Monday, July 13, 2009

Wall Street Breakfast: Must-Know News

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Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • CIT warns of failure ripple effect. Lender CIT Group (CIT), which has been unable to get the FDIC to guarantee its debt, has warned its collapse would jeopardize the future of 760 manufacturing clients and 'precipitate a crisis' for as many as 30,000 retailers. The comments came from internal documents making the case for CIT's importance to the U.S. economy and followed the company's decision to hire a law firm to prepare for a possible bankruptcy filing, though CIT is also working on a plan to ease its liquidity crunch. CIT's bonds and stock have fallen in recent days (shares -17.7% on Friday) over concerns about its financial position, and Fitch Ratings thinks the company could default as soon as April when a $2.1B credit line matures.
  • U.S., UBS ask for more time. The U.S. government and UBS (UBS) jointly asked the court for a stay in their closely-watched trial over tax evasion. The two sides had been set to meet in court at 9am this morning, but asked that the trial be postponed until August 3 to allow the Swiss and U.S. government to continue negotiations. In a separate court filing yesterday, the Justice Department said it's prepared to step up its legal fight against UBS, but didn't detail what penalties it might impose aside from unspecified 'monetary sanctions.'
  • MSFT raises stakes in Google battle. The battle between Microsoft (MSFT) and Google (GOOG) is heating up, with Microsoft set to move forward this week with online versions of some of its key software, including plans for a 'cloud' operating system. Google, which last week announced plans to launch its own PC operating system, has been pushing to bring its internet platform to PCs, while Microsoft is pushing its PC platform onto the internet.
  • No friends for Resolution, for now. Buyout group Resolution made an initial £1.7B ($2.7B) takeover approach for life insurance firm Friends Provident (FRDPY.PK) but was turned down by Friends' board. Despite the rejection, Resolution said it received 'constructive feedback' from the board and will consider whether to make a bid. Resolution plans to buy three or four life insurers over the next 18 months. Friends Provident +7.7% in London (7:00 ET).
  • BoA tries to duck $4B gov't fee. Bank of America (BAC) is trying to avoid paying a hefty fee to the U.S. government for guarantees against losses at Merrill Lynch. Bank executives argue the rescue agreement was never signed and the funding never used, but regulators contend the company benefited from implied U.S. backing on $118B of Merrill Lynch assets and are trying to collect at least part of the $4B fee.
  • RHJ attempts to outbid Magna. Magna International (MGA) is losing its lead position in talks to buy General Motors' Opel unit, prompting RHJ International to prepare an improved bid that it will submit today or tomorrow following 'advanced stage' talks. RHJ's improved plan includes guarantees to keep plants open, and the company will likely ask for €3.8B in guarantees from the German government vs. Magna's request for €4.5B. However, German states with Opel plants are worried about RHJ's bid, calling Magna the 'best solution,' followed by Fiat.
  • VW sweetens Porsche bid. German magazine Der Spiegel reported over the weekend that Volkswagen (VLKAY.PK) raised its bid for 49.9% of Porsche and is ready to offer substantially more than €4B ($5.6B). According to the report, Porsche still views the new bid as inadequate and prefers a €7B investment plan presented by Qatar.
  • Airlines face credit crunch, bankruptcies. The U.S. airline industry could see a wave of bankruptcy filings by the winter if conditions don't improve. Facing a steep drop in travel demand and a difficult lending environment, all five of the largest hub-and-spoke carriers (American Airlines (AMR), Delta (DAL), United Airlines (UAUA), Continental (CAL) and US Airways (LCC< /a>)) are expected to report Q2 losses when they report earnings this week and next. Discount carriers like Southwest Airlines (LUV) and JetBlue (JBLU) are doing moderately better than their larger peers, but Southwest is the only U.S. airline left with an investment-grade credit rating and Moody's has negative outlooks on eight of the nine largest carriers. Premarket: UAUA -6.1% (7:00 ET).
  • Kirin, Suntory mull mega-beverage merger. Japan's Kirin Holdings (KNBWY.PK) and Suntory Holdings are in merger talks to create a food-and-beverage giant with combined 2008 sales of ¥3.8T ($41.1B), including ¥1.2T worth of beer sales. A combined entity would pose serious competition to Anheuser-Busch InBev, the world's leading brewer.
  • Friday failure. Regulators closed Bank of Wyoming, Thermopolis, Wyoming on Friday, marking the 53rd bank failure of the year. The closure is expected to cost the FDIC $27M.

Today's Markets

Asian markets closed broadly lower, while European markets edge into positive territory and U.S. futures are mostly flat.

  • In Asia, Nikkei -2.55% to 9,050. Hang Seng -2.6% to 17,255. Shanghai -1.1% to 3,081. BSE -0.8% to 13,400.
  • In Europe at midday, London +0.2%. Paris +0.3%. Frankfurt +0.2%.
  • Futures: Dow flat. S&P flat. Nasdaq -0.2%. Crude +0.1% to $59.94. Gold +0.1% to $913.40.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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