Monday, March 9, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Merck merger. Merck (MRK) announced this morning it will buy Schering-Plough (SGP) for $41.1B. The cash-and-stock transaction represents a 34% premium to Schering-Plough's closing price on Friday. Merck CEO Richard T. Clark says the merged company will "benefit from a formidable research and development pipeline, a significantly broader portfolio of medicines and an expanded presence in key international markets, particularly in high-growth emerging markets." SGP +22% premarket (7:00 ET).
  • Lloyds cozies up to U.K. gov't. Lloyds Banking Group (LYG) announced on Saturday that it will receive state guarantees covering £260B ($367B) of its toxic assets in exchange for giving the U.K. as much as a 77% stake in the bank. The move will massively reduce Lloyd's risks and raise its Tier 1 capital ratio to 14.5% from 6.4%. The news sent shares tumbling, as analysts welcomed the risk protection but said the deal is more dilutive than expected and relatively expensive. Lloyds will begin meeting with investors today to drum up support for the plan. Shares -8.6% in London (7:00 ET).
  • U.S. advocates global stimulus. The U.S. will push for a global stimulus at a G-20 summit in London next month, as economic adviser Lawrence Summers says "the world needs more global demand." The White House wants to see world leaders boost emergency government spending as markets look for a unified plan of action from the world's most economically powerful nations. However, the push for a global stimulus puts the U.S. at odds with France, Germany and other EU nations that want to focus on creating new rules to govern global financial markets. In particular, Germany's Merkel has expressed skepticism that heavy government borrowing can solve a global crisis caused by irresponsible behavior from both the private and government sectors.
  • Airlines cut back. Delta Air Lines (DAL), American Airlines (AMR) and United Airlines (UAUA) are cutting seating capacity on routes to London, Tokyo and other international business centers by as much as a third in response to a marked fall in international-travel demand. International fares have typically been more profitable for big airlines than domestic flights which face competition from discount airlines. However, the weakening global economy has turned international flights "from the bread-and-butter to the weakest part of the business," says analyst Michael Derchin. "They’re cutting to keep fares from completely collapsing."
  • BNP reaches new Fortis deal. BNP Paribas (BNPQY.PK) struck a deal over the weekend to buy the majority of Fortis Bank from the Belgian government, along with an interest in Fortis' insurance business, in exchange for official guarantees against losses. BNP will take a 75% stake in Fortis' Belgian banking unit and take full control of Fortis' Luxembourg banking unit for €2.88B ($3.64B) in stock. The French bank will also take a 25% stake in Fortis' Belgian insurance unit for €1.375B in cash. Shares -1.3% in Paris (7:00 ET).
  • HSBC takes a hit on loan loss concerns. Shares of HSBC (HBC) fell past a 12-year low in Hong Kong trading on concerns about more bad loans at the bank's U.S. unit. Last week HSBC Chairman Stephen Green said the bank's 2003 purchase of Household International, which led to billions of dollars of losses as U.S. real estate collapsed, was a mistake that he regretted. Shares closed -24% in Hong Kong, and are -11.2% premarket (7:00 ET).
  • Oil responds to possible OPEC cut. Oil prices are rising as OPEC's September production cuts eat into inventories at the rate of 1.4M barrels/day. A Bloomberg survey shows analysts expect OPEC to limit exports again when the group meets on March 15, and OPEC ministers from Venezuela, Algeria and Qatar said stricter limits may be needed at the March summit. But some analysts disagree, saying existing cuts have helped put a floor beneath oil prices and pointing out that any additional cuts need to be weighed against the possibility that over-tightening the market in an already-weak economy could further delay a recovery.
  • It's a small(er) world after all. The World Bank says the global economy will probably shrink for the first time since World War II and trade will fall by the most in 80 years. In a new report, the World Bank expects global growth to be 5% below its potential, with developing nations bearing the brunt of the contraction. East Asia will be hit the hardest by the fall in global commerce, global industrial production could fall 15% from 2008 levels and action must be taken "to avoid social and political unrest."
  • Japan sees current account deficit. Japan posted its first current account deficit in 13 years in January as exports collapsed amid the deepening global recession. The deficit was ¥172.8B ($1.8B), the biggest shortfall since January 1985 and far larger than the ¥15.3B gap expected by economists.
  • China to lower export taxes. Facing a sharp drop in external demand, China will gradually cut export-related taxes to 'zero' and increase financial support for exporters. China's exports fell 17.5% in January and port container volume in February was down 17% from the year before.

Earnings: Monday Before Open

  • American Oriental Bioengineering (AOB): Q4 EPS of $0.25 in-line. Revenue of $96.3M (+68.1%) vs. $88.1M. (PR)

Today's Markets

  • Asian markets closed broadly down on global recession fears, with Hang Seng leading the way (-4.8% to 11,344.58). Nikkei -1.2% to 7,086.03. Shanghai -3.4% to 2,118.75. BSE -2.0% to 8,160.40.
  • In Europe at midday, London -1.1%. Paris -1.7%. Frankfurt -1.1%.
  • U.S. futures: Dow -1.7%. S&P -1.7%. Nasdaq -1.3%. Crude +1.0% to $45.96. Gold -0.6% to $937.10.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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