Wednesday, June 24, 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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  • Salary bumps at Citigroup. Citigroup (C) plans to raise base salaries by as much as 50% to compensate for a sharp reduction in annual bonuses. Investment bankers and traders will see the biggest increases, while workers in consumer banking, credit cards, legal and risk management will see smaller salary adjustments. Citigroup is following similar moves by Morgan Stanley (MS) and UBS (UBS). Separately, Citigroup temporarily suspended loan applications at one of its mortgage units after a quality-control review found some property appraisals and income-verification documents were missing, and will use the next few weeks to change its procedures.
  • China faces WTO complaint. The U.S. and EU filed a WTO complaint against China over export restraints on raw materials. China plans to contest the complaint, saying its export policy aims to protect the environment and natural resources and 'is in accordance with WTO rules.' This is the third joint complaint brought by the U.S. and EU against China, and the first bought by the Obama administration.
  • Bank 'tricks' necessitate new agency. A government watchdog will urge lawmakers to create a new government agency aimed at protecting consumers from the 'tricks and traps' set by banks. In prepared remarks, Elizabeth Warren, chairwoman of the oversight panel, said "We can help fix the broken credit market. And I can sum it up in four words: Consumer Financial Protection Agency." Bank industry groups, unsurprisingly, oppose the move, saying it will be costly and won't better protect consumers.
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  • Bad news Boeing. Just one week after a top executive said the 787 Dreamliner was ready to fly, Boeing (BA) postponed the plane's first flight after tests indicated the need for reinforcement to the jet's body, sending shares down 6.5%. The Dreamliner is already two years behind schedule, and it will be several weeks before a new delivery timetable is available. Along with its 787 delay, satellite-launch service provider Sea Launch (40% owned by Boeing) filed for bankruptcy, Congress urged the Pentagon to review substandard Iraq results from the V-22 Osprey (developed and built by Boeing and Textron (TXT)) and some airlines are either deferring delivery of Boeing planes or turning to rival Airbus in the interim.
  • Madoff investor seeks SEC damages. The SEC rejected a Madoff investor's claim that the agency pay her $1.7M to cover her losses from the fraud. The legal action is believed to be the first by an investor trying to hold the SEC responsible for the fraud, and the SEC's rejection of her claims sets the stage for a federal lawsuit.
  • Banks reach Huntsman settlement. Credit Suisse (CS) and Deutsche Bank (DB) settled their lawsuit over the busted buyout of Huntsman (HUN). The two banks will pay Huntsman $632M and extend a $1.1B loan on favorable terms. The settlement is an economic win for Credit Suisse and Deutsche Bank: the banks face lower costs in the settlement than the losses that would have accompanied the $15.4B of debt originally committed to the deal, and don't have to worry about a costly and unpredictable legal verdict.
  • Oracle beats despite tech slowdown. Oracle (ORCL) posted better than expected quarterly earnings (see details below), but also reported a revenue decline for the first time since 2002. Oracle, which does over half its business overseas, was hurt in part by a strong dollar; in constant currency, its revenue climbed 4% and income was up 5%. Oracle's numbers were also hurt by the many companies holding off from making large technology purchases during the recession.
  • Sinopec buys Addax. Sinopec (SNP) agreed to buy Swiss explorer Addax Petroleum (ADXTF.PK) for $7.3B in cash, gaining access to oil reserves in Iraq's Kurdish region and Africa. The deal marks a 47% premium on Addax's closing price in Toronto on June 5, the day before takeover talks were announced.
  • OECD ups outlook. The OECD raised its outlook for its 30 member nations for the first time in two years on signs the U.S. recession is easing. The combined economy of OECD nations will shrink 4.1% this year and grow 0.7% in 2010, vs. earlier projections of a 4.3% contraction in 2009 and a 0.1% contraction in 2010. The organization expects the U.S. economy to shrink 2.8% this year and grow 0.9% next year.
  • Retail sales fall. Chain store sales fell 4.4% in the first three weeks of June vs. last month, Redbook reported, worse than the -4.1% expected. According to ICSC, weekly sales were flat vs. last week, as the recession and bad weather continued to hurt June sales.
  • Home sales rise. May Existing Home Sales rose 2.4% to 4.77M per year, just short of the 4.82M consensus. Prices fell 0.1% in April, vs. consensus of -0.4% and a 1.4% drop in March.
  • MBA apps rise. Mortgage applications rose 6.6% last week, MBA reported. The average interest rate on 30-year fixed-rate mortgages fell to 5.44% from 5.5%.
  • Richmond Fed inches up. The Richmond Fed Manufacturing Index came in at 6 vs. May's 4. Activity in Central Atlantic advanced 'somewhat faster' on expanded new orders, factory shipments that grew at slightly slower rate and moderate weakness in unemployment. Manufacturers softened their outlook for next six months, expecting slowdown in shipments, new orders and utilization.
  • Consumer confidence weakens. ABC's Consumer Confidence Index fell to -53, down 4 this week and just a point off its all-time low from Jan. 25. The long-term average is -12. Only 39% of Americans rate their own finances positively, the lowest in 23 years of weekly polls.

Earnings: Tuesday After Close

  • Darden Restaurants (DRI): FQ4 EPS of $0.90 beats by $0.04. Revenue of $1.98B (+8%) in-line. The company declared a quarterly dividend of 0.25, a 25 percent increase. Sees FY10 EPS of $2.59-$2.85 vs. $2.71. (PR)
  • Jabil Circuit (JBL): FQ3 EPS of $0.04 beats by $0.01. Revenue of $2.62B in-line. Sees FQ4 EPS of $0.02-0.12 vs. $0.09 and revenue of $2.5-2.7B vs. $2.7B. Remains cautious on overall economy and possible impact on its performance. (PR)
  • Oracle (ORCL): FQ4 EPS of $0.46 beats by $0.02. Revenue of $6.9B vs. $6.47B. Operating margin +2.4 points to 51%. Says it took market share from rival SAP AG (SAP) in every region. (PR)

Today's Markets

Asian markets closed up. European markets and U.S. futures start the day in positive territory as well.

  • In Asia, Nikkei +0.4% to 9,590. Hang Seng +2% to 17,892. Shanghai +1% to 2,922. BSE +0.7% to 14,423.
  • In Europe at midday, London +0.2%. Paris +0.7%. Frankfurt +0.9%.
  • U.S. futures: Dow +0.4%. S&P +0.4%. Nasdaq +0.3%. Crude -0.7% to $68.75. Gold +0.6% to $929.70.

Wednesday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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