Wall Street Breakfast: Must-Know News

• Smith Barney on the sales block. Citigroup (C) is in advanced talks to sell a controlling stake in its brokerage to Morgan Stanley (MS). The deal could provide Citi with a much-needed post-tax gain of $5B-$6B, though some decry Citi's choice of "selling out the future to get through the crisis of the present." Citi CEO Vikram Pandit had pledged not to sell the brokerage unit, Smith Barney, which has played a critical role in the company over the last decade. Paying $2B-$3B for a 51% stake (with an option to increase that stake in the future), Morgan Stanley would combine Smith Barney with its own brokerage unit in a $20B joint venture. The new firm would have around 22,000 brokers, creating the world's largest retail brokerage. A deal could be announced as early as this week.
• Satyam rallies on hope. The Indian government replaced Satyam's (SAY) board and appointed three new directors. The computer company will have to restate its earnings and might be broken up into pieces after chairman Ramalinga Raju announced that over $1B on the company's balance sheet was fictitious. Raju and his younger brother Rama have been detained on charges including forgery, breach of trust and criminal conspiracy. Despite all the bad news, shares climbed 45% in India on hopes the government will craft some sort of rescue, or that the new board will come up with a workable plan.
• Obama tries to navigate TARP trap. Members of Obama's administration are negotiating with lawmakers to avoid a messy fight over access to the second half of TARP funds. Obama has been considering whether President Bush should request permission to use the funds, with the goal of having the funds in place soon after Obama takes office on January 20. To address lawmakers' concerns, Obama's team has suggested using the funds for new purposes, including preventing foreclosures, and placing tougher conditions on recipients. If dissatisfied, Congress can deny the release of the funds, leaving Obama in a tricky political position.
• Trying to ford the auto sales gap. Despite previous assurances to the contrary, Ford (F) may have to fall back on federal loans as a weakening economy threatens to drag domestic sales lower than the company expected. Ford had forecast 12.2M U.S. light vehicle sales this year, nearly 2M more than the annualized sales rate of the last three months. (In comparison, Chrysler expects sales may reach 11M units and General Motors (GM) forecasts a range of 10M-11M.) Ford told Congress last month that 2009 sales of 10M-10.5M units would trigger the need for up to $13B in loans. Analysts agree domestic sales will fall this year, with several estimates for 2009 sales in the 10M-11M range.
• GM may ask for more money. Last week, General Motors (GM) said it had received enough money from the government to make it through a worst-case scenario and wouldn't need additional funds unless the economy worsens. It looks like GM has seen the economy sour in just the last few days, since CEO Rick Wagoner is now telling reporters the company may seek additional government loans beyond the $13.4B it has already been pledged. "The $13.4B is consistent with what we asked for through the first quarter under our downside market scenario, which is the way the market is running," said Wagoner, but in March, "we will obviously review the whole plan and at that point we'll see what requirements are."
• China relaxes bad debt regulations. The China Banking Regulatory Commission will allow bad debt to increase this year as it softens the rules of bank lending to revive the Chinese economy. After five years of declines, the Commission will drop its target of reducing the balance and ratio of bad loans. The looser requirements may help lending, but also raise concerns about a surge in bad loans just four years after China spent over $500B cleaning up its banking system.
• U.K. wants to stem bankruptcies. The U.K. is in the early stages of considering a plan that would set up a fund aimed at preventing corporate defaults. Sources say officials are looking at different structures for the plan, including one where struggling companies would give the fund equity in return for the fund assuming debt owed to banks. The goal is to prevent further bankruptcies and job losses as the U.K. economy continues to weaken. Several other efforts to bolster the economy are also under consideration.
• Payrolls drop. The government released data on Nonfarm Payrolls on Friday, showing a fall of 524,000 in December, in line with the 525,000 drop economists expected. Unemployment jumped to 7.2% from 6.7%, vs. 7% consensus - its highest level since January 1993. October and November were revised, with another 150K jobs lost. "This will be a big hit to consumer spending and confidence," says one economist. "It suggests a very long, challenging recession."

Today's Markets

• Asia markets closed in the red. Hang Seng -2.8% to 13,971. Shanghai -0.2% to 1,900. BSE -3.15% to 9,110. Kospi -2.05% to 1,157. Nikkei closed.
• In Europe at midday, London -0.6%. Paris -0.3%. Frankfurt -0.3%.
• U.S. futures: Dow -0.1%. S&P -0.2%. Nasdaq +0.1%. Crude -4.75% to $38.90. Gold -1.1% to $845.90.

Monday's Economic Calendar

• 12:40 PM Fed's Lockhart speaks on the U.S. economic outlook
• Notable earnings before Monday's open: SCHW
• Notable earnings after Monday's close: AA

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[know nothing:]

It starting to sound like a record with a scratch in it.Bail out money fast! We have to pass more bail out legislation before it's to late! Hurry !! Then when asked where did all the money go the politicians lok at each other with the deer in the headlight look??? The real crime here is the american people just allow it to happen! When will the american people wake up, and speakout against the gov't useing their hard earned tax dollars, without being accountable?

Jan 12 08:37 AM

[francesca:]

According to what I hear, read on the internet and elsewhere, the people HAVE been speaking out. Congress and this administration JUST DON'T LISTEN. The failed CEOS of institutions that came begging and then arrogantly refused to reveal how they used the proceeds of their beggary should be fired forthwith. The same goes for Paulsen, who wanted everything done "quick and clean" (for that which had been committed Long and Dirty, and then demanded action without oversight by anyone but himself, a person without a plan and with only the vaguest, haziest articulation and/or thinking of what would be done -- other than protection of his cronies in the financial world. . And we should institute in this country a policy of No Confidence Votes with removal from office of transgressors of the people's interests, including those dimiwitted congressional designers of the egregious bailout plans, as well as Bush, Cheney, Paulsen, Blago the Boor. There should be nothing sacrosanct about 4, 6 or 8-year terms, when in cases like these it becomes evident that it only provides safety and sanctuary for crimes against democracy. I say Throw the Bums Out !


On Jan 12 08:37 AM know nothing wrote:

> It starting to sound like a record with a scratch in it.Bail out
> money fast! We have to pass more bail out legislation before it's
> to late! Hurry !! Then when asked where did all the money go the
> politicians lok at each other with the deer in the headlight look???
> The real crime here is the american people just allow it to happen!
> When will the american people wake up, and speakout against the gov't
> useing their hard earned tax dollars, without being accountable?

Jan 12 09:31 AM

[auto44:]

Our nieve, stupid, corrupt, congress spends more time trying to discredit folks in the oppposite party than defending America. It is far more important to make someone look bad and thereby keep your job than to work for the good of the public of this country. Keep electing the likes of Dodd, Frank, Pelosi,et al and our country and the world will continue to sink. The only thing these folks understand is self preservation.

Jan 12 09:36 AM

[auto44:]

We forgot to mention the culpability of the main stream press in all this.Their penchant for manufacturing news instead of reporting is as detremental to good government as the folks they fight to keep in power. We also might add that our schools are staffed by folks who are selected for their political leanings as much as for their capacity as instructors. All these folks are also looking to protect their turf by cow towing to heir bosses political whims. This is a fromula for a troubled future.


On Jan 12 09:31 AM francesca wrote:

> According to what I hear, read on the internet and elsewhere, the
> people HAVE been speaking out. Congress and this administration JUST
> DON'T LISTEN. The failed CEOS of institutions that came begging and
> then arrogantly refused to reveal how they used the proceeds of their
> beggary should be fired forthwith. The same goes for Paulsen, who
> wanted everything done "quick and clean" (for that which had been
> committed Long and Dirty, and then demanded action without oversight
> by anyone but himself, a person without a plan and with only the
> vaguest, haziest articulation and/or thinking of what would be done
> -- other than protection of his cronies in the financial world. .
> And we should institute in this country a policy of No Confidence
> Votes with removal from office of transgressors of the people's interests,
> including those dimiwitted congressional designers of the egregious
> bailout plans, as well as Bush, Cheney, Paulsen, Blago the Boor.
> There should be nothing sacrosanct about 4, 6 or 8-year terms, when
> in cases like these it becomes evident that it only provides safety
> and sanctuary for crimes against democracy. I say Throw the Bums
> Out !

Jan 12 09:45 AM

[know nothing:]

It' been implied that the goverment was behind the madoff ponzi scam! Now they are making it obvious!

Jan 12 12:16 PM

[sportsbiz:]

auto44 has hit on something that is a major source of the problem - between a mainstream press that either doesn't understand business and finance or doesn't care to report it and an education system that fails to teach basic math and analytic skills, we are left with a population too docile to do anything when the political and financial elite plunder the country the way they have in the last eight years. This is not a partisan rant, both sides are equally at fault - they both rely on the same financial elite to finance their endless campaigns and as a result write legislation with no real enforcement provisions or remove regulatory powers that may have caught some of the more egregious stuff we have seen in the last 12 months.

Jan 12 12:22 PM

[jackooo:]

Did we ever think the auto companies were not coming back for more?

Jan 12 12:26 PM

[bobbobwhite:]

Re: the Citi sale of Smith Barney to Morgan Stanley....I am so very sure that Jamie Dimon is covertly smirking somewhere, perhaps lightly guffawing into the cuff of his silk bathrobe while his inbred gladiator mentality conversely screams with passion, "we who are about to die salute you!", to Sandy Weill, but he knows full well in his heart and soul that it is Sandy who is now dying, and not him.

Jan 12 12:28 PM

[jackooo:]

This Congress is totally useless. I am astonished that they are not impeached for derelection of duty!
That goes for Barney, Pelosi, Reid and the rest of the losers ripping the taxpayers off.

Jan 12 12:31 PM

[bbowen7:]

I haven't looked at the data from the last election, but if it follows the pattern, the people voted for over 90% of the congressional members who ran for reelection, despite an overall Congressional approval rating of about 15%. So, Mr. Pogo Possum, where does the fault lie?

Jan 12 01:18 PM

[xmichaelx:]

Right in San Fran said: "I haven't looked at the data from the last election, but if it follows the pattern, the people voted for over 90% of the congressional members who ran for reelection"

5 seconds of googling tells me you're not far off. 86% of incumbents who ran kept their seats, including all Dems. But considering that very large number of seats up for grabs that didn't include incumbents, it was a landslide in the Dems favor. In conjunction with the 2006 elections, this could be seen as "throwing the rascals out".

The unfortunate problem is that Repubs refuse to have an honest post-mortem to understand what they did or didn't do that led to this bloodbath. There's been lots of finger pointing (at dishonest Dems and a failed President), but no serious talk about the complete lack of any action remotely resembling "conservatism" for the 6 years of Repub rule.

A majority of Americans may be sheep, but they're not stupid, blind sheep. Until there is honest soul-searching by Repubs, we'll be looking at Dem single party rule for a long time to come.

Jan 12 01:55 PM

[axelrod608:]

>> "the people voted for over 90% of the congressional members who ran" >>

Madoff wasn't running the only confidence game. The majority of Americans still have CONfidence in at least one of the two ruling parties, and CONfidence that government can fix things, even though decades of evidence shows their CONfidence to be in error.

Never underestimate the ignorance of the American electorate.

Jan 12 02:53 PM

[tiredofitall:]

Of course GM asked for more money - I'm sure the bill from this past weekend's NFL playoff sponsor was quite high.

Where is the accountibilty? If consumers get a car loan, they are not allow to use the money on a hot tub for the back deck.

Jan 12 03:09 PM

[PainfullyAware:]

Diebold Baby !!!

Nothing about electronic voting is reassuring. All the reports I have read since its emergence have been bad.

My confidence is rattled and I fear for what is to come.

Collusion is not out of the realm of possibilities - It is human nature edified by history.

When you can create money out of thin air you can buy governments.


On Jan 12 01:18 PM Right in San Francisco wrote:

> I haven't looked at the data from the last election, but if it follows
> the pattern, the people voted for over 90% of the congressional members
> who ran for reelection, despite an overall Congressional approval
> rating of about 15%. So, Mr. Pogo Possum, where does the fault lie?

Jan 12 03:15 PM

[thatguy57z:]

I absolutely agree with you, Its time for America wake up and smell the f--king sh-t been saying all along, theres one city police department that wants to shot all cellar service if there is Marshal law OOPS tarriest attack, you seen what happen when they what happen to American citizens in new Orleans to the little old lady that got smashed by the two line backers law enforcement offers, look it up on youtube.com it coming and where the tarriest as far as the government is conceder. and the only way that they can take control of the country is by declaring Marshal law


On Jan 12 08:37 AM know nothing wrote:

> It starting to sound like a record with a scratch in it.Bail out
> money fast! We have to pass more bail out legislation before it's
> to late! Hurry !! Then when asked where did all the money go the
> politicians Lock at each other with the deer in the headlight look???
> The real crime here is the American people just allow it to happen!
> When will the American people wake up, and speakout against the gov't
> useing their hard earned tax dollars, without being accountable?

Jan 12 07:54 PM