer to 25%. If the discussions move forward, a significant portion of the $45B in preferred shares held by the government would be converted to common shares. The move wouldn't require additional taxpayer money, but would dilute the holdings of current Citigroup shareholders. The move could also put downward pressure on other banks' stocks on increased speculation that some troubled banks will accept similar arrangements. Citi's shares closed below $2 on Friday, an 18-year low, but are +12.8% premarket to $2.20 (7:00 ET).
  • Massive bankruptcy loan in works, just in case,... Advisers to the Treasury have started lining up the biggest bankruptcy loan ever in case General Motors (GM) and Chrysler need it. Sources say officials are speaking to banks and lenders about arranging at least $40B in bankruptcy financing for the troubled automakers, though officials stress they are still trying to find a way to make restructuring work without bankruptcy proceedings and call these latest efforts part of their 'due diligence.' Advisers are also looking for ways to ensure that in the event of a bankruptcy, the government would be paid back before private creditors.
  • ...and more requests for money. General Motors (GM) and Chrysler have told Canadian officials they need as much as C$10B ($8B) to stay afloat, more than twice their estimate from three months ago. Even with aid, GM plans to cut its Canadian workforce to 7,000 by next year from 20,000 in 2005. GM Canada's restructuring plan also warned its pension and healthcare benefits were unsustainable.
  • Big-spending Obama wants to halve the deficit. Obama spearheaded the effort to approve billions of dollars in stimulus spending, but apparently cares about the deficit too. After inheriting a $1.3T deficit from the previous administration, equal to 9.2% of GDP, Obama is expected to promise to cut the deficit in half (to $533B) by the end of his first term. Measures to bring the deficit under control include letting Bush's tax cuts for the wealthy lapse, taxing hedge fund profits at ordinary rates and cutting spending for the war in Iraq. Obama will hold his first 'fiscal-responsibility summit' later today.
  • Changes afoot at RBS. Royal Bank of Scotland (RBS) plans to cut costs by more than £1B ($1.44B) and will achieve some of the savings by scaling back its investment banking and reportedly cutting around 20,000 jobs. The bank's plan is still under wraps, but sources say RBS will split itself into two units over the next three to five years. One unit will include the U.K. and other 'core' businesses, while the second unit will hold operations that are less central to the lender. Sources say RBS is also working to put £200B of assets into a government insurance plan meant to protect lenders from potential losses, will withdraw from some countries in Asia and will discontinue certain product lines. An RBS spokesman declined to comment. Shares +17.3% premarket (7:00 ET).
  • Yahoo plans overhaul. Yahoo (YHOO) CEO Carol Bartz is planning a company-wide reorganization that could be announced as soon as this week. The plan aims to make decision-making at the company quicker, and to streamline the appearance of Yahoo products by consolidating company-wide functions like marketing and product development into individual stand-alone groups. The changes underscore Bartz's belief in a more top-down managerial approach, and follow a pattern she set while CEO of Autodesk where she moved quickly to bring in new execs and more hands-on leadership.
  • More newspaper bankruptcies. Philadelphia Newspapers LLC, owner of the Philadelphia Inquirer and Philadelphia Daily News, filed for bankruptcy yesterday as advertising sales continued to deteriorate. Journal Register Co., the owner of 20 daily newspapers, sought bankruptcy protection the day before, also because of 'slumping advertising revenues.' The filings are further indications of how hard the economic downturn has hit the newspaper industry.
  • Vodafone looks to cut costs. Vodafone (VOD) is reportedly planning to cut hundreds of jobs in the U.K. to bring down costs and protect earnings. CEO Vittorio Colao is pushing managers to eke out more profit from existing operations. The measures will likely be announced tomorrow.
  • Currency defense in Asia. Thirteen Southeast Asian nations, including Japan, China and South Korea, have agreed to pool $120B to be used to defend their currencies amid the deepening global recession. The amount is 50% more than the sum proposed last May. Thailand Finance Minister Korn Chatikavanij said a regional currency agreement is "one of our highest priorities" and vital to "ensuring market confidence in the Asian economies."
  • Economists glum on outlook. A recent NABE survey of business economists shows the U.S. recession is expected to be the worst in over three decades. According to the survey, the economy will shrink by 1.9% this year and by a total of 2.8% in the current downturn. 2009 will see another 3.2M U.S. jobs lost, pushing unemployment to 9%. Eight out of ten economists predicted Obama's stimulus plan would provide a one percentage point bump at most to this year's GDP.

Earnings: Monday Before Open

  • Garmin (GRMN): Q4 EPS of $0.93 misses by $0.05. Revenue of $1.05B (-13.9%) vs. $1.12B. (PR)

Today's Markets

  • China and Hong Kong stocks posted solid gains Monday, but Tokyo lost ground after lender SFCG filed for bankruptcy, stoking concerns more companies will fail. Nikkei -0.54% to 7,376. Hang Seng +3.75% to 13,175. Shanghai +1.96% to 2,306.
  • In Europe stocks opened higher and remain up at midday. London +0.2%. Paris +1%. Frankfurt +1%.
  • U.S. stock futures have moved higher in the overnight session. Dow +1.1% to 7432. S&P +1.2% to 778.50. Nasdaq +1.2%. Crude +0.95% to $40.42. Gold -1.05% to $992. 30-year bond futures -0.65% to 126-25+.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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