Wednesday, March 18, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • AIG bonus uproar continues. According to a letter New York Attorney General Andrew Cuomo sent to Congress, among the recipients of a so-called retention bonus paid to AIG employees, eleven people no longer work for the insurer and 73 employees received bonuses of $1M or more. As public outcry over the payments continues, Geithner told congressional leaders that the U.S. will recoup executive bonuses paid by AIG (AIG) by deducting the amount from the next $30B aid installment. He also said the government will accelerate the 'wind down' process of restructuring AIG. A bipartisan group of Senators has proposed taxes totalling 70% on bonuses at AIG and other firms receiving emergency federal funds. (Read Geithner's letter to Congress (.pdf))(Read Cuomo's letter to Congress (.pdf))
  • China cans Coke bid. China has rejected Coca-Cola's (KO) $2.3B bid for China Huiyuan Juice Group (CYUNF.PK), arguing the biggest foreign takeover of a Chinese company would have been 'negative for competition.' The Ministry of Commerce was concerned Coca-Cola might have used its 'dominant position' in the carbonated drinks market to raise prices and limit choices for Chinese consumers while making it more difficult for smaller rivals to survive. The decision will block Coca-Cola, which already controls more than 50% of China's soda market, from expanding its share of China's fast-growing juice market.
  • Sun shines on potential IBM deal. IBM (IBM) is reportedly in talks to buy Sun Microsystems (JAVA) in a deal that would boost IBM's presence in software, on the internet and in finance and telecommunications markets. Both firms make computer systems that aren't reliant on Microsoft's (MSFT) Windows software and their product lines are less dependent than rivals' on Intel's (INTC) microprocessor technologies. If a deal goes through, IBM will likely pay at least $6.5B in cash for the acquisition, a premium of over 100% on Sun's closing price yesterday. Sources say talks could still fall apart, but a deal could go through as early as this week. Premarket: IBM -2.1%, JAVA +62.4% (7:00 ET).
  • NJ sues Lehman execs. New Jersey Attorney General Anne Milgram has filed a lawsuit against 18 Lehman Brothers executives, saying the firm's misrepresentations resulted in $118M in losses for the state. Among the executives names are CEO Dick Fuld, former CFO Christopher M. O'Meara and former president Joseph M. Gregory are named. The state is also suing Ernst & Young, Lehman's longtime accountants, for allowing Lehman to improperly account for and disclose its true financial condition.
  • Wagoner wavers on bankruptcy view. General Motors (GM) CEO Rick Wagoner has softened his stance on the possibility of bankruptcy, suggesting the company could possibly emerge from a Chapter 11 filing. While Wagoner maintains that '99%' of GM's problems can be solved without a bankruptcy that would be expensive and difficult, he conceded the possibility that bankruptcy could work. GM is currently in talks with the United Auto Workers union over labor costs and with bondholders about reducing debt; signaling that bankruptcy isn't completely off the table could strengthen GM's bargaining power in both of those negotiations.
  • Patent kindles dispute. Discovery Communications (DISCA) has filed a lawsuit against Amazon (AMZN), claiming the Kindle e-book reader violates a patent Discovery registered in 2007. The company is suing for damages and future royalties, but will not try to halt sales of the popular device.
  • Tax break for Madoff victims. The IRS announced unprecedented tax relief for victims of Ponzi schemes, allowing many of those affected to deduct up to 95% of their losses immediately. The move is a significant relaxation of longstanding limits on how much tax relief can be claimed by victims of investment scams. In broad terms, Ponzi scheme victims who aren't suing to recover their losses can deduct up to 95% of their losses less any recoveries from the SIPC. Individuals pursuing third-party recoveries can deduct 75% of relevant investments. Victims will also be able to make deductions for phantom income accrued over the years in addition to their principal investments.
  • Sony slashes dividend. Sony (SNE) cut its dividend payment by 15% to ¥42.5 ($0.43) per share vs. the ¥50 it had previously projected. The reduced payment will help Sony conserve cash as it tries to cope with "the deterioration of the global business environment." Sony has projected a record ¥260B operating loss for this fiscal year.
  • iPhone software update. Apple (AAPL) updated its iPhone software, providing developers with a range of new tools to make programs for the company's App Store, and giving developers more flexibility in how they can charge users for content. The update also includes several features phone users said were long overdue, including the ability to copy and paste text. The updates underscore how software has become an increasingly important way for Apple to continue profiting from the iPhone and adds to speculation that Apple plans to launch a new iPhone model this year.
  • Nokia knocks down job count. Trying to save money as demand slumps, Nokia (NOK) announced plans to cut 1,700 jobs, or around 3% of its workforce. The company will also stop designing phones for the Japanese market. The moves are part of Nokia's efforts to trim its annual operating expenses by €700M ($907M) by the end of 2010.
  • More layoffs at Caterpillar. Caterpillar (CAT) plans to fire 89 people, lay off 2,365 workers and close a plant in Georgia as demand for its construction equipment tumbles. Most of the layoffs are in addition to the 22,100 cuts Caterpillar announced in January. The company has said it may post a quarterly loss, its first in 16 years, and sales could drop 22% in 2009 to $40B.
  • Retail sales dip. Retail chain store sales decreased 0.1% from a week ago, ICSC reported, and declined 1.4% Y/Y. ICSC chief economist Michael P. Niemira noted "the sales pace weakened over the last week as colder temperatures and wetter conditions around the nation slowed customer traffic." According to Redbook, national chain store sales were flat in the first two weeks of March as "sales picked up modestly in the second week, but remained below plan for the week and month to date." Sales fell 1.1% Y/Y.
  • Housing starts jump. Housing Starts climbed 22.2% in February to 583K from January's 477K (revised) vs. 450K consensus. Building permits +3% to 547K vs. 500K consensus. Completions +2.3% to 767K. It's unclear whether the jump is a sign of healing, or a troublesome indication of the failure to prune inventories. However, considering housing starts hit record low levels (the worst since 1960) just last month, Barry Ritholtz said it's hardly a sign of a turnaround. He noted that gains were mainly in multi-family units; single-family starts were little changed.
  • Mortgage apps rise. Mortgage applications rose 21.2% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages decreased to 4.89% from 4.96%.
  • PPI inches up. Producer Price Index +0.1% in February from the month before vs. consensus of +0.4%. Core PPI +0.2% vs. +0.1%. Year-over-year PPI -1.3% vs. +0.1%, and core +4.0% vs. +3.8%. Led by higher energy prices, this marked the second month in a row of inflation at the wholesale level.
  • BoJ holds rates steady. Bank of Japan kept its interest rates unchanged at 0.1% and will purchase more government bonds to ease financing conditions.

Earnings: Wednesday Before Open

  • General Mills (GIS): FQ3 EPS of $0.79 misses by $0.09. Revenue of $3.5B (+3.9%) in-line. (PR)

Earnings: Tuesday After Close

  • Adobe (ADBE): FQ1 EPS of $0.45 beats by $0.01. Revenue of $786M (-11.7%) vs. $784M. "We believe the major market trends driving our business remain intact, and we will continue to focus on innovation and investing in new growth businesses to increase the strategic value we provide our customers." (PR)
  • Darden Restaurants (DRI): FQ3 EPS of $0.80 beats by $0.12. Revenue of $1.8B (-0.7%) in-line. Sees full-year EPS of $2.66-$2.74 vs. $2.52. (PR)
  • Guess? (GES): Q4 EPS of $0.67 beats by $0.16. Revenue of $561M (+9%) vs. $529M. Sees Q1 EPS of $0.26-0.30 vs. $0.34 and revenue of $425-445M vs. $481M. (PR)

Today's Markets

  • Asia markets closed with another day of solid gains, despite correcting after a bullish open. Nikkei +0.29% to 7,972. Hang Seng +1.86% to 13,117. Shanghai +0.24% to 2,224. BSE +1.27% to 8,977.
  • Stocks are higher in Europe, with the exception of the U.K. which was spooked by worse than expected joblessness and talk the IMF will revise its U.K. growth forecast lower. London -0.3%. Paris +0.7%. Frankfurt +1.2%.
  • Stock futures are lower after an unremarkable overnight session. Dow -0.6% to 7309. S&P -0.6% at 771. Nasdaq -0.3%. Crude -1.4% to $8.40. Gold -0.6% to $911.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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