Monday, March 30, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

**Due to a technical glitch, an archived edition of Wall St. Breakfast was resent to some subscribers Sunday morning. We apologize for the error and any confusion it may have caused.**

  • Auto aid shake-up. The White House auto task force rejected the turnaround plans of both General Motors (GM) and Chrysler, and warned both could be put through bankruptcy.
    ~On the request of Steve Rattner, head of the auto task force, Rick Wagoner will step down from his role as CEO of General Motors immediately and will be replaced by COO Fritz Henderson. Wagoner had said as recently as March 19 that he doesn't plan to resign. Instead of granting GM's request for up to $30B in loans, the company will reportedly get enough federal aid to restructure over the next 60 days, though officials maintain the company can bounce back if it initiates necessary changes. Premarket: GM -13% (7:00 ET).
    ~Sources say Chrysler CEO Bob Nardelli has not been asked to resign, but that Chrysler has been told it must complete a deal with Italian automaker Fiat. The company will have 30 days to complete the transaction and, if a deal is reached, could receive as much as $6B from the government. If talks fail, the company would be allowed to collapse. (Read the memos on GM's viability (.pdf) and Chrysler's viability (.pdf), and the auto restructuring fact sheet (.pdf))
  • Fannie/Freddie may get new role. The Federal Housing Finance Agency said it's looking at ways that Fannie Mae (FNM) and Freddie Mac (FRE) could help revive the market for 'warehouse loans,' or loans made to mortgage banks. Low interest rates have created a surge in mortgage applications but mortgage banks are having a hard time keeping pace with demand because of tight credit. Regulators have asked representatives from mortgage banks to come up with a detailed plan of how Fannie and Freddie could ease credit access. This is the latest sign that the two mortgage giants are increasingly viewed as tools to implement government policy rather than corporations focused on shareholders.
  • Renewed BHP-Rio merger? The Sunday Telegraph reported BHP Billiton (BHP) may revive its failed bid for Rio Tinto (RTP). Major investors in BHP have given the 'green light' to explore a new Rio bid, including the possibility of partnerships or asset sales in addition to the potential for a full merger. If BHP moves ahead with a new merger proposal, it will require the support of Rio's board since BHP is barred from launching a hostile takeover after walking away from its Rio bid last year. When BHP abandoned its $66B bid, it cited declining commodity markets, the global downturn and Rio's high debt levels. Management from the two companies have had 'informal dialogue.' Spokesmen for the firms refused to comment. Premarket: BHP -5.5%, RTP -4.9% (7:00 ET).
  • HSBC goes on trial. HSBC Finance Corp., the U.S. home-lending unit of HSBC (HBC), goes on trial this week over claims that a corporate predecessor hid predatory lending from shareholders. Plaintiffs claim the suit could be worth $1B, while some analysts call it 'a real gamble' for HSBC to go to trial rather than settle out of court. Jury selection is set for today in a federal court in Chicago.
  • More writedowns en route for UBS? Swiss newspaper Sonntag reported UBS (UBS) will likely announce additional writedowns and job cuts over the next few days. According to reports, UBS will write down another $2B on illiquid assets, and slash an additional 8,000 jobs. The bank has already written down over $49B since mid-2007 and cut 7,000 jobs. Shares -5.7% premarket (7:00 ET).
  • Fifth Third sells stake in unit. Fifth Third Bancorp (FITB) is expected to announce today that it has agreed to sell a 51% stake in its payment-processing unit to private equity firm Advent International Corp. for $561M. The deal further shores up the bank's capital position after a $3.45B injection from the government. The profitable unit will be spun off into a separate company called Fifth Third Processing Solutions LLC. Fifth Third will provide $1.25B in loans to fund the new company.
  • TARP leftovers. The Treasury estimates it has around $134.5B of TARP funds left, with 81% of the $700B in funds already committed. The money still remaining means Obama may not have to ask Congress for additional funds at all, or at least until well into the year. Geithner said the projection represents "a very conservative judgment about how much money is likely to come back from banks that are strong enough not to need this capital now to get through a recession."
  • Ramping up for the G-20 meeting. The G-20 will meet this week and are expected to produce a new set of rules for offshore tax havens that will address oversight, transparency and conduct. Another focus will be the coordination of financial regulation, especially for large hedge funds. U.S. officials are easing off on earlier calls to set stimulus spending targets. Meanwhile, tens of thousands of people marched in capital cities in Europe, urging world leaders to act on poverty, jobs and climate change at the April 2 summit.
  • Skype wants its apple a day. Skype (EBAY) plans to release a version of its internet phone software for the iPhone (AAPL). The move, which will be announced tomorrow, brings Skype more directly into competition with AT&T (T) and Verizon Wireless (VZ). The software is free and allows iPhone users to call Skype users for free if they are in a Wi-Fi hot spot. Alternately, the user can call a landline for a small fee, usually 2.1 cents per minute. Skype COO Scott Durchslag said the move is part of a strategic push into the cellphone market.
  • Investment firms respond to transparency request. Earlier this month, the SEC asked Blackstone Group (BX), the world's largest private equity firm, and Fortress Investment Group (FIG) to publicly disclose the performance of their buyout and hedge funds. Fortress acquiesced, including the data in its annual report. Blackstone refused, responding that the disclosure of detailed performance data wasn’t required under current regulations and wasn’t a meaningful measurement of operating results. Blackstone's private equity funds had a net depreciation of 32% last year, compared to a net appreciation of 16% in 2007.
  • OECD jobless forecast rises. According to OECD Secretary General Angel Gurria, unemployment in the U.S. and EU will reach 10% this year, and expected contraction will reach 4.2-4.3% vs. November's forecast of a 0.3% contraction. "This is unprecedented; we have not seen this in many decades," said Gurria. The official forecast will be released tomorrow.

Today's Markets

Overseas markets tumbled and U.S. stock futures are under pressure after the Obama task force rejected carmakers' restructuring plans, reawakening bankruptcy concerns.

  • Asia: Nikkei -4.53% to 8,236. Hang Seng -4.7% to 13,456. Shanghai -0.69% to 2,358. BSE -4.78% to 9,568.
  • Europe at midday: London -2%. Paris -2.6%. Frankfurt -3.3%.
  • Futures: Dow -2.2% to 7588. S&P -2.4% to 796. Nasdaq -2.1%. Crude -3.4% to $50.62. Gold -1.2% to $912. 30-year Tsy +0.63%. 10-year +0.46%.

Monday's Economic Calendar

  • 3:00 PM Farm Prices
  • Notable earnings on Monday: none.

Seeking Alpha editor Eli Hoffmann contributed to this post.

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