Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

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• Citi stock swap on track. Citigroup (C) is reportedly ready to start a $58B stock swap that was delayed last week as the FDIC questioned CEO Vikram Pandit's leadership and the bank waited for regulatory approval. The FDIC has since backed off and the Treasury signaled it will sign a final agreement to take a 34% stake in the bank. Citigroup is counting on the exchange to shore up an equity base heavily eroded by losses. Shares -2.3% premarket (7:00 ET).
• Chrysler case appealed to Supreme Court. Chrysler creditors lost an appeals court bid to block the sale of the automaker's best assets to Fiat. The creditors have appealed the decision to the Supreme Court; if the court doesn't act by 4 P.M. today, Chrysler and Fiat will be able to close the deal. The outcome could set a precedent for General Motors, which is using a similar quick sale strategy in its bankruptcy.
• Recycling TARP cash. With some banks preparing to repay TARP funds and scaled-down plans for toxic asset purchases, the Treasury may soon find itself with over $100B of unallocated bailout funds while confidence in financial markets strengthens. Options for the money include increased aid for the housing sector, programs to support mortgage insurers and municipal borrowers, or saving the money in case of future need.

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• Creditors may get Tribune control. Tribune Co. and its creditors are in early-stage bankruptcy reorganization talks that would likely transfer control of the troubled media conglomerate from Sam Zell to a group of large banks and investors holding $8.6B in senior debt. Plans for the major debt-for-equity swap are still in flux, but sources say it would wipe out a $90M warrant Zell negotiated and that his $250M note probably wouldn't retain any value since it's near the bottom of the claims hierarchy. It's unclear whether the creditors would retain Zell and his management team or seek new leadership.
• Airline profits to plummet. The International Air Transport Association issued a bleak outlook for the industry, with global airline losses expected to reach as high as $9B in 2009, nearly double a previous forecast. Sales could fall 15% to $448B as swine flu fears compound the effects of the recession to create "the most difficult situation that the industry has faced." Paradoxically, the ability of airlines to survive this crisis could bode ill for the industry's long-term profitability, as sustainable returns depend on a major shakeout.
• China cracks down on computers. Starting July 1, China will require all computers sold in the country to contain software that blocks access to certain websites. The government has yet to make a formal announcement but has already told global PC makers, leaving computer firms with the option of refusing a government directive in a major market or assisting state censorship.
• Fidelity, KKR team up on IPOs. Mutual-fund giant Fidelity Investments and private-equity firm Kohlberg Kravis Roberts team up on an IPO pact giving Fidelity customers access to stock offerings and initial public offerings from KKR's companies. For KKR, the deal provides a distribution channel for its new capital-markets business, while Fidelity's retail and institutional brokerage customers will get the same access to IPOs as customers of investment banks with large underwriting businesses.
• Barclays moves towards unit sale. Barclays (BCS) is in talks to sell asset-management unit Barclays Global Investors and BlackRock (BLK) appears to be the frontrunner. Bank of New York Mellon (BK) is also trying to buy the unit. The deal, which could be worth $12B, may be announced as soon as this week, and poses a further challenge to CVC Capital Partners which had an agreement to buy iShares, a unit owned by BGI, for $4.4B. CVC's deal allowed Barclays to shop around for better offers. BCS -4.2% premarket (7:00 ET).
• Another one bites the dust. On Friday, Bank of Lincolnwood in Illinois became the 37th bank to fail in 2009. Republic Bank of Chicago in Oak Brook, Ill. will assume all the bank's deposits and will purchase about $162M in assets. As of May 26, Bank of Lincolnwood had total assets of about $214M.

Today's Markets

Asian markets closed mixed, but Europe is trending down and U.S. futures are following suit.

• In Asia, Nikkei +1% to 9,866. Hang Seng -2.3% to 18,253. Shanghai +0.5% to 2,768. BSE -2.9% to 14,666.
• In Europe at midday, London -1.1%. Paris -1.6%. Frankfurt -1.5%.
• U.S. futures: Dow -0.8%. S&P -0.9%. Nasdaq -1%. Crude -1.3% to $67.56. Gold -1.4% to $949.30.

Monday's Economic Calendar

• 12:30 PM Fed's Tarullo speaks on financial regulation
• Notable earnings after Monday's close: PLL, ZQK

Seeking Alpha editor Eli Hoffmann contributed to this post.

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