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Tuesday, April 7, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby


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  • Lackluster response to Fed, Treasury programs. The Treasury delayed the deadline for investors to join its Public-Private Investment Program and loosened some of the program's guidelines. Officials said they're trying to make it easier for firms to participate in the legacy securities portion of the program, but others wonder if officials are giving themselves more time to find firms who want to participate at all. Separately, participation in the Federal Reserve's TALF program has remained lackluster. Wary of legislative interference and hiring curbs, only two issuers have put together about $1.4B of TALF-eligible bonds heading into the Fed's deadline today, even worse than last month's disappointing $4.7B in loans. (Read the Treasury's Updated Guidance on the PPIP)
  • Fed's four-way swap. The Federal Reserve authorized new foreign currency liquidity 'swap lines' with the Bank of England, the European Central Bank, the Bank of Japan and the Swiss National Bank. The move will allow the Fed to receive euro, yen, sterling and Swiss francs should the need arise, and to provide currency liquidity to U.S. financial firms. The swap lines are authorized through Oct. 30, 2009. (Read the Fed's press release)
  • SEC eyes short selling. The SEC will consider several proposals to restrict short selling. SEC Chairwoman Mary Schapiro told reporters "we are going to put forward about four different proposals, and one of them does include the original [uptick rule]. There are different modified versions because the markets have changed a lot, even since 2007." Other proposals under consideration include a so-called 'bid test' and a 'circuit breaker.' Schapiro didn't provide details on how the bid test or circuit breaker would work, and didn't elaborate on the fourth proposal.

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  • Anti-subprime bill en route. Rep. Barney Frank is working on a broad package of legislation to promote stability in the mortgage market by limiting future subprime lending. The legislation would also address executive compensation and limit systemic risk. Frank wants to have hearings on the bill by the end of April, and see the bill become law by the end of the year. "It is important that we say you can't securitize 100 percent of anything," said Frank, and "no institution anywhere in the financial system ought to be able to get so indebted that it threatens our financial stability."
  • U.S., Swiss revise tax treaty. Officials from the U.S. and Switzerland will meet to revise a 1996 bilateral tax treaty amid a high-profile banking secrecy dispute between the two nations. Talks are set to begin April 28, and Geithner said he welcomes the moves by Switzerland to "implement international standards by agreeing to revise the U.S.-Switzerland tax treaty for the exchange of information for tax purposes with the U.S."
  • MGM said to be in loan talks. MGM Mirage (MGM) is reportedly in talks with private equity firm Colony Capital to obtain up to a $750M secured loan in order to help the casino company refinance its debt. According to sources, Colony might invest in corporate debt secured by a lien on one or more MGM Mirage casinos. An investment in CityCenter is unlikely, which leaves MGM until April 13 to come up with a plan to fund the unfinished Las Vegas Strip project. Shares -2.0% premarket (7:00 ET).
  • Higher gov't stake after failed RBS share offer. Royal Bank of Scotland (RBS) said only 0.7% of the shares it issued to raise £5.37B ($7.92B) were subscribed to as shareholders kept their distance from the bank. The government, which already owns 57.9% of RBS, will subscribe to the outstanding shares on offer, bringing its stake to 70.3%. The result was widely expected. RBS will use the offer's proceeds to redeem £5B in preference shares issued to the U.K. government as part of a £20B capital boost. Shares -8.2% premarket (7:00 ET).
  • Buyers bid for AIG unit. Around a half-dozen buyers have submitted bids for AIG's (AIG) asset management unit, according to people familiar with the situation. The sale of the $100B portfolio has been complicated by client withdrawals and a fall in asset prices; buyers have submitted offers between $400M and $800M, well below the typical price for asset-management businesses. Among the companies that are said to be interested are private-equity firms Ashmore Investment Management, Hellman & Friedman LLC, Rhone Group LLC and TA Associates, as well as mutual-fund manager Franklin Templeton Investments and asset manager Southgate Alternative Investments. Shares -3.6% premarket (7:00 ET).
  • GM preps for possible bankruptcy. Even as company executives work to cut costs and avoid bankruptcy, General Motors (GM) is reportedly speeding up preparations for a possible Chapter 11 filing. Sources say GM would focus on forming a new company from its best assets if court protection is needed as part of a so-called 363 sale. In the meantime, executives are trying to set new cost-cutting goals and are looking at how to go beyond proposals to cut debt by 46% and shed 47,000 jobs in 2009. Despite all the work on bankruptcy prevention and bankruptcy preparation, GM still found the time and money to partner with Segway Inc. on a two-seat, two-wheel, electric prototype vehicle which it will unveil today in advance of the New York auto show.
  • Ford completes debt swap. Ford (F) said its investors agreed to exchange $9.9B in debt for cash and stock, slightly below the $10.4B in debt Ford said it could have retired but still enough to lower its annual interest expense by $500M. The debt swap reduces Ford's overall debt by 28%. Even so, S&P lowered its corporate credit and other ratings on Ford to 'selective default' and downgraded certain Ford issue ratings to "D." S&P said the debt swap is "tantamount to defaults under our criteria," but added it would re-assess the firm by mid-April.
  • Merkin charged in Madoff fraud. New York Attorney General Andrew Cuomo charged financier Ezra Merkin with civil fraud, alleging he "betrayed hundreds of investors" by steering $2.4B to Madoff and repeatedly lying about how the money was invested. Merkin raised billions for his three hedge funds and told clients he managed the money himself; instead, Merkin collected hundreds of millions of dollars in fees while channeling investors' money into Madoff's Ponzi scheme.
  • $1T deficit in H1. According to estimates from the Congressional Budget Office, the U.S. budget deficit reached nearly $1T during the first half of the fiscal year which began in October. The CBO said the deficit likely hit $953B, including $290B for TARP. During the same half-year period, receipts dropped around $160B, or 14% vs. the same period in 2008. Nearly half the drop was from a fall in corporate income tax receipts, the largest such fall in more than three decades.
  • BoJ widens collateral for loans. Bank of Japan kept its key interest rate unchanged at 0.1%, as expected, and broadened the range of collateral it accepts to encourage more lending. Officials said the economy will "continue deteriorating for the time being," keeping its monthly assessment unchanged. To give the country a boost, Prime Minister Taro Aso ordered more than ¥10T ($99.73B) of fresh stimulus spending.
  • Aussie rate cut. Australia's central bank cut its benchmark interest rate by a quarter-point to 3.0%, a 49-year low. The country faces its first recession since 1991.
  • Employment index falls. The Conference Board Employment Trends Index fell again in March, decreasing 2.3% from the previous month and down 22.1% from the previous year. "The decline was not as strong as in the previous four months, suggesting that the most intense stage of job losses may be behind us," said Conference Board senior economist Gad Levanon. "However, the drops in each of the eight components of the ETI in March signal that many more jobs will disappear over the next several months."

Today's Markets

Asia markets were mixed Tuesday while Europe is trading lower, this after a weak start to the week in the U.S. on Monday.

  • Asia: Nikkei -0.28% to 8,833. Hang Seng -0.46% to 14,929. Shanghai +0.8% to 2,439 (was closed Monday). BSE closed.
  • Europe at midday: London -1.65%. Paris -.15%. Frankfurt -1.1%.
  • Futures: Dow -1.4% to 7805. S&P -1.6% to 818. Nasdaq -1.4%. Crude -1.7% to $50.20. Gold +1% to $881.50. 30-year Tsy +0.56%. 10-year +0.41%. Euro -1.1% vs. dollar.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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