Wall Street Breakfast: Must-Know News

• Citi makes Senate friends on cramdowns. In an about-face for one of the nation's largest mortgage lenders, Citigroup (C) dropped its opposition to a Senate bill that would allow judges to order mortgage 'cramdowns,' setting new repayment terms for mortgage holders in bankruptcy court. Aimed at helping millions of homeowners with underwater mortgages, the bill marks a major shift of power from lenders to debtors, leaving banks worried that cramdowns will encourage bankruptcies even among those able to pay. By way of explaining Citi's swift turnaround on the issue, CEO Vikram Pandit cited 'today's exceptional economic environment,' and Citi's opposition was dropped on the condition no future mortgages would be included in the law. Legislators had sought out Citi's support, hoping banking industry support would help the bill be approved more quickly, and Citi was duly applauded for 'being open-minded' and 'playing a major leadership role.' Senate Democrats hope to include the bill in Obama's stimulus plan.
• Treasury's critics get louder. In the harshest criticism to date of the Treasury's handling of TARP, a congressional oversight panel is releasing a draft report today noting 'significant gaps' in Treasury's ability to track billions of dollars of taxpayer money. According to the report's charges, the Treasury has failed to reveal its strategy for stabilizing the financial system, has done nothing to help homeowners and hasn't answered questions asked by a government watchdog. The report also faults the Treasury for having no standards for measuring the success of the program.
• Obama forecasts bleak future without stimulus. Obama painted a grim picture of the country's economic future sans immediate stimulus action, saying he doesn't "believe it's too late to change course but it will be if we don't take dramatic action as soon as possible." Without a rapid fiscal stimulus package, he warned, the economy will become 'dramatically worse,' unemployment could reach double-digits and the recession 'could linger for years.' The speech marked the launch of what is expected to be an aggressive campaign to raise public support for the stimulus plan. (Read the full text of Obama's speech)
• How much will Madoff investors see? Based on the value of Madoff's brokerage, and assets including real estate, boats and jewelry, scammed investors may have access to as little as $1B of Madoff's money to satisfy as much as $50B in claims. The bulk of any refunds would likely come from other clients who withdrew money from Madoff recently, and government payouts (SIPC, tax refunds). According to one calculation, average Madoff victims might eventually get back $0.20 on the dollar. Small, direct Madoff clients could get back much more thanks to SIPC payouts of up to $500,000 per account. Large, indirect Madoff clients might not get much of anything at all. Meanwhile, insurers who cover financial institutions may be on the hook for over $1B to cover the legal costs for investment managers who gave client money to Madoff.
• Swiss secrets revealed. UBS (UBS) will close 19,000 secret offshore accounts of wealthy U.S. clients under pressure from federal authorities who suspect the IRS is getting ripped off (no!). Balances will be transferred to other banks or UBS divisions, or else checks will be sent directly to clients - creating a damning paper trail. Here's how one UBS client puts it: "You can either take that check and throw it in the woods, or deposit it somewhere and get busted." Prosecutors suspect U.S. citizens have about $18B buried in UBS accounts (that's all?).
• Lehman reaches P-E deal. Lehman Brothers has reached an agreement to spin out its private equity arm into an independent firm. As part of the deal, Lehman will retain a significant interest in the private equity business, called Lehman Brothers Merchant Banking, and South African billionaire Johann Rupert will assume $250 million in unfunded commitments to the fund. The move is part of Lehman's restructuring strategy of retaining a stake in its assets rather than selling them off wholesale in a weak market.
• Palm Pre wows. Palm pre-viewed its iPhone rival, Pre, to widespread accolades at the Consumer Electronics Show, sending shares soaring an unbelievable 35% to $4.45. Besides a slideout keyboard to complement its touch screen, the Pre also features a super-fast CPU, wireless battery recharge, and an "incredibly well thought out and smooth" user interface that "may be quite a bit more revolutionary than the iPhone." The show-stealing smartphone was a surprise to many who had already counted Palm out of the game. Its response: "Mobile is our DNA." Sprint Nextel (S), the exclusive carrier, climbed 8.4%. Engadget also liveblogged the intro.
• Citi takes a hit on petrochem exposure. Citigroup (C) expects to take a $1.4B pre-tax charge in its just-finished Q4 on its exposure to LyondellBasell. Citi ended December with around $2B of gross exposure to LyondellBasell, the world's third-largest petrochemical company whose U.S. operations filed for bankruptcy this week. The charge is mainly to boost loan reserves, Citi said.
• Jobless claims. Initial Jobless Claims fell to 467,000 last week, down 24K from last week's 491K (revised), and far less than the 545K economists predicted. The 4-week moving average of 525,750 is down 27K. More jobless data is coming later today with nonfarm payrolls due out at 8:30. Economists predict the U.S. probably lost 525,000 jobs in December, capping the biggest collapse in employment since the end of WWII. Unemployment likely jumped to a 15-year high of 7%.

Earnings: Friday Before Open

• R.R. Donnelley & Sons (RRD): Sees Q4 EPS of $0.51-0.61 vs. $0.78 consensus. Maintains dividend. (PR)

Earnings: Thursday After Close

• Allscripts-Misys Healthcare Solutions (MDRX): FQ2 EPS of $0.14 beats by $0.01. Revenue of $173M (+4.3%) vs. $181M. Shares +4.2% after hours. (PR)
• Apollo Group (APOL): FQ1 EPS of $1.12 beats by $0.14. Revenue of $971M (+24.4%) vs. $912M. Shares +8.8% after hours. (PR)
• Lawson Software (LWSN): FQ2 EPS of $0.10 beats by $0.03. Revenue of $206M (-5.6%) in-line. Shares +2.9% after hours following a 9.6% fall during regular trading. (PR)

Today's Markets

• Most Asian markets trended lower Friday. India led the losers on reverberation of the Satyam (SAY) scandal. Nikkei -0.45% to 8,837. Hang Seng -0.27% to 14,377. Shanghai +1.42% to 1,905. BSE -1.88% to 9,406.
• Europe is down a drop at midday; markets are quiet in anticipation of the U.S. employment data. London -0.6%. Paris -0.2%. Frankfurt -0.15%.
• U.S. stock futures are all lower, but have moved off overnight lows. Dow -0.4% to 8663. S&P -0.3% to 904. Nasdaq -0.5%. Crude -1.7% to $40.97. Gold +0.5% to $859.

Friday's Economic Calendar

• 8:30 Non-farm payrolls
  10:00 Wholesale Inventories
• Notable earnings before Friday's open: KBH

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[hanson001:]

"Legislators had sought out Citi's support, hoping banking industry support would help the bill be approved more quickly, and Citi was duly applauded for 'being open-minded' and 'playing a major leadership role.' Senate Democrats hope to include the bill in Obama's stimulus plan."

See, if you agree with the socialist in Washington, you are "open-minded" and playing a "major leadership role." Once you take the government money, they are going to run you. The tide is going out and now we see what dollar whores the CEO's are.

Jan 09 09:00 AM

[a. palmer jr.:]

So, if I'm reading this right, the Madoff victims of his scamming are actually going to do better than the Lehman bond holders after they sort out this mess. I can't believe that so many scams were going on at the same time with everybody's heads turned the other way!

Jan 09 10:50 AM

[JasonR:]

"believe it's too late to change course but it will be if we don't take dramatic action as soon as possible."

Sounds like one of those furniture commercials screaming at me, like this is the last time they're going out of business.

Jan 09 11:06 AM

[bobbobwhite:]

RE; UBS closing of Swiss acounts: Big deal. The quote of "take the check and throw it in the woods or deposit it somewhere and get busted".....how totally naive that is, as there are many other "places" in the world that will take that check for deposit and no one will ever know but them and the depositor. Dubai, Macau, Monaco, Hong Kong, etc, etc....the list is endless and not hard to find.

Jan 09 12:04 PM

[jackooo:]

Swiss accounts pale with the rip off of taxes not reported by illegals. If Boxer & Feinstein, Ca. senators, do not care about it why should we?

Jan 09 12:15 PM

[notsosmart:]

said it all along.the whole mess is one big ponzi.a lot of sheeples beginning to wake up.maybe too late.the fleecing will go on.

Jan 09 01:15 PM

[xmichaelx:]

Hanson001 said: "The tide is going out and now we see what dollar whores the CEO's are. "

Yes, we didn't realize that prior to yesterday. Years of payoffs in the form of lobbying in exchange for massive government favors might have been a tip-off.

The suggestion that Big Corporation only recently embraced socialism is often heard, but ridiculous. Many U.S. companies are entirely reliant on government $$, and all rely on legislation and regulation that tilts in their favor.

We haven't seen capitalism here for many, many years -- why start complaining now?

Jan 09 01:48 PM

[bbowen7:]

Somewhere the basis for a positive attitude about the financial industry is being laid. But not here.

Jan 09 02:12 PM

[stockguru32:]

youll be lucky to see a penny if you were with madoff. Next time question your 15%+ returns during a depression. Great article at crashmarketstocks.com

Jan 10 02:05 PM