Wednesday, April 1, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Bankruptcy may be best. Obama thinks a quick, negotiated bankruptcy is the most likely way for General Motors (GM) to restructure, said people familiar with the matter. Obama is likewise ready to see Chrysler go bankrupt and be sold off piecemeal if it can't forge a deal with Fiat. A forced bankruptcy could see the two firms split into 'good' and 'bad' entities, with the 'good' firms powered by strong brands and valuable foreign operations while the 'bad' brands and certain financial obligations sit in bankruptcy court. According to a White House spokesman, "the president’s position has not changed. He remains committed to a significant restructuring without a bankruptcy if at all possible." Officials say if bankruptcy becomes necessary, it can be done quickly and cleanly, but many critics warn the process could become longer and more painful than anticipated. GM -2.6% premarket (7:00 ET).
  • Japan auto sales slump. March vehicle sales for Toyota Motor (TM), Japan's largest automaker, fell 32% to 135,700. Sales at Nissan (NSANY) fell 34% to 59,292. Honda (HMC) sales were down 25% to 67,211, and the company plans to cut North American production and salaries. Mazda (MZDAF.PK) sales fell 28%. Japan's auto sales are now at their lowest level in 35 years. Despite the poor showing, automakers saw their shares rise in Tokyo trading as a weaker yen lifted earnings prospects and on speculation that marketshare will expand if U.S. automaker go bankrupt: Toyota +4.8%, Honda +6.7%, Mazda +5.5%, Nissan +10.0%.
  • AIG compensation chief under fire. Activist investors are trying to block the re-election of AIG (AIG) director James F. Orr, chairman of the board compensation committee. Officials representing major union and public pension funds wrote a letter to trustees urging them to unseat Orr for failing to adequately oversee the $165M in retention payments that have sparked so much public outrage in recent weeks. (Read the letter to the trustees (.pdf)) Separately, lawmakers have reportedly asked for copies of confidential reports prepared by a lawyer who has been in charge of monitoring AIG's business practices over the past four years.
  • UBS exec shake-up. UBS (UBS) hired Ulrich Koerner as its new chief operating officer, replacing Walter Stuerzinger as part of a push to reorganize and cut costs. Koerner will become a member of UBS' executive board and oversee the integration of infrastructure and service functions in the corporate center. The latest executive shake-up comes after Oswald Gruebel was made CEO in February and Kaspar Villiger was nominated chairman of the board of directors in March, replacing Peter Kurer after just one year.
  • Xstrata sees opportunities in equities collapse. Xstrata (XSRAF.PK) may look to pick up copper acquisitions after an equities 'collapse' slashed the cost of potential targets. Xstrata Copper CEO Charlie Sartain said a lack of financing for small and mid-sized companies has created opportunities for Xstrata that were previously 'closed off' when equities were rising. Acquisitions could help the world's fourth-largest copper miner double its copper output to take advantage of stronger demand after the financial crisis ends.
  • Broadband providers may snub stimulus funds. Verizon Communications (VZ) and AT&T (T) may snub the government's offer of $7.2B for high-speed internet projects. Wary about government restrictions that may come with the money and with no clear financial benefits in accepting the aid, the two firms have remained noncommittal thus far. An AT&T executive said the company is "open to considering things that might help the economy and might help our customers at the same time," but its main focus for broadband is its own investment program.
  • Android gains fans. Hewlett-Packard (HPQ) is considering whether to use Google's (GOOG) Android operating software for some of its computers. The software, which is free and open-source, could be a viable platform for netbooks, posing a direct challenge to Microsoft's (MSFT) Windows system. Although no PC maker has yet publicly committed to using Android, many in the industry, including Microsoft, consider an Android-run laptop just a matter of time.
  • First TARP repayments. Four small banks became the first to return TARP funds to the government. Signature Bank of New York (SBNY) returned $120M, Old National Bancorp (ONB) of Indiana returned $100M, Iberiabank (IBKC) of Louisiana returned $90M and Bank of Marin Bancorp (BMRC) of Novato, Calif. returned $28M. All four banks paid 5% interest on the money they received. Signature Bank chairman Scott A. Shay said the impetus for returning the money was the stigma attached to firms that had accepted TARP aid and the restrictions that came with the funds.
  • Another newspaper bites the dust. The Sun-Times Media Group, owner of the Chicago Sun-Times and dozens of local newspapers, filed for bankruptcy, making it the fifth newspaper to seek protection in recent months. The company, facing a crushing tax claim, may seek to sell 'substantially all' of its assets but the bankruptcy filings valued the company's assets at less than the $510M claim. Both of Chicago's major dailies are now operating under bankruptcy-law protection.
  • G-20 get ready. With the G-20 meeting set to begin tomorrow, tensions between participants are still running high. French Finance Minister Christine Lagarde said President Nicolas Sarkozy would walk away from the meeting if no progress was made on global financial regulations. She later clarified that she simply meant Sarkozy is 'highly determined' to achieve concrete results. European governments have remained resistant to U.S. calls for increased stimulus measures. Thousands of protesters are expected to flood London's streets.
  • Scary numbers. The U.S. government and the Federal Reserve have spent, lent or committed $12.8T to rescue and stimulus attempts so far. That's 14 times the $900-odd billion in circulation; almost equal to the entire 2008 U.S. GDP; and works out to $42,105 for every man, woman and child in America.
  • Retail sales. Retail chain store sales rose 1.1% from a week ago, ICSC reported, and declined 0.2% Y/Y. ICSC chief economist Michael P. Niemira noted "this solid weekly increase is a good omen for the retail sector and economy - though demand improvement has a long road back." According to Redbook, national chain store sales rose 0.2% in the first four weeks of March, and fell 1.1% Y/Y. "Mild weather added to various spring breaks helped entice consumers to... shop for spring necessities" and consumer basics, Redbook said.
  • Home prices slide (.pdf). Home prices in S&P/Case-Shiller's 20-city index continued to slide, falling 19.4% from the year before. The worst performers were Phoenix (-35%), Las Vegas (-32.5%) and San Francisco (-32.4%). Dallas, Denver and Cleveland did the best, and were down 4.9%, 5.1% and 5.2% respectively.
  • NAPM Chicago weakens (.pdf). Business conditions in the Chicago area deteriorated at the worst pace since 1980, according to the NAPM-Chicago's business barometer. Varied "general comments" included "Stimulus program only creates more debt," "Shovel ready is just a new buzz phrase," and "Pray for guidance through all of this."
  • Mortgage apps rise. Mortgage applications rose 3.7% from a week ago, MBA reported. The average interest rate on 30-year fixed-rate mortgages dipped to 4.61% from 4.63%.
  • Confidence stays near lows. Conference Board's Consumer Confidence Index was relatively unchanged in March from February's all-time low of 25.3, as "apprehension about the outlook for the economy, the labor market and earnings continues to weigh heavily on consumers' attitudes."

Earnings: Tuesday After Close

  • Apollo Group (APOL): FQ2 EPS of $0.77 beats by $0.12. Revenue of $876M (+2.5%) vs. $865M. University of Phoenix total Degreed Enrollment rose 20.4% to 397,700. (PR)

Today's Markets

  • Asian markets: Nikkei +3.0% to 8,352. Hang Seng -0.4% to 13,520. Shanghai +1.5% to 2,408. BSE +2.0% to 9,902.
  • In Europe at midday, London -0.9%. Paris -1.0%. Frankfurt -1.1%.
  • U.S. futures: Dow -0.9%. S&P -1.0%. Nasdaq -1.0%. Crude -3.0% to $48.18. Gold +0.2% to $924.10.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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