Thursday, May 28, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Citi in SEC settlement talks. Citigroup (C) is reportedly in early stage negotiations with the SEC to settle a probe into whether it misled investors on the amount of troubled mortgage assets it held. Among issues being debated inside the SEC is whether Citigroup should have to pay a large penalty in the case; there's a concern about financial institutions using taxpayer funding to pay penalties to government bodies. The SEC began a number of civil probes in late 2007 as the market began to implode, and talks with Citigroup signal the SEC could be moving toward a resolution on several of its other investigations.
  • One regulator to rule them all. White House officials are close to recommending the creation of a single regulator to oversee the entire banking sector. The new agency could be controversial, since it would consolidate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and strip powers from the Federal Reserve and FDIC. However, the Fed would likely gain the ability to oversee systemic risks in the economy and the FDIC would likely have expanded powers to take large financial companies into receivership. Officials are also considering other efforts at overhauling financial supervision, including an agency to monitor financial products and a more powerful regulator to protect investors.
  • Legacy Loans looks shaky. The Legacy Loans Program, part of the $1T Public Private Investment Program, is currently stalled and may soon be shelved altogether. The program is being crafted by the FDIC and is meant to rid banks of bad loans. However, prospective participants have expressed reluctance to join the program because of an increased sense of stability and fears the program's rules might change mid-game. Administration officials say the purchase of toxic assets may not be as critical to a recovery as it once seemed, and a test run of the program expected to take place next month will likely be delayed.
  • Fed limits banks' reliance on future revenue. The Federal Reserve began notifying stress-tested banks that they won't be allowed to rely too heavily on expected future revenues to plug capital holes. Bank of America (BAC) had counted on billions of dollars of future revenue as part of its plan to shore up capital, and will now have to raise much of that money from other sources. Other banks that have revamped their capital-raising strategies, or may need to, include PNC Financial (PNC) and Wells Fargo (WFC).
  • Opel talks stall. Negotiations to rescue General Motors' (GM) Opel unit stalled after the automaker unexpectedly demanded an extra €300M ($415M) in cash. German government officials narrowed the bidders to Fiat and Magna International (MGA) and hope to reach a resolution by tomorrow.
  • AOL to go it alone. Time Warner (TWX) is set to announce a separation of its AOL division as soon as today. AOL would be spun out into an independent company, a move Time Warner CEO Jeff Bewkes has signaled for months, though the structure of the transaction hasn't been finalized yet.
  • Samsung, SanDisk reach patent agreement. After lengthy negotiations, Samsung Electronics and SanDisk (SNDK) reached a patent licensing deal eliminating the threat of litigation between the two companies. The deal extends an existing licensing agreement that was set to expire in August, but fixed payments and royalty rates are expected to be about half those of recent years.
  • OPEC holds firm. As expected, OPEC members left their production quota unchanged. However, members are split on the future outlook for oil; some forecast oil at $75-80/barrel by the end of the year, others are less optimistic.
  • News Corp. eyes broader ad deal. News Corp. (NWS) is looking to broaden its advertising deal with Google (GOOG) by selling access to more of its media properties. The current deal, which is set to expire in a year and a half, allows Google to run its internet search ads on the MySpace social media website.
  • Show her the money. Yahoo (YHOO) CEO Carol Bartz said she's open to doing a search deal with Microsoft (MSFT) if the company is offered 'boatloads of money.' Bartz also said Yahoo is interested in acquiring social-networking and video start-ups.
  • Toys 'R' Us buys FAO Schwarz. Toys 'R' Us will acquire specialty retailer FAO Schwarz, and plans to maintain the "distinctiveness and integrity of FAO Schwarz's stores and brand." The move nets Toys 'R' Us the retailer's flagship Fifth Avenue store in New York and a chance to increase its specialty market share. FAO had struggled in recent years from increased competition from Wal-Mart (WMT) and Target (TGT).
  • Pequot closes ahead of probe. Pequot Capital Management, once one of the largest hedge funds in the world, is shutting down amid a revived insider-trading probe. Founder Arthur Samberg strongly denies any wrongdoing but said the continued investigation had become "increasingly untenable for the firm and for me."
  • Retail sales.Chain store sales fell 0.4% in the first three weeks of May vs. last month, according to Redbook, worse than the expected 0.1% drop. Weekly sales were up 0.8% vs. last week, ICSC reported, noting the Memorial Day holiday weekend "sparked some renewed consumer spending."
  • Home prices fall (.pdf). FHFA's House Price Index showed U.S. home prices fell 0.5% in Q1 vs. Q4's 3.3% decline. Prices were down 7.1% Y/Y. The data provides "growing evidence that housing market conditions may be stabilizing in some parts of the country... [and] home price depreciation may be easing."
  • Home sales rise. Existing home sales climbed 2.9% to 4.68M in April from 4.55M in March (revised), in-line with consensus. First-time sales were strongest, with a seasonal jump in repeat buyers. High-end sales remained sluggish, leading NAR chief economist Lawrence Yun to recommend that the Federal Reserve use TALF to buy jumbo mortgages.

Earnings: Thursday Before Open

  • Big Lots (BIG): Q1 EPS of $0.44 beats by $0.04. Revenue of $1.1B (-0.9%) in-line. (PR)
  • Costco (COST): FQ3 EPS of $0.48 misses by $0.05. Revenue of $15.8B (-4.9%) vs. $16.2B. (PR)
  • Frontline (FRO): Q1 EPS of $0.97 beats by $0.27. Revenue of $356.6M (-32.4%) vs. $300M. (PR)
  • Vimpel-Communications (VIP): Q1 EPS of -$0.25 misses by $0.43. Revenue of $1.97B (-6.5%) vs. $1.96B. (PR)

Earnings: Wednesday After Close

  • TiVo (TIVO): Q1 EPS of -$0.04 beats by $0.01. Revenue of $48.5M (-11.7%) in-line. Gross additions fell to 37K from 48K last year. Churn edged up to 1.4%.(PR)

Today's Markets

European markets are under water after yesterday's U.S. selloff.

  • Asia: Nikkei +0.13% to 9,451. BSE +1.32% to 14,296. Hong Kong and China were closed.
  • Europe at midday: London -1.3%. Paris -1%. Frankfurt -1.3%.
  • Futures: Dow +0.4% to 8328. S&P +0.4% to 896. Nasdaq +0.4%. Crude +0.3% to $63.66. Gold -0.1% to $952.50. 30-year Tsy +0.09%. Euro -0.1% vs. dollar. Yen -1.7%. Pound -0.3%.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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