Tuesday, April 14, 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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  • Goldman's golden earnings. Goldman Sachs (GS) quarterly results of $3.39/share beat even the most optimistic estimates (details below). After stellar quarters from GS and, last week, Wells Fargo (WFC), markets will be focused on their peers, many of whom report in coming days. Eager to get rid of TARP restrictions, CEO Lloyd Blankfein announced plans to raise $5B by selling new common shares. The bank, which accepted $10B from the government, will use proceeds from the common stock offering and 'additional resources' to pay back TARP funds. Goldman would be the first big bank to repay TARP money, putting pressure on rivals to follow suit.
  • Gov't eyes GM debt swap. Sources say the U.S. government may trade some of the $13.4B it is owed by General Motors (GM) for an equity stake in a stripped down version of the automaker, in an effort to cut GM's debt before the June 1 deadline. Bondholders, who own $27.5B in GM debt, were previously offered a 90% stake in the new entity; any government stake would erode that. The government could potentially sell its stake quickly once the new entity began operating, and a probable bankruptcy liquidated unprofitable assets.
  • Creditors counter Chrysler debt offer. Chrysler creditors are preparing to make a counter-offer to the Treasury this week after being asked to accept just $1B from the carmaker instead of the $6.9B they're owed. Lenders may ask for equity in a company combining Chrysler and Fiat in exchange for debt concessions.

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  • Fannie CEO may be tapped for TARP. Fannie Mae (FNM) CEO Herb Allison is reportedly the lead candidate to run TARP, which leaves people wondering who will run complex Fannie Mae? The $700B program is currently overseen by Neel Kashkari, a holdover from the Bush administration. An announcement may happen 'in coming days.'
  • SEC reviews BoA bonus silence. The SEC is investigating whether Bank of America (BAC) broke the law by not telling shareholders about Merrill Lynch's plan to pay $3.6B in bonuses when it asked for their approval of the banks' proposed merger. Securities law prohibits institutions from omitting material facts in connection to the purchase or sale of securities. If found at fault, BofA would be subject to civil penalties.
  • MetLife shuns TARP. Though eligible for TARP funds, life-insurer MetLife (MET) said it won't take federal bailout money. CEO Robert Henrikson said the company is "well positioned, with approximately $5B in excess capital." The company also confirmed that because it has more than $100B of assets and is organized as a bank holding company, it's one of the 19 companies undergoing government stress tests.
  • NY pension deal probe. The SEC and NY State prosecutors are reportedly investigating whether a number of investment companies paid millions of dollars in bribes in exchange for investments from the state's pension fund. Private-equity firm Carlyle Group may be among those investigated. Payments to 'placement agents,' widespread among hedge funds and private-equity firms, have often raised questions about conflicts of interest, and concerns of placement agents bribing public officials.
  • Shell talks to China firms on Iraq oil. Sources say Royal Dutch Shell (RDS.A) is in advanced talks with China's two biggest state-owned oil companies, PetroChina (PTR) and Sinopec (SNP), on a possible joint bid to develop the Kirkuk oil field in northern Iraq. By taking along PTR-parent China National Petroleum Corp. in Iraq's first postwar bidding to develop its oil and gas field, Shell hopes to win CNPC's blessing for a contract on the Jinqiu gas field in China.
  • eBay stumbles away from online engine. eBay (EBAY) sold recommendation engine StumbleUpon in a move that will likely increase speculation that Skype could be the next unit to go. eBay bought StumbleUpon two years ago for $75M, but said it's now clear there are few strategic synergies. The price of the sale was not disclosed.
  • Europe defaults to hit 15%. Corporate debt defaults in Europe could surge to 15%, S&P said in a report this morning - boosting its earlier estimate of 11.1%. "We see the risk to currently vulnerable companies being that their lenders have neither the appetite nor the capacity to provide new financing to help them through the downturn," analysts wrote. Defaults will be materially higher in companies bought through leveraged buyouts.

Earnings: Tuesday Before Open

  • Royal Philips Electronics (PHG): Q1 net loss of €59M vs. consensus of -€25M. Ebitda of -€74M vs. consensus of +€52M. Revenue of €5.1B (-15%) vs. consensus of €5.2B. Company is now targeting annual cost savings of more than €500M vs. a previous target of €400M. Shares +4.4% premarket. (PR)

Earnings: Monday After Close

  • Goldman Sachs (GS): Q1 EPS of $3.39 beats by $1.79. Revenue of $9.43B (+13.1%) vs. $7.09B. Return on shareholder equity 14.3%. Tier-1 ratio 16%, up from 15.6% last quarter. Average global core excess liquidity $163.74B up from $111.43B in Q4. Net revenues in trading and principal investments $7.15B vs. $5.12B last year and -$4.36B last quarter. Declares $0.35 dividend. Separately, Goldman also announced a much-rumored $5B public share offering. (PR)
  • J.B. Hunt Transport Services (JBHT): Q1 EPS of $0.24 beats by $0.02. Revenue of $723M (-17.7%) vs. $791M. Says decrease in revenue was due to lower fuel surcharge revenues which reflect significantly lower fuel costs. (PR)
  • Talbots (TLB): FQ4 EPS of -$1.17 misses by $0.52. Revenue of $328M (-23.3%) in-line. (PR)

Today's Markets

Most Asia markets posted solid gains Tuesday, and Europe stocks are comfortably higher to open the week following a long weekend.

  • Asia: Nikkei -0.92% to 8,843. Hang Seng +4.55% to 15,580. Shanghai +0.54% to 2,527. BSE closed.
  • Europe at midday: London +0.88%. Paris +1.15%. Frankfurt +1.5%.
  • Futures: Dow -0.1% at 7984. S&P -0.3% to 851. Nasdaq -0.1%. Crude +1.5% to $50.79. Gold -0.1% to $895. Euro -0.7% vs. dollar. Yen +0.2%. Pound +0.4%. 30-year Tsy -0.2%.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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