Tuesday, May 19, 2009

Wall Street Breakfast: Must-Know News

Reader Impact Email

Wall Street Breakfast: Must-Know News

by SA Editor Eli Hoffmann

  • Small banks face huge losses. Small and midsize U.S. banks could suffer $100B in losses on commercial real-estate loans by the end 2010 if economic woes deepen, according to research by the Wall Street Journal. Total losses over the same period could hit $200B using the worst-case scenario employed by the government's stress tests of large banks. The Journal's analysis follows an article in yesterday's Financial Times which found small and medium banks needed a more sanguine $24B to meet the capital standards set by the government. Synovus Financial (SNV) could face losses of $3.4B, the Journal says. For more on the methodology and results of the analysis, see WSJ's interactive graphic.
  • Goldman, JPMorgan, Morgan Stanley want out of TARP. Sources say Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) have applied to repay a combined $45B in TARP loans, a move analysts say will not only remove them from the spotlight of regulators and taxpayers, but also demonstrate their relative health, helping them attract customers, staff, and capital. The government needs to sign off on the payback, and sources say Treasury chief Geithner will not do so before he's issued industry-wide compensation guidelines. The three were among nine banks that took TARP loans from then Treasury-head Henry Paulson under extreme pressure.
  • BlackRock: Buyer, seller, adviser. Already chosen to to help the government manage the portfolios once owned by Bear Stearns and AIG (AIG), and to analyze difficult-to-price assets of Freddie Mac, Morgan Stanley (MS) and others, BlackRock (BLK) has now been invited to a coveted "second-round interview" to become one of the few money managers to participate in the government's program (PPIP) to help private investors soak up toxic assets from U.S. banks using taxpayer money, sources say. Some worry being on both sides of the fence - setting the assets' prices and buying them - would be a massive conflict of interests.
  • Giants duke it out over BGI. BlackRock (BLK) and Bank of New York Mellon (BK) are both in talks to buy Barclays' (BCS) asset-management unit, whose $1.5T in client assets makes it the industry's biggest. To the victor, title of the world's largest wealth manager, leaving rivals Pacific Investment Management and State Street (STT) to play catch up.
  • Homebuilder confidence slowly on the rise. National Association of Home Builders' housing-market index rose for the second straight month, up two points to 16 after a five point jump in April. While the index remains at a very low level, the recent strength - amid falling prices and an $8,000 tax credit for first time buyers - suggests a potential bottom for the U.S. housing market, analysts say. (see NAHB's release)
  • Cautious shoppers pinch Home Depot's sales. Home Depot's (HD) Q1 earnings jumped 44%, exceeding Street expectations, but sales fell 9.7% and same-store sales were off 10% (see data below). Last year's Q1 was hurt by a larger charge related to the closing of its Expo home-design business. During the critical spring fix-up season, Home Depot said customers were focused on small purchases, with amount spent per transaction down 8.2%. "Our markets, and the consumer in general, remain under pressure," CEO Frank Blake said.
  • U.S. to decree stricter fuel goals. President Obama will today announce the U.S.'s first attempt at official emissions limits for cars and trucks, as well as requiring a new standard of 35.5 mpg. The move will cost consumers another $1,300 per vehicle by 2016, officials say. The plan would save 1.8B barrels of oil through 2016 and would be the environmental equivalent of taking 177M cars off the road.
  • More, heavy layoffs at Amex. American Express (AXP) revealed its second phase of job cuts, eliminating 4,000 positions (6% of its workforce) with the goal of saving $175M this year. The cuts were deeper than expected by analysts. In October, Amex announced 7,000 layoffs. Combined with additional savings from cutbacks in marketing and business development, Amex says it hopes to save $800M this year.
  • Derivatives market shrinks for first time on record. The derivatives market contracted for the first time ever in H2 2008, according to a report today from the Bank for International Settlements. he total notional amount of over-the-counter (OTC) derivatives contracts outstanding in H2 was $592T, down 13.4% from six months earlier. Credit market turmoil was largely responsible for a 26.9% contraction in outstanding credit-default swaps. However, movements of financial market prices in the second half of 2008 lifted gross market values 66.5%, to $33.9T, which represents the cost of replacing all existing contracts, and may be a better measure of true market risk. (see BIS's press release and full report (.pdf))

Earnings: Tuesday Before Open

  • Home Depot (HD): Q1 EPS of $0.35 beats by $0.06. Revenue of $16.18B (-9.7%) vs. $15.86B. Affirms full-year guidance. (PR)
  • Vodafone (VOD): Full-year Ebitda of £14.5B, in-line with consensus, up from £13.2B a year ago. Sales rose 16% to £41.02B. Vodafone added 7M new customers in Q4 to 303M. Shares -1.75% premarket. (Bloomberg)

Earnings: Monday After Close

  • American Apparel (APP): Q1 EPS of -$0.13 misses by $0.08. Revenue of $114M vs. $117.5M. Issues downside guidance for FY '09: sees revenue of $550-575M, income from operations $40-50M. (PR)

Today's Markets

Overseas markets posted solid gains Tuesday, and the optimism has carried over into the futures. Treasurys are under pressure.

  • Asia: Nikkei +2.78% to 9,290. Hang Seng +3.06% to 17,544. Shanghai +0.9% to 2,677. BSE +0.12% to 14,302 after climbing as high as 14,931 intraday.
  • Europe at midday: London +1.4%. Paris +1.25%. Frankfurt +2.3%.
  • Futures at 7:00: Dow +0.8% to 8536. S&P +0.8% to 914.50. Nasdaq +0.6%. Crude +1.7% to $60. Gold +0.1% to $922.60. 30-year Tsy -0.5% to 121-05. 10-year -0.36% to 120-12. 5-year -0.22%. 2-year -0.06%. Euro +0.6% vs. dollar. Yen +0.1%. Pound +1%.

Tuesday's Economic Calendar

Seeking Alpha editor Rachael Granby contributed to this post.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.

Found this interesting? Join the discussion!

Most Popular on Seeking Alpha

Most Read

Most Commented

Editors' Picks

Modify your selections or Unsubscribe completely
Powered by ReaderImpact

This email was sent to you by Seeking Alpha
5th Floor (Regus)
11 Penn Plaza
New York, NY 10001
Tel: 646-248-7597
ReaderImpact Enterprise API