Tuesday, June 2, 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 in bankruptcy court. Bankrupt General Motors (GM) won court approval to auction its assets, with the lead bid coming from the Treasury and the goal of closing a sale in July. GM was also approved to borrow $15B of a planned $33.3B bankruptcy loan, and asked for permission to void seven corporate jet leases. The bankruptcy filing showed GM has more than 100,000 creditors and has debt of $172.8B, more than twice its assets. The automaker plans to launch a new company in 60-90 days, while the court supervises the sale or liquidation of unprofitable brands. GM said it reached a tentative deal with an undisclosed buyer to sell its Hummer brand at an undisclosed price. (Read Obama's remarks on the GM filing)
  • Citi, GM booted from Dow. Citigroup (C) and General Motors (GM) were dropped from the Dow Jones Industrial Average, replaced by The Travelers Companies (TRV) and Cisco Systems (CSCO), respectively. Citi was dropped because the size of the government's intervention may prevent the stock from accurately reflecting industry trends. GM will be removed from the S&P 500 as well following the end of trading today, and will be replaced by DeVry (DV). Premarket: C -3.2%, CSCO +1.0% (7:00 ET).
  • Prudential snubs bailout funds. Prudential Financial (PRU) became the latest life insurer to say it wasn't going to accept TARP funds, following the lead of Ameriprise Financial (AMP) and Allstate (ALL). The company plans to raise $1.25B through a common stock offering.
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  • JPMorgan, AmEx to repay TARP. JPMorgan Chase (JPM) and American Express (AXP) will sell $5B and $500M of common stock, respectively, in order to repay TARP. Both companies were stress-tested last month and told they don't need new capital, but the Fed said yesterday any firm seeking to repay bailout funds must first tap equity markets. Though still waiting for formal repayment approval, JPMorgan CEO Jamie Dimon said he would be 'very surprised' if they weren't able to refund the government in full by the end of the month. AmEx will make a partial repayment, and may increase its planned sale by $75M if demand is strong. Premarket: JPM -0.4%, AXP -1.5% (7:00 ET).
  • Fed sets repayment rules. As some banks clamor to repay TARP funds, the Federal Reserve has promised to announce an 'initial set' of banks that were approved for repayment by next week. In addition to the Fed's new requirement that big banks must first sell common stock to private investors, firms will also have to maintain an extra capital cushion against market shocks and prove they can raise money without relying on FDIC loss-guarantees. (Read the Fed's repayment criteria)
  • SunTrust plans stock offering. SunTrust Banks (STI) announced plans to sell $1.4B of common stock and buy back $1B of preferred shares and hybrid securities. Proceeds will be used to boost SunTrust's Tier 1 capital and help close the $2.2B capital hole identified in last month's stress tests. Shares -2.2% premarket (7:00 ET).
  • EMC unexpectedly outbids NetApp. EMC Corp. (EMC) made an unsolicited bid to acquire Data Domain (DDUP) for $1.8B in cash, topping a bid by NetApp (NTAP) which agreed to buy the company two weeks ago for $1.5B. EMC, the largest maker of storage computers, wants Data Domain to expand in the market for systems that reduce the amount of disk space needed for data storage. EMC says it can pay for the deal in cash, while NetApp would have to offer more stock to meet EMC's offer. Premarket: DDUP +12.0% (7:00 ET).
  • Citigroup freezes severance payments. Citigroup (C) is reportedly halting tens of millions of dollars in promised severance payments to five former top executives. Citigroup has already paid out more than half of the roughly $100M it promised the former executives, but has decided not to pay the balance in order to avoid even the possibility of a public backlash over the money. Although Citi is contractually obligated to pay the money, sources say the bank is betting the former execs will choose to avoid the public embarrassment of filing a lawsuit against the struggling, taxpayer-backed bank.
  • Abu Dhabi sells Barclays stake. International Petroleum Investment Co., an investment vehicle of the Abu Dhabi royal family, plans to offload 1.3B shares in Barclays (BCS), pocketing a large profit in the process. IPIC made its £3.5B ($5.2B) investment in Barclays less than seven months ago, and gave the impression at the time of being a strategic long-term investor in the bank. IPIC will retain warrants that can be exercised for over 700M shares, and £1.5B in securities resembling preference shares. Barclays -12.2% premarket (7:00 ET).
  • Personal income rises. Personal income rose 0.5% ($58.2B) in April vs. -0.2% consensus. Personal consumption expenditures fell 0.1% ($5.4B) vs. -0.2% consensus. Personal saving as a percentage of disposable personal income rose to 5.7% in April vs. 4.5% in March. However, it's "a seriously flawed metric when you can jam up the cost of necessities that people have to buy and then point to the increased spending on necessities as signs of a recovery."
  • Manufacturing contracts. The ISM Manufacturing Index came in at 42.8 in May vs. 42 consensus, its 16th consecutive month of contraction. The overall economy grew after seven months of decline. Nonmetallic Minerals and Plastics & Rubbers reported growth. Textile Mills and Furniture led the laggards.
  • Construction spending increases (.pdf). Construction spending rose 0.8% in April M/M vs. -0.8% consensus and -10.7% Y/Y. For the first four months of the year, construction spending fell 11.3% vs. the year earlier period.

Today's Markets

  • Asian markets closed slightly up, while European markets take a breather from yesterday's gains.
  • In Asia, Nikkei closed +0.3% to 9,704. Hang Seng -2.6% to 18,389. Shanghai +0.1% to 2,724. BSE +0.2% to 14,875.
  • In Europe at midday, London -0.6%. Paris -0.05%. Frankfurt +0.1%.
  • U.S. futures: Dow +0.1%. S&P +0.2%. Nasdaq +0.3%. Crude -0.5% to $68.20. Gold -0.01% to $978.50.

Tuesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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