Wall Street Breakfast: Must-Know News

• Financial rescue plan en route. The Obama administration is expected to announce a comprehensive financial rescue plan on Monday, including a strategy to deal with banks' bad assets and a new program to help prevent home foreclosures. Treasury's Geithner will unveil the plan in a speech detailing both new initiatives and plans on how to use the second half of TARP funds. Sources say financial rescue efforts are shaping up to include increased capital injections with tougher terms and expanded Fed lending through TALF. Geithner will likely place emphasis on guarantees of toxic assets as opposed to a classic 'bad bank' proposal.
• Cautious hope on Senate stimulus. Democrats in the Senate will try again today to pass their $937B economic stimulus plan while moderates are trying to rein in some of the proposed spending. A bipartisan group of around 18 Senators worked late last night trying to slice around $107B from the plan, while Obama has kept the pressure up to have a copy of the bill on his desk by Feb. 16. Senate Majority Leader Harry Reid said he was 'cautiously optimistic' they could finish up by today.
• TARP shortchanged taxpayers. A watchdog Congressional panel reported that TARP has shortchanged U.S. taxpayers by around $78B; the Treasury received bank assets worth around $176B in exchange for capital purchases of $254B. Representative Alan Grayson calls the loss estimate 'conservative,' warning "it could turn out that those assets in the end are worthless." Paulson had previously justified the exchange, saying "this is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything." So far, AIG (AIG) and Citigroup (C) have provided the least value, providing securities worth $41 for every $100 of government money they received.
• Profit outlook drives Toyota downgrade. Toyota (TM) lost its top credit rating from Moody's with a downgrade to AA1 from AAA, driven primarily by the "significantly impaired state of profitability at Toyota, due in turn to the severe nature of market conditions surrounding the global auto industry." S&P also lowered its credit rating for Toyota, to AA+ from AAA. The cuts may drive up borrowing costs for the automaker, which posted a FQ3 net loss today and warned of a larger-than-expected full year loss (see details below). Toyota had been the only non-financial, non-government borrower in Asia with an AAA rating.
• New bank plan: I.V. drip. Federal officials are looking at ways to convert government stakes in U.S. banks - currently preferred stock - into common shares bit by bit in order to increase banks' common equity, sources say. "The point would be to provide a drip-feed of additional common equity as needed to cover losses – without the government owning a larger stake in the banks than is necessary." Under the proposal, shares would automatically morph into common equity if a bank's financial health breached a certain threshold.
• Fannie bends the rules. In an effort to break the logjam in mortgage refinancing and allow homeowners to take advantage of record low rates, Fannie Mae (FNM) is bending the rules - dropping credit-score requirements, ignoring income-documentation standards, and waiving the need for appraisals. A Fannie Mae spokesman said the program 'will streamline' refinancing 'for potentially millions of current mortgage holders.'
• RBS about-faces on insurance. Ten months after announcing plans to sell its insurance business, Royal Bank of Scotland (RBS) had decided to keep the unit after all. In an about-face, the board decided that the insurance business has "a clear competitive advantage, credible future growth opportunities from strong customer franchises" and can "generate appropriate risk-adjusted returns." The bank had initially hoped to sell the insurance unit for £7B ($10B) but analysts valued the business substantially lower as equity markets sagged and debt financing became scarce.
• Tough times for News Corp. News Corp. (NWS) posted its largest ever quarterly loss after writing down $8.4B for the value of its Dow Jones acquisition (see earnings details below). Even excluding the charge, results fell short of analyst expectations as the company's ad sales were further weakened by recession and the poor economy hurt the company's other properties. CEO Rupert Murdoch said it's impossible to be completely prepared for an economic downturn as bad as this one, but that the company is working to cut costs in anticipation of a further slide in ad sales.
• Insider-traders get caught. Several individuals, including a UBS (UBS) banker, have been criminally charged as part of an insider-trading ring that allegedly earned over $7M in illegal profits. The ring, which shared information on mergers and acquisitions, also includes former employees from Jefferies Group and Blackstone Group (BX). Several arrests have been made.
• Obama on economy. In a Washington Post op-ed, Obama explains the pressing need to act: "If nothing is done, this recession might linger for years. Our economy will lose 5 million more jobs. Unemployment will approach double digits. Our nation will sink deeper into a crisis that, at some point, we may not be able to reverse."
• Same store sales slip. Most retailers reported weak same-store sales in January as consumers cut back even more on discretionary spending. Sales for the industry as a whole fell 1.6%. A notable exception was Wal-Mart (WMT), which posted a 1.5% gain for the month, or 2.1% excluding fuel. Still, while the results were dismal, they weren't apocalyptic, with the majority of retailers exceeding consensus estimates, sending Retail HOLDRS ETF (RTH) up 4.9%.
• Jobless claims spike. Initial Jobless Claims reached 626,000 vs. 580,000 consensus. Last week's claims were revised to 591,000 from 588,000. Continuing claims climbed 20,000 to 4,788,000.
• Factory orders fall. December's factory orders fell 3.9% vs. -3.0% consensus, the fifth consecutive month of declines. Net of transportation, orders fell 4.4%.
• ECB holds steady. The ECB left its key rate unchanged at 2%. Trichet signalled a 50 bps rate cut for next month's meeting.

Earnings: Friday Before Open

• Apartment Investment and Management Co. (AIV): Q4 FFO of $0.56 beats by $0.07. Revenue of $360M vs. $368M. Sees Q1 FFO of $0.30-0.36 vs. $0.61 and full-year FFO of $1.65-1.95 vs. $2.45. Cuts dividend to $0.25 from $0.60. (PR)
• Aon (AOC): Q4 EPS of $0.81 beats by $0.03. Revenue of $1.92B (-4.1%) vs. $2.06B. (PR)
• Infineon (IFX): FQ1 loss of €404M ($516M), better than the €547M loss analysts predicted. Sales fell 24% to €830M. Sees revenue down 10% sequentially. "Despite extremely challenging market conditions, our first quarter results held up reasonably well." Shares +9.6% in Frankfurt. (PR)
• Mitsubishi UFJ Financial Group (MTU): FQ3 loss of ¥134.1B. Sees full-year net income of ¥50B ($550M), 77% less than its previous outlook of ¥220B. Saw ¥251B in stock-related losses. Costs linked to bad debts rose 47% to ¥98.6B. (PR, Bloomberg)
• Omega Healthcare Investors (OHI): Q4 EPS of $0.37 in-line. Revenue of $44.3M (+11.9%) in-line. (PR)
• Toyota (TM): FQ3 net loss of ¥164.6B ($1.81B). Sales fell 28% to ¥4.8T. Sees a full-year operating loss of ¥450B ($4.95B), three times its previous estimate. Expects to make 7.08M cars, down from an original 8.87M. (PR) Citing the likelihood of persistent pressure on Toyota's (TM) earnings into next year, Moody's and S&P cut their credit ratings on Toyota from top-notch AAA.

Earnings: Thursday After Close

• Andersons (ANDE): Q4 EPS of -$1.85 misses by $0.62. Revenue of $770M (-1.9%) vs. $905M. Shares flat AH. (PR)
• Alkermes (ALKS): FQ3 EPS of $1.18 vs. consensus of $1.21. Revenue of $155.7M (+206.7%) vs. $128.4M. Sees 2009 EPS of $1.32-1.39 vs. $1.48 and revenue of $314-338M vs. $317M. Shares +2.8% AH. (PR)
• Bankrate (RATE): Q4 EPS of $0.33 misses by $0.01. Revenue of $40.2M (+59.5%) vs. $42M. "Given the continued uncertainty and the lack of visibility in the financial environment, we feel it is wise to refrain from issuing guidance for 2009." Shares -13% AH. (PR, earnings call transcript)
• Evergreen Solar (ESLR): Q4 EPS of -$0.32 vs. consensus of -$0.14. Revenue of $44.2M (+100%) vs. $46.7M. Shares -8.1% AH. (PR, earnings call transcript)
• Hartford Financial (HIG): Q4 EPS of -$0.72 vs. consensus of $1.28. Slashes dividend by 84%. Shares -21.1% AH. (PR)
• JDS Uniphase (JDSU): FQ2 EPS of $0.11 beats by $0.01. Revenue of $357M (-10.6%) vs. $371M. Sees FQ3 revenue of $275-300M vs. $358M. Shares -7.1% AH. (PR, earnings call transcript)
• Newfield Exploration (NFX): Q4 EPS of $0.20 misses by $0.25. Revenue of $338M (-15.1%) vs. $450M. (PR)
• News Corp. (NWS): FQ2 EPS of $0.12 misses by $0.07. Revenue of $7.87B (-8.4%) vs. $8.39B. "Our results for the quarter are a direct reflection of the grim economic climate. While we anticipated a weakening, the downturn is more severe and likely longer lasting than previously thought." Shares -9.1% AH. (PR, earnings call transcript)
• Pitney Bowes (PBI): Q4 EPS of $0.77 beats by $0.03. Revenue of $1.55B (-6.7%) vs. $1.61B. Sees 2009 EPS of $2.55-2.75 vs. $2.83. Shares +8.6% AH. (PR)
• Skyworks Solutions (SWKS): FQ1 EPS of $0.17 beats by $0.02. Revenue of $210M (-0.1%) in-line. Shares +11.4% AH. (PR, earnings call transcript)
• Thoratec (THOR): Q4 EPS of $0.16 beats by $0.02. Revenue of $85.7M (+33.7%) vs. $81.2M. Shares -0.3% AH. (PR)
• VeriSign (VRSN): Q4 EPS of $0.28 misses by $0.01. Revenue of $247M (+11.4%) vs. $244M. Shares -4.8% AH. (PR, earnings call transcript)

Today's Markets

• Asia markets closed in the green. Nikkei +1.6% to 8,077. Hang Seng +3.61% to 13,655. Shanghai +3.97% to 2,181. BSE +2.31% to 9,301.
• Europe stocks are modestly higher at midday. London +0.5%. Paris +0.3%. Frankfurt +0.6%.
• U.S. stock futures are higher in light pre-payroll trading. Dow +0.16%. S&P +0.12%. Nasdaq +0.71%. Crude -2.3% to $40.25. Gold +0.2% to $916.50.
• Treasurys edged higher overnight. 30-year futures +0.16%. 10-year +0.04%. 5-year +0.08%. 2-year +0.04%.

Friday's Economic Calendar

• 8:30 Non-farm payrolls
  3:00 PM Consumer Credit
• Notable earnings before Friday's open: AIV, AOC, BIIB, OHI, TE, WY

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[surgeon:]

year 2008- Stimulus 150 B and TARP 750 B
year 2009- Stimulus 850 B and TARP 2.0 T
year 2010 Stimulus 2.5 T and TARP 5.0 T
year 2011 Officialy in Depression and Americans migrate to Mexico, China & India for jobs

Feb 06 08:15 AM

[luigi0753:]

I'm amazed at the new "procedure" at Fannie Mae - isn't that what caused these problems in the first place?!

Feb 06 08:32 AM

[long_on_oil:]

To allow people that pay their mortgages on time to refinance without an appraisal is a smart move. We need to keep anyone that makes their payments on time in their houses and we need to give terms that can be met to anyone having problems. This is just common sense.

Feb 06 09:01 AM

[auto44:]

long-on -oil Where did it say paying on time was a requirement, Did I miss it?

Feb 06 09:27 AM

[AndrewBaker:]

Based on all that's happening right now, my short term trading idea is to buy a leveraged long financial ETF - or other suitable security - and watch it closely, taking the profit as soon as the market realises that handing money to bankers, no matter what strings are attached, is not going to immediately save the economy. Then I'll go short ...

Feb 06 09:32 AM

[axelrod608:]

Thanks Rachael for another interesting breakfast buffet. As I read through the infobits, I thought I could be reading a script for another Mel Brooks movie, lampooning commonly held, idiotic beliefs. The idea of "rescuing" the dysfunctional economy we brought into the 21st century with more spending is about as realistic as saving the Titanic from sinking with a fishing pole or tree branch. There is a total denial of the magnitude of the problem by the folks who know everything there is to know about running an election campaign and little or nothing about economics in general or the economics of this mess.

So far, bad public policy and highly leveraged financial instruments have sucked over $30Trillion down the drain. And based on the accelerating rate of job losses, foreclosures and bankruptcies, we will be extremely lucky if "only" another $30Trillion disappear before stability is reached.

Yet the talking heads are once again pointing fingers at one anothers' choice of how the pork should be cooked. Worse, the media acts as if it were a serious debate. The proposals I've heard so far are like going elephant hunting with a BB gun.

The American and global economy we brought into the 21st century were and are unsustainable. Cannot be duplicated, repaired or fixed. The appropriate way of dealing with this mess is to determine how what happened happened and to change things in such a way that they can never happen again. Instead, all the people in authority want to play a make-beieve game of recreating what didn't work and blew up the world economy.

No amount of government spending can ever replace the dozens of $Trillions of paper "wealth" disappearing in this financial quicksand. Just like individuals and families, businesses and governments at all levels need to cut back and learn to live with less and spend less.

When there's a flood, tsunami, earthquake, hurricane we RESCUE the PEOPLE. Later we clean up and rebuild. The ONLY topic in DC should be rescuing PEOPLE. Not banks or carmakers. They were part of the problem. They are not the solution. In fact, when this chapter in American misgovernance ends, few, if any, of the megabanks and other corporate dinosaurs will be left. And if they are, they will be "zombies" operating only by contiuing federal welfare.

Yep. Looks like a Mel Brroks movie script. No Oscars and a loyal cult following...

Feb 06 11:43 AM

[jackooo:]

dropping credit-score requirements, ignoring income-documentation standards.

SAY WHAT??? I thought this was how it started!!
Putting the poor and homeless in houses.

Feb 06 12:26 PM

[Bob Davidson:]

Mr Obama says if we don't do as he says we will lose another five million jobs, and Nancy Pelosi says we will lose more that that. How can that be if there are onlly a little over three million people living in the US?????

Feb 06 12:48 PM

[whenmusicstops:]

Uh, you mean 300 million...

Feb 06 01:47 PM

[xmichaelx:]

Wow. Just wow.

On Feb 06 12:48 PM Bob Davidson wrote:

> Mr Obama says if we don't do as he says we will lose another five
> million jobs, and Nancy Pelosi says we will lose more that that.
> How can that be if there are onlly a little over three million people
> living in the US?????

Feb 06 02:25 PM

[Econ 101:]

Surgen, you are an optiomist!

Axelrod, Mel Brooks is funny, this isnt

What I dont understand is how the politicians & the FED who caused this mess have turned it around to blame the business people they cheated. Guess the companies have been paid off with enough TARP and can aford to take the blame.

Feb 07 02:34 AM