Tuesday, March 31, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • GM needs quick action. Two days on the job, General Motors (GM) CEO Fritz Henderson acknowledged a strategic bankruptcy with government backing would be less risky than a regular bankruptcy filing, though the company would prefer to avoid bankruptcy altogether. With a 60 day deadline to drastically reduce its debt, Henderson said "we need to do more and do it faster." Bondholders, who were partially blamed for blocking a more sweeping restructuring, held a conference call yesterday to discuss the next steps in GM's debt restructuring. Though 'very disappointed' that the government and GM have had no real dialogue with them, bondholders appeared willing to make a substantial debt-for-equity swap if there's a viable business plan. Underscoring the urgent situation, GM may report tomorrow that March U.S. sales fell by as much as 48%, according to analysts' forecasts.
  • Chrysler's impossible goal. Chrysler, which has 30 days to complete a partnership with Fiat and win more union concessions, may face an 'impossible goal.' To meet those requirements, Chrysler needs help from lenders who have little incentive to get involved since they would be the first to be paid back in the event of a bankruptcy. Moreover, even the White House auto task force suggested Chrysler might be better off by reorganizing in court. Chrysler and Fiat said yesterday they have a framework for the alliance agreed upon in principle in January, although 'substantial hurdles' remain. Fiat would initially take a 20% stake in Chrysler, and ultimately be limited to a 49% stake. In the process, Cerberus Capital Management will likely lose its entire stake in the automaker. Chrysler also has a tentative agreement with union workers to reduce labor costs, but Obama's task force said the agreement doesn't go far enough.
  • World Bank creates $50B trade fund. World Bank President Robert Zoellick announced a $50B global trade liquidity program and urged G-20 leaders to fight a sharp drop in trade as a result of the global economic downturn. Zoellick offered few details about the program, but said the drop in world trade was being exacerbated by a lack of trade credit, which allows importers and exporters to settle accounts. The World Bank forecasts global trade will fall 6% this year, the largest decline in 80 years.
  • Eli Lilly gets hungry. Eli Lilly (LLY) CEO John Lechleiter is 'hungry again' now that ImClone Systems has been absorbed into the company, and said Lilly is looking for acquisitions of as much as $15B. Lechleiter wants to diversify Lilly's product line-up to compensate for revenue declines from drugs that will face competition from cheaper generics over the next few years. The company ruled out a mega-merger, opting instead for incremental growth.
  • UBS gets a break. UBS (UBS) won the dismissal of four lawsuits brought against it by investors who bought auction-rate securities from the Swiss bank. The judge ruled that the plaintiffs couldn't sue for out-of-pocket damages since they'd already recouped their money from a settlement UBS reached in August with state and federal regulators. This marks the first decision to dismiss consolidated auction-rate securities suits against banks, which is good news for other banks facing pending cases including Citigroup (C), JPMorgan Chase (JPM) and Merrill Lynch (BAC). Shares +4.6% premarket (7:00 ET).
  • Barclays goes it alone. Barclays (BCS) opted not to participate in the U.K.'s insurance plan, betting instead on its ability to survive the current downturn without government support. Rivals Royal Bank of Scotland (RBS) and Lloyds Banking Group (LYG) both chose to participate in the program, and ceded large controlling stakes to the government in exchange. The move signals confidence on the part of CEO John Varley and Chairman Marcus Agius, whose board seats are up for re-election at an April 23 shareholder meeting. Shares +6.8% premarket (7:00 ET).
  • Disney inks YouTube deal. Disney (DIS) reached a deal to offer sports highlights, TV clips and other short videos for distribution via YouTube (GOOG). The videos will become available beginning in May, and Disney will have the option to sell its own advertising inventory within those channels. It's unclear whether Disney is still considering a separate deal with Hulu (GE, NWS).
  • MSFT settles patent dispute. After more than a year, Microsoft (MSFT) and TomTom settled their patent dispute. TomTom will pay Microsoft an undisclosed amount for use of eight Microsoft car navigation and file management system patents. Microsoft will receive coverage under four TomTom patents for which no payment is required.
  • Lennar loses on lagging housing market. Lennar (LEN) reported a wider-than-expected Q1 loss (see details below) as the housing downturn cut orders by 28% and forced a writedown on land. New orders continued to fall in January and February even as mortgage rates fell to historic lows. The company's cancelation rate reached 21% while home deliveries fell 40% to 2,142. Lennar wrote down $10.2M for 1,100 home sites it no longer intends to build on.
  • Japan's new stimulus. Japanese Prime Minister Taro Aso formally ordered another stimulus package to try and jolt the country's economy back to life. The new package is expected to include at least ¥10T ($102.8B) in spending and tax cuts. Japan appears to be experiencing its deepest slump since WWII.
  • U.K. consumer confidence rises. U.K. consumer confidence rose unexpectedly for the second month, an early sign that government stimulus efforts might be working.

Earnings: Tuesday Before Open

  • Lennar (LEN): FQ1 EPS of -$0.98 misses by $0.34. Revenue of $593M (-44.2%) vs. $530M. (PR)

Today's Markets

  • Asian markets were mixed. Nikkei -1.5% to 8,110. Hang Seng +0.9% to 13,576. Shanghai +0.6% to 2,373. BSE +1.5% to 9,708.
  • European markets got off to a good start. London +3.0%. Paris +1.7%. Frankfurt +1.6%.
  • U.S. futures: Dow +1.0%. S&P +1.0%. Nasdaq +1.1%. Crude +2.7% to $49.71. Gold +0.4% to $919.10.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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