Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

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• BlackRock reaches Barclays deal. BlackRock (BLK) agreed to buy Barclays' (BCS) investment unit for $13.5B, transforming itself into the world's largest money manager with $2.7T in assets under management. BlackRock will pay $6.6B in cash and the rest in stock, and Barclays will hold a 19.9% stake in the combined company.
• Lewis testimony on the Fed and Merrill. Testifying in Congress yesterday, Bank of America (BAC) CEO Ken Lewis acknowledged publicly for the first time that the government threatened to remove him and other executives if the bank pulled out of the Merrill Lynch deal, but said he didn't feel federal officials acted improperly. Lewis' hearing, and inconsistencies in his testimony, left many questions unresolved, and lawmakers will likely call in officials from the Federal Reserve and Treasury to testify. (Read Lewis' testimony (.pdf) and the collection of Fed emails in question (.pdf))
• Mixed message on Fed power. Sources say Obama's planned financial overhaul will see the Federal Reserve emerge as the regulatory agency with the most power, including the responsibility to oversee firms considered too big to fail. However, there is rising skepticism among lawmakers about whether the Fed used its powers appropriately during the current crisis, and Congress may try to limit the Fed's authority going forward.

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• Tobacco under FDA control. As expected, the Senate passed a bill giving the FDA authority to regulate the tobacco industry, and legislation will be presented to Obama in the near future. Approved by an overwhelming margin, the bill will put severe restrictions on packaging and advertising, mandate industry fees to pay for the FDA regulation and could potentially undo business plans based on smokeless tobacco products. Tobacco companies are weighing their responses, and could tie down the legislation for some time with lawsuits.
• Rambus settles antitrust case. Rambus (RMBS) reached a tentative settlement with EU antitrust regulators over accusations of 'patent ambush' - failing to disclose the scope of its patents and then later demanding 'unreasonable royalties.' Under the proposed settlement, Rambus won't pay a fine or be found liable for wrongdoing, but the company will cut its patent royalty rates for some products. The U.S. Federal Trade Commission dropped the remainder of its case against Rambus last month.
• Lilly sued over drug marketing. According to unsealed internal company documents, Eli Lilly (LLY) urged doctors to prescribe Zyprexa for elderly patients with dementia, an unapproved use for the antipsychotic, even though the drugmaker had evidence the medicine didn’t work for such patients. The documents also revealed Lilly 'ghostwrote' medical articles to market Zyprexa, with Lilly officials writing up the studies and then asking doctors to put their names on it. Lilly is facing lawsuits from insurers, pension funds and 12 states over its Zyprexa marketing practices.
• Saab deal imminent. General Motors is close to selling its Saab unit, and an announcement could come as soon as today. A deal would take care of a critical loose end in GM's global restructuring plan.
• MSFT backs down on web browser. Facing antitrust concerns in Europe, Microsoft (MSFT) will release its new Windows 7 operating system in the region without a web browser and will instead offer Internet Explorer "separately and on an easy-to-install basis to both computer manufacturers and users." EU regulators were surprised by the decision, noting "rather than more choice, Microsoft seems to have chosen to provide less," and will 'shortly decide' the outcome of their case.
• Mobile phone sales slide. Global mobile phone sales fell by 11.9% in Q1 vs. the year-earlier period, and were down 20% from Q4, itself a weak quarter. Cash-strapped consumers are realizing "many of the features they desire are already in the handset they currently use, and are willing to forego an upgrade until they have more confidence in their own futures," ABI Research's Kevin Burden said. Still, while cell-phone makers must learn to cope with the new reality, a recent study found our attachment to the devices isn't waning: 40% of users say they'd rather lose their wallet than their phone.
• Northrop contract cancelled. The Pentagon terminated Northrop Grumman's (NOC) missile-defense program, once valued at $6.3B, despite a push by the company to carry out a key test of the technology in September. The cancellation is part of a restructuring of missile-defense efforts under the proposed fiscal 2010 budget. Northrop had carried out about $1.2B of work under its contract.
• WHO declares flu pandemic. The World Health Organization declared the first influenza pandemic of the 21st century, and advised governments to prepare for a long-term battle against an unstoppable flu virus. The pandemic status reflects the fact that the disease is spreading geographically, but doesn't indicate how virulent it is.
• Retail sales tick up. May Retail Sales rose 0.5% from April to $340B, but were down 9.6% vs. a year ago, in line with consensus estimates. April's sales were revised to -0.4% from -0.2%.
• New high for continuing claims. Initial Jobless Claims came in at 601,000 vs. last week's 625,000 (revised) and consensus of 625,000. However, continuing claims reached a record high, rising 59K to 6.82M.
• Business inventories. April Business Inventories: -1.1% vs. -1% consensus. March was revised to -1.3% from -1%. While it's encouraging to see bloated inventories starting to clear out, the rate of decline is still far slower than the pace at which they ballooned in late 2008.

Earnings: Thursday After Close

• National Semiconductor (NSM): FQ4 EPS of -$0.28 beats by $0.10. Revenue of $281M (-39.2%) vs. $273M. Sees FQ1 revenue $285-305M vs. consensus of $282M. "Business conditions improved through the quarter. We saw increasing orders from our wireless handset customers as they began ramping production of new smartphone models." (PR)

Today's Markets

Overseas stocks were mixed Friday and futures are flat in a quiet overnight session.

• Asia: Nikkei +1.55% to 10,136. Hang Seng +0.52% to 18,890. Shanghai -1.91% to 2,744. BSE -1.13% to 15,238.
• Europe at midday: London -0.1%. Paris -0.05%. Frankfurt -0.3%.
• Futures at 7:00: Dow flat at 8702. S&P flat at 936. Nasdaq +0.2%.
  Crude -1.5% to $71.63. Gold -1.1% to $951.
  30-year Tsy +0.45%. 10-year +0.3%. 5-year +0.19%. 2-year +0.06%.
  Euro -0.45% vs. dollar. Yen -0.55%. Pound -0.6%. $Cdn -1.4%.

Friday's Economic Calendar

• 8:30 Import/Export Prices
  9:55 University of Michigan Consumer Sentiment

Seeking Alpha editor Eli Hoffmann contributed to this post.

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