Wall Street Breakfast: Must-Know News 9 comments
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- Europe's funding risks. Over the next three years, around $2.1T of European corporate and bank debt will mature, creating 'substantial refinancing risk,' according to Standard & Poor's. After the collapse of Lehman Brothers, new bond issues are virtually frozen, leaving companies in a difficult position when it comes time to raise new debt to pay off maturing bonds. In Europe specifically, S&P reports, funding pressures have 'escalated sharply since September as stress in the global financial system accelerated.' Euro-denominated senior bank debt is being offered at spreads close to 225 basis points over swaps, nearly 10 times wider than pre-August 2007 levels. Through the end of 2008 alone, $206B of European debt will mature, most of it in the financial sector.
- "Good morning, this is Bank AmEx." American Express (AXP) is now a bank-holding company, a move it hopes will help it unlock the government's $700B bailout fund. It joins recently converted Goldman Sachs (GS) and Morgan Stanley (MS). "Everybody wants to be a bank because everybody wants access to government funding," Calyon's Craig Maurer said. "It's common sense," a person familiar with AmEx's strategy explained. "How could you possibly pass up the flexibility to be able to access these programs...?" Just last month, AmEx said it had ample funds to function for at least a year - even if it were shut out of the credit markets. "Given the continued volatility in the financial markets, we want to be best positioned to take advantage of the various programs the federal government has introduced or may introduce to support U.S. financial institutions," CEO Kenneth Chenault said (PR).
- Buffett, Ross eye Dexia's bond unit. The insurance businesses of investors Warren Buffett (BRK.A) and Wilbur Ross (AGO) are close to buying all or part of the U.S. bond insurance unit of Dexia, Financial Security Assurance, sources tell Belgian business daily De Tijd. Dexia received a €6.4B bailout from French, Belgian and Luxembourg governments in September. FSA posted an H1 net loss of $752M, and its AAA credit rating is under threat.
- Money market bailout postponed. The Fed has delayed the launch of its money-market rescue program, MMIFF, which is supposed to help funds struggling to meet redemption requests by buying their short-term debt, until Nov. 24. "The reason for the delay appears to be the Fed's preoccupation with other bailouts and wrangling over how the money-fund program will be set up," WSJ says. One issue is who's on the hook if some of the debt goes bad. Another is the possibility of bringing securities lenders under the fund's umbrella in coming weeks. In the meantime, money-market pressure has eased and money has begun trickling back into the industry, which may mean the Fed will get by with substantially less than the $540B originally budgeted.
- Citigroup launches $20B mortgage modification program. Citigroup (C) offered to modify the terms of as much as $20B in residential mortgages for borrowers who are current on their loan payments but at risk of falling behind (PR). Citi will reach out to 500,000 homeowners, of whom about 130,000 will see a reduction in their monthly loan payments. To qualify, mortgage-related payments must exceed 40% of their income. Other banks that have launched loan-modification programs include JP Morgan Chase (JPM) and Bank of America (BAC) - suggesting banks may be better off with mass modifications rather than foreclosures and/or case-by-case negotiations. None, though, has found a way to restructure mortgages bundled into securities and sold to investors, which account for the majority of recent mortgages issued.
- More homeowner help on the way. Sources say leading U.S. housing agencies will today announce efforts to modify loan terms for troubled borrowers in an effort to reverse a rising tide of foreclosures. HUD will make it easier for borrowers to qualify for a loan guarantee under its 'Hope for Homeowners' program that got a slow start in October but promises to refinance as much as $300B in failing loans.
- StatoilHydro buys into U.S. shale. Chesapeake Energy (CHK) agrees to sell StatoilHydro (STO) a 32.5% stake in its U.S.-based Marcellus shale acreage for $1.25B. Statoil will also pay $2.13B to fund 75% of the drilling and other completion expenses on those assets from 2009 to 2012. Norway's largest oil and gas producer, Statoil is turning to unconventional sources to increase reserves as production drops at maturing fields in the North Sea.
- Vodafone trims outlook. Vodafone (VOD) cut its full-year sales forecast for the second time in four months, to £38.8B ($60.8B) from £39.7B, down from the initial forecast of £39.8B-40.7B. The revised forecast is a setback for the world's largest mobile phone company and for CEO Vittorio Colao who took over in July and promised 'economic challenges won't slow us down.' Vodafone also promised to launch a £1B cost-cutting campaign, while is simultaneously raised its interim dividend by 3.2% 'as the primary reward to shareholders.' Shares +6.2% pre-market.
- Banks won't lend until it's safe to - Kashkari. "Although progress has been made in the last month, our capital markets remain fragile and confidence remains shaky," bailout boss Neel Kashkari said Monday, noting markets need time to stabilize. Addressing complaints the Treasury hasn't gone far enough to insist its capital infusions are use to ease stressed credit markets, Kashkari said this: "As confidence returns to our institutions and our markets, we believe banks will put this capital to use by extending loans to creditworthy businesses and consumers. The last thing we want, however, is to encourage banks to resume the poor lending practices that are the cause of the current economic problems."
- GM loses 1/4 of its market cap. Shares of GM (GM) fell 23% to $3.36 Monday, the lowest since 1946, as concern mounted the automaker could run out of cash after acknowledging in a regulatory filing it could be at risk of violating the terms of some debt covenants if it doesn't steady its deteriorating finances by year-end. Shares were also pressured after several analysts issued negative reports, including Deutsche Bank's Rod Lache who said that failing a government bailout, "we believe that GM's collapse would be inevitable, and that it would precipitate systemic risk that would be difficult to overcome for automakers, suppliers, retailers and sectors of the U.S. economy." Sources say a large industrial credit insurer, Euler Hermes, has canceled insurance protection for suppliers of GM and Ford (F) over the past two weeks as the risk increased that the carmakers could fail to pay for deliveries.
- Oil demand keeps shrinking. The International Energy Agency will likely cut its 2009 oil demand forecast again, say former IEA analysts. The agency's report, due out Nov. 13, could slash estimated demand growth to 320K-500K barrels/day from 700K. Last week, the IMF warned of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years. "Given the downward revisions to the IMF data, it is highly likely they will revise demand down," JPMorgan's Lawrence Eagles said.
Earnings: Tuesday Before Open
- Cameco (CCJ): Q3 EPS of $0.41 beats by $0.09. Revenue of $729M (+7%) in-line. Shares +1%. (PR)
- Fossil (FOSL): Q3 EPS of $0.54 beats by $0.05. Revenue of $410M (+14.3%) vs. $402M. (PR)
- Toll Brothers (TOL): FQ4 revenue of $691M, down 41% from a year ago. Backlog of $1.33B , down 54%. Net signed contracts of $267M, down 27%. Cash on hand of $1.63B, up from $1.5B in FQ3. "The preliminary signs of stability we had discussed in early September... were upended by the past month's financial crisis... [driving] home buyer confidence and our traffic and demand down to record lows." (PR)
- TJX Companies (TJX): Q3 EPS of $0.54 misses by $0.01. Revenue of $4.76B (+2.2%) in-line. Sees Q4 EPS of $0.68-0.72 vs. $0.74. Shares -0.8%. (PR)
- Tyco International (TYC): FQ4 EPS of $0.81 beats by $0.08. Revenue of $5.28B (+6.7%) in-line. (PR)
- UGI Corp. (UGI): FQ4 EPS of -$0.06 misses by $0.02. Revenue of $1.19B (+27.2%) vs. $1.09B. (PR)
- Vodafone (VOD): FH1 EPS of £7.49 beats by £0.69. Revenue of £19.9B vs. £19.67B. Shares +7.2% in London. (.pdf)
Earnings: Monday After Close
- Bidz.com (BIDZ): Q3 EPS of $0.13 beats by $0.02. Revenue of $55.4M (+38.2%) vs. $55.9M. Sees full-year revenue of $215-225M vs. $240M. Shares -2.1%. (PR)
- Focus Media (FMCN): Q3 EPS of $0.53 in-line. Revenue of $225M (+63.6%) vs. $232M. Sees Q4 EPS of $0.45-0.46 vs. $0.57. Shares -22%. (PR)
- Hill-Rom (HRC): FQ4 EPS of $0.38 misses by $0.16. Revenue of $424M (+14.1%) vs. $416M. (PR)
- KKR Financial (KFN): Q3 EPS of $0.33 misses by $0.08. Revenue of $M in-line. Suspends dividend to conserve capital. (PR)
- Las Vegas Sands (LVS): Q3 EPS of $0.02 misses by $0.09. Revenue of $1.1B (+67.2%) vs. $1.16B. Shares +6.7%. (PR)
- Lions Gate Entertainment (LGF): FQ2 EPS of -$0.41 misses by $0.25. Revenue of $381M (+8.2%) in-line. Shares -4.1%. (PR)
- Liz Claiborne (LIZ): Q3 EPS of $0.39 beats by $0.02. Revenue of $1.01B (-15.9%) vs. $1.1B. (PR)
- Rockwell Automation (ROK): FQ4 EPS of $1.08 beats by $0.10. Revenue of $1.48B (+8.3%) in-line. (PR)
- Sirius XM Radio (SIRI): Q3 EPS of -$0.09 in-line. Revenue of $613M (+15.8%) vs. $587M. (PR)
- Starbucks (SBUX): FQ4 EPS of $0.10 misses by $0.03. Revenue of $2.52B (+3%) vs. $2.58B. Operating margin contracted 630 BPs to 4.9% from 11.2% due to lower revenue. Shares -3.4%. (PR)
- Virgin Mobile (VM): Q3 EPS of $0.08 beats by $0.04. Revenue of $323M (+1.2%) vs. $315M. (PR)
Today's Markets
- Asia markets failed to sustain Monday's gains as the effects of China's headline-grabbing $586B stimulus plan fade. Nikkei -3% to 8,809. Hang Seng -4.77% to 14,041. Shanghai -1.66% to 1,844. BSE Sensex -6.61% to 9,840.
- Europe is lower at midday. London -2.3%. Paris -2.8%. Frankfurt -2.4%.
- U.S. futures indicate a weak open. Dow -1.82% to 8727. S&P -1.9%. Nasdaq -1.8%. Oil -3.3% to $60.25. Gold -1.14% to $738.
Tuesday's Economic Calendar
- 10:00 IBD/TIPP Economic Optimism
5:00 PM ABC Consumer Confidence Index - Notable earnings before Tuesday's open: CCJ, FOSL, PPC, TJX, TYC.
- Notable earnings after Tuesday's close: CNQR, HOLX, IPI.
Seeking Alpha editor Rachael Granby contributed to this post.
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This article has 9 comments:
W'od that the US would run its government like a business rather than a charity.
15th in Wash DC. No one seems to be on top of it and the scuttlebutt says
they will bring up two very important issues: A new global currency and slamming
the door on off shore investing and corporation shuffling/transfer.
The Country Wide CEO bailed out with millions before he could be charged with Collusion with the property appraiser he hired and Fraud by marketing those loans that are a product of the collusion.
He also aviod the RICO act which he could be changred by selling more than 3 of those Fraudlent loan packages. Operating a criminal enterprize !
Brazil is demanding changes to the world banking system . They find a little oil off shore and now want to demand we make changes to genifit them. Keep your oil and enjoy the malaria. We can poweer the USA with wind power and geothermal. Our vechiles can run on Natural Gas and with all the Politicans we have who are full of it our Natural Gas Reserves will never run out.
On Nov 11 09:51 AM archivesDave wrote:
> Still awaiting current news on the G 20 meets in Brazil and this
> coming Sat Nov
> 15th in Wash DC. No one seems to be on top of it and the scuttlebutt
> says
> they will bring up two very important issues: A new global currency
> and slamming
> the door on off shore investing and corporation shuffling/transfer.
So what is the difference betweeen the chancery used in the mortage breakdown and what is happening with the Paulson program.
This thing is going to end with the basket empty, no dought, by the time the auto industry gets their way we will be equiping ourselves with metal bills, enabling us to pick the remains with the rest of the chikens.
You heard it here, by spring we all will be buried in a repeat of the 30's
waiting for the dow to reach 500!
I think were all smart enought to see where were going except the silver tongued talkers are keeping everyone passified with tall tails of grandour we know can't materialize.
We havn't seen the credit card 850B hit use yet, the Katie bar the door.
- The big banks are starting to readjust mortgages, and Fannie/Freddie seem to be ready also. But,
- We got home ownership up to 70%, when the underlying support level should be about 65%. In other words, we-ve got 10% too many homes - and too big at that. And,
- Home prices have fallen, but to get back to the long term trend-line, they need to go down another 10%. And,
- Nobody seems to be interested in spending the $700 billion on the toxic mortgage derivatives. Instead, we're buying banks, insurance companies, and soon car companies. Where was that in the Congressional testimony?
Obama would do well to stand back for awhile. Let the bad ideas be discredited, and let the full blame be laid at the feet of others. Hopefully he can come in as a breath of fresh air rather than a continuation of this path.
We have been screwed by greed and yes I know politicians have lots of it but such a pitance comparted to the financial Einstines that got us here. They may have been nudged by politicians but once they tasted the fruit they cut down the whole damn tree for them selves and now we have nothing but a big gapping hole where our houses, retirement, stocks, bonds, etc..... used to be.
But you can keep whining like a spoiled child and see where that gets you over the next couple of years. I intend to seek other options for retirement, in the hyper inflation that is coming after the recession/depression. Best to plan now while you have a job if you still have one.