Thursday, June 11, 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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  • Chrysler, Fiat tie the knot. Fiat finalized its alliance with Chrysler yesterday, with Fiat chief executive Sergio Marchionne replacing Bob Nardelli as the CEO of new Chrysler. Assets not acquired by Fiat will remain in bankruptcy to be sold or closed. Marchionne issued an optimistic memo to employees, but now has the tough job of proving he can rebuild Chrysler while simultaneously shoring up Fiat's finances.
  • Broad authority for pay czar. As expected, the White House appointed Kenneth Feinberg as a pay czar to review, reject and even set pay levels with no appeals process, and scrapped its planned $500,000 salary cap for executives at firms that received 'exceptional' federal aid. Feinberg will have authority over compensation for senior executives and the top 100 earners at AIG (AIG), Bank of America (BAC), Citigroup (C), General Motors, GMAC, Chrysler and Chrysler Financial. The White House is also pushing to give shareholders a greater "say on pay" at all firms, though critics say the plan lacks teeth. (R ead the Treasury's "Say on Pay" factsheet (.pdf))
  • BoA/Merrill/Fed inquiry heats up. Documents obtained ahead of a congressional hearing today lend some support to Bank of America (BAC) CEO Ken Lewis' claims that the Federal Reserve unduly pressured him to complete the Merrill Lynch acquisition. One email from a Fed official cited a conversation with Bernanke about Lewis' intent to exercise a 'material adverse change' clause to exit the Merrill deal: "...they think the MAC threat is irrelevant because it's not credible. Also intends to make it even more clear that if they play that card and they need assistance, management is gone." Bernanke says he 'absolutely did not' ask Lewis to stay silent on information that should have been reported.
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  • Honk if you want more auto aid. As expected, auto-parts suppliers asked the Treasury for up to $10B in new aid. The request includes expanding current loan guarantee programs, incentives for bank lending and a study of long-term initiatives for partsmakers.
  • SEC readies derivatives laws. The SEC and the Commodity Futures Trading Commission are reportedly drafting legislation for a proposed crackdown on over-the-counter derivatives. The two agencies could split oversight of the OTC derivatives market.
  • Beige Book: bright spot amid weakness. The Federal Reserve's Beige Book noted all twelve Districts said economic conditions remained weak or deteriorated further, but five districts noted the downward trend showed signs of moderating, including in manufacturing. Consumer spending was soft, but discounters said they're doing fine. Expectations for the future began to improve in scattered areas. (Read the Fed's Beige Book summary)
  • Fed pulls in $2.7B in Q1. A new monthly report showed the Federal Reserve earned $2.7B in Q1: $1.2B came from loan programs, $2.1B came from short-term commercial paper loans, and $4.6B came from its portfolio of assets, but the Fed lost a combined $5.2B on loans tied to the rescue of Bear Sterns and AIG (AIG). The report also provided new details on the collateral the Fed holds against loans and gave some breakdown of the size of banks receiving aid. The numbers indicate the Fed is set to earn less this year than the $35B it made in 2008. (Read the Fed's monthly report (.pdf))
  • Outlook improves for oil demand. The International Energy Agency raised its global oil-demand forecast for the first time in ten months, as oil climbed above $70 yesterday. The IEA expects an additional 120K barrels/day in demand this year, bringing the total to 83.3M barrels/day. Consumption will be driven by the U.S. and China, but will contract 2.9% globally from the year before.
  • Newspapers getting sold. After its recent fracas with the Boston Globe's largest union, parent company New York Times Co. (NYT) is reportedly looking to sell the major daily and is soliciting bids. Meanwhile, News Corp. (NWS) is apparently nearing a deal to offload the Weekly Standard, a magazine about conservative politics, to Denver billionaire Philip Anschutz.
  • Palm hands CEO job to Rubinstein. Palm (PALM) named Jon Rubinstein as its CEO yesterday. The company hopes the former Apple (AAPL) executive, with the help of the new Pre smartphone, will help the firm revive its flagging fortunes.
  • Dell goes into M&A overdrive. Dell (DELL) is looking to ramp up its acquisitions to increase growth, with CEO Michael Dell forecasting the firm will buy a 'significant-sized company' in the coming months. In particular, Dell wants to expand its data-storage and tech-services businesses. The company has $9B in cash reserves and increased its store yesterday with a $1B sale of bonds.
  • Trade balance. April U.S. Trade Balance: -$29.2B, in line with consensus, vs. -$28.5B in March. Both exports ($121.1B) and imports ($150.3B) were slightly lower than a month ago. As can be seen in this graphic, the trade deficit is still growing but the gap has narrowed considerably.
  • Treasury Budget nears $1T (.pdf). With two-thirds of the fiscal year down, the Treasury's cumulative deficit is nearly $1T after this month's $189.7B addition. Outlays were up 6% to $306.9B, while receipts fell 6% to $117.2B, bringing the eight-month total to $991.9B - more than triple the $319.4B deficit at the same time last year.

Today's Markets

Asia markets edged lower Thursday but Europe is up, as are U.S. futures.

  • Asia: Nikkei -0.1% to 9,981. Hang Seng +0.03% to 18,791. Shanghai -0.67% to 2,797. BSE -0.36% to 15,411.
  • Europe: London +0.5%. Paris +0.2%. Frankfurt +0.6%.
  • Futures at 7:00: Dow +0.2% at 8773. S&P +0.3% to 943. Nasdaq +0.3%. Crude +1% to $72.02. Gold -0.1% to $953. Treasury prices are marginally lower, with the 10-year note -0.15%.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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