Tuesday, April 21, 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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  • 'Leaked' (false?) stress tests. After "leaked" bank stress test results surfaced on a blog of questionable legitimacy, the Treasury was forced to clarify there was 'no basis' to the false reports and said it doesn't have the test results yet. The results posted by the blog said 16 of the nation's top 19 banks are already technically insolvent and any two of them could take down the FDIC, news (whether true or not) that helped drag down financial stocks yesterday.
  • Stress tests to put more focus on loan quality. Regulators conducting bank stress tests have encountered a wide variety of underwriting standards, prompting officials to focus more closely on the quality of the loans made. Accordingly, the stress tests will reportedly place as much weight on banks' lending practices and management decisions as on macroeconomic scenarios.
  • More money for Detroit. The White House will make up to $5B available to General Motors (GM) through May to help the company restructure outside of bankruptcy, and will offer an additional $500M to Chrysler through the end of April. The Treasury is putting increased pressure on Chrysler to reach a deal with Fiat by the end of the month, while some White House officials have reportedly concluded Chrysler isn't worth trying to save because of its weak product line and lack of international reach. Separately, a government report said Chrysler was turned down for additional TARP loans because it failed to get its top executives to sign compensation waivers.

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  • Watchdog warns on PPIP. A government watchdog issued a strong warning in a report released this morning, calling the Treasury's plan for public-private investment partnerships (PPIP) 'inherently vulnerable' to fraud, abuse, conflicts of interest and money laundering. PPIP could also expose taxpayers to increased risk without a corresponding increase in potential profit. TARP cop Neil Barofsky called on the Treasury to ensure program transparency and impose strict rules to screen investors. Geithner will testify before Congress on TARP later today. (Read the report (.pdf)) (Watch Geithner's hearing live at 10:00 ET)
  • Gov't estimated $900M loss on Citi. The audit report released by Neil Barofsky disclosed an ongoing audit into federal assistance to Bank of America (BAC) in connection with BoA's acquisition of Merrill Lynch. It also revealed the Treasury estimated $900M in losses at the end of last year on the $301B of Citigroup (C) assets guaranteed by the government. An estimate for losses after Jan. 1 is not yet available. Meanwhile, senior FDIC officials reportedly held private talks to discuss who might replace CEO Vikram Pandit if Citigroup needs more aid.
  • Morgan mulls regional bank buys. Morgan Stanley (MS) may buy U.S. regional banks to boost its retail banking operations. CEO John Mack acknowledged that "we are looking for potential opportunities to buy a bank that has a presence in an important market in the United States."
  • IBM beats but revenue falls. IBM (IBM) beat Q1 earnings estimates but saw revenue fall a larger-than-expected 11% (see details below) as corporate spending slowed. The company reiterated its full-year profit outlook of at least $9.20 per share. Partly overshadowing IBM's earnings was Oracle's (ORCL) announced deal to acquire Sun Microsystems (JAVA), an acquisition IBM had tried to make earlier this month.
  • Credit deterioration clouds BoA profit beat. Despite beating earnings expectations by $0.40 per share, Bank of America's (BAC) stock closed down 24% yesterday as investors focused on a decline in credit quality. Provisions for credit losses jumped to $13.4B from $8.5B in Q4, while non-performing assets rose to $25.7B from $18.2B. CEO Ken Lewis told investors to "make no doubt about it. Credit is bad and will eventually get worse before it stabilizes and improves." S&P maintained its hold rating on the bank's shares, but warned "a capital raise can't be ruled out."
  • Rumored UBS hedge fund sales. After yesterday's announcement that UBS (UBS) will sell investment bank Banco Pactual at a 'small loss,' media reports are circulating that the Swiss bank is considering selling all or part of its hedge funds business Alternative & Quantitative Investments in a management buyout. A sale would fit the bank's new strategy to cut risks, raise capital and re-focus.
  • New Fannie Mae chief. COO Michael J. Williams will become the new CEO of Fannie Mae (FNM) and will serve on the company's board. Williams is replacing Herbert Allison, who will be managing the government's TARP efforts.
  • Aussies enter recession. Australia's economy has entered its first recession since 1991, said central bank Governor Glenn Stevens. He added that he's confident stimulus measures, a strong banking system and a pickup in China will help the economy rebound.
  • Germany's many bad banks. The German government agreed to create several 'bad banks' to house lenders' distressed assets instead of creating just one bad bank for the entire German banking sector. A government spokesman said officials have already agreed on the 'decentralized solution,' but details of how the program would work are not yet finalized.
  • Chicago Index edges down. The Chicago Fed's National Activity Index dipped slightly to -2.96 in March from -2.82 in February, bringing the three-month average to -3.27. Employment made a large negative contribution to the index, as did production and income.
  • Leading indicators fall. Conference Board's Leading Indicators fell 0.3% in March, in-line with consensus. Weakness remained widespread among its components, especially for building permits, stock prices and supplier deliveries.

Earnings: Tuesday Before Open

  • Autoliv (ALV): Q1 EPS of -$0.90 in-line. Revenue of $927M (-49.3%) vs. $982M. (PR)
  • Comerica (CMA): Q1 EPS of -$0.16 misses by $0.07. Total assets of $67.4B. Q1 dividend reduced to $0.05 from $0.33. (PR)
  • DuPont (DD): Q1 EPS of $0.54 beats by $0.02. Revenue of $6.9B (-19.9%) vs. $7.7B. (PR)
  • KeyCorp (KEY): Q1 EPS of -$1.09 misses by $0.88. Revenue of $1.1B (-9.9%) in-line. Shares -2.3% premarket (7:00 ET). (PR)
  • Kinetic Concepts (KCI): Q1 EPS of $0.83 beats by $0.02. Revenue of $470M (+11.9%) vs. $481M. (PR)
  • Schering-Plough (SGP): Q1 EPS of $0.56 beats by $0.09. Revenue of $4.4B (-5.7%) vs. $4.6B. (PR)
  • UnitedHealth (UNH): Q1 EPS of $0.81 beats by $0.14. Revenue of $20.1B (+9.4%) vs. $21.4B. (PR)

Earnings: Monday After Close

  • Brown & Brown (BRO): Q1 EPS of $0.34 misses by $0.01. Revenue of $264M (+2.7%) vs. $268M. (PR)
  • Boston Scientific (BSX): Q1 EPS of $0.19 beats by $0.07. Revenue of $2.0B (-1.8%) in-line. (PR)
  • Canadian National Railway (CNI): Q1 EPS of C$0.64 beats by C$0.03. Revenue of C$1.86B (-3.5%) vs. C$1.82B. (PR)
  • IBM (IBM): Q1 EPS of $1.70 beats by $0.04. Revenue of $21.7B (-11%) vs. $22.51B. Reiterates full-year EPS guidance of at least $9.20. Gross margin +1.9 points to 43.4%. (PR)
  • Stryker (SYK): Q1 EPS of $0.71 in-line. Revenue of $1.6B (-2%) in-line. (PR)
  • Texas Instruments (TXN): Q1 EPS of $0.01 beats by $0.04. Revenue of $2.09B (-36.2%) vs. $1.9B. Q2 guidance in line. Gross margin 38.6% vs. 39.3% consensus. "Demand for our products has begun to stabilize after sharp drops in the past two quarters. Many customers have increased orders for TI products as they have begun to slow down their inventory reductions. However, we remain sensitive to continuing weakness in the global economy, and we have yet to see signs of a broad-based recovery in our business." (PR)

Today's Markets

Asia gapped down Tuesday. Europe markets opened higher but have fallen sharply heading into midsession. Futures are lower.

  • Asia: Nikkei -2.39% to 8,711. Hang Seng -2.95% to 15,286. Shanghai -0.85% to 2,536. BSE -0.74% to 10,898.
  • Europe at midday: London -0.7%. Paris -1%. Frankfurt -0.3%.
  • Futures: Dow -0.6% at 7776. S&P -0.6% to 828. Nasdaq -0.4%. Crude -0.2% to $48.43. Gold +0.2% to $889. 30-year Tsy +0.27%.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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