Monday, June 1, 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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  • GM drives into bankruptcy. General Motors (GM) will file for bankruptcy today. The U.S. government, which is providing $30.1B in bankruptcy financing, will end up with a 60% equity stake but wants a "quick, clean exit as soon as conditions permit." The Canadian government will get a 12% stake and lend the company $9.5B. Al Koch, a managing director at the advisory company AlixPartners LLP, will reportedly become GM's chief restructuring officer. The new GM will be smaller and built to survive in a market of 10M annual U.S. car sales, down from 16M. Officials say GM could be a publicly traded company again within 6-18 months.
  • Fall-out from GM. The restructuring faces several potential risks, including legal challenges, shaky consumer demand and a dragged-out process for shedding unwanted parts of GM. Current shareholders will be wiped out, while dealers and suppliers will continue to struggle. The government will be forced to navigate new conflicts, as it simultaneously serves as GM's shareholder, regulator, tax collector, customer, pension backstop and lender. In the short-run, the estimated losses from quick bankruptcy restructurings at GM and Chrysler are 63,200 jobs this year and 179,400 jobs next year. However, the filing may lift the economy in the long-run as poorly utilized workers and resources are reallocated to more productive sectors.
  • Chrysler sale gets green light. A bankruptcy judge approved Chrysler's plan to sell most of its business to a group led by Fiat, despite the 300+ objections filed against the sale. The automaker could exit bankruptcy reorganization as soon as today, after barely a month in Chapter 11 protection.
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  • Ford pushes forward. Ford (F) plans to ramp up its Q3 production of cars and trucks by around 10%, hoping to gain market share at the expense of rivals Chrysler and GM (GM). It will be Ford's first major production increase in almost two years, while GM and Chrysler plan to shut down their plants for nearly all of Q3.
  • Geithner reassures China on deficit. Geithner is in China for his first trip as Treasury secretary and is trying to deepen economic cooperation between the two countries. Responding to concerns about the safety of China's dollar assets, Geithner said "no one is going to be more concerned about future deficits than we are," and committed to controlling borrowing at a 'sustainable' level and shrinking the U.S. deficit to 'roughly 3%.' Geithner repeated his call for a more flexible yuan, but declined to repeat comments from earlier this year that China is 'manipulating' its currency. (Read Geithner's remarks)
  • Goldman sells ICBC shares. Goldman Sachs (GS) is selling around 20% of its stake in Industrial and Commercial Bank of China, totaling up to $1.9B worth of shares, at a discount of 4-6% below ICBC's Monday closing price. In March, Goldman pledged to keep 80% of its ICBC shares.
  • Prudential snubs Treasury program. Prudential Financial (PRU) announced a $1.25B common stock offering this morning, and said it won't participate in the Treasury's Capital Purchase Program. Shares -2.3% premarket (7:00 ET).
  • Elan shops around. Biotech firm Elan (ELN) is reportedly in advanced talks to sell a minority stake to Bristol-Myers Squibb (BMY), and an agreement could come sometime this week. Elan is also said to be in talks with a second suitor, but details are sketchy. The move could be the first step in an outright sale of Elan. ELN +10.7% premarket (7:00 ET).
  • Emulex strikes back. Emulex (ELX) ramped up its fight against a $764M hostile takeover bid from Broadcom (BRCM), filing a lawsuit alleging Broadcom can't be trusted because it hasn't fully disclosed details of drug-related and stock-option-backdating charges involving its former CEO. The suit asks for an injunction against Broadcom to 'prevent fraud and irreparable injury' from a takeover.
  • Greenback falls amid green shoots. The dollar fell to its lowest level this year against a basket of currencies as optimism about a global economic rebound drives demand for riskier assets. Risk appetite got a boost this morning from China, where the Purchasing Manager’s Index showed manufacturing expanded for the third month in a row in May, and as the decline in European manufacturing moderated.
  • Japan car sales fall. Motor vehicle sales in Japan fell 19% in May, led by a 24% drop from Toyota (TM). Nissan (NSANY) sold 9.1% fewer units, while Honda (HMC) posted a 4.5% gain. Despite the decline, May's 19% drop was still markedly better than April's -29% and March's -32%. U.S. vehicle sales data will be released later today, and analysts say the U.S. auto market may have contracted by 35% in May.

Today's Markets

  • Strong manufacturing reports helped lift markets in Asia, with Europe and the U.S. set to follow suit.
  • In Asia, Nikkei closed +1.6% to 9,768. Hang Seng +3.95% to 18,889. Shanghai +3.4% to 2,721. BSE +1.5% to 14,841.
  • In Europe at midday, London +1.6%. Paris +2.1%. Frankfurt +3.2%.
  • U.S. futures: Dow +1.4%. S&P +1.6%. Nasdaq +1.4%. Crude +2.4% to $67.90. Gold +0.8% to $986.60.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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