Friday, April 3, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • No surprises from the G-20. Participants in the G-20 summit came up with a regulatory blueprint that France's Sarkozy said turned a page on the Anglo-Saxon model of free markets. The group agreed to place strict limits on hedge funds and other financiers, pledged to triple IMF resources and promised to give China and other developing countries greater say in the management of the world economy. No specific targets were set for fiscal stimulus programs, but nations agreed to do whatever it takes to revive the global economy. A new Financial Stability Board will be created to unite regulators and join the IMF in providing early warnings of potential threats.
  • Mark-to-market changes. As expected, the Financial Accounting Standards Board voted to relax mark-to-market accounting rules, allowing companies to use 'significant' judgment in valuing assets. Many firms applauded the move, arguing that fair-value accounting rules don't work when markets are inactive. Analysts say the measure could boost Q1 net earnings by 20% or more. In response to investor complaints, the FASB increased the amount of information companies must give on how they value assets. (Read FASB's handout (.pdf))
  • TARP recipients mull toxic asset buys. Recipients of government aid, including Citigroup (C), Goldman Sachs (GS), Morgan Stanley (MS) and JPMorgan Chase (JPM), might buy toxic assets under the Treasury's $1T plan to revive the financial system. Although the government's plan doesn't allow banks to buy their own assets in the program, there is no ban on the purchase of securities and loans sold by others. Rep. Spencer Bachus vowed to prevent firms from 'gaming the system,' adding it would mark a 'new level of absurdity' if financial institutions were "colluding to swap assets at inflated prices using taxpayers’ dollars." Officials want banks to sell risky assets to clean their balance sheets and attract private investors, limiting the need for future government aid.
  • The TARP shuffle. The Treasury is reallocating resources to free up TARP money in case the government needs to launch new bailouts. One of the biggest changes is to TALF, the program designed to boost consumer lending; the Treasury plans to invest $55B, down from an initial commitment of $100B. To lessen the impact of the change, the Treasury has combined that spending with other related investments to create the Consumer and Business Lending Initiative. The Treasury has also reduced its bank capital infusion program to $218B from $250B. The changes are making it harder to ascertain just how much of TARP's $700B remains - Geithner has recently said the fund has $135B available, but a new GAO report suggests as little as $32.6B might be left.
  • First UBS arrest. Federal authorities made their first arrest in connection to a UBS (UBS) tax fraud investigation. The client, an American, was arrested in Florida and charged with one criminal count of filing a false and fraudulent tax return. Using a carrot and stick combo to get UBS clients to come clean, the IRS and Justice Department have announced account holders who voluntarily come forward will qualify for a reduction in penalties.
  • Regulating insurers. U.S. lawmakers introduced legislation to bring insurance companies under the supervision of a federal regulator. The bill is favored by much of the industry, which is currently regulated on a state-by-state basis. However, previous efforts to create a federal insurance regulator failed to pass Congress, as states and consumer groups argued such a move would lead to higher rates and weaker consumer protection.
  • Congress okays 2010 budget. The House and Senate approved their slightly different versions of a FY 2010 budget covering Obama's biggest priorities and coming in at $3.6T. As with the economic stimulus package, no House Republicans voted for the Democratic plan and 20 Democrats voted against it, for a final tally of 233-196. In the Senate, the final vote was 55-43. The two chambers of Congress must now craft a compromise budget.
  • More whispers on IBM-Sun deal. Though neither side has even confirmed talks, sources say IBM (IBM) has lowered its bid for Sun Microsystems (JAVA) to $9.95 a share after a weeks-long due diligence, and details will be made public soon. The $9.95 price, which apparently is not yet final, would mark a 92% premium to Sun's closing price on March 17, the day before news of IBM's offer emerged. In exchange for the lower price, IBM reportedly gave Sun a stronger commitment that it will complete the deal even if it faces regulatory scrutiny.
  • Google/Twitter talk tie-up. Sources say Google (GOOG) is in late-stage (or early-stage depending on who you ask) negotiations to acquire Twitter for a price assumed to be "well north" of the $250M valuation set by a recent funding round. Facebook reportedly offered Twitter $500M, mostly in stock based on its infamous $15B valuation. Why would Google want Twitter? Twitter "holds the keys to the best real time database and search engine on the Internet, and Google doesn’t even have a horse in the game."
  • Northrop reaches gov't settlements. Northrop Grumman (NOC) agreed to pay $325M to settle civil claims that a company it acquired allegedly made defective parts for spy satellites. The defects resulted in serious malfunctions and required expensive fixes several years ago. Northrop didn't admit any wrongdoing. This also brought an end to a separate lawsuit filed by Northrop against the Pentagon over an unrelated contract for stealth cruise missiles. The government will pay Northrop $325M to avoid the additional expenses and distraction of protracted litigation.
  • American Airlines turns to Citi for cash. American Airlines (AMR) is in early talks to raise cash from Citigroup (C), its credit card partner, by selling it a block of frequent flier miles in advance. Citigroup awards credit card users with a certain number of frequent flier miles for each purchase they make. Airlines have found financing so difficult to secure during the global downturn that three U.S. rivals - Delta (DAL), United Airlines (UAUA) and Continental (CAL) - have already made similar deals with their credit card partners.
  • BHP debt risk rises on acquisition rumors. The cost of protecting debt sold by BHP Billiton (BHP) rose as much as 15% this week on concerns the company, which completed the sale of $6.3B of bonds, may be planning an acquisition. Shares of Rio Tinto (RTP), Alcoa (AA) and Xstrata (XSRAF.PK) all rose this week on speculation they may be BHP targets.
  • More jobless claims. Initial Jobless Claims hit a 26-year high, rising 12K to 669,000. Continuing claims jumped by 161K to 5,728,000.
  • Factory orders rise. New orders for factory goods increased 1.8% in February to $352.2B after six consecutive monthly decreases. Shipments were down 0.1%, the seventh straight decrease. Inventories fell 1.1% to $336B.

Earnings: Thursday After Close

  • Lawson Software (LWSN): FQ3 EPS of $0.10 beats by $0.02. Revenue of $174M vs. $185M. (PR)
  • Micron Technology (MU): FQ2 EPS of -$0.97 misses by $0.33. Revenue of $1B vs. $1.14B. (8-K)
  • Research In Motion (RIMM): Q4 EPS of $0.90 beats by $0.06. Revenue of $3.46B vs. $3.4B. Sees Q1 EPS of $0.88-0.97 vs $0.82 and revenue of $3.3-3.5B vs. $3.35B. (PR)

Today's Markets

Overseas markets were mostly higher Friday after strong U.S. gains on Thursday.

  • Asia: Nikkei +0.34% to 8,750. Hang Seng +0.16% to 14,546. Shanghai -0.23% to 2,420. BSE closed.
  • Europe at midday: London -0.5%. Paris +0.1%. Frankfurt +0.8%.
  • Futures at 7:00: Dow +0.2%. S&P +0.4%. Nasdaq +0.6%. Crude +01.8% to $53.05. Gold -0.6% to $902. 30-year Tsy -0.27%. 10-year -0.16%. Yen -0.56% vs. dollar. Euro -0.23%.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Foxwood said...

The conspiracy theories are true. We now live in a "New World Order".