Monday, May 18, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Eli Hoffmann

  • India stocks up 17% on landslide victory. India's benchmark BSE Sensex index jumped a record 17% before trading was halted, and the rupee gained the most in two decades (+3.3%) after Prime Minister Manmohan Singh’s Congress Party won national elections in a decisive victory. With 262 of 543 seats, the most in almost two decades of fractious coalition politics, Singh should have enough power to further reduce barriers to foreign investment, which have been opposed by communist lawmakers. Five years ago the Sensex plunged 11% after Congress' ambiguous victory.
  • Smaller banks need another $24B. Small and medium-sized U.S. banks would need to raise $24B to meet the capital standards set by the government in its stress tests of large institutions, according to research by investment bank Sandler O'Neill. As many as 500 more banks could close. Regulators have increased their focus on the next tier of lenders following the recent release of stress-test results.
  • AIG hopes for $5-10B in AIA IPO. AIG (AIG) said Sunday (statement) it will speed up plans to list its Asian subsidiary, AIA, hoping to raise $5-10B, which it could use to pay back some $180B in government loans. AIG failed to sell a large stake in AIA earlier this year, prompting the move toward a Hong Kong IPO.
  • Lloyds' Blank walks the plank. Shares of Lloyds (LYG) are up 4.3% premarket after it announced over the weekend that Chairman Victor Blank will stand down by June next year, a move analysts say could placate shareholder anger over its ill-timed acquisition of U.K. mortgage lender HBOS. Lloyds also said it will launch its £4B capital raise, intended to pay back preferred shares held by the government as part of its rescue package, on May 20.
  • Brazil food giants talk tie-up. Brazil meat processors Sadia (SDA) and Perdigao (PDA) said they're in discussions of a merger that would rescue struggling Sadia, and create one of the world's largest frozen and processed food companies. In a report Thursday, Citigroup speculated the Brazil government could help finance a merger with as much as $750M.
  • New taxes for life insurers? The Obama administration wants to tag life insurers with $12.8B in new taxes over the next decade, even as the sector recently garnered approval to receive TARP bailout funds. New proposals would restrict some tax breaks received by purchasers of insurance or insurance companies themselves. Industry followers say the changes could hit sales of corporate-owned life insurance.
  • High-profile Madoff victims probed. The probe into who knew about Bernard Madoff's massive fraud has broadened to include high-profile investors including philanthropists Jeffry Picower and Stanley Chais, and Carl Shapiro, an old friend. Sources say investigators have evidence Picower and Chais sought - and received - better returns than other investors, sometimes reaching an astonishing 300-950% a year. A lawyer for Picower says his client was "totally shocked" by the fraud and was in no way complicit in it.
  • Takeda to buy IDM Pharma. Takeda Pharmaceutical agreed Monday to acquire IDM Pharma (IDMI), a developer of anti-cancer treatments, for $2.64/share in an all-cash tender offer followed by a merger. Shares of IDM were recently +19% premarket to $2.02.
  • Trump on Trump. Trump-watchers may, or may not, get a better idea of what Donald Trump's empire is really worth today, as his 2007 deposition explaining how he values his assets will be revealed in a hearing. A 2005 book alleged Trump's worth at $150-200M, a defamation Trump alleges cost him subsequent deals. At the time of the deposition, Trump called $4B "a very conservative" estimate, and that $6B is also a good number including brand value. In an interview yesterday, Trump cited $5B, not including brand value. The suit implicates author Timothy O'Brien, and publisher Warner Books (TWX).
  • ECB hopes it's done with easing. European Central Bank governing council member Axel Weber said it's unlikely the ECB will take further action to address the financial crisis. "Unless circumstances worsen considerably, previous measures are adequate, in my view," Weber said, adding, "We would come to reassess our strategy only in the case of a dysfunctional banking system." Late last week, Eurostat reported euro-area GDP fell a record 2.5% in Q1 from Q4, sparking speculation of further rate cuts from the current 1% benchmark.
  • Euro zone trade surplus rises unexpectedly. The euro zone posted a surprise €0.4B trade surplus for March; economists were expecting a deficit of -€0.3B consensus. In a sign that trade flows may be starting to pick up again, exports (€108B, -17% y/y) and imports (€107.6B, -18% y/y) were both higher from a month ago. (see Eurostat's external trade report

Earnings: Monday Before Open

  • Lowe's (LOW): Q1 EPS of $0.32 beats by $0.07. Revenue of $11.83B (-1.5%) vs. $11.63B. Comps fell 6.6%. Sees full-year EPS of $1.13-1.25 vs. $1.11. "The economic pressures on consumers remain intense, and bigger ticket projects continue to be postponed as wary home improvement consumers watch the economic climate and housing market dynamics very closely. But, as spring arrived, we saw relative strength in smaller, outdoor projects," firm says. (PR)

Today's Markets

Overseas markets were mixed Monday, and futures are marginally higher after spending much of the overnight session in the red.

  • Asia: Nikkei -2.44% to 9,039. Hang Seng +1.38% to 17,023. Shanghai +0.28% to 2,653. BSE +17.34% to 14,284.
  • Europe at midday: London +0.8%. Paris -0.1%. Frankfurt flat.
  • Futures at 7:00: Dow +0.2% to 8282. S&P +0.3% to 886. Nasdaq +0.2%. Crude +1.5% to $57.22. Gold -0.1% to $930.60. 30-year Tsy +0.23%. Euro -0.2% vs. dollar. Yen -0.5%. Pound +0.5%.

Monday's Economic Calendar

Seeking Alpha editor Rachael Granby contributed to this post.

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