Friday, March 6, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby


  • 'Growing concern' about GM. General Motors' (GM) auditors raised 'substantial doubt' about the company's viability (see 10-K). The 'going concern' warning had been widely expected, but underscored just how desperate GM's situation has become and helped push shares down 15.45%. The disclosures were made in GM's delayed annual report and in a 25-page discussion of the growing risks facing the automaker. Although GM has stated repeatedly that bankruptcy is a non-option and could force a liquidation, sources say top execs are growing more open to the idea of a speedy government-financed bankruptcy reorganization.
  • House okays mortgage cramdowns. The House of Representatives approved a mortgage 'cramdown' bankruptcy bill by a vote of 234-191. The legislation will allow at least 1M Americans to reduce their mortgage payments through bankruptcy, and enables federal bankruptcy judges to lengthen loan terms, cut interest rates and reduce mortgage balances. The bill, which will now go to the Senate, would also permanently increase the FDIC's coverage of bank deposits to $250,000.
  • GE saga spirals. Trying to calm jittery investors, General Electric (GE) CFO Keith Sherin acknowledged a cut in the company's top-tier credit rating was possible but said there's no 'time bomb' in the company's finance arm and that he can't imagine GE's rating being cut beyond the double-A range. Sherin also said GE's capital unit will be profitable for Q1 and for the full year, and the company won't need fresh capital or government aid. After three days of sharp declines, Sherin's comments helped the stock level out to close at $6.66 (-0.45%), a 17-year low. Not everyone was reassured, however: credit-default swaps are now pricing in a 22.5% chance of GE going bankrupt within the next 12 months.
  • Paying back TARP. Representative Barney Frank said U.S. Bancorp (USB) and Northern Trust (NTRS) will return TARP funds. Frank didn't specify a timeline but said Northern Trust will return $1.6B and U.S. Bancorp, which received $6.6B, will return $6B for now. Three smaller lenders - TCF Financial (TCB), Iberiabank (IBKC) and Sussex Bancorp (SBBX) - all decided in the last week to give back TARP money as well. As far as Frank is concerned, "it shows that things are beginning to stabilize. The more money that comes back in the Treasury, the better I like it."
  • SEC hikes fees... The SEC announced that it is more than quadrupling the transaction fees it charges exchanges in response to plunging stock prices. Effective as of April, the SEC will charge $25.70 per $1M in securities sales, up from $5.60. The regulator said the spike is necessary for it to reach its targeted collection amount of $1.02 in FY 2009. John Giesea, president of the Securities Traders Association, said the increase was expected and would not be 'a shock to the system.'
  • ...while FDIC may lower theirs. The FDIC may reduce an emergency fee on banks if Congress increases the agency's borrowing limit from the Treasury. Chairman Sheila Bair said the existing $30B credit line 'provides a thin margin of error' and asked that the line be increased to $100B. Bair's request follows a banking industry outcry over the increased fees, with many executives warning the one-time payment could significantly hurt 2009 earnings. The House of Representatives approved the $100B credit line yesterday, a move the Senate must vote on as well. Senator Chris Dodd plans to introduce a measure raising the credit limit to $100B permanently and to $500B through Dec. 31, 2010.
  • More homeowner winners and losers. Homeowners with Fannie Mae (FNM) mortgages may receive less generous relief than those with Freddie Mac (FRE) mortgages. Under Obama's foreclosure relief plan, Freddie will eliminate the upfront fees it typically charges lenders based on consumers’ credit scores and home equity, while Fannie has left similar charges 'largely unchanged.' Fannie's decision to leaves its fees unchanged means borrowers face new rates 0.06%-0.81% higher than similar loans at Freddie. A Fannie spokeswoman said borrowers can 'shop around' to find a lower rate, as opposed to Freddie borrowers who can only work through Freddie.
  • Yahoo eyes European search. Yahoo (YHOO) is reportedly in talks to make its mobile search product the default software on phones sold by Vodafone (VOD) in Europe. Trying hard to close the gap with Google (GOOG), Yahoo already has partnerships in Europe with wireless operators, and last year closed deal with T-Mobile USA (DT) and AT&T (T). Sources say Vodafone, whose distribution deal with Google expires this year, is talking to other parties as well.
  • Citi visits the dollar store. Citigroup (C) closed at $1.02 yesterday, but not before breaking the $1 mark during trading for the first time in its history. Shares fell as low as $0.97 during intraday trading, a far cry from the once-giant bank's $55.70 peak in late 2006. In the last year, Citi's shares have lost 85% of their value, and in the last two years Citi's market cap has eroded to a little over $5.4B from over $270B.
  • Brown wants global code on banking, tax havens. U.K.'s Gordon Brown has big plans for an economic summit in London on April 2. Convinced he can get the U.S. and G-20 to sign up to a package of ambitious financial reforms, Gordon plans to propose a global code on executive pay and bonuses in the banking sector in an effort to eliminate 'short-term' incentives he believes drove the current crisis. Brown is also expected to push for new international standards on offshore taxes and regulatory havens.
  • Retail sales pick up. Retail sales posted a monthly gain for the first time since September as Americans cautiously began spending again in February. Wal-Mart (WMT) once again put in an excellent showing, posting its best sales performance in nine months (same-store sales +5.1% vs. +2.4% consensus). Luxury retailers, midpriced department stores and clothing chains are still struggling to attract shoppers, while consumers spend more on groceries, countertop appliances and cookware and head to discounters. Other discounters that reported strong gains were BJ's Wholesale (BJ) (same-store sales +11.5%) and Costco (COST) (same-store sales +4%).
  • ECB rate cut. The European Central Bank cuts its key rate by half a percentage point to 1.5%, as expected. ECB chief Trichet told reporters inflation will stay well below 2% through 2010. The ECB now expects the euro area to contract 2.2% to 3.2% in 2009, up from a previous range of 0% to -1%. All signs point to further rate cuts.
  • Jobless claims drop. Initial Jobless Claims dropped to 639K from last week's 670K (revised), less than the 650K consensus. Continuing claims down 14K to 5,106,000.
  • Productivity falls,... Revised Q4 productivity was -0.4%, down from February's estimate of +3.6%. On the year, non-farm productivity was unchanged at +2.8%.
  • ...so do factory orders. January's factory orders -1.9% vs. -3.5% consensus, the sixth consecutive month of declines. Ex-transportation, orders -0.9%.

Earnings: Friday Before Open

  • H&R Block (HRB): FQ3 EPS of $0.20 beats by $0.10. Revenue of $993M (+11.0%) vs. $975M. (PR)

Earnings: Thursday After Close

  • Intrepid Potash (IPI): Q4 EPS of $0.30 in-line. Revenue of $79.5M (+41.2%) vs. $77.7M. "The potash market will guide business decisions in 2009, specifically those related to production and capital allocation." Shares -2% AH. (PR)
  • Marvell Technology Group (MRVL): Q4 EPS of $0.05 beats by $0.04. Revenue of $513M (-35.2%) in-line. Plans to reduce global workforce by 15% - 850 jobs. Shares +9.2% AH. (PR)

Today's Markets

  • Asia markets fell sharply Friday, although losses were more moderate than Thursday's U.S. selloff. Nikkei -3.5% to 7,173, a four-month low. Hang Seng -2.37% to 11,922. Shanghai -1.26% to 2,193. BSE +1.56% to 8,326.
  • Europe stocks surrendered early gains to follow U.S. stocks lower. London -0.25%. Paris -0.9%. Frankfurt -0.7%.
  • Stock futures are flat-to-lower in cautious trade ahead of today's nonfarm payrolls data (calendar). Dow -0.5% at 6600. S&P -0.3% to 684. Nasdaq flat. Crude +2.2% at $44.60. Gold +1.2% to $939. 30-year bond +0.57% to 129-00.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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