Monday, May 4, 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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  • Citigroup tries to avoid U.S. control. With the government's bank stress test results due out later this week, Citigroup (C) may turn to private investors to boost capital by $10B+ and avoid ceding control to the government. Regulators have indicated that discussions are focused on how much of the government's preferred shares must be converted into common stock, a step that could potentially give the government more than a 50% stake in what was once the largest U.S. bank. Citigroup is hoping private money will convince the Treasury not to convert any of its shares, or at least to settle for a partial conversion. Shares +3.4% premarket (7:00 ET).
  • Banks make last push before stress test results. Like Citigroup (C), Bank of America (BAC) is working on a plan to raise over $10B in fresh capital. Bank of America executives will reportedly meet with the Treasury and Federal Reserve today to make the case that the findings of the stress tests were too pessimistic. Wells Fargo (WFC) and PNC Financial (PNC) are among the banks that will probably need to raise more money unless they can convince regulators otherwise. Test results are scheduled to be released on Thursday.
  • Fiat plans car supergroup. Fresh from a partnership agreement with Chrysler, Italian carmaker Fiat will meet with German government ministers today to discuss a bid for Opel, part of General Motors' (GM) European unit. Fiat may seek to merge its auto group, including 'the Chrysler interest,' with Opel, and then spin off the combined company and list it. The three-way alliance would generate around €80B ($105.8B) in annual revenue and see sales of 6-7M vehicles per year, leapfrogging Fiat's auto group past Ford (F) and Nissan (NSANY), and tying with Volkswagen (VLKAY.PK) for second place behind Toyota (TM).

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  • Chrysler seeks May assets sale. Working for a quick bankruptcy, Chrysler has asked for court approval to auction most of its assets in three weeks. If Chrysler's plan is approved, creditors will have to file their sale objections by May 11, followed by a May 15 deadline for competing bids and a May 21 hearing to approve the winning bid. Chrysler is also seeking approval to pay Fiat a breakup fee of $35M if it's outbid at auction.
  • GM fights bankruptcy pressure. General Motors (GM) and its largest bondholders are still at an impasse over $27B in unsecured claims, leading some analysts to speculate that Chrysler's Chapter 11 was just a dry-run for an increasingly probable GM bankruptcy. GM is expected to accelerate talks with the United Auto Workers union this week and move towards closing around 2,600 dealerships. Shares +5.0% premarket (7:00 ET).
  • Boston Globe faces shutdown. The Boston Globe (NYT) said its ready to file paperwork that would shut down the newspaper within two months if it fails to reach a cost-cutting agreement with its unions. Negotiations broke down early this morning after a midnight deadline passed, and it's unclear when talks will resume. The Boston Globe is the 17th largest U.S. newspaper by circulation, and its closure would leave Boston without a daily, full-service general newspaper of comparable size.
  • Berkshire blames Wall St., media, government. Berkshire Hathaway (BRK.A) held its annual meeting on Saturday, and CEO Warren Buffett lambasted bankers, insurers and regulators for 'greed' and 'stupidity,' and blamed the media and regulators for missing the warning signs. He also admitted his own company's shortcomings, telling shareholders "we will continue to do quite well in our insurance and utility operations. We won't do well in other operations." Berkshire shares are down 31% since last year, and a preview of Q1 showed operating profits declined to $1.7B from $1.9B the year before. Full results are expected Friday.
  • Sprint, Ericsson in network talks. Sprint Nextel (S) is in final negotiations to outsource its cellular network management to LM Ericsson Telephone (ERIC) and transfer 5,000-7,000 U.S. employees to Ericsson. The move comes as Sprint tries to cut costs in the face of dwindling subscriber numbers. A final deal could take several more weeks and could see Sprint paying as much as $2B over several years.
  • Obama's new int'l tax plan. Obama plans to announce a new set of proposals on international tax policy today, with potential implications for U.S. multinational firms. The changes, first referenced in February, would bring in $210B in extra revenue over the next decade.
  • Ties questioned between Goldman, NY Fed. New York Federal Reserve Chairman Stephen Friedman has come under fire for his close ties to Goldman Sachs (GS). At the time that Goldman received its expedited approval to become a bank holding company and got a $10B capital injection, Friedman sat on Goldman's board and had a large holding of Goldman stock, which was in violation of Federal Reserve policy once Goldman received its new bank status. Friedman was also overseeing the search for a new president for the New York Fed, a role that ultimately went to a former Goldman executive. Friedman denies any conflicts of interest in these events.
  • AIG nears HQ sale. AIG (AIG) is reportedly close to selling its Japanese headquarters for around $1B, and sources say the expected buyer is a Japanese insurance company. The deal would mark one of AIG's largest divestitures in an effort to pay off its government debt.
  • Asian nations create liquidity fund. Thirteen Asian countries agreed to set up an emergency $120B liquidity fund to help counter the global financial crisis. Japan, China and South Korea will provide 80% of the currency pool, while Asean members will contribute the remaining 20%.
  • More bank failures. Three more banks failed on Friday: American West Bank of Layton, Utah; Citizens Community Bank of Ridgewood, New Jersey; and Silverton Bank of Atlanta, Georgia. This year has seen 32 bank closings so far, compared to 25 in all of 2008 and just three in 2007. Silverton's failure will cost the FDIC around $1.3B, while the combined cost of the other two closures will be around $137.5M.

Earnings: Monday Before Open

  • Discovery Communications (DISCA): Q1 EPS of $0.28 beats by $0.04. Revenue of $817M (+1.0%) vs. $799M. (PR)
  • Entergy (ETR): Q1 EPS of $1.29 misses by $0.06. Revenue of $2.8B (-2.6%) vs. $3.1B. (PR)
  • Henry Schein (HSIC): Q1 EPS of $0.64 beats by $0.06. Revenue of $1.5B (-2.2%) in-line. (PR)
  • Portland General Electric Company (POR): Q1 EPS of $0.50 misses by $0.03. Revenue of $485M (+3.0%) vs. $490M. (PR)
  • Protective Life (PL): Q1 EPS of $0.86 beats by $0.06. "We expect credit downgrades and impairments to remain at an elevated level, and our stable value account balance should decline." (PR)
  • (SOHU): Q1 EPS of $1.20 beats by $0.21. Revenue of $116M (+36.5%) vs. $113M. (PR)
  • Sprint Nextel (S): Q1 EPS of -$0.21 misses by $0.16. Revenue of $8.2B (-12.1%) vs. $8.3B. (PR)

Today's Markets

Overseas markets, which were mostly off Friday, came out of the gate trotting.

  • Asia: Hang Seng +5.54% to 16,381. Shanghai +3.32% to 2,560. BSE +6.41% to 12,135. Nikkei closed.
  • Europe at midday: Paris +0.9% to 3,189. Frankfurt +1.7% to 4,851. Zurich +0.7%. London closed.
  • Futures at 7:00: Dow +0.5% to 8225. S&P +0.5% to 880.50. Nasdaq +0.55%. Crude -0.6% to $52.89. Gold +0.5% to $892.30. 30-year Tsy +0.17%. Euro -0.1% vs. dollar. Yen -0.1%. Pound -0.3%.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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