Wall Street Breakfast: Must-Know News 9 comments
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- Consumers to get new loan program. The Treasury and Federal Reserve are working on a new facility to boost consumer financing, and could unveil the initiative as early as today. Sources say the Treasury and the Fed will help fund new loans packaged into securities for sale to investors, using $25B-$100B from the $700B TARP program. The facility, which will be operated by the Fed, aims to increase the availability of auto loans, student loans and credit cards, but could eventually be expanded to include mortgages and other assets. Still unclear is whether there will be restrictions on borrowers, how the Fed will judge credit worthiness and how the government will guard against the misuse of distributed loans.
- BHP abandons Rio bid. BHP Billiton (BHP) has dropped its $66B hostile bid for Rio Tinto (RTP), citing global market turmoil. BHP CEO Marius Kloppers said the deal would have raised BHP's debt levels and made it difficult to sell assets, and Chairman Don Argus added the board "no longer believes that completion of the offer for Rio Tinto would be in the best interests of BHP Billiton shareholders." The decision to withdraw is a major about-face for BHP, which had strongly argued the merits of the deal and had forecast a medium-term recovery for commodity prices. BHP had also considered asset divestments to ensure European antitrust regulators would approve the deal. (Timeline of the failed bid.) Pre-market: BHP +31.2%, RTP -30.9%.
- What's next for Citi? Now that Citigroup (C) has received a multi-billion dollar rescue from the government, Citi's strategy for moving forward is under intense scrutiny. CFO Gary Crittenden says the bank has no need to sell assets at this point, and calls the fast-growing emerging markets franchise 'the core of the company.' (Previously.) Still, Citi may be forced to sell some businesses; the government has made it clear to Citi executives that it expects the company to continue to reduce risk and to seriously weigh more drastic actions, including breaking up the company. "This is a reprieve, but it's not a complete pardon," explained one source close to the situation. Citi also needs to keep an eye on potentially problematic portfolios not covered by the government's rescue, including the credit card business where defaults are rapidly rising and the overseas lending operations which is also under stress.
- Big banks' credibility problem. The real losers from Citi's rescue might be other major U.S. banks who are increasingly facing a credibility problem. Citi repeatedly said it didn't need additional capital, and then accepted billions from the government, making investors warily wonder what other banks might be hiding. Similar claims of ample capital were made by Bear Sterns, Lehman Brothers and Merrill Lynch (MER) shortly before those firms were sold or went bankrupt. Among the big banks, much attention has been turned to Bank of America (BAC), whose housing market exposure has been heightened through its purchases of Countrywide Financial and Merrill Lynch. If losses continue to mount, its Tier-1 capital ratio could fall heavily, by some estimates to 7.15%. A ratio near 7% could spook investors and send the stock down, much like Citi recently experienced.
- Goldman bonds take off. Goldman Sachs (GS) has received strong interest from investors for a sale of $2B-$3B in bonds it is issuing under a new government guarantee program. The bond offering is expected to be completed today, and is the first major sale with the FDIC guarantee. For investors, the offer is a win-win, providing the safety of a Treasury bond with a better interest rate. The Goldman bonds mature in three years and will yield around 3.5%, or about 2% more than three-year Treasurys. Citigroup (C) and General Electric (GE) are among the other companies that have signed up to sell the bonds as well, and some estimates expect around $50B in issuance per month until June's deadline for debt issuance.
- OECD's U.S. prognosis. The U.S. economy has likely entered a recession that will last through mid-2009, the OECD said today, and recovery will likely be slow as consumers try to build up lost wealth by cutting back on spending. The OECD also said the U.S. needs to overhaul its financial regulation and supervision, and could need another fiscal stimulus package soon if economic conditions don't begin to recover. 2010 growth was pegged at 1.5%, up from 2009 forecasts of -0.9%.
- JNJ's OMRI buy could be the first of many. Johnson & Johnson (JNJ) will acquire Omrix Biopharmaceuticals (OMRI) for $438M ($25/share), an 18% premium. OMRI's lead product is its fibrin blood-clotting pad, which controls surgical bleeding, and which it claims is superior to JNJ's Surgicel. JNJ is looking to expand its surgical-care business, and some analysts say the timing of the acquisition shows the company's interest in taking advantage of its cash-rich position to make additional acquisitions while markets remain volatile.
- Exec pay controversy continues. Wachovia (WB), which lost $33B in the last two quarters, said ten of its top executives could be entitled to as much as $98.1M in severance pay once the bank is acquired by Well Fargo (WFC). A Wachovia spokesman said the actual figure should be lower since two of those executives have accepted positions at Wells Fargo and 'several others' are in talks. Regulators and Main Street bystanders have taken umbrage with executive payments on Wall Street, and have been pushing to rein in compensation packages.
- Panasonic sets Sanyo price. Panasonic (PC) has offered ¥120 ($1.25) per share in its takeover bid for Sanyo (SANYY.PK), according to reports in the Nikkei newspaper. The offer was presented to Goldman Sachs (GS) and two other major Sanyo shareholders. However, Goldman is said to be seeking ¥250-¥300 per share, so an agreement between the two sides seems to be a long way off. Panasonic released a statement saying it has not decided how much to offer for Sanyo shares.
- Axa axes profit outlook. French insurance giant Axa (AXA) cut its full-year profit forecast and called its 2012 targets 'increasingly obsolete' as the global slowdown continues. Axa now expects 2008 profit between €3.6B-€4B, down from August's prediction of €4.96B. Despite the downward revision, CEO Henri de Castries assured investors that the insurer can absorb further shocks and has 'absolutely' no need to raise additional capital. Shares -11% in Paris trading.
- NRG rejects suitor, again. For the second time this month, NRG Energy (NRG) has rejected a buyout offer from Exelon (EXC), saying the $6.2B bid 'significantly undervalues' NRG's worth. (Previously.) Exelon is continuing to meet with large investors, hoping to accumulate enough shares to force NRG into negotiations. Exelon is also pushing forward with its proxy fight to elect its own choice of directors to NRG. Exelon's tender offer expires Jan. 6 and the company believes it can win 30-40% of NRG shareholders.
- HP's Hurd sees growth ahead. Hewlett-Packard (HPQ) CEO Mark Hurd said the company is gaining market share in every segment and is on-track or ahead of its integration plans for computer services provider Electronic Data Systems [EDS]. HP, which released strong earnings yesterday (see below), faces a 'challenging' market environment but Hurd assured investors that 'we're guiding fairly conservatively' on PC sales which should 'have an effect' across the company. HP's FQ4 earnings were helped substantially by its purchase of EDS and rising notebook sales.
- Home sales fall. Existing home sales fell 3.1% in October to a seasonally adjusted 4.98M units vs. consensus estimates of 5M. "Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions," said the National Association of Realtors.
Earnings: Tuesday Before Open
- China Sunergy (CSUN): Q3 EPS of $0.05 in-line. Revenue of $119M (+6.6%) vs. $114.6M. (PR)
- D.R. Horton (DHI): FQ4 EPS of -$2.53 misses by $0.65. Revenue of $1.5B (-48%) vs. $1.7B. (PR)
- Vimpel-Communications (VIP): Q3 EPS of $0.27 misses by $0.07. Revenue of $2.8B (+45.3%) in-line. (PR)
- Zale (ZLC): FQ1 EPS of -$1.43 misses by $0.48. Revenue of $364M (-3.4%) vs. $382M. (PR)
Earnings: Monday After Close
- Analog Devices (ADI): FQ4 EPS of $0.49 beats by $0.05. Revenue of $661M (+76.7%) vs. $655M. (PR)
- Atwood Oceanics (ATW): FQ4 EPS of $1.16 beats by $0.03. Revenue of $160.7M (+32.2%) vs. $156.7M. (PR)
- Hewlett-Packard (HPQ): FQ4 EPS of $1.03 beats by $0.02. Revenue of $33.6B (+19%) vs. $33.32B. (PR)
- Nuance Communications (NUAN): Q3 EPS of $0.29 beats by $0.04. Revenue of $261M in-line. (PR)
Today's Markets
- Asia markets closed mixed. Nikkei +5.2% to 8,324. Hang Seng +3.4% to 12,879. Shanghai -0.4% to 1,889. BSE -2.3% to 8,695.
- In Europe at midday, London +1.1%. Paris +1.8%. Frankfurt -0.1%.
- U.S. futures: Dow +0.7%. S&P +1.1%. Nasdaq +0.8%. Crude -2.4% to $52.30. Gold -0.8% to $812.80.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
8:30 Corporate Profits
8:30 GDP (preliminary)
8:55 Redbook
10:00 Consumer Confidence
5:00 PM ABC Consumer Confidence Index - Notable earnings before Tuesday's open: AEO, CHRS, CHS, CSUN, DHI, DLTR, EV, TLB, VIP, ZLC
- Notable earnings after Tuesday's close: BGP, CWTR, JCG, TIVO
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 9 comments:
0 Limit Congress from serving more than two terms. That is all that presidents are allowed.
0 Stop Congress from voting for their own raises. How did that ever get started?
0 Stop paying lawmakers their full salary after serving just one term, or at retirement. We need to get rid of that pension plan; they’ve let other companies get rid of theirs. You were lucky to get 40 to 50 per cent of your salary after working somewhere for 35 years, but they get 100 per cent.
0 Stop handing out aid to illegal aliens. If we did, then Medicaid and the food stamp program would have enough money to aid the aged and the poor.
0 Secure our borders.
0 Stop allowing babies born to illegal aliens in the United States automatic U.S. citizenship.
0 Have a computer program that cross checks Social Security numbers with fingerprints to stop fraud on many fronts. Use it on voter registration, too.
0 Stop bailing out mortgage companies and banks that give loans to people who can’t afford them.
Only lawmakers can make these changes, as they are the lawmakers.
----------------------...
I have some additional changes that might also help:
1. Institutions that make loans must retain responsibility for the loans. The loans and the associated risks/rewards can't be bundled and passed on to other agencies for investment purposes.
2. Lawmakers should pass laws that ensure that individuals responsible for their actions. For instance, people who borrow money should be aware they have to pay it back or there will be unpleasant consequences. Of course, people who borrow should be made to realize how the loans are structured.
3. NEVER allow solutions that are constructed at the expense of the people who are not responsible for the problem. People who faithfully make their loan payments should not be penalized for those who do not, just as people who exercise, watch their diet and weight, and take care of themselves should not be penalized for those who do not take care of themselves. Never reward the people responsible for the problem at the expense of those who were not.
4. Read ATLAS SHRUGGED.
I predict none of the above will happen.
Hell, I'll run with you!
Outofchips/Blisterchic... 2012
But, if the goon are still in charge...all I can say is that if they are dumping cash into loans, this supports my intuition about going to grad school. By the time I'm done we should be honky dory!
Actually these programs are designed to make Goldman, etc, more profits. The Fed and Treasury give financial companies no interest loans so they can re-loan the funds to the taxpayers at 4,6 or 8% interest.
This whole bailout mess is one great big corporate welfare plan.
If you knew any thing about history, the slavers of the southern states and the religious fanatics of the northern states that started this country were all illegal aliens.
Norma seems to have a knack for stating the obvious... of course we want lenders to bear the risk they assumed. However, the problem is deeper than that, and it's not so easy to fix. Other ideas present some issues with what America is supposed to stand for:
The purpose of limiting the presidential terms is to ensure there is always a change in executive leadership. Members of Congress are not executive leaders.
No citizenship at birth? Then what happened to that "Give me your poor" business engraved at the Statue of Liberty? Shall we also do away with freedom of religion and the press if they ever become inconvenient?
Secure the borders... um, okay. Sure. Long as Mexico is dirt poor and we are filthy rich, no amount of security will stop the flow of workers and drugs. If anything, we'll have just as many drugs and fewer honest workers, and construction costs will go up as contractors can't find affordable labor... all these proposals have consequences that have to be taken into consideration.
A computer program matching fingerprints with SSNs used at voter registration? That's a huuuuge fiasco waiting to happen. Besides, fingerprint technology is increasingly obsolete.
Of course we should stop bailing out these financial companies. We should also stop bailing out ourselves with our credit cards and unsustainable lifestyles. But as long as the Fed is around, we'll always have a Fed Chairman playing willy-nilly with short-term interest rates, and providing all the incentive lenders need to lend away.
No need to worry though: there's never a free lunch, and this will all come to a disasterous end eventually. It's gonna be very ugly. Might even be worse than the Great Depression... who knows. What happens when the U.S. Government needs a bailout? Along with the E.U., China, Japan, etc.?
Come on, don't jump into conclusion.
Students are students. No politics please.