Monday, March 2, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • If the first two rescues fail, try more money. The government has stepped in to save AIG (AIG) for the third time, giving it a new $30B lifeline as it posts a major quarterly loss today (see details below). The new rescue package approved by AIG's board includes more lenient terms on the government's preferred shares investment and lower interest rates on a government credit line. In exchange for erasing some of AIG's debt, the Fed will get stakes in AIG's American Life Insurance Co. [Alico] and American International Assurance Co. [AIA]. It seems that officials felt it was cheaper to pump more taxpayer money into AIG than to risk letting it fail, but the move shifts the government from a short-term lender to a longer-term equity investor. Shares +9.5% premarket (7:00 ET). (Read the Treasury's press release and term sheet (.pdf))
  • AIG's titanic loss. AIG (AIG) posted an even worse-than-expected Q4 loss of $61.7B, or $22.95 per diluted share. Net loss for the full year was $99.3B, or $37.84B per diluted share. The quarterly results were negatively affected by continued severe credit market deterioration, particularly in commercial mortgage backed securities, and charges related to ongoing restructuring-related activities. (PR)
  • HSBC to raise money, close units. HSBC (HBC) plans to raise £12.5B ($17.7B) in Europe's biggest rights offering to bolster its capital and calm nervous investors after racking up major subprime losses. Net income for 2008 fell to $5.73B, a far cry from consensus estimates of $13.6B and from 2007 net income of $19.1B. The bank will also eliminate 6,100 positions and close most of its 800 branches in the U.S. It will keep its credit card operation in the U.S., which represents about $50B in assets. Shares -20.2% premarket (7:00 ET).
  • Berkshire profit plunges. Berkshire Hathaway (BRK.A) reported Q4 net income fell 96% to $117M ($76/share), and book value per share dropped 9.6%, its worst performance since CEO Warren Buffett took the helm in 1965. In his annual letter to shareholders, Buffett admitted "during 2008 I did some dumb things in investments," referring to a big buy of ConocoPhillips (COP). He also said he's "certain" the economy will be in shambles throughout 2009, "but that conclusion does not tell us whether the stock market will rise or fall." On a more positive note, Buffett said he remains happy with big investments in General Electric (GE) and Goldman Sachs (GS), adding the subsequent drop in market value could help him boost Berkshire's stake. (Read Buffett's letter to investors (.pdf))
  • Battered UBS raises banker pay. Facing pressure from U.S. authorities to reveal client information, from Swiss authorities to keep client identities secret, and from the general public to keep bonus payments in check, sources say UBS (UBS) has decided to raise the base salaries of investment bankers as a way to compensate for sharply reduced bonuses. People close to the matter say the bank has decided not to publicly disclose the changes, which are part of a broader overhaul of UBS' compensation system. Meanwhile, new CEO Oswald Gruebel says it could take at least 2-3 years before UBS is back to making a sustainable profit. Shares -2.4% premarket (7:00 ET).
  • RBS tries to sell Asian assets. Sources say Royal Bank of Scotland (RBS) is in talks to sell its Asian retail and commercial assets to Australia and New Zealand Banking Group (ANZBY.PK) for around £1B ($1.43B). The deal would indicate RBS is moving swiftly ahead with its new plans to sell non-core assets and narrow the bank's focus. A spokesman from Australia and New Zealand Banking declined to comment. RBS -3.2% premarket (7:00 ET).
  • GE dividend gets a haircut. Over the weekend, General Electric (GE) cut its quarterly dividend by 68%, to $0.10/share from $0.31/share. This was GE's first dividend cut since the Great Depression and will save the company $9B annually, but its AAA credit rating remains at risk. As recently as Feb. 5, CEO Jeffrey Immelt said the dividend was safe and wasn't holding the company back, but the depth of the economic downturn has forced GE, along with many other companies, to make rapid about-faces on once-firm policies.
  • Two more banks bite the dust. On Friday, regulators shut two small banks - Heritage Community Bank in Illinois, and Security Savings Bank in Nevada. The FDIC estimates that the combined cost to its deposit insurance fund will be $101.7M. Sixteen banks have failed so far this year, with the pace of bank collapses much faster then in 2008.
  • No aid for eastern Europe. EU leaders refused over the weekend to consider a coordinated bailout package for troubled Eastern European economies, sending the euro down along with local stocks. Angela Merkel said Germany and other EU countries were willing to help Eastern European countries on a case-by-case basis, pointing to Hungary as an example, but warned 'the situation is very different' between affected economies and "we cannot compare Slovakia nor Slovenia, with Hungary."

Earnings: Monday Before Open

  • Allied Capital (ALD): Q4 EPS of -$3.24 misses by $3.46. Will separate the roles of Chairman and CEO effective tomorrow. John M. Scheurer will become CEO, William L. Walton will remain Chairman. (PR I, II)
  • American Capital (ACAS): Q4 EPS of $0.21 misses by $0.43. "It will be a challenge to navigate through this terrible recession, but we have a diverse and high quality portfolio, an entrepreneurial spirit and an exceptional team who are working passionately to rebuild shareholder value." (PR)
  • Central European Distribution (CEDC): Q4 EPS of $1.12 beats by $0.09. "The recent currency weakness in the region has obviously impacted our results... however our core underlying business remains solid and we believe we will emerge out of this crisis as a stronger company with fewer competitors." (PR)
  • DISH Network Corp. (DISH): Q4 EPS of $0.48 misses by $0.01. Revenue of $2.92B (+1.0%) vs. $2.96B. (PR)
  • Reliant Resources (RRI): Q4 EPS of -$1.26 misses by $0.98. Revenue of $2.6B (-2.9%) vs. $2.0B. (PR)

Today's Markets

  • Global recession fears pulled Asian markets down. Nikkei -3.8% to 7,280.15. Hang Seng -3.9% to 12,317.46. Shanghai +0.5% to 2,093.45. BSE -3.2% to 8,607.08.
  • In Europe at midday, markets are following Asia down. London -4.55%. Paris -3.9%. Frankfurt -3.4%.
  • U.S. futures: Dow -2.1%. S&P -2.5%. Nasdaq -2.4%. Crude -5.7% to $42.20. Gold +0.9% to $951.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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