Monday, April 13, 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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  • GM told to prep for possible bankruptcy. The Treasury has reportedly directed General Motors (GM) to lay the groundwork for a possible bankruptcy filing by June 1. Sources say the goal is to prepare for a fast, 'surgical' bankruptcy so that GM's image and sales don't suffer permanent damage. Under one scenario, the company would split into good and bad parts, with the 'good GM' in and out of bankruptcy protection in as little as two weeks, using $5-7B in federal financing. Any plans for a brief bankruptcy will likely face legal challenges from GM bondholders concerned about being forced to accept hefty losses. GM continues to insist publicly that it can find a way to reorganize outside of court. Separately, GM is being sued in Canada by unsecured bondholders over payments pulled from a Canadian subsidiary.
  • Credit Suisse cracks down on offshore accounts. According to media reports, Credit Suisse (CS) has started to shut down the offshore accounts of U.S. clients who haven't declared their money to U.S. authorities. The bank has 2,500-5000 U.S. clients with undeclared offshore accounts worth about 3B Swiss francs, said the Sonntagszeitung newspaper, and is giving clients the options of moving their accounts to a subsidiary which would report to U.S. tax authorities or writing them a check. Though the 'zero tolerance' policy is for individual cases at the moment, the bank is considering a more general withdrawal from the U.S. offshore business.
  • Bailed-out banks probed over increased fees. Banks that received bailout funds are under scrutiny from the Congressional Oversight Panel for their lending practices, following a slew of complaints about increased rates and fees. Many TARP recipients, including Bank of America (BAC) and Citigroup (C), have recently started charging more on credit card balances and for a wide range of transactions, and have encouraged loans that some criticize as predatory. Panel chairwoman Elizabeth Warren said it's unfair that "the people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending."

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  • eBay takes stake in rival. eBay (EBAY) has agreed to buy a controlling stake in South Korean rival Gmarket (GMKT) for $413M, according to news service eDaily, and will sign a final contract on Wednesday. eBay will buy its 34.2% stake from Gmarket's current top shareholder Interpark and the Korean firm's chairman, and has conditional approval from South Korea's antitrust watchdog. The $24/share purchase marks a 32.5% premium on Gmarket's stock. Intermarket says it does not yet have an official contract from eBay on its Gmarket stake sale, and a Gmarket spokesman declined to comment.
  • Express Scripts reaches WellPoint deal. Express Scripts (ESRX) will buy WellPoint's (WLP) in-house pharmacy-benefit management business for $4.68B. The cash-stock deal will boost Express Scripts' prescription volumes by roughly 50%, helping it compete against larger rivals like CVS Caremark (CVS) and Medco Health Solutions (MHS). The deal includes a ten-year contract for Express Scripts to provide pharmacy-benefit management services to WellPoint.
  • HSBC mulls selling headquarters. HSBC (HBC) may sell three of its signature office buildings to raise cash as it tries to avoid accepting money from the U.K. government. An HSBC spokeswoman confirmed the bank is gauging interest in the sale of its world headquarters in London, its Fifth Avenue skyscraper in New York City and its Paris offices on the Champs Elysees. Media reports put the combined asking price for the three properties at £2.7B ($3.96B). HSBC would probably lease the offices back from any buyer.
  • More cuts expected at UBS. UBS (UBS) is expected to announce more job cuts soon, with staff in Switzerland and departments like marketing likely to be among the hardest hit. Several sources say managers have already started telling their departments about the cuts, with some managers forced to cut as much as a third of their team. UBS has already announced plans to cut more than 10% of its workforce.
  • Goldman readies fund launch. Sources say Goldman Sachs (GS) is in the process of wrapping up $5.5B in investor commitments for a new fund to buy private-equity investments at a discount on the secondary market. The new GS Vintage Fund V would be the largest secondary fund ever raised.
  • GE invests in car batteries. Car-battery maker A123 Systems is expected to announce today that it has raised $69M in its most recent capital campaign, while primary backer General Electric (GE) will get a seat on the company's board in exchange for its investment. GE's provision of $15M in the latest financing round brings the company's total investment in A123 to $70M, representing an ownership stake of more than 10%. The funding news follows an announcement that A123 was selected by Chrysler to develop batteries for its prospective line of electric cars.
  • Satyam names top bidder. Tech Mahindra was named as the highest bidder for a controlling stake in Satyam (SAY). The Company Law Board, a semi judicial authority, is likely to grant deal approval this week. A unit of Tech Mahindra will pay 17.56B rupees ($352.6M) for a 31% stake in scandal-shaken Satyam and, if the deal is approved, will have to make an open offer for another 20% of Satyam within four days of CLB approval. The purchase will help Tech Mahindra become a bigger player in the software services business.
  • Toyota may face second annual loss. Toyota (TM) shares lost ground after a media report that the carmaker may post an operating loss for the second year in a row. According to the Nikkei newspaper, Toyota could report a loss of over ¥500B ($5B) for FY 2009, while economists estimated the loss will likely be closer to ¥425B. Shares -5.2% premarket (7:00 ET).
  • More bank failures. North Carolina's Cape Fear Bank and Colorado's New Frontier Bank were both closed by regulators, bringing this year's total number of bank failures to 23 so far. Carolina-based First Federal agreed to assume all of Cape Fear's deposits and its 8 branches will re-open today under the First Federal banner. The estimated cost to the FDIC is $131M. In New Frontier's case, the FDIC has asked San Francisco's Bank of the West to operate a new bank called Deposit Insurance National Bank of Greeley for the next 30 days while New Frontier is wound down.

Today's Markets

Asia markets were mostly higher Monday, while U.S. futures trended lower. Europe is closed for Easter Monday.

  • Asia: Nikkei -0.44% to 8,924. Shanghai +2.84% to 2,514. BSE +1.51% to 10,967. Hang Seng closed.
  • Futures: Dow -0.85% to 7956. S&P -0.8% to 846. Nasdaq -0.4%. Crude -2.5% to $50.95. Gold +0.6% to $888. 30-year Tsy +0.21%.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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