Thursday, April 2, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • G-20 get down to business. The G-20 summit kicks off today, with protesters set to march in London and amid new reports that suggest the global economic slide may be easing. Media outlets obtained a copy of a draft release suggesting leaders will subject large hedge funds to regulation for the first time, enhance regulation through a new agency and a stronger, better-financed IMF, and "refrain from competitive devaluation of our currencies." The draft also included a pledge to deliver "the scale of sustained effort necessary to restore growth" but made no specific stimulus commitments. Obama has stressed that there is no substantive differences between the positions of the U.S. and Europe, but the U.K.'s Brown struck a less sanguine note, telling reporters "we have some tough negotiations ahead. It will not be easy."
  • Dow closes Rohm & Haas deal. Dow Chemical (DOW) finally completed its acquisition of rival chemical maker Rohm & Haas (ROH) and managed to keep its investment-grade credit rating with a one-notch downgrade to BBB- from S&P. The company must now focus on shoring up its finances after spending $16.3B on the deal, of which $9.23B was a short-term loan. To pay for part of the debt, Dow has agreed to sell Rohm & Haas' profitable Morton salt unit to Germany's K&S AG for $1.68B.
  • Thornburg to liquidate. Mortgage lender Thornburg Mortgage (THMR.PK) will file for bankruptcy protection and shut down. Thornburg, which once boasted that it never made loans to risky borrowers, specialized in 'jumbo' loans to wealthy, creditworthy borrowers. The company once seemed relatively safe compared with peers, but was dragged down by mortgage-backed securities as the credit crisis worsened. A spokesman said, "our dissolution was created by one issue: the inability to support the equity requirements for financing our mortgage securities portfolio, given the continued decline in mortgage-backed securities prices."
  • Weak auto sales still beat expectations. March auto sales were heavily down but were better than analysts' expectations. U.S. industrywide sales fell 37% from a year earlier but rose from February's 27-year low on pent-up demand, higher incentive spending and signs the government will move to stimulate auto purchases. The results spurred optimism that the industry's 17-month long slump may be reaching a bottom, sending shares up for some automakers (in Tokyo, Nissan +13.8%, Honda +10.7%, Toyota +5.5%). Here's the breakdown:
    Ford (F): March sales -40.9% from a year ago to 131,465 vehicles. SUV sales -73.2% to 73.2%. Inventories 27% lower than last year.
    Mercedes-Benz (DAI): March sales -23% from a year ago to 17,348 vehicles.
    Honda (HMC): March sales -33.7% to 88,379 vehicles.
    General Motors (GM): March sales -44.7% to 156,380 vehicles. Sales of 7/8 of its brands, however, were higher vs. February. Inventories -12% from a year ago to 765K.
    Toyota (TM): March sales -36.6% to 132,802 vehicles, including a 40.6% at Lexus. Sales rose 16.3% vs. February.
    Nissan (NSANY): March sales -37.7% to 106,921 vehicles.
  • U.S. starts UBS tax investigation. The Department of Justice has reportedly opened around 100 criminal investigations into wealthy U.S. clients of UBS (UBS). Several of the accounts being investigated for tax evasion hold over $100M in assets, with the largest account in the probe topping $150M. UBS turned over approximately 285 client names as part of an earlier settlement agreement, but is fighting Justice Department and IRS attempts to get the Swiss bank to disclose as many as 52,000 additional client names.
  • Madoff feeder fund gets sued. Massachusetts regulators filed suit against Fairfield Greenwich Group, a major 'feeder fund' for Bernie Madoff's Ponzi scheme, alleging that the hedge fund ignored red flags and lied to investors while collecting hundreds of millions of dollars in fees. The gravest accusation in the suit may be that Madoff prepped executives at Fairfield Greenwich in 2005 on how to answer regulators' questions about him when a whistle-blower raised suspicions that Madoff was running a fraud. The lawsuit marks the first action against one of Madoff's so-called feeder funds.
  • Swiss Re cutting costs, workers. Swiss Re (SWCEY.PK) will cut 10% of its workforce over the next 12 months in an effort to save 400M Swiss francs ($349.6M) by 2010. The company will also promote Agostino Galvagni to be chief operating officer.
  • Qwest wants to sell part of network. Qwest (Q) is reportedly looking to sell a key piece of its telecommunications network to help pay off part of its nearly $14B in debt. Sources say the unit up for sale is a long-distance network that carries calls and internet traffic for other phone carriers. It also provides advanced telecom services to businesses and government agencies. Although the sale could bring the company as much as $2-3B, it would also largely leave Qwest as a regional provider of telephone and internet services to consumers. Potential bidders could include AT&T (T), Verizon (VZ) and Level 3 Communications (LVLT).
  • BoA may sell asset manager. Bank of America (BAC) will likely sell asset manager Columbia Management Group, said people close to the situation, as part of its efforts to preserve capital and get rid of non-core assets. As of Dec. 31, 2008, Columbia had $386.4B in assets under management but many inside the bank believe Columbia is now redundant compared to BlackRock, a money manager partly owned by Merrill Lynch. BoA picked up Columbia as part of a 2004 acquisition.
  • GE, Intel plan health partnership. Intel (INTC) and General Electric (GE) are expected to announce today a collaboration between the two firms in the health care field. At a press conference scheduled for later today, the two companies will likely discuss plans to work together on health care related technology, including health care IT and at-home health monitoring.
  • House okays pay curb. The House of Representatives voted to curb 'excessive' employee pay at firms receiving government bailout funds. The bill passed 247-171 and would give the Treasury broad powers to ban 'unreasonable and excessive' compensation and bonuses that are not based on performance standards. The bill would apply to all the employees, not just the executives, of firms that received TARP money. The new measure will largely sideline a recent House bill to levy a 90% tax on certain bonuses paid out by TARP recipients.
  • Job market still tough. Monster's online employment index fell 4 points in March to 118, wiping out February's modest gains. The index is down 29% vs. the year before as hiring declines continue across a range of industries. According to Challenger, firing announcements fell 19.3% in March vs. the month before to 150,411, but are up 181% Y/Y. "The good news is that job cuts appear to be stabilizing in the financial sector," said Challenger, Gray & Christmas CEO John A. Challenger. "Unfortunately, other sectors are seeing an increase in cuts as the recession works its way through the economy." ADP reported (.pdf) that private-sector employment decreased by 742,000 in March, vs. consensus of -663K and February's -706K. Assuming the usual 20K addition of public-sector jobs, Friday's nonfarm payroll number could come in at an impressive -720K.
  • ISM mfg contracts. The ISM Manufacturing Index came in at 36.3 in March vs. 36.0 consensus, its 14th consecutive month of contraction. None of the 18 manufacturing industries reported growth. Fabricated metal products and textile mills led the laggards.
  • Construction spending falls. U.S. construction spending -0.9% in February vs. the month before, and -10.0% Y/Y. Residential private construction -4.1% M/M, -29.2% Y/Y. Non-residential +0.5% M/M, +1.3% Y/Y.
  • Modest gains for pending home sales. Pending Home Sales rose a moderate 2.1% in February (vs. consensus of flat), bumping NAR's index of signed contracts to 82.1 from 80.4. The small increments are a welcome change, but sales "have a way to go for there to be a meaningful increase," NAR's Lawrence Yun said. Meanwhile, affordability rose to new highs.

Today's Markets

  • Asian markets soared. Nikkei +4.4% to 8,720. Hang Seng +7.4% to 14,522. Shanghai +0.7% to 2,425. BSE +4.5% to 10,349.
  • In Europe at midday, markets are following Asia up. London +3.0%. Paris +3.8%. Frankfurt +4.4%.
  • U.S. futures: Dow +1.8%. S&P +1.9%. Nasdaq +2.1%. Crude +5.2% to $50.92. Gold -1.5% to $912.60.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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