Wall Street Breakfast: Must-Know News

• Citi sinks, mulls sale, spinoff. Citigroup's (C) stock fell 26% on Thursday, capping four days that saw the company lose half its value and bringing the company below the institutional threshold of $5/share. Pressure is increasing from investors and analysts to support the stock price by any means, including splitting or selling the company. The board will meet today to discuss Citi's options, amid mixed reports on whether a possible sale or spin-off will be considered. In the meantime, the company is pushing for the SEC to reinstate a ban on the short-selling of financial stocks. CEO Vikram Pandit assured employees that "we are entering 2009 in a strong position... We will be a long-term winner in this industry," but some of Citi's traders have begun to joke that the troubled bank should be renamed the Titanic.
• Christmas comes early for homeowners. Fannie Mae (FNM) and Freddie Mac (FRE) announced they will suspend foreclosures and evictions during the holiday season, beginning Nov. 26 until Jan. 9. The move is meant to provide more time to implement a loan modification program for struggling borrowers. The foreclosure hiatus, which will apply to occupied homes, could affect as many as 16,000 borrowers. Analyst Paul Miller aptly called it a 'giant time out,' adding he "wouldn't be surprised to see this across the board."
• FDIC keeps Fed in mind. The FDIC may exclude the shortest-term loans from a $1.4T debt-insurance program. FDIC officials are likely to recommend that loans that mature in 30 days or less, including overnight interbank loans at the rate targeted by the Federal Reserve, be omitted from the program. The exclusion would help the Fed avoid further interest rate swings; for two months, the Fed had failed to keep the federal funds rate near its target rate because of more than $1T of loans floating around the banking system. "The FDIC would not want to interfere with a market that has been working, functioning efficiently," said economist Lou Crandall. "It would have made the fed funds rate even more unpredictable."
• Community banks hear from regulators. Trying to head off the next phase in the credit crisis, the Office of the Comptroller of the Currency is keeping a closer watch on around 100 community banks with large exposures to weak commercial real-estate loans. The OCC categorized the community banks into three groups based on potential risk and the concentration of commercial real estate holdings, and have requested at-risk banks to create more specific plans to manage their exposure. "If they're not making progress on areas requiring attention," cautioned OCC spokesman Robert Garsson, "we're going to escalate our response." Other regulators, including the FDIC and the Office of Thrift Supervision, have ramped up their involvement as well, leading bankers to complain of a 'poisoned' examination atmosphere and regulators who are too harsh and inflexible.
• Alico up for sale. A consortium led by sovereign wealth fund China Investment Corp. is in talks to buy a stake of up to 49% in American Life Insurance Co. (Alico), a unit of AIG (AIG). The deal, which might be worth up to $10.6B, could position China to become a major player in the global insurance market. Sources say AIG has set a year-end deadline for the negotiations, as it looks to sell everything except for its U.S. property and casualty business, foreign general insurance and an ownership interest in foreign life operations. An AIG spokesman declined to comment.
• France's new fund. French President Nicolas Sarkozy unveiled a €20B ($25B) strategic investment fund, aimed at protecting French industry from foreign predators and a weakening economy. Sarkozy said the fund is ready to take stakes in large, strategically important companies that are vulnerable to foreign takeover, and will make its first investment in Daher, an aeronautics supplier. The fund will be subject to scrutiny by the European Commission to ensure it doesn't restrict the free flow of capital. Sarkozy also promised a stimulus package within the next several weeks that would focus on infrastructure, education and research.
• Bottom? What bottom? Stocks extended their slide, closing heavily down yet again (Dow -5.56%, S&P -6.7%, Nasdaq -5.1%). The S&P has fallen below its lowest finish in the 2000-2002 bear market, and is now trading at 1997 levels. Bear market selling has been exacerbated by late-day margin calls and concerns that the government's capital injection program isn't working.
• Quotables. "Some have chosen to scapegoat the Lehman failure as the cause of the deepening crisis in September, as opposed to a symptom. That is at best naive, and at worst disingenuous. The U.S. government had no authority to rescue Lehman Brothers." -Treasury's Henry Paulson
• Fewer financial jobs. JPMorgan Chase (JPM) begins another round of job cuts, though it is unclear how many positions will be slashed in addition to the 5,000 jobs the firm cut earlier this year. Forecasts remain dark for the financial industry as a whole. Some estimates see job cuts in the financial sector doubling to 350,000 worldwide by mid-2009. "This is the financial equivalent of World War II," said Brian Sullivan, CEO of search firm CTPartners. "It's unprecedented. You're seeing a seismic shift in the population of banking."
• Jobless claims rise. Initial Jobless Claims this week were 542,000, substantially worse than the 505,000 economists expected. The 4-week average of 506,500 was up 15,750.
• Leading Indicators fall. Leading Indicators fell 0.8% in October, worse than the 0.6% drop economists expected. "Stock prices, building permits, consumer expectations and the index of supplier deliveries made large negative contributions." Money supply and the interest rate spread kept the Conference Board's index from collapsing.
• Philly Fed. The Philadelphia Fed's prices paid index fell 38 points to -30.7, its first negative reading since mid-2003. The prices paid index has now fallen a dramatic 106 points over the past four months. The Philly Fed also found 69% of employers expect to employ fewer workers over the coming six months, 51% cite layoffs and 32% predict reducing work hours.

Earnings: Friday Before Open

• Canadian Solar (CSIQ): Q3 EPS of $0.41 misses by $0.13. Revenue of $252M (+159.1%) vs. $248M. (PR)
• Heinz (HNZ): FQ2 EPS of $0.81 beats by $0.11. Revenue of $2.61B (+3.5%) vs. $2.7B. (PR)
• J.M. Smucker Company (SJM): FQ2 EPS of $1.02 beats by $0.01. Revenue of $843M (+19.1%) vs. $796M. (PR)

Earnings: Thursday After Close

• Autodesk (ADSK): Q3 EPS of $0.56 beats by $0.03. Revenue of $607M in-line. Sees Q4 EPS of $0.28-0.34 vs $0.51 and revenue of $525-550M vs. $611M. "The sharp downturn in the global economy had a substantial impact on our results for the quarter." Shares -16.9% in after-hours trading. (PR)
• Brocade Communications Systems (BRCD): FQ4 EPS of $0.20 beats by $0.03. Revenue of $398M (+17.2%) vs. $389M. Shares +2.5% in after-hours trading. (PR)
• Dell (DELL): Q3 EPS of $0.37 beats by $0.06. Revenue of $15.16B (-3.1%) vs. $16.22B. Believes global IT end-user demand will continue to be challenging. Shares +5.4% in after-hours trading. (PR)
• Foot Locker (FL): Q3 EPS of $0.18 misses by $0.07. Revenue of $1.31B (-3.5%) in-line. Sees 2009 EPS of $0.50-0.63 vs. $0.82. (PR)
• Gap (GPS): Q3 EPS of $0.35 beats by $0.01. Revenue of $3.56B (-7.6%) in-line. Shares +4.0% in after-hours trading. (PR)
• Salesforce.com (CRM): Q3 EPS of $0.08 beats by $0.01. Revenue of $276.5M (+43%) vs. $273.5M. 4,100 new customers to 51,800 (+36%). Shares +4.25% in after-hours trading. (PR)

Today's Markets

• Asia markets closed mostly up. Nikkei +2.7% to 7,911. Hang Seng +2.9% to 12,659. Shanghai -0.7% to 1,969. BSE +5.5% to 8.915.
• In Europe, markets are higher at midday, but not by much. London +0.5%. Paris +0.15%. Frankfurt +0.25%.
• Dow +2.75% to 7690 (high: 7820). S&P +2.64% to 768 (high: 785). Nasdaq +2.81%. Crude +1.6% to $50.21. Gold +1.03% to $756.40.

Friday's Economic Calendar

• No events scheduled
• Notable earnings before Friday's open: ANN, CSIQ, HNZ, SJM

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[eddie6442:]

Earth-to-Congress: AUTO BAILOUT/LOAN

Separate the 3 auto manufacurers into "Individual Entities", each supplying a proposal and business plan for Breakeven & Profitabilty. EACH FIRM will actually be applying for a loan, and be accepted/rejected based upon its own merits.
Congress will then have placed the three in competition with each other, not only for government funds, but for survival. Competition.........wh... a novel idea in an entitlement world of Detroit!
The UAW will have to submit its own plan confirming any/all concessions the auto makers incorporate into their plans, and further commit to reasonable bargaining over the next three-to-five years while the industry recovers..........
Congress will not only effectively have removed the "gun-from-their-head", but can expect detailed input upon which a proper funding decision can be made............ Also, there will be detailed proof that "One-fails--All fails" is BOGUS!!!!!!!!
Amazing -- Congress actually can show the proper Loan Application Process for all to see and copy..............
THINK OUT OF THE BOX FOR TAXPAYERS SAKE!!!!!!!

2008 Nov 21 08:07 AM

[formerhawk:]

eddie- that isn't out of the box, that is how money is normally loaned. Congress just doesn't appear to be normal.

2008 Nov 21 08:20 AM

[Jersey:]

Normal? Is anything normal anymore?

2008 Nov 21 08:43 AM

[axelrod608:]

>FDIC keeps Fed in mind. The FDIC may exclude the shortest-term loans from a $1.4T debt-insurance program>

You can call this mess a "credit problem" but credit doesn't exist without DEBT. The Truly Unbelievable Reflation Program - TARP - is merely a smokescreen to avoid scrutiny of debt, or more specifically BAD debt carried in Level 2 and 3 portfolios but not on the books. And the reason why banks won't lend to any company with derivatives hiding in level 2 and 3 portfolios is simply that no certain assesment can be made of that company's solvency.

The truth is that while nobody knows the exact amount of bad debt held in American companies, the total is well into the tens of Trillions of dollars. And NO amount of extra "liquidity" is going to fix the problem.

The ONLY Constitutional method of solving debt problems is bankruptcy. The government's current liquidity blitzkrieg is designed to avoid the Constitutional solution. We have a herd of yokels in DC, all of whom swore an oath to support and defend the Constitution who are all breaking their word. It's no wonder real Americans have little or no faith in their "representatives".

2008 Nov 21 09:26 AM

[Jersey:]

OOHhhhh. F is a buck and change. Talk about taking a shot. Hmmm. What to do, what to do, Hmmmm. Damn.

2008 Nov 21 09:49 AM

[notsosmart:]

good day sheeples.ready for more fleecing.today you can buy 2 of the fleet of gm's private jets.LOL.

2008 Nov 21 09:58 AM

[bobbobwhite:]

Any terms for an auto bailout are so specious; we have found that the gov't says it will do one thing and then does another after approval. Why should we support anything the gov't says or does when it is so treacherous? Let the Big 3 sink or swim on their own and for god's sake, keep the gov't out of it.

On Citigroup......it will fail as Citi and will be taken over by JPM and its CEO, Jamie Dimond. Revenge is so sweet, Sandy Weill!

Present Citi CEO Pandit is a disaster worse than the Titanic. The Titanic disaster killed over a thousand people, but Pandit has helped ruin hundreds of thousands of retirement accounts and that may be worse than death for many elderly retirees.

2008 Nov 21 10:00 AM

[The Proclaimer:]

Retirees???? Arn't these the people (those that survived) that have spent most of their life making this Great Country Great. Shouldn't we be tending to their needs and peace of mind? After all IT WAS THEIR TAXES AND HARD WORK AND SACRAFICES that has carried us to this point in time. I say that much is owed to the older generation and it is about time that we show the RETIREES OUR THANKS. Lets give them a life to enjoy and rest before they have passed.

2008 Nov 21 12:22 PM

[doubleguns:]

I hate to sound crass but the retirees are some of the very people that have led to this unchecked spending that got all of these bubbles started in the first place. They can enjoy the misery along with the rest of us. They are collecting SS $ from the great socialist ponzie scheme. We will pay for them but no one will pay for us. Thats crap!!! How long can this scheme continue? Once the population growth slow's this game is over no matter what congress does. The pyramid is doomed and it is coming soon. I suspect that those that have any other retirment plan even if it is your own 401k will eventually be told they don't get any SS dollars because it is bankrupt and has become a lst resort only program.

The romans went down from entitlement excesses as well as a complete lack of spending controls and the Americans are heading there at warp 8. Lets bail out america first, not banks, autos, insurance companies or any other private entity. Congress has lost thier collective minds and that includes both parties. Both are nothing more than rotten corpses stinking up the country.

My sugestion would to be figuring out your own retirement plan now because there is not going to be much the government can do latter. They simply can not tax taxpayers into the poor house to pay for these debts and the businesses will simply leave the country if they get tagged to hard. Its grim and its gonna stay grim for a long time and america might not be number one in the near future. We need to fix the entitlement programs in america before its to late. The needs of the many over the needs of the few might get shoved down our throats if we dont show some spending constraint. We could end up with NO entitlements soon and all the political correctness in the world will not change the fact that it could become "you dont work you dont eat".

2008 Nov 21 01:40 PM

[bbowen7:]

Not to worry about the auto industry business plan. It will be submitted for approval to Barney Frank and Chris Dodd - the price that we pay for this happening in the twilight of one discredited administration and before the new one chooses to get involved.
Actually, Obama's reaction to the past three months' crisis is interesting. What is needed is a joint statement with the White House that this is the nature of the problem; this is the nature of the solution; during the current administration X will be done; with the new administration, Y will be done. But that is about governing, he is a campaigner, and the worse things get, the more he can blame it on Bush. When a corporation hires a new CEO, he (she?) piles all that he can on the past P&L so that his comparables are easier. Same here.

2008 Nov 21 01:55 PM

[The Proclaimer:]

Doublegunns: you are just plain cold! And to blaime any of this mess on the elderly is shameful when too many so called investment experts are guilty of crying fire and then spew gas so that the vultures can have a hot meal. While I can agree with most of what you wrote, all that you are really saying is Bah Humbug!

2008 Nov 22 01:58 AM

[User 304224:]

Yes, you do sound crass! I doubt the Retirees led us to the unchecked spending. I happen to be one and know many others. We are the same people who worked our whole lives, paid into SS, saved our money, paid our bills, paid for our homes and did not have credit cards. Most seniors draw very little SS. $8,000 to $10,000 a year. If you want to be crass to a sector, aim it at the criminals who never worked, saved or paid anything! Now we are supporting them in prisons to the tune of $50,000 to $60,000 a year. Or look at the part of society who has to have everything and buys it with credit cards and then files for bankruptcy. I suspect that is the part of society that you might fit in! Or you might want to take a glance at the CEO compensation of all these companies that have let to this disaster. Shame on you for targeting the Seniors!


On Nov 21 01:40 PM doubleguns wrote:

> I hate to sound crass but the retirees are some of the very people
> that have led to this unchecked spending that got all of these bubbles
> started in the first place. They can enjoy the misery along with
> the rest of us. They are collecting SS $ from the great socialist
> ponzie scheme. We will pay for them but no one will pay for us. Thats
> crap!!! How long can this scheme continue? Once the population growth
> slow's this game is over no matter what congress does. The pyramid
> is doomed and it is coming soon. I suspect that those that have any
> other retirment plan even if it is your own 401k will eventually
> be told they don't get any SS dollars because it is bankrupt and
> has become a lst resort only program.
>
> The romans went down from entitlement excesses as well as a complete
> lack of spending controls and the Americans are heading there at
> warp 8. Lets bail out america first, not banks, autos, insurance
> companies or any other private entity. Congress has lost thier collective
> minds and that includes both parties. Both are nothing more than
> rotten corpses stinking up the country.
>
> My sugestion would to be figuring out your own retirement plan now
> because there is not going to be much the government can do latter.
> They simply can not tax taxpayers into the poor house to pay for
> these debts and the businesses will simply leave the country if they
> get tagged to hard. Its grim and its gonna stay grim for a long time
> and america might not be number one in the near future. We need to
> fix the entitlement programs in america before its to late. The needs
> of the many over the needs of the few might get shoved down our throats
> if we dont show some spending constraint. We could end up with NO
> entitlements soon and all the political correctness in the world
> will not change the fact that it could become "you dont work you
> dont eat".

2008 Nov 22 10:00 AM