Friday, April 17, 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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  • Showdown over MGM Mirage debt. Activist investor Carl Icahn and private-equity fund Oaktree Capital Management, which have each acquired hundreds of millions of dollars in MGM Mirage (MGM) debt in recent months, and are pushing the casino operator to swiftly restructure in bankruptcy court. MGM must make a new equity payment by Friday on a big Las Vegas project, and there are bonds that will come due in July and October. Kirk Kerkorian, MGM's largest investor, holds a 53% stake in the company and could see his investment wiped out by a bankruptcy filing that gives secured debtholders priority over stockholders.
  • Hilton sued for corporate spying. Starwood Hotels (HOT) has filed suit against Hilton Hotels and two of its top executives, accusing its rival of corporate espionage. Starwood claims the two executives stole more than 100,000 electronic files which Hilton then used to develop a new luxury hotel chain and speed its entry into the 'lifestyle' market.
  • GM, Chrysler may get more money. The auto task force is preparing to loan GM (GM) another $5B in short-term aid, while Chrysler may receive $500M, an Obama administration official says. The aid is meant to keep the pair in business while they develop new restructuring plans before the government's June 1 deadline.

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  • Rosy IPO for Rosetta. Rosetta Stone (RST) debuted with a promising start, gaining nearly 40% in its first day of trading to close at $25.12, up from the IPO price of $18. It was the third IPO in April, making this the busiest month since July 2008.
  • Citigroup sued over ARS. Citigroup (C) is being sued by Braintree Laboratories on claims it misled investors in the marketing of its auction-rate securities even while it was under investigation. Pharmaceutical firm Braintree picked up around $33.2M in ARS from Citigroup last year, believing they were money-market instruments. Braintree said the timing of the sales "ran parallel to both Citigroup’s internal investigations into its fraudulent marketing practices and its negotiations with multiple government agencies." Citigroup has already reached an ARS settlement with individual customers, charities and small businesses.
  • Push to split top roles at BoA. Pressure is growing at Bank of America (BAC) to split the roles of chairman and chief executive. A major proxy-advisory firm recommended shareholders approve the split at the bank's April 29 annual meeting. Investor Jerry Finger said lead director Temple Sloan, who runs an automotive-parts distributor, would likely take Lewis' place, though Sloan denies ever making such claims to Finger.
  • Zurich buys AIG unit. As expected, Zurich Financial Services (ZFSVY.PK) agreed to buy AIG's (AIG) auto-insurance unit for $1.9B and will assume $100M in debt. The deal could spark additional takeovers in the insurance industry as sellers begin to accept prices lower than those commanded before the financial crisis.
  • Fed eyes TALF loan maturities. The Federal Reserve is considering whether to extend some TALF loans to five years from the current three in order to make the program more appealing to investors. Under the extension, loans would become less attractive the longer they run in order to encourage investors to find financing elsewhere. No decision has been reached yet, and Fed officials were already reluctant when they extended TALF's loan terms from one year to three.
  • AbitibiBowater enters Ch. 11. Newsprint giant AbitibiBowater (ABH) filed for bankruptcy protection after failing to reach a debt restructuring deal. A company official said if "you look at the long-term prospects of a company like ours, we believe that they're bright," but that a heavy debt load got in the way. Reorganization will require the support of bondholders who balked at the company's pleas for a debt swap.
  • Big money backing rally. Institutional investors are driving the U.S. stock market's recent rise, State Street says. The firm, which monitors the buying and selling of $12 trillion in assets it holds as custodian, says monthly cash flows into equities are in the 98th percentile - close to a 12-year high. The report flies in the face of yesterday's comments by NYSE Euronext CEO Duncan Niederauer, who said the rally is being driven by quants, while big money sits on the sideline.
  • Google: profit beat, slower growth. Cost controls helped Google (GOOG) beat profit expectations in Q1 (see details below), though CEO Eric Schmidt said the company is "still basically in uncharted territory" in terms of the rough economy. Revenue growth was up 6% from the year before but fell 3% vs. the previous quarter, the company's first ever sequential decline. Separately, Google announced YouTube will begin carrying more full length-content as the video site tries to edge out rival Hulu (GE, NWS).
  • Gov't knew car czar was under scrutiny. Steven Rattner, head of the government's auto task force, disclosed that he was under investigation in an alleged kickback scheme involving New York state's pension fund before taking the position, a Treasury spokesman says. Wall Street Journal reported the probe yesterday. Rattner left Quadrangle Group, a hedge fund he helped found, to oversee the task force earlier this year.
  • Flat-fee internet is safe, for now. Facing broad public opposition, Time Warner Cable (TWX) cancelled plans to expand a trial program that charged internet surfers different amounts based on their bandwidth consumption. The company had intended to roll out its tiered-pricing system in four cities.
  • Housing starts fall. March Housing Starts came in at 510K, down 10.8% from February and short of 540K consensus. Permits fell 9% to 513K. Completions were down 3.5% to 796K. Completions will be coming down as thinning starts to filter through the process, which is good news for still bloated inventories.
  • Jobless claims better than expected. Initial Jobless Claims fell to 610K from last week's 663K (revised), markedly better than the 658K consensus. Continuing claims rose 146K to 5.79M, a new record.
  • Philly Fed survey improves. The Philadelphia Fed's Business Outlook Survey improved to -24.4 in April from March's -35. Although clearly indicating continued overall decline, this reading is the highest since January. New orders improved, but shipments plunged to a record low. Future activity index increased markedly to 36.2 from 14.5.

Earnings: Friday Before Open

  • Citigroup (C): Q1 EPS of -$0.18 beats by $0.16. Revenue of $24.8B (+99.3%) vs. $21.9B. Shares +8.5% premarket. (PR)
  • GE (GE): Q1 EPS of $0.26 beats by $0.05. Revenue of $38.41B (-9%) vs. $39.83B. By unit, Energy Infrastructure profits +19%, Capital Finance -58% (to $1.1B), NBC Universal -45%. GE says Capital Finance is still on track for full-year profitability. Estimated stress-test results indicate no new capital needed even under most adverse scenario. Shares +0.7% premarket. (PR)
  • Mattel (MAT): Q1 EPS of -$0.14 misses by $0.01. Revenue of $785.6M (-14.5%) vs. $795.8M. (PR)
  • Sony Ericsson (SNE, ERIC): Q1 loss of €293M on sales of €1.74B (-36%) were in-line with estimates. "We lost market share in Latin America, India, and Africa as these markets moved toward low-end phones... We will look to focus on the revenue side rather than on market share," VP Anders Runevad says on the earnings call. Announces a further 2,000 job cuts. (DJ)

Earnings: Thursday After Close

  • Amylin Pharmaceuticals (AMLN): Q1 EPS of -$0.34 beats by $0.01. Revenue of $194M (-1.8%) vs. $205M. (PR)
  • Biogen Idec (BIIB): Q1 EPS of $1.05 beats by $0.04. Revenue of $1.04B (+10%) vs. $1.08B. (PR)
  • Google (GOOG): Q1 EPS of $5.16 beats by $0.23. Revenue of $4.07B (+10.1%) in-line. Aggregate paid clicks were up 17% from a year ago, and 3% from Q4. Operating expenses declined to $1.52B from $1.65B last quarter. (PR)
  • People's Bank (PBCT): Q1 EPS of $0.08 misses by $0.02. (PR)
  • Tempur-Pedic (TPX): Q1 EPS of $0.18 beats by $0.06. Revenue of $177M (-28.4%) vs. $184M. Sees full-year EPS of $0.70-$0.90 vs. $0.73 consensus and revenue of $700-740M vs. $763M. (PR)

Today's Markets

Overseas markets were mostly higher Friday after yesterday's Wall Street rally. Futures spent much of the evening in the red, but have moved back to breakeven after strong results from Citigroup and GE.

  • Asia: Nikkei +1.74% to 8,908. Hang Seng +0.12% to 15,601. Shanghai -1.19% to 2,504. BSE +0.69% to 11,023.
  • Europe at midday: London +0.8%. Paris +1.5%. Frankfurt +1%.
  • Futures at 7:00: Dow +0.3% to 8085. S&P +0.2% to 863. Nasdaq -0.3%. Crude -0.2% to $49.86. Gold -1.2% to $869. Treasurys flat. Euro -0.9% vs. dollar. Yen +0.3%. Pound -0.9%.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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