Monday, August 17, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • In search of bidders for Guaranty. Regulators reportedly asked prospective bidders to submit bids for Guaranty Financial Group (GFG) by today, and are hoping that Toronto Dominion (TD), JPMorgan Chase (JPM) and BBVA, all of which bid for Colonial Bank, will step up and bid for Guaranty as well. A private equity consortium, including Carlyle, Blackstone Group (BX) and TPG, are also considering a bid, but as of late Friday hadn't been given access to Guaranty's confidential financial information. Guaranty is the second-largest publicly traded bank in Texas and has around $14B in assets.
  • Schwab to face ARS lawsuit. New York Attorney General Andrew Cuomo is expected to file suit against Charles Schwab (SCHW) as soon as today, alleging the firm engaged in civil fraud in the marketing and sale of auction-rate securities. Schwab continues to deny any wrongdoing and said Cuomo's "approach is inconsistent with the law, basic fairness, and common sense."
  • UBS nears settlement as probe expands. The tax evasion probe of UBS (UBS) is widening, and now includes allegations that the Swiss bank helped Americans avoid tax payments by setting up enterprises in Hong Kong. The new Asian angle of the case was detailed in court documents filed last week. Meanwhile, details of a civil case settlement between UBS and the U.S. government are expected this week. Swiss media reports said the identities of 4,500-5,000 UBS clients will be revealed, while a UBS lawyer expects the number to be 5,000-10,000. Shares -5% premarket (7:20 ET).
  • Japan jettisons its recession. Japan left behind its deepest recession since WWII, buoyed by a rebound in exports and consumer spending. GDP grew at an annualized 3.7% in Q2, the first growth in five quarters but slightly shy of +3.9% consensus. Despite the positive economic news, Japanese stocks fell the most in four months on concerns the stimulus-led recovery won't last. Nikkei -3.1% to 10,269.
  • Pay czar shows his claws. Pay czar Ken Feinberg said he has broad and 'binding' authority over executive compensation, including the ability to claw back money already paid, and is now weighing how and where to apply his powers. In regards to the potential $100M payday energy trader Andrew Hall could receive from Citigroup (C), Feinberg said only that he hadn't looked at Hall's contract yet and that a decision will be forthcoming in the next few weeks.
  • China eyes U.S. mortgages. Sovereign wealth fund China Investment Corp. may soon buy up to $2B in U.S. mortgages under the Treasury's Public-Private Investment Plan [PPIP]. Sources explained that "the Chinese government is always trying to seek a more ideal way to invest in U.S. assets rather than purely buying U.S. government bonds all the time."
  • BB&T colonizes Colonial. Late Friday evening, BB&T Corp. (BBT) took over the branches and deposits of Colonial BancGroup (CNB) in a government-assisted deal that could cost the FDIC billions of dollars. The takeover agreement marks the largest bank failure of 2009 and could be the most costly since IndyMac failed last year. (Read the FDIC's press release)
  • China pushes for iron ore concessions. The China Iron & Steel Association concluded talks with Fortescue Metal Group (FSUMF.PK), winning a 35% reduction in iron ore prices. China plans to ask Vale (VALE), Rio Tinto (RTP) and BHP Billiton (BHP) for similar concessions, backing down from earlier demands for a 45% price cut.
  • Next-gen chips mimic genes. IBM (IBM) is working to build its next generation of microchips using 'DNA origami,' or artificial DNA nanostructures. As companies compete to develop increasingly small chips at increasingly low cost, DNA origami could allow manufacturers to trade hundreds of millions of dollars in complex tools for less than a million dollars of polymers, DNA solutions, and heating implements. However, application of the new technique is at least ten years away.
  • Bank failures stack up. Five more banks failed on Friday, bringing this year's total to 77. The FDIC's insurance fund has already fallen to $13B, and there are over 300 banks and thrifts still on the FDIC's list of problem institutions. (Read the FDIC's press releases I, II, III, IV, V)

Earnings: Monday Before Open

  • Lowe's Companies (LOW): Q2 EPS of $0.51 misses by $0.03. Revenue of $13.8B (-5%) vs. $14.3B. Issues downside Q3 EPS guidance of $0.21-0.25 vs. $0.27 consensus. Issues downside FY '10 EPS guidance of $1.13-1.21 vs. $1.23 consensus. (PR)

Today's Markets

Japan pulled out of its recession, but stocks fell on concerns the recovery won't last. Heavy losses in Asia are dragging down European markets and U.S. futures:

  • In Asia, Nikkei -3.1% to 10,269. Hang Seng -3.6% to 20,137. Shanghai -5.8% to 2,871. BSE -4.1% to 14,785.
  • In Europe at midday, London -1.8%. Paris -2.3%. Frankfurt -2.1%.
  • Futures: Dow -1.8%. S&P -2%. Nasdaq -1.7%. Crude -2.6% to $65.73. Gold -1.2% to $936.90.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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