Monday, August 31, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • Lawmakers aim to curb Fed powers. Rep. Barney Frank said he's planning legislation to restrict the Federal Reserve's ability to make emergency loans and to require a 'complete audit' of the bank. Frank, who has been working with Rep. Ron Paul on draft language, said the audit could be arranged in such a way as to preserve the Fed's monetary policy independence. Separately, Fed officials said the bank has made a $14B profit on loans extended to financial institutions, though that figure includes only some of the Fed's loan programs and hasn't been audited or risk-adjusted.
  • ILFC chief may buy part of AIG unit. AIG (AIG) CEO Robert Benmosche has said he won't be rushed into asset sales, a promise that has pleased many investors but left some company executives dissatisfied. In particular, Steven Udvar-Hazy, the CEO of AIG's aircraft-leasing business, is frustrated by the nearly year-long delay in the unit's sale, and is in early discussions to buy around $2B of the company's aircraft portfolio to start a rival business. If Hazy leaves the International Lease Finance Corp. to set up his own company, a move that would require both government and AIG approval, sources said Middle East and Chinese interests will likely provide the necessary funding. Shares -7.4% premarket (7:00 ET).
  • Baker Hughes buys BJ Services. Baker Hughes (BHI) agreed to acquire BJ Services (BJS) in a cash-stock deal worth $5.5B. BJ Services' shareholders will get 0.4 shares of Baker Hughes and $2.69, marking a 16.3% premium over Friday's close. Baker Hughes says the deal will result in annual savings of $75M in 2010 and $150M in 2011, and "further enhances its position as a top-tier global oilfield services company." BHI -2.1%, BJS +13.1% premarket (7:00 ET). (Read the companies' press release)
  • Lehman claims could reach $100B. The U.K. branch of Lehman Brothers may claim as much as $100B against the collapsed bank, with a large part of the claims resulting from guarantees issued by the parent company to its subsidiaries. PriceWaterhouseCoopers, the U.K. liquidator, said it's working to sift through the claims of 'more than 100' Lehman units that are connected to the London branch in a way which will "reduce the likelihood of affiliates suing each other in pursuit of amounts that are owed between the different Lehman estates."
  • FDIC faces mounting bank failures. The FDIC closed three more banks on Friday, with an expected cost to the FDIC's deposit insurance fund of $446M. The closures bring this year's total failures to 84 and mark the fastest pace of bank closures in 17 years. To encourage potential buyers of failed banks, the FDIC has agreed to numerous loss-share transactions, assuming most of the risk on $80B in loans and other assets. The agency said it expects around $14B in future losses on the agreements signed so far, but its total exposure is about six times the $10.4B left in its insurance fund. (Read the FDIC's bank closure press releases I, II, III)
  • Cerberus investors flee. Investors are pulling out of hedge funds run by Cerberus Capital Management en masse, leaving management surprised by the size of the requested withdrawals and prompting plans for Q4 fundraising. Investors have asked for the return of over $5.5B, or nearly 71% of the hedge fund assets. Nor are the heavy withdrawals limited to Cerberus; in the nine months that ended June 30, investors withdrew around $300B from hedge funds, contributing to a marked contraction in the once-booming industry.
  • PetroChina boosts capacity. After posting a 7.2% fall in H1 profit last week, PetroChina (PTR) unveiled plans to increase its capacity. The planned investments, totaling $3.2B, include buying a stake in a Turkmenistan gas field from parent company China National Petroleum Corp. for $1.2B, and buying ten of CNPC's petrochemical refineries in China for $1.6B. PetroChina President Zhou Jiping said he hopes to maintain double-digit growth in natural gas output over the next few years.
  • Freedom going bankrupt. Freedom Communications, which owns over 30 daily newspapers and 8 TV stations, reportedly plans to declare bankruptcy this week and has reached debt restructuring agreements with its lenders. Private-equity firms Blackstone Group (BX) and Providence Equity Partners, which paid $460M in 2004 for a 40% stake in Freedom, have both written down the value of their investment to zero.
  • France goes after tax evaders. Not to be left out, France has obtained the names of up to 3,000 suspected tax evaders with Swiss bank accounts worth around €3B ($4.3B). Budget minister Eric Woerth said if the individuals don't come forward voluntarily, then "we will bring them to justice. We are in the process of constructing a post-crisis capitalism, and the banks are an essential link in this change."
  • Study lifts new AstraZeneca drug. A medical study covering 18,000 patients in 43 countries found Brilinta, AstraZeneca's (AZN) experimental anti-clotting drug, was 16% more effective in preventing heart attacks, strokes and deaths than treatment with Plavix, a blockbuster drug from Sanofi-Aventis (SNY) and Bristol-Myers Squibb (BMY). The study firmly positions Brilinta as a rival to Plavix and the nearly $10B in annual revenue it generates. A new Eli Lilly (LLY) drug called Effient also outperformed Plavix but at the price of increased bleeding risk.
  • GM forges China JV. General Motors agreed to a 50-50 joint venture with Chinese automaker FAW Group. GM will invest 2B yuan ($293M) to make light-duty trucks and vans in the northeast China city of Changchun, primarily for sale in China though some could be exported in the future.
  • Yen rises on election landslide. As was widely expected, the Democratic Party of Japan won a landslide victory against the Liberal Democratic Party which had governed for fifty years. The news helped lift the yen, which strengthened for a fifth day against the euro and gained versus all 16 major counterparts, but failed to buoy the Nikkei, which turned negative after hitting an 11-month high.

Earnings: Friday After Close

  • Sun Microsystems (JAVA): FQ4 EPS of -$0.20 misses by $0.14. Revenue of $2.6B (-31%) vs. $2.9B. (10-K)

Today's Markets

Concerns about possible liquidity tightening and new share-issuances prompted heavy selling in China, and the Nikkei gave back its gains after getting a post-election lift. European markets and U.S. futures are showing moderate losses.

  • In Asia, Nikkei -0.4% to 10,493. Hang Seng -1.9% to 19,724. Shanghai -6.7% to 2,668. BSE -1.6% to 15,667.
  • In Europe at midday, Paris -0.8%. Frankfurt -0.8%. London closed.
  • Futures: Dow -0.6%. S&P -0.5%. Nasdaq -0.7%. Crude -2.2% to $71.14. Gold -0.3% to $956.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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