Thursday, August 20, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby


  • UBS settles tax probe. UBS (UBS) announced a formal tax probe settlement with the IRS. The bank won't pay a monetary fine and will identify 4,450 clients, turning the names over to the Swiss tax administration who will review the names before passing them on to U.S. authorities. IRS Commissioner Douglas Shulman cautioned other banks and financial advisers that the data received from UBS could lead to a larger probe of tax evasion by banks and lawyers. Separately, the Swiss government announced it would sell its 9% stake in UBS and received lively bids in a Thursday morning sale. The Swiss government will likely net a total of 7.5B Swiss francs from the deal, turning a profit on its initial 6B franc ($5.6B) investment. Shares +5.8% premarket (7:00 ET). (Read the UBS agreement (.pdf) and press release)
  • BBVA tipped to buy Guaranty. BBVA, Spain's second-largest bank by market value, has reportedly been chosen by the FDIC to take over Guaranty Financial Group (GFG). Guaranty has around $16B in assets and $9B in deposits, and a deal will help BBVA expand its U.S. operations after its 2007 acquisition of Alabama-based Compass Bank. If a deal falls through and regulators are forced to seize Guaranty, it will be the ninth-largest lender to fail in U.S. history. The purchase is expected to be announced by the end of the week.
  • AIG unit may lose bidders. A group led by Chinatrust Financial Holding may not move forward with a planned bid for AIG's (AIG) Taiwan unit because of a disagreement over the value of the business. AIG wants to sell the unit for at least $2B, but the group, which includes Bain Capital and Oaktree Capital Management, has been unable to determine how much capital the unit will need in the coming years and are concerned the unit won't post a profit for the next three years. Though sources said the group may submit a "low-ball, non-binding" bid at the end of the month, this could be another case of AIG chasing away bidders by setting its prices too high. Shares +0.6% premarket (7:00 ET).
  • Profits nosedive at Rio Tinto. Rio Tinto (RTP) reported H1 profit fell 65% to $2.45B because of sagging commodity prices. Chairman Jan du Plessis said the company remains cautious about a recent rally in commodity prices, though the outlook is better in the long-term. The company expects improved results going forward, in part because of its decision to cut 16,000 jobs, trim production at its higher cost operations and pay off nearly 40% of its debt. Shares +0.65% premarket (7:00 ET).
  • CFTC pushes tougher derivatives bill. Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission, is pushing to "enhance" proposed legislation of over-the-counter derivatives by making sure the law covers "the entire marketplace without exception." In particular, Gensler wants to get rid of exemptions for small derivatives dealers and for foreign exchange swaps, repeal parts of the FDIC Improvement Act, and require money be set aside to back up trades. Separately, the CFTC said yesterday it withdrew a 2006 position-limits exemption given to Deutsche Bank's (DB) commodity-services unit that allowed the unit to exceed speculative limits on corn and wheat futures.
  • Adjusted deficit still highest in decades. The White House will update its projections for the fiscal 2009 federal budget deficit next week and sources said the number will come in at around $1.58T, slightly less than the $1.84T previously predicted. The reduction stems from improvements in the financial sector that are expected to lessen the government's bailout commitments, but as a percentage of the economy, the deficit will still be larger than any since World War II.
  • Northrop may sell advisory unit. Northrop Grumman (NOC) reportedly plans to sell its Tasc consulting unit, which advises military and intelligence agencies, as the government prepares to tighten scrutiny of firms that both advise and sell equipment to the government. Goldman Sachs (GS) and Credit Suisse (CS) have been hired to handle the bidding process, which could see the unit sold for $1-2B.
  • Clunkers headed for an end. The White House plans to wind down the cash-for-clunkers program, possibly as soon as early September. The exact end-date is still up in the air, as the administration expects a surge of last-minute trade-ins once the program's expiry is announced but wants to avoid having dealers agree to sales after the program's funds have already been committed. The popularity of cash-for-clunkers has left many dealers concerned that the $3B of funding set aside for the program will run out before they are fully reimbursed. For those who don't have a clunker to trade in, a similar rebate program will soon be available for fridges, washing machines and dishwashers.
  • YouTube, Time Warner ink distribution deal. YouTube (GOOG) and Time Warner (TWX) reached a deal to distribute movie clips and TV shows online and will split the advertising revenue. Time Warner CEO Jeff Bewkes said he expects the deal to "improve our ability to monetize this short-form content through new and creative advertising initiatives." The deal is part of Google's recent efforts to ramp up deals with media companies for the video site and to push new forms of advertising. Premarket: GOOG +1.8% (7:00 ET).
  • MySpace likes new music purchase. MySpace (NWS.A) confirmed it bought music service iLike as the struggling website tries to remake itself as the go-to location for music, videos, games and other entertainment content. Terms of the deal weren't disclosed, but MySpace is rumored to have paid around $20M.

Earnings: Thursday Before Open

  • Buckle (BKE): Q2 EPS of $0.54 beats by $0.02. Revenue of $193M (+14%) in-line. (PR)
  • Children's Place Retail Stores (PLCE): Q2 EPS of -$0.42 beats by $0.02. Revenue of $316M (-7%) vs. $315M. (PR)
  • China Mobile (CHL): Q2 net income of 30.1B yuan ($4.4B), down from 30.6B a year ago and short of consensus of 31.1B. Sales of 111.6B yuan (+8.9%). Average monthly phone bills declined 11%. Added 15.96M customers (vs. 22.5M last year) to 493M. (PR)
  • Patterson Companies (PDCO): FQ1 EPS of $0.38 beats by $0.01. Revenue of $790M (+6%) vs. $756M. (PR)
  • Regis (RGS): FQ4 EPS of $0.59 beats by $0.13. Revenue of $625M (-2.5%) vs. $615M. (PR)
  • Rio Tinto (RTP): H1 underlying earnings of $2.57B (-65%) vs. consensus of $2.73B. Says it may pay a final dividend, subject to “satisfactory trading results, progress on divestments and prevailing market conditions." (PR)
  • Sears (SHLD): Q2 EPS of -$0.17 misses by $0.52. Revenue of $10.5B (-10%) vs. $10.7B. (PR)
  • Suntech Power (STP): Q2 EPS of $0.06 beats by $0.04. Revenue of $321M (+2%) vs. $343M. (PR)

Earnings: Wednesday After Close

  • Gymboree (GYMB): Q2 EPS of $0.41 beats by $0.02. Revenue of $215M (+5%) in-line. Sees Q3 EPS of $0.95-1.03 vs. $1.05. (PR)
  • Hot Topic (HOTT): Q2 EPS of -$0.07 beats by $0.01. Revenue of $158M (-5%) vs. $159M. Sees Q3 EPS of $0.11-0.13 vs. $0.15. (PR)
  • JDS Uniphase (JDSU): FQ4 EPS of -$0.01 beats by $0.01. Revenue of $276M (-29%) vs. $279M. (PR)
  • Limited Brands (LTD): Q2 EPS of $0.19 beats by $0.03. Revenue of $2.1B (-10%) in-line. Same-store sales down 9%. (PR)
  • NetApp (NTAP): FQ1 EPS of $0.22 beats by $0.02. Revenue of $838M (-4%) vs. $828M. Not providing Q2 guidance due to "reduced visibility" caused by macro environment. Names Tom Georgens new CEO. (PR)
  • PetSmart (PETM): Q2 EPS of $0.31 beats by $0.02. Revenue of $1.3B (+5%) in-line. Sees Q3 EPS of $0.20-0.24 vs. $0.26. Sees full-year EPS of $1.37-1.45 vs. $1.52. (PR)
  • Phillips-Van Heusen (PVH): Q2 EPS of $0.60 beats by $0.16. Revenue of $529M (-1%) vs. $515M. Sees Q3 EPS of $0.80-0.85 vs. $0.90 and revenue of $655M-665M vs. $675M. Raises full-year EPS guidance to $2.30-2.40 from $2.05-2.30. (PR)
  • Synopsys (SNPS): FQ3 EPS of $0.47 beats by $0.06. Revenue of $345M (flat) in-line. Sees Q4 EPS of $0.29-0.33 vs. $0.34 and revenue of $335M-343M vs. $348M. Sees full-year EPS of $1.71-1.75 vs. $1.70. (PR)

Today's Markets

Asian markets posted solid gains. European markets and U.S. futures are rising.

  • In Asia, Nikkei +1.8% to 10,383. Hang Seng +1.9% to 20,329. Shanghai +4.5% to 2,912. BSE +1.4% to 15,012.
  • In Europe at midday, London +1.3%. Paris +1.4%. Frankfurt +1.3%.
  • Futures: Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude -0.2% to $72.28. Gold +0.05% to $945.30.

Thursday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.


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