Monday, July 20, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Saved just before CIT hit the fan. Saved at the last moment, CIT Group (CIT) reportedly agreed on a deal late last night for $3B in rescue financing from a group of bondholders. The financing, which will be backed by unsecuritized assets worth over $10B, carries a high interest rate and doesn't solve CIT's long-term financing problems, but it does buy the lender some time and minimizes bondholders' losses. An announcement is expected this morning before markets open. Shares +97% premarket (7:00 ET).
  • Schwab faces civil fraud charges. New York Attorney General Andrew Cuomo plans to sue Charles Schwab (SCHW) for civil fraud connected to the marketing and sale of auction rate securities to clients. According to the official notice sent to Schwab on Friday, Schwab's brokers didn't really understand what they were selling and then failed to tell clients when the market was collapsing. Cuomo said he's open to a settlement but Schwab must agree to buy back securities from investors still stuck with them. Schwab denies the allegations.
  • Human Genome scores with lupus drug. Human Genome Sciences (HGSI) announced its experimental lupus drug showed success in late-stage clinical trials. The drug, which many analysts had written off, could be a potential blockbuster if it gets FDA approval, with profit split between Human Genome and its partner GlaxoSmithKline (GSK). Premarket: HGSI +183%, GSK +4% (7:00 ET).
  • SAP courts SAF. Business-software giant SAP (SAP) proposed to acquire SAF Simulation, Analysis & Forecasting AG for €11.50 ($16.29) per share. The offer is a 9.5% premium over SAF's closing price on Friday, and two major SAF holders with a total 38% of shares have already agreed to vote for the deal.
  • Sinopec, Cnooc buy Angolan oil stake. China Petroleum & Chemical Corp. (SNP), also known as Sinopec, and Cnooc (CEO) agreed to buy a $1.3B stake in an offshore Angolan oil block. China's second- and- third-largest oil producers are buying their 20% stake from Marathon Oil (MRO) and are putting a renewed focus on buying assets in Africa and Central Asia to avoid the political opposition faced by planned acquisitions in the U.S. and Australia.
  • Magna's ultimatum. Final bids for General Motors' Opel unit are due today by the close of business in Europe. According to a Russian media report, Magna International (MGA) will make a new offer before the deadline that includes a demand for the right to Opel's intellectual property. Magna reportedly wants to sell Opel cars under its own brand, make any changes it wants to Opel designs and use Opel technology for new models.
  • KKR inches closer to listing. Private equity firm Kohlberg Kravis Roberts received unanimous approval from the board of its Euronex-listed fund to combine businesses. The merger with KKR Private Equity Investors brings it one step closer to a New York Stock Exchange listing. KKR also updated its profit outlook, and expects Q2 earnings to be $345M-370M.
  • Commercial loans failing rapidly. U.S. banks are charging off failed commercial mortgages at the fastest rate in 20 years. If the pace continues, commercial loan losses could reach $30B by the end of 2009, with regional banks likely to be especially hard hit.
  • Friday's failures. Regulators closed four more banks on Friday, bringing this year's total failures to 57 so far and putting the country on track for close to 100 bank failures by the end of the year. The four failures will cost the FDIC nearly $1.1B. (See FDIC statements I, II, III, IV)

Earnings: Monday Before Open

  • Eaton (ETN): Q2 EPS of $0.23 beats by $0.06. Revenue of $2.9B (-32.2%) vs. $3B. Shares (PR)
  • Halliburton (HAL): Q2 EPS of $0.30 beats by $0.03. Revenue of $3.5B (-22.1%) vs. $3.4B. (PR)
  • Hasbro (HAS): Q2 EPS of $0.26 beats by $0.03. Revenue of $792M (+1%) vs. $797M. (PR)
  • Johnson Controls (JCI): FQ3 EPS of $0.25 beats by $0.06. Revenue of $7B (-29.3%) vs. $7.4B. (PR)
  • Weatherford International (WFT): Q2 EPS of $0.10 misses by $0.06. Revenue of $2B (-10.5%) in-line. (PR)

Today's Markets

European markets and U.S. futures are following Asia up.

  • In Asia, Hang Seng +3.7% to 19,502. Shanghai +2.4% to 3,267. BSE +3% to 15,191. Nikkei closed.
  • In Europe at midday, London +1.65%. Paris +1.7%. Frankfurt +1.6%.
  • Futures: Dow +0.7%. S&P +0.8%. Nasdaq +0.6%. Crude +1.9% to $64.77. Gold +1.6% to $952.30.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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