Wall Street Breakfast: Must-Know News 10 comments
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- South Korea offers banks aid. Over the weekend, South Korea unveiled Asia's biggest financial rescue package with a $100B government guarantee on foreign loans and a $30B capital injection of U.S. dollars into the banking system. South Korean banks and businesses have found it increasingly difficult to obtain foreign currency, and the move is meant to help banks that need to refinance maturing foreign-currency borrowings in coming months (roughly $80B will mature by June). The government's plan comes amid criticism that South Korea hadn't done enough to cope with the financial crisis and amid fears that broad refinancing problems could send the economy into recession. Asian indices rose on the news, including +2% for South Korea's Kospi index.
- European countries step up economic efforts. In addition to ING's $13.4B capital injection from the Dutch government (see below), Germany's government is expected to announce today the final details of a €500B rescue package that was quickly thrown together after leaders originally said no comprehensive bailout was needed. The package will include €400B in bank guarantees, €80B in new capital and €20B in loss provisions. Bayerische Landesbank, one of Germany's largest state-owned regional lenders, is expected to draw on billions of euros from the new rescue plan. The U.K. government announced plans to increase public spending projects and borrowing in an effort to pull the economy out of its worst slump in seventeen years.
- Government funds for ING. ING Groep (ING), the largest financial-services firm in the Netherlands, gets a government rescue package of €10B ($13.4B) after growing losses pushed the stock to a 13-year low. ING fell a record 27% on Friday after forecasting a €500 Q3 loss, and is the first to draw on the €20B the Netherlands made available to financial firms earlier this month. The Dutch government will buy non-voting preferred shares and will appoint two representatives to ING's board. To shore up its capital position, ING will sell its Taiwan life insurance unit to Fubon Financial for $600M. Shares +20% in Amsterdam.
- Bush to launch financial summits. President Bush, French President Sarkozy and European Commission President Jose Barroso met over the weekend and issued a joint statement pressing for continued coordination to address "the challenges facing the global economy." Bush, Sarkozy and Barroso will ask other world leaders to join them for a series of summits on the global financial crisis, the first of which will be held in the U.S. in November. The aim of the initial meeting is to agree on "principles of reform needed to avoid a repetition and assure global prosperity in the future," while later meetings will focus on specific steps to take. The summits could shape the future of global capitalism, with European leaders favoring greater international oversight while U.S. officials prefer the status quo of national regulation.
- Cuomo and Garcia join forces in CDS probe. In an unusual partnership, NY State and federal prosecutors have launched an investigation into credit-default swap trading to determine if the unregulated markets were used to manipulate stock prices. Normally, investors buy and sell insurance-like swaps to protect against bond defaults. But recently, spreads on debt issued by Lehman, Morgan Stanley (MS), Goldman Sachs (GS) and others surged, leading to concerns over their liquidity and a drop in share prices. Some think the CDS market is just a convenient scapegoat for regulators struggling to regain control of a faltering economy.
- Layoffs part of lower costs at Yahoo. Yahoo (YHOO), which will report quarterly earnings on Tuesday, is expected to announce a substantial cost-cutting plan this week, possibly by tomorrow. The troubled internet giant, with shares down 43% over the past three months, is trying to fight back against stiff competition from rivals (including NWS, GOOG) while struggling with the effects of the economic downturn. The plan will likely include more than 1,000 layoffs, say sources familiar with the matter, marking the second mass-firing of the year. Yahoo's U.S. hiring has ground to a near-halt, and some managers have been asked to identify operating budget cuts of around 15%.
- GM, Chrysler try to advance talks. General Motors (GM) is trying to move forward with talks to acquire Chrysler in a deal GM sees as a way to boost its cash position. However, sources close to the company say GM is struggling to secure the necessary deal financing. GM is already burning through over $1B in cash each month, and outside money would be needed to realize the much-touted cost-cutting advantages of a merger, including buyouts and severance pay for as many as 40,000 workers. At least one person involved with the talks suggested the government may have to get involved to close the deal and to allow investors to feel more comfortable. GM +4.2% pre-market.
- Pru eyes AIG purchase. U.K. insurer Prudential (PUK) is in advanced talks with two strategic investors to take a 20% stake in AIG (AIG) and to launch a $15B bid for AIG's Asian business. Under advisement from UBS (UBS) and Credit Suisse (CS), Prudential is negotiating with investment funds in the Middle East and China. If Prudential's deal is successful, it could see huge cost savings in Asia since both firms run big distribution networks there. French insurance giant Axa (AXA) is also said to be interested in AIG's Asian operations. AIG +7.1% pre-market.
- Exelon bids for rival. Exelon (EXC) offers to buy NRG Energy (NRG) for $6.2B to take advantage of debt-laden NRG's 55% drop in share price since July. Exelon, the largest U.S. operator of nuclear power plants, would pay $26.43/share, a 37% premium on Friday's closing price. An acquisition would create the largest U.S. power company by market value at $40.4B. NRG said it will review the bid and urged shareholders not to act in the meantime.
- Toshiba secures capacity, SanDisk boosts bottom line. Toshiba (TOSBF.PK) plans to buy outright 30% of the production capacity at its semiconductor JV with SanDisk (SNDK). The companies will split the remaining 70% equally. SanDisk expects to receive cash and cut equipment leasing obligations by about $1B. A purchase will help Toshiba, the world's second- largest flash-memory maker, expand flash-memory output at a lower cost than through buying new equipment. Last month SanDisk shunned a $5.85B takeover bid by world flash-memory leader Samsung. Toshiba may be looking to boost its capacity before SanDisk is acquired.
- Circuit City looks to sidestep bankruptcy. Circuit City (CC) is considering closing at least 150 stores and thousands of layoffs as an alternative to filing for bankruptcy protection, sources say. Management is trying to avoid a bankruptcy filing before the holiday season, fearing it might cause customers to doubt its ability to provide warranties.
Earnings: Monday Before Open
- Eaton (ETN): Q3 EPS of $1.95 beats by $0.07. Revenue of $4.1B (+24.7%) in-line. Shares [PR]
- Ericsson (ERIC): Q3 net profit of $383.5M, down 28% due to a restructuring charge. Sales rise 13% to 49.2B kroner, beating consensus. "Our business in the quarter has not been impacted by the financial turmoil," CEO Carl-Henric Svanberg says. Shares soar 17% in Stockholm. (DJ)
- Halliburton (HAL): Q3 EPS of $0.76 beats by $0.02. Revenue of $4.85B (+23.5%) vs. $4.64B. [PR]
- Hasbro (HAS): Q3 EPS of $0.89 beats by $0.03. Revenue of $1.30B (+6.5%) vs. $1.27B. [PR]
- Mattel (MAT): Q3 EPS of $0.66 misses by $0.05. Revenue of $1.95B (+5.9%) in-line. [PR]
Today's Markets
- Asia markets closed in the green. Nikkei +3.6% to 9,006. Hang Seng +5.3% to 15,323. Shanghai +2.3% to 1,974. BSE +2.5% to 10,223.
- In Europe: London +2.0%. Paris 1.8%. Frankfurt +1.1%.
- U.S. futures: Dow +2.4%. S&P +2.9%. Nasdaq +2.8%. Crude +3.1% to $74.10. Gold +2.1% to $804.00.
Monday's Economic Calendar
- 10:00 Leading Indicators
10:00 Fed's Bernanke testifies in Congress on economic recovery
12:45 PM Fed's Lockhart speaks on U.S. economic outlook - Notable earnings before Monday's open: BPOP, ETN, HAL, HAS, MAT, NVS, UB, WFT
- Notable earnings after Monday's close: AXP, BRO, EFX, HXL, LOGI, NBR, NFLX, PKG, SNDK, TXN
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 10 comments:
Did derivatives do that much damage?
Thanks every day for posting such great information!
Chrysler has been shopped around the world and nobody wants them so, along comes the worlds dumbest auto company with it's tongue hanging out like a little puppy. Hello bankruptcy GM! In an over crowded world of auto manufactures Chrysler did not make it. Good-by!!! The U.S. Govt. and taxpayers do not need to go through this story again. If you own a Chrysler product start putting suntan lotion on it because it's on it way to the junk yard to sunbath. No doubt about it.
Maybe the army could buy them and use their plants to build their own vehicles with the very soldiers who will be operating them in combat. Now those will be very well trained mechanics/soldiers and auto engineers and there will be no legacy costs involved. This is a better idea than any bailout money that will be spent, wasted and lost.
GM deserves its woes. They're still focused on big vehicles. It's idea of going green is to hybridize its worst gas guzzlers, transforming 12mpg sleds into 16mpg sleds - 33% higher mpg, whoopee !!
Mergermania is rampant. We'll end up with a few dozen companies that will rule the world. This is what capitalism is/does ??
The losses in derivatives will likely be in the 14 digits. The bailout monies are a drop in the bucket in comparison. Oh, woe is we.