Wednesday, June 17, 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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  • Obama draws a line on auto aid. The White House rejected a request by auto-parts suppliers for up to $10B in new aid, saying the government shouldn't get more involved in the industry's contraction and signaling there's a limit to how much taxpayer money can be sent to the auto industry. Suppliers are now turning to Congress for the money.
  • Bidders for First Republic. Carlyle, Blackstone (BX) and TPG are reportedly leading a group of bidders in talks to buy Bank of America's (BAC) First Republic Bank. Bank of America inherited First Republic in its acquisition of Merrill Lynch, and could get as much as $700M for the San Francisco-based bank.
  • Morgan bucks TARP. Sources say Morgan Stanley (MS) will repay its TARP money today, returning all $10B in loans. Today is the first day eligible banks can begin repaying government aid. Separately, Morgan is also planning to revamp its prime-brokerage unit to lure back hedge-fund clients that left the firm. As part of the changes, hedge-fund clients will be able to hold part of their assets in a Morgan-owned trust company rather than in the firm's brokerage units.
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  • Quotables. "Wall Street seems to maybe have a shorter memory about how close we were to the abyss than I would have expected." -Obama, ahead of today's release of financial overhaul plans. (Read a draft of the reforms (.pdf) )
  • Virus shuts down Genzyme plants. Genzyme (GENZ) is shutting down production at its main U.S. plants for several weeks, after discovering a virus in one of the vats used to develop drugs. The closed plants include the only facility which produces two of Genzyme's best-sellers, and company officials said they expect to face shortages of both drugs as a result. This is the latest in a series of manufacturing missteps for Genzyme, and could cost the company $100-300M in lost revenue.
  • Reynolds safe on patents. R.J. Reynolds (RAI) won a high-stakes patent case against Star Scientific (STSI) over a new method of curing tobacco that reduces certain cancer-causing toxins. Star had been seeking several hundred million dollars in patent-infringement damages, but the court ruled that Reynolds didn't infringe Star's curing patents and that the patents were invalid. Star plans to file a motion for a new trial. STSI -78.7% premarket (7:00 ET).
  • BlackRock gets BGI. Barclays (BCS) accepted BlackRock's (BLK) $13.5B cash-and-stock offer for its Barclays Global Investors asset-management business, closing the door on any counterbids. Barclays will pay CVC Capital Partners $175M as compensation for exercising an option to reject CVC's earlier bid.
  • Investors bet on BHP purchase. Credit-default swaps on BHP Billiton (BHP) rose 16% yesterday, the most in almost 8 months, on speculation the mining company is planning a large acquisition. Shareholders are eager for growth and are looking for a deal much bigger than the recent $5.8B venture signed with Rio Tinto (RTP). Merrill Lynch recently estimated the company could spend as much as $40B on any future acquisition. Shares -1.7% premarket (7:00 ET).
  • Nuclear heats up. Power companies UniStar Nuclear Energy, NRG Energy (NRG), Scana Corp (SCG) and Southern Co. (SO) are expected to split $18.5B in federal financing to build the next generation of nuclear reactors. The government has not yet formally announced its picks, but sources say these four firms are the likely winners from a group of seventeen companies that applied for federal loan guarantees.
  • Travel websites face payments over damages, taxes. Expedia (EXPE) and other online travel companies may have to pay millions of dollars in damages and uncollected taxes under recent court rulings in Georgia and Washington state. Expedia is also being sued in Texas, as is rival Orbitz Worldwide (OWW).
  • Buy Chinese. Just a few months after slamming a proposed 'Buy American' clause in the U.S. economic rescue package, China has introduced a 'Buy Chinese' policy as part of its stimulus program, amplifying trade tensions and raising the possibility of retaliation. The policy, released jointly by nine government departments, says government procurement must use only Chinese products or services unless they're not available or can't be bought on reasonable terms.
  • U.K. gets tougher on banks. U.K. Treasury chief Darling plans to tell banks they need to improve their governance and hold more capital against losses. The changes will move the U.K. farther away from the 'light touch' regulation that made it a magnet for banking activity.
  • Retail sales fall. Chain store sales fell 4.5% in the first two weeks of June vs. last month, Redbook reported, worse than the -4.1% expected. According to ICSC, weekly sales were down 0.6% vs. last week as consumers faced rising gas prices and unfavorable weather.
  • MBA apps fall. Mortgage applications fell 15.8% last week, MBA reported, as prospective buyers wait to see if interest rates will come back down. The average interest rate on 30-year fixed-rate mortgages fell to 5.5% from 5.57%.
  • Housing starts beat expectations (.pdf). May Housing Starts of 532,000 came in above the 500K consensus. April starts were revised to 454K from 458K. Permits, an indication of future starts, were 518K. Starts were down 45.2% from last year's 971K.
  • PPI inches up. May's Producer Price Index rose 0.2% from April, vs. consensus of +0.6% and +0.3% last month. Core PPI -0.1% vs. consensus of +0.1% and prior +0.1%. PPI is -5% vs. a year ago, while core PPI is +3% Y/Y.
  • Industrial production dips down. May Industrial Production came in at -1.1% vs. consensus of -1% and last month's -0.7% (revised from -0.5%). Capacity utilization was 68.3% vs. last month's 69%.

Earnings: Tuesday After Close

  • Adobe (ADBE): FQ2 EPS of $0.35 in-line. Revenue of $705M (-20.5%) vs. $695M. Sees FQ3 EPS of $0.30-0.37, in-line, and revenue of $665-715M vs. $676M consensus. (PR)

Today's Markets

Asian markets closed mixed, but Europe is heading down while U.S. futures try to gain some traction.

  • Asian markets: Nikkei +0.9% to 9,841. Hang Seng -0.45% to 18,085. Shanghai +1.2% to 2,810. BSE -2.9% to 14,523.
  • In Europe at midday: London -1.1%. Paris -1.2%. Frankfurt -1.1%.
  • Futures: Dow -0.2%. S&P -0.2%. Nasdaq +0.1%. Crude -0.85% to $69.87. Gold -0.2% to $930.30.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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