Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

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• Chrysler bankruptcy: two years, not two months. A White House official said Obama's projection of a 60-day bankruptcy for Chrysler applied only to a sale of Chrysler's best assets to a new entity, and that the full bankruptcy restructuring process could take as long as two years. As a new, streamlined Chrysler is launched, the remaining entity will still carry debt and other liabilities, and face creditors fighting over assets. Separately, court documents show Fiat will be able to increase its Chrysler stake if the Italian automaker achieves certain goals such as making engines in the U.S.
• GMAC lends to Chrysler dealerships. A bankruptcy judge approved GMAC to become the primary lender to Chrysler's dealerships, which lost their main source of financing when Chrysler filed for bankruptcy. The agreement is crucial because dealerships rely on financing to stock their showrooms and would otherwise have faced a wave of failures.
• Intel faces record antitrust fine. As expected, the European Commission ruled against Intel (INTC) in an antitrust case and fined the tech giant a record €1.06B ($1.45B) for abusing its dominance in the chip market. Commissioner Neelie Kroes said the fine was justified since Intel skewed competition, robbed consumers of choice and undermined innovation. Kroes also ordered Intel to stop offering rebates to computer makers that had helped it maintain an 80% market share. Shares -0.7% premarket (7:00 ET).
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• Obama eyes bank pay. White House officials have launched serious talks about how to change compensation practices on Wall Street, including at institutions that did not receive federal bailout money. Though still in early stages, the discussions are part of an ambitious and controversial effort to address both employee and executive pay at financial firms, including a closer ties between pay and long-term performance and a greater emphasis on deal quality instead of quantity. Officials are considering legislative options, as well as using the supervisory powers of the Federal Reserve and SEC.
• Citigroup unit looking for bids. Executives at Citigroup's (C) Primerica Financial Services unit have approached private-equity firms to seek bids for the division’s 100,000-employee sales arm. The executives started the talks with firms including J.C. Flowers, Blackstone Group (BX), and TPG Inc. after Citigroup failed to find a buyer for the entire life insurance company, and Citigroup reportedly hasn't endorsed the plan. Shares +1.4% premarket (7:00 ET).
• Rio may scrap Chinalco deal. Rio Tinto (RTP) may drop a $19.5B investment deal with Chinalco (ACH) in favor of a £5B ($7.6B) share offer. The Chinalco deal has faced stiff opposition from shareholders and there are rumors that Australia's Foreign Investment Review Board is set to block the deal. Shares -4.9% premarket (7:00 ET).
• More losses at Freddie. Freddie Mac (FRE) reported a Q1 loss of $9.85B (see details below) as the costs of mortgage defaults grew, and said it will need another $6.1B of capital from the Treasury. The company put $8.8B aside for future credit losses, up from $1.2B in the year-earlier quarter, and expects 'the coming quarters to be difficult,' though it sees 'preliminary signs of slowing in home-price declines.' The latest capital call brings Freddie's total to $51B.
• Profit falls at Allianz. Allianz (AZ) reported a 97% drop in Q1 profit as it sold Dresdner Bank at a loss and saw the value of its investments fall. Net income fell to €29M ($39.7M) from €1.15B the year before. CEO Michael Diekmann is trying to refocus on Allianz's insurance operations after ending the firm's seven-year foray into banking. Shares -5.25% premarket (7:00 ET).
• Treasury picks PPIP managers. The Treasury will notify a group of asset managers today that they have been selected to oversee the first wave of Public-Private Investment Program funds. The selected firms, which are widely expected to include BlackRock (BLK) and Allianz's (AZ) Pacific Investment Management Co., will then negotiate with the Treasury over the structure of their proposed funds.
• Toyota slashes production. Toyota (TM) will cut global vehicle production by 28% in 2009, to 6.68M units from 9.24M units, as vehicle demand continues to sink. Earlier this month, Toyota cut its dividend for the first time and posted a $4.4B net loss on the year that ended in March. The company expects its net loss to widen to $5.7B for the current fiscal year. Shares -2.1% in Tokyo.
• April foreclosures rise. The number of U.S. homes facing foreclosure jumped 32% in April, led by Nevada, Florida and California. One in every 374 U.S. housing units received a foreclosure filing last month, the highest monthly rate since reporting began in 2005. Repossessions by banks were down on a monthly and annual basis, but will likely increase again in coming months.
• IMF pushes EU bank stress tests. The IMF called on European nations to follow America's lead and run stress tests on individual banks, saying further actions are needed to "restore market trust and confidence." The fund warned that economic recovery in the region next year depends on more aggressive policy action.
• Germany backs bad banks. German Chancellor Angela Merkel backed a 'bad banks' model today to deal with toxic assets. Finance Minister Peer Steinbrueck called public funds 'sufficient' to tackle the banking crisis; the government's bank rescue fund has €260B ($356B) left, with a maximum of €190B in toxic assets still on banks' books.
• Retail sales rise. Retail chain store sales rose 0.3% from a week ago, ICSC reported, and rose 0.5% Y/Y. According to Redbook, chain store sales rose 0.1% in the first week of May, and rose 0.3% Y/Y. Warm weather helped stores sell horticultural products, apparel and other seasonal items.
• Falling home prices. The U.S. median home price in Q1 fell 13.8% from the previous year to $169,000. The National Association of Realtors noted the drop in prices may be exaggerated by foreclosure sales of distressed properties, while traditional sales of well-kept homes have held their value better.
• Trade balance. March's Trade Balance -$27.6B vs. consensus of -$27.5B and February's -$26.1B. Exports: $123.6B (-$3.0B). Imports: $151.2B (-$1.6B). It's the first time in eight months that the deficit has widened.
• MBA apps fall. Mortgage applications fell 8.6% last week, MBA reported. The average interest rate on 30-year fixed-rate mortgages fell to 4.76% from 4.79%.

Earnings: Wednesday Before Open

• Dr Pepper Snapple Group (DPS): Q1 EPS of $0.37 beats by $0.08. Revenue of $1.26B (-2.7%) vs. $1.25B. Issues upside EPS guidance for FY '09 of $1.70-1.78. (PR)
• Liz Claiborne (LIZ): Q1 EPS of -$0.37 misses by $0.14. Revenue of $780M (-28.8%) vs. $884M. (PR)
• Vimpel-Communications (VIP): FQ4 EPS of -$0.81 misses by $0.88. Revenue of $2.55B (+27.1%) vs. $2.65B. (PR)

Earnings: Tuesday After Close

• Applied Materials (AMAT): FQ2 EPS of -$0.10 in-line. Revenue of $1.02B (-52.5%) vs. $906M. Shares -2.4% AH. (PR)
• BMC Software (BMC): FQ4 EPS of $0.64 beats by $0.02. Revenue of $479M (+2.6%) vs. $487M. Shares -4.5% AH. (PR)
• Freddie Mac (FRE): Q1 EPS of -$3.14 vs. -$0.66 a year ago. Provision for credit losses $8.8B vs. $7B in Q4, reflecting "continued increases in the number of delinquent loans, delinquency rates and estimated severity of losses driven by ongoing deterioration of housing and credit market conditions." But says it sees "preliminary signs of slowing in home price declines as low mortgage rates and high affordability take hold." Shares flat AH. (PR)
• GT Solar (SOLR): FQ4 EPS of $0.13 misses by $0.05. Revenue of $138.5M (+4.8%) vs. $151M. Sees 2010 EPS of $0.45-0.60 vs. $0.81 consensus. Shares -19.4% AH. (PR)

Today's Markets

Overseas markets were mixed Wednesday. Futures have drifted lower overnight.

• Asia: Nikkei +0.45% to 9,340. Hang Seng -0.55% to 17,059. Shanghai +1.74% to 2,664. BSE -1.14% to 12,020.
• Europe at midday: London -0.4%. Paris -0.5%. Frankfurt -0.2%.
• Futures at 7:00: Dow -0.4% to 8400. S&P -0.5% to 902.50. Nasdaq -0.8%. Crude +0.5% to $59.13. Gold -0.1% to $922.60. Treasurys flat.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  8:30 Retail Sales
  8:30 Import/Export Prices
  10:00 Business Inventories
  10:30 EIA Petroleum Status
• Notable earnings before Wednesday's open: DPS, LIZ, M, TDW, VIP
• Notable earnings after Wednesday's close: CA, URS, WFMI

Seeking Alpha editor Eli Hoffmann contributed to this post.

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