Wednesday, June 3, 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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  • Fed raises capital calls. The Federal Reserve has surprised banks by demanding they raise a specific amount of capital before repaying TARP, applying more stringent requirements than last month's stress tests. JPMorgan Chase (JPM) and American Express (AXP), neither of which needed additional capital after the stress tests, were told to boost common equity. Morgan Stanley (MS) needed another $1.8B after the stress tests and proceeded to raise $4.6B, only to be told this week it needs $2.2B more to repay TARP. A notable exception is Goldman Sachs (GS), which hasn't been asked to raise more money since pulling in $5.75B in a stock offering.
  • Successful Morgan offering follows banking trend. Morgan Stanley (MS) had a successful $2.3B common stock offering to help it repay TARP funds. Sovereign wealth fund China Investment Corp. bought 44.7M shares for $1.2B, raising its stake back to around 9.9%. Mitsubishi UFJ Financial Group (MTU) agreed to purchase 16M shares, bringing its Morgan stake to around 20%. Stress-tested banks have sold at least $65B worth of shares since test results were announced May 7.
  • Chrysler's Ch. 11 exit delayed. A federal court agreed to hear an appeal related to Chrysler's bankruptcy, potentially postponing the automaker's exit from Chapter 11 protection by at least several days. The appeal comes from a group of Indiana pension funds who oppose the sale of most of Chrysler's assets to Fiat.
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  • TALF gains some momentum. The Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF, picked up pace in June as investors grew more comfortable with the government initiative and risk appetite rose. Investor demand for Fed loans increased to around $11.5B in June, an 8% bump from May and a 145% rise from the first round in March.
  • SEC eyes pay disclosures. The SEC is planning to propose that companies expand their pay disclosures to include compensation practices for lower-ranking employees, expanding disclosures beyond the executive suite for the first time. The proposal is part of a review of executive-pay practices the SEC believes may have encouraged financial firms to take on too much risk.
  • Hummer bought by Chinese firm. The mystery buyer for GM's (GM) Hummer brand is Sichuan Tengzhong Heavy Industrial Machinery, an obscure Chinese construction-equipment maker. The price of the deal wasn't disclosed, but is likely less than $500M. GM estimates the sale will preserve 3,000 U.S. factory and dealership jobs.
  • DoJ probes tech firms on antitrust breaches. The Justice Department launched an inquiry into whether several large technology companies violated antitrust laws by agreeing not to actively recruit employees from each other. Among the companies being investigated are Google (GOOG), Yahoo (YHOO) and Apple (AAPL). Sources say the Justice Department has already issued formal requests for documents and information to several of the companies involved.
  • Car sales fall. U.S. car sales fell again in May, dropping 34% to 925,824 vehicles, but showed some signs of stabilization as Ford, General Motors and Toyota reported their highest monthly totals this year. Here's the breakdown:
    -General Motors (GM): Sales fell 29.6% from a year ago to 191,875 (vs. consensus of -37%), but gained 11% vs. April.
    -Ford (F): Sales fell 24.2% (vs. -29% consensus), but were up 20% from April to 155,954 - the highest since July 2008. Inventories fell by 41,000 to 350,000. Says it's boosting Q2 production by 10,000 vehicles to 445K.
    -Chrysler: Sales fell 47% to 79,010 vehicles. The drop was steeper than other carmakers' but in-line with Chrysler's performance in the last several months as it headed towards bankruptcy.
    -Toyota (TM): Sales fell 40.7% to 152,583. Lexus sales fell 46% but were up 17.9% from April.
    -Honda (HMC): Sales fell 39.2% to 98,344. YTD sales are down 33.3% compared to last year. Hybrid sales were up 7.5%.
    -Nissan (NSANY): Sales fell 33% to 68,489 (vs. consensus of -37%).
  • Google gets aggressive. In a direct challenge to Microsoft (MSFT), Google (GOOG) is offering its free Android operating system for use on computers. Acer, the world's second-largest laptop maker, will release an Android-run netbook by next quarter. Asustek Computer has also developed a model based on Android. Earlier this week, Google said it plans to launch a program to let publishers sell digital versions of their books directly to consumers, a move that would put Google in competition with Amazon (AMZN) and its e-reader Kindle.
  • Oracle sees netbooks in its future. Oracle (ORCL) CEO Larry Ellison said the software company may enter the market for netbooks after its planned acquisition of Sun Microsystems (JAVA). A spokesman declined to elaborate, but Oracle would likely focus on producing software for netbooks rather than the hardware.
  • Changes ahead for credit card firms. Visa (V) CEO Joseph Saunders warned the credit card industry will be forced to restructure as new U.S. legislation changes the industry's revenue expectations. In particular, he expects the new rules to "result in less credit being offered to less people." The legislation, which curbs the ability of credit card firms to raise interest rates or impose certain fees, will go into effect in February 2010.
  • Retail sales dip down. Chain store sales fell 0.3% in the first four weeks of May vs. last month, Redbook reported, worse than the -0.1% expected. According to ICSC, weekly sales were down 0.6% vs. last week, but "the year-over-year pace remains positive which may indicate some rebounding of sales."
  • MBA apps fall. Mortgage applications fell 16.2% last week, MBA reported, as mortgage rates rose sharply. The average interest rate on 30-year fixed-rate mortgages rose to 5.25% from 4.81%.
  • Home sales jump. Pending home sales rose for the third consecutive month, jumping 6.7% in April M/M and rising 3.2% Y/Y. The National Association of Realtors said buyers are responding to very favorable market conditions, and expects "greater activity in the months ahead."

Earnings: Wednesday Before Open

  • Joy Global (JOYG): FQ2 EPS of $1.17 beats by $0.28. Revenue of $924M (+9.6%) vs. $872M. Issues upside EPS guidance for FY '09 of $3.80-$4.00, the upper half of its previous guidance. Sees FY '09 revenue of $3.5-$3.6B, the lower half of its previous guidance. (PR)
  • Toll Brothers (TOL): Q2 EPS of -$0.52 misses by $0.02. Revenue of $398M (-51.3%) vs. $395M. (PR)
  • Williams-Sonoma (WSM): Q1 EPS of -$0.14 beats by $0.07. Revenue of $612M (-21.7%) vs. $610M. Issues in-line guidance for FY '09; sees revenue of $2.81-$2.93B vs. $2.87B consensus. (PR)

Earnings: Tuesday After Close

  • Hovnanian (HOV): FQ2 EPS of -$1.50 misses by $0.24. Revenue of $398M (-48.7%) vs. $348M. Says cancellation rate of 24% is "more normalized." Warns expiry of $8K tax credit and other factors could drive future weakness. (PR)
  • Shanda Interactive Entertainment (SNDA): Q1 EPS of $0.78 beats by $0.04. Revenue of $162M (+42%) vs. $156M. (PR)
  • Veriphone (PAY): FQ2 EPS of $0.17 beats by $0.02. Revenue of $202M (-13.5%) vs. $208M. (PR)

Today's Markets

Asia markets were mixed Wednesday but Europe stocks have moved lower and futures are down in sympathy.

  • Asia: Nikkei +0.38% to 9,472. Hang Seng +1.02% to 18,576. Shanghai +1.99% to 2,779. BSE -0.03% to 14,871.
  • Europe at midday: London -1.8%. Paris -1.2%. Frankfurt -0.6%.
  • Futures at 7:00: Dow -0.4% at 8675. S&P -0.6% to 937. Nasdaq -0.4%.
  • Crude -0.4% at $68.26. Gold flat at $983.
    30-year Tsy +0.4%. 10-year +0.33%. 5-year +0.21%. 2-year +0.04%.
    Euro -0.4% vs. dollar. Yen -0.25%.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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