Wall Street Breakfast: Must-Know News
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- Geithner ready to replace bank execs. In a TV interview yesterday, Geithner said he's prepared to oust executives and directors at banks receiving government aid. Commenting that banks that need 'exceptional assistance' will get it, he added "where that requires a change in management and the board, then we will do that" in order to keep taxpayers protected. Geithner also pointed out that the CEOs of Fannie Mae (FNM), Freddie Mac (FRE) and AIG (AIG) were removed when it became clear the companies couldn't survive without government intervention. Geithner's comments could be more than just talk, as chief TARP watchdog Elizabeth Warren will issue a report this week calling for the removal of top execs at Citigroup (C), AIG and other institutions, and saying shareholders should be 'wiped out.'
- Regulators review stress tests. According to people close to the matter, top federal bank regulators will meet early this week to discuss how to interpret the results of bank stress tests. Regulators will also discuss how new changes to accounting rules might affect each bank's performance in the tests. The analysis likely won't be completed until at least the end of the month.
- HSBC wins with rights offer. HSBC (HBC) raised around £12.4B ($17.7B) as investors bought 97% of what was the U.K.'s largest rights offer. HSBC sold the stock to shareholders for 41% less than the April 3 closing price in London. The remaining shares will be offered to investors today. The bank, which had already set aside $53B against bad loans over the past three years, now has further breathing room to move forward without accepting U.K. government funding, and it's Tier 1 capital ratio rose to 9.8% from 8.3%. HSBC said it will use the money to increase capital and finance acquisitions that fit with its strategy of expansion in emerging markets. Shares +4.1% premarket (7:00 ET).
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Currency trading involves significant risk of loss. - Cloudy future for Sun deal. Talks between IBM (IBM) and Sun Microsystems (JAVA) have reportedly collapsed. Sources familiar with the situation said Sun's board, which was split over the deal, rejected a formal acquisition by IBM on Saturday and sent a notice terminating Sun's agreement to negotiate exclusively with IBM. IBM then withdrew its offer on Sunday. A different source said the two parties are still in touch by telephone and the situation is 'fluid.' Neither Sun nor IBM have confirmed that they are or were in negotiations. JAVA -21.1% premarket (7:00 ET).
- MGM weighs asset sales. Sources say MGM Mirage (MGM) has tapped Morgan Stanley (MS) to handle the potential sale of two of its prize properties, MGM Grand Detroit and Biloxi's Beau Rivage. MGM is under intense pressure to raise cash because it faces looming obligations on $13.5B of debt and an $8.6B project that's short of funding. The company is also dealing with a decline in gambling revenues as consumers cut back on spending and companies cut back on travel. Morgan Stanley will vet potential buyers to determine whether they have adequate access to deal financing and whether they would be likely to win permission from state regulators to operate a casino. An MGM spokesman said "the company is going to explore all available options and will develop a comprehensive strategic plan." Shares -3.0% premarket (7:00 ET).
- AT&T labor talks continue. AT&T (T) is in continued negotiations with a labor union after five contracts covering more than 80,000 of its workers expired on April 4. The union has authorized a strike and said "there has been little progress in the areas of health care, retirement security and employment security," but has not yet called on workers to walk out. In the meantime, employees in AT&T's wireline telephone business are working under the terms of their expired contracts.
- Android gets a boost from T-Mobile, Samsung. T-Mobile (DT) is planning to push a variety of communications devices for the home that will run Google's (GOOG) Android software. According to company documents, T-Mobile is planning to sell a home phone early next year and a tablet computer soon afterwards, both of which will use Android. Mobile phone maker Samsung confirmed it will launch three Android-based phones this year, including two that are designed for U.S. mobile carriers. Android has been picking up steam recently, and analysts expect Motorola (MOT) to sell a phone running Android by October.
- NYT threatens Boston Globe closure. The New York Times Co. (NYT) has threatened to shut down the Boston Globe within a month unless it gets labor concessions. NYT executives have reportedly asked the unions to agree to $20M in concessions, which could include salary cuts, the elimination of pension contributions and the end of job guarantees for certain employees. The move underscores the financial pressure the company is under as well as the depths to which the once-prized paper has sunk. The Globe, which posted over $50M in losses last year, is likely to face even larger losses in 2009.
- UBS bans travel. UBS (UBS) has issued a worldwide travel ban for wealth management client advisors. A spokesman said "UBS is currently conducting a review of its policy and compliance framework for its international wealth management offering," adding the ban would be in place until the review is completed. More than 1,000 employees are affected by the ban.
- Lincoln struggles with debt. Life insurer Lincoln National (LNC) has to pay down $500M in debt today, and says it will meet the obligation in full with internal cash. But the company has another $375M in commercial paper debt due in May, and a series of credit-rating downgrades has left Lincoln ineligible for the Treasury's commercial-paper funding program. Lincoln CFO Fred Crawford says the insurer is ready for tough times and has shored up its cash position through dividend cuts, staff reductions, etc. Analysts are less sure, and credit-default swaps on the company have soared in recent weeks.
- TARP gets more expensive. The Congressional Budget Office significantly raised its estimate of how much TARP will cost taxpayers. Officials now forecast the $700B program will cost taxpayers $356B, up from an earlier estimate of $189B. The cost projection was raised due to changes in financial market conditions, new transactions and a shift in the expected timing of payments.
- Joblessness rises. Nonfarm payrolls fell by another 663,000 in March, slightly more than the -660K economists were expecting. Unemployment rose to 8.5%, in-line with consensus and up from 8.1% last month and 7.6% two months ago. The 663,000 jobs lost in March pushes total losses over 5M since the recession started 16 months ago. Including marginally attached and involuntary part-time workers, unemployment hit 15.6% - more than six percentage points higher than it was one year ago.
Today's Markets
Overseas markets posted solid gains Monday, following a strong U.S. finish Friday. Futures are marginally higher.
- Asia: Nikkei +1.24% to 8,858. Hang Seng +3.11% to 14,998. BSE +1.8% to 10,535. Shanghai closed.
- Europe: London +0.9%. Paris +1.2%. Frankfurt +1.1%.
- Futures: Dow +0.4% to 80147. S&P +0.4% to 844. Nasdaq +0.4%. May crude +0.4% to $52.74. April gold -1.8% to $879.
Monday's Economic Calendar
- No events scheduled
- Notable earnings on Monday: none.
Seeking Alpha editor Eli Hoffmann contributed to this post.
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