Friday, May 1, 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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  • Chrysler goes bankrupt. It's official - Chrysler has filed for Chapter 11 bankruptcy protection, and announced a deal with Fiat giving the Italian carmaker an initial 20% stake. Obama thanked everyone from unions to executives for fighting to keep the automaker alive, and blamed 'a small group of speculators' for making bankruptcy inevitable. The plan now is for Chrysler to leave bankruptcy protection in a month or two with a lighter balance sheet, new management, fewer dealers, lower labor costs, a Fiat alliance and possibly even a new name.
  • Cramdowns get voted down. The Senate rejected an amendment that would have given bankruptcy judges the ability to ease a homeowner's monthly payments and stave off foreclosure. Cramdown fans said the amendment would have helped keep millions of Americans in their homes, but critics argued the plan's arbitrary rules would scare off investors and prolong the housing slump. The defeat of the cramdown bill in the Senate came as the House voted to cap the fees credit card companies can charge.
  • Citi's Nikko sale. Citigroup reached a deal to sell Nikko Cordial Securities to Sumitomo Mitsui Financial (SMFJY.PK) for around ¥774.5B ($7.9B), ending Citi's ambitions to create a full-service bank in Japan. The deal will turn Sumitomo Mitsui into a major player in Japan's securities industry. The deal will create an accounting loss for Citigroup, but will raise its tangible common equity, an important move in light of the capital shortfall identified by stress tests.

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  • Cuomo pension probe widens. New York Attorney General Andrew Cuomo is expanding his probe of pension-fund kickbacks, saying the probe has exposed "a national network of actors" whose schemes are ongoing, and has charged a money manager with making illegal payments to a political consultant in exchange for investment business. The charge is at least the fifth since Cuomo's investigation began.
  • BoA board wants Lewis to stay. Bank of America (BAC) directors showed continued support of CEO Ken Lewis despite outside pressure to accelerate a search for his replacement. The subject of succession didn't come up during a board meeting Wednesday, or during recent conversations with regulators. However, the board's continued public support for Lewis will likely raise tensions with angry shareholders who already voted Lewis out of the chairman position. Separately, lawmakers will likely call for hearings on the involvement of the Treasury and Federal Reserve in Bank of America's acquisition of Merrill Lynch.
  • Stress test results delayed. The Federal Reserve postponed the release of banks' stress test results while bank executives argue with regulators over the tests' preliminary findings. Originally scheduled for publication May 4, the results likely won't be published until the end of next week.
  • UBS demurs on tax case disclosures. Responding to the U.S. lawsuit on tax evasion, UBS said revealing the names of 52,000 U.S. customers would violate Swiss criminal law prohibiting such disclosures and trample on Swiss sovereignty. According to UBS' filing, the disclosure request also violates tax treaties between the U.S. and Switzerland, and is "fundamentally an issue for diplomats, not litigators."
  • Fed eyes TALF terms. The Federal Reserve is reportedly preparing to announce new terms for TALF to help revive the commercial real estate market. The Fed will likely roll out new loans with five-year terms to better match the need of investors in commercial mortgage-backed securities, up from the current three-year loan terms.
  • AmEx cut to junk. S&P downgraded American Express' (AXP) credit rating amid concerns about the company's long term liquidity. Its counterparty credit rating was cut by two notches to BBB+, while its preferred stock rating was cut to junk territory with a three-notch drop to BB. Further downgrades are possible.
  • Disney does the Hulu. Disney (DIS) joined up with video site Hulu (GE, NWS) and will distribute films from Walt Disney Studios and programs from ABC and the Disney Channel through the site. The deal marks a shift in strategy for Disney, which will cede some control over the distribution of its programming in exchange for an equity stake, and brings together three of the biggest broadcast and cable network owners under the same banner. GE's NBC Universal, News. Corp and Disney will each hold roughly a 27.5% stake in the venture.
  • Hasbro, Discovery build kids' network. Hasbro (HAS) and Discovery Communications (DISCA) have teamed up to launch a children's entertainment network in 2010. The new network will replace the Discovery Kids network in around 60M homes, and will help Hasbro transform itself into an entertainment company as toys face increased competition from videogames, the internet, movies and TV.
  • Personal income falls. U.S. consumer spending fell in April together with incomes. Personal Income fell 0.3% ($34.4B) in March, while disposable income decreased less than 0.1% ($1.8B). Personal consumption expenditures (PCE) declined 0.2% ($24.2B).
  • Employment costs rise. Employment costs rose a record low 0.3% in Q1, in-line with consensus. Over the past year, employment costs have risen a record low 2.1%.
  • Jobless claims better than consensus. Initial jobless claims were 631K, down from last week's 645K (revised) and better than consensus of 640K. Continuing claims rose 133K to 6.27M.
  • Business conditions improve (.pdf). Business conditions in the Chicago area surged to their best reading in seven months, according to the NAPM Chicago Business Barometer. Varied "general comments" included "Record setting Federal debt will harm economic recovery," and "Small business lending is picking up..."

Earnings: Friday Before Open

  • Aon (AOC): Q1 EPS of $0.76 misses by $0.12. Revenue of $1.85B (-2.7%) vs. $2.08B. (PR)
  • PPL Corp. (PPL): Q1 EPS of $0.60 beats by $0.14. Revenue of $2.36B (+54.6%) vs. $1.69B. (PR)

Earnings: Thursday After Close

  • Ariba (ARBA): FQ2 EPS of $0.15 beats by $0.01. Revenue of $84.7M (+5.2%) vs. $85M. Shares +5.1% AH. (PR)
  • Chiquita (CQB): Q1 EPS of $0.49 beats by $0.21. Revenue of $842M (-9.9%) vs. $910M. "While Q1 results were better than expected... the company's full-year expectations remain the same." Shares +14.4% AH. (PR)
  • Curtiss-Wright (CW): Q1 EPS of $0.35 beats by $0.01. Revenue of $424M (-2.2%) vs. $420M. Reaffirms full-year guidance. (PR)
  • DENTSPLY International (XRAY): Q1 EPS of $0.43 in-line. Revenue of $507M (-9.6%) vs. $524M. (PR)
  • Evergreen Solar (ESLR): Q1 EPS of -$0.40 vs. consensus of -$0.08. Revenue of $55.8M (+26.2%) vs. $49.2M. Shares -14% AH. (PR)
  • Hartford Financial (HIG): Q1 EPS of -$3.77 misses by $0.72. Sees full-year EPS of $0.05-0.45 vs. $0.98 consensus. Book value per share down 57% to $24.15. Net unrealized investment losses $6.9B, up from $6.8B in Q4. Shares -12.6% AH. (PR)
  • Ingram Micro (IM): Q1 EPS of $0.23 beats by $0.10. Revenue of $6.75B (-21.4%) in-line. "With the recession now affecting all regions, we do not expect a pick-up in sales for several more months, perhaps for the remainder of the year. However, we don't feel the market getting worse at this stage..." Shares +3.3% AH. (PR)
  • Manitowoc (MTW): Q1 EPS of $0.18 beats by $0.05. Revenue of $1.03B (+4%) in-line. Shares -2.5% AH. (PR)
  • McAfee (MFE): Q1 EPS of $0.54 beats by $0.06. Revenue of $448M (+21.1%) in-line. Q2 guidance in-line. Shares +3.9% AH. (PR)
  • MetLife (MET): Q1 EPS of $0.20 misses by $0.14. Revenue of $10.22B (-12.%) vs. $11.93B. Net realized investment losses of $618M. Shares -3.8% AH. (PR)
  • Monster Worldwide (MWW): Q1 EPS of $0.00 beats by $0.11. Revenue of $254M (-30.6%) in-line. Shares -4% AH. (PR)
  • PerkinElmer (PKI): Q1 EPS of $0.26 beats by $0.06. Revenue of $432M (-5.9%) vs. $411M. Shares flat AH. (PR)
  • Republic Services (RSG): Q1 EPS of $0.35 beats by $0.05. Revenue of $2.06B (+164.4%) in-line. (PR)
  • QLogic (QLGC): FQ4 EPS of $0.20 misses by $0.01. Revenue of $130.5M (-18.3%) vs. $135M. Shares -3.2% AH. (PR)

Today's Markets

Japan moved higher Friday. Elsewhere markets were closed. Volume in overnight futures is unusually low.

  • Asia: Nikkei +1.69% to 8,977.
  • Futures: Dow +0.5% to 8163. S&P +0.5% to 874. Nasdaq +0.5%. Crude -0.2% to $51.04. Gold -0.8% to $884.30. 30-year Tsy -0.14%. Euro +0.7% vs. dollar. Yen -0.7%. Pound +0.8%.

Friday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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