Wednesday, March 25, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Shoring up financial regulation. Geithner and Bernanke testified before the House Financial Services Committee yesterday in a hearing about the government's intervention at AIG (AIG), and foreshadowed what may be the largest overhaul of banking rules in the U.S. since the 1930s. Geithner called on Congress for new powers to take over large, failing non-bank financial institutions and said U.S. banking rules need to change to include 'strong oversight' and 'appropriate constraints on risk-taking.' Geithner will testify again tomorrow and offer more details of the administration's plans. Bernanke strongly backed Geithner, and said AIG illustrates the 'intense problem' of trading with an insufficient capital cushion. (Read Bernanke's prepared testimony and Geithner's prepared testimony)
  • Obama courts banks, public. Obama will meet this week with executives from 12 major U.S. banks to discuss plans for reviving the economy. An administration o fficials says the chiefs of Citigroup (C), JPMorgan Chase (JPM) and Goldman Sachs (GS) will likely attend the March 27 meeting, along with executives from Morgan Stanley (MS) and PNC Financial (PNC). Obama is expected to stress the need for to look beyond short-term interests and focus on the larger goal of reviving the U.S. economy. Obama also held a televised news conference last night to sell the American public on his $3.55T budget and a bank bailout plan. He said recovery will take time, that his budget is inseparable from the recovery, and that the White House has "a comprehensive strategy designed to attack this crisis on all fronts." (Read excerpts of Obama's remarks and a live-blog of the conference)
  • Chinalco deal clears hurdle. Chinalco (ACH) won approval from Australia's competition regulator, clearing a hurdle for its planned $19.5B investment in Rio Tinto (RTP). The Australian Consumer and Comp etition Commission says the proposal is unlikely to affect the iron ore, copper, alumina and bauxite markets. Australia’s Foreign Investment Review Board is also reviewing the proposed deal and will provide a recommendation to Treasurer Wayne Swan. Swan will then make a final decision whether the deal is in Australia’s national interest.
  • Berkshire ratings outlook lowered. S&P lowered its ratings outlook for Berkshire Hathaway (BRK.A) to negative from stable, pointing to the drop in insurance operations capital caused by stock market declines. If the value of the company's equity holdings stabilizes or improves in the next 12 months or if the firm rebuilds its capital position in the next 1-2 years, S&P will change its outlook back to stable. If capital falls further, S&P could cut Berkshire's ratings by one notch. Earlier this month, Fitch cut its ratings on Berkshire, saying no financial-oriented holding company should be rated AAA due to significant market volatility.
  • MUFG, Morgan may merge unit. Sources say Mitsubishi UFJ Financial Group (MTU) will likely merge its brokerage firm unit with Morgan Stanley's (MS) Japan unit, ending up with a 60% stake in the combined entity. A merger, which could be announced as early as this week, would create the nation's third largest brokerage firm in terms of operating revenue.
  • FedEx threat hinges on labor law changes. FedEx (FDX) has threatened to cancel the purchase of billions of dollars worth of new Boeing (BA) cargo planes if Congress passes legislation making it easier for unions to organize, saying the legislation could cripple the company and eliminate the need for extra planes. A FedEx spokesman said its contract with Boeing to buy 15 planes, with an option to buy an additional 15, includes language allowing the company to cancel the order if lawmakers approve the changes in labor law. The threat is the latest move in an increasingly bitter battle involving both rival United Parcel Service (UPS) and the Teamsters union. A Boeing spokeswoman said the company h adn't yet added the 30 planes to its order backlog because of the language in the contract.
  • Blockbuster branches out. Blockbuster (BBI) is pushing out beyond its store locations and will let TiVo (TIVO) subscribers download movies to their home televisions from its online movie library. Blockbuster's On Demand system will join online TiVo offerings from rival Netflix (NFLX) and Amazon (AMZN). As part of the deal, Blockbuster's stores and online shop will sell TiVo's digital video recorders. Financial terms of the deal were not disclosed. BBI +4.1% premarket (7:00 ET).
  • T-Mobile's high-speed plans. T-Mobile USA (DT) plans to double its high-speed wireless network coverage to reach a potential 200M wireless users by the end of 2009. Trailing rivals like Verizon Wireless (VZ), AT&T (T) and Sprint Nextel (S), T-mobile will add 100 cities to its current 3G network of 130 cities. It will also sell a WebConnect Laptop Stick, a high-speed data device to connect laptop computers to its wireless network.
  • HSBC may cut jobs, offices. HSBC (HBC) may eliminate 1,000 jobs in the U.K. and close some offices, according to a person familiar with the situation. The 'cost-conscious' bank, Europe's biggest by market value, cut 500 U.K. jobs in November and 1,100 positions at its global banking and markets unit in September. An HSBC spokesman declined to comment.
  • Porsche gets loan for VW stock buys. Porsche said it secured the €10B ($13.5B) loan it needs to fund purchases of Volkswagen (VLKAY.PK) stock. As of Jan. 5, Porsche owned 50.8% of Volkswagen and wants to increase that stake to 75% this year. Although the loan facility took longer-than-expected to arrange because of "the extremely difficult global economic environment and the turbulences in the bond market," Porsche said it has a 'framework agreement' to extend the accord to €12.5B in the coming weeks.
  • Romania gets bailed out. Romania got a €20B ($27B) loan from the IMF, EU and other lenders, making it the sixth eastern European nation to be bailed out. The package should "more than cover Romania’s financing needs this year."
  • Retail sales. Retail chain store sales fell 0.4% from a week ago, according to ICSC, and declined 1.4% Y/Y. Michael P. Niemira, ICSC chief economist, sai d that "although there are signs that consumer confidence is improving in recent weeks, consumer spending continues to struggle - though not any worse than earlier in the year." Redbook reported national chain store sales were flat in the first three weeks of March, and fell 1.3% Y/Y.
  • Light at the end of the tunnel? The State Street Investor Confidence Index fell 2.7 points to 70.0 in March, but "there is an increasing sense among institutional investors that the rapid freefall of the real economy is approaching its end."
  • Richmond Fed Index rises. The Richmond Fed's Manufacturing Index rose to -20 in March from February's -51, while shipments jumped to -15 from -56. Its employment index rose to -28, and expectations wer e generally on par with February, rising 3 points to 24.
  • Mortgage apps rise. Mortgage applications rose 4.2% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages decreased to 4.63% from 4.89%.
  • Home prices rise (.pdf). FHFA's House Price Index (.pdf) showed U.S. home prices rose 1.7% in Jan. M/M, bringing the twelve-month total to -6.3%. January's small uptick suggests prices may stop their long descent and push consumers from the sidelines into the purchase of a home.

Earnings: Tuesday After Close

  • Jabil Circuit (JBL): FQ2 EPS of $0.13 beats by $0. Revenue of $2.89B (-5.6%) vs. $2.81B. Sees FQ 3 EPS of -$0.08 to $0.08 vs. consensus of $0.11. Warns goodwill impairment charge may further cut into earnings. (PR)

Today's Markets

  • Asian markets were mixed following overnight weakness on Wall Street. The Nikkei was down a touch (-0.1%) to 8,479.99. Hang Seng -2.1% to 13,622.11. Shanghai -2.0% to 2,291.55. BSE +2.1% to 9,667.90.
  • In Europe, stocks started up but have since lost their footing. London -0.5%. Paris -0.3%. Frankfurt -0.2%.
  • U.S. futures: Dow +0.3%. S&P +0.3%. Nasdaq +0.5%. Crude -2.0% to $52.89. Gold -0.3% to $920.90.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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