Wall Street Breakfast: Must-Know News

• AIG wants new loan terms, again. Sources say AIG (AIG) is looking to overhaul its $150B government bailout to reduce its financial burden, and in the process would further expose taxpayers to the troubled insurer's balance sheet. The new plan would have $60B of the government's loan repaid with a combination of debt, equity, cash and operating businesses. It would also mark a complete turnaround for the government, changing its approach to the insurer from that of a creditor to one of a potential owner. Sources say AIG would like to announce the changes next week when it releases Q4 earnings but talks, though in advanced stages, have not yet produced a final deal. The company is expected to post a heavy quarterly loss of over $60B, marking the biggest loss in corporate history.
• Thain testifies on bonuses. John Thain, former CEO of Merrill Lynch, will answer questions posed by New York AG Andrew Cuomo's staff today, and will disclose the names of Merrill employees who received $3.6B in bonuses just before the bank merged with Bank of America (BAC). Thain had already answered some general questions from Cuomo's office but had refused to identify individual recipients, citing orders from Bank of America to keep that information private. A judge on the New York Supreme Court ruled that Thain is required to provide those details, and the judge will later decide if that information should become public.
• Hedge funds face off on more regulation. One of the world's largest hedge fund groups is ready to propose new measures that would push money managers to open up their businesses. The Alternative Investment Management Association, a U.K. group with members in the U.S. and many other countries, could release a proposal as early as today suggesting hedge fund managers take such steps as registering with regulators and having regular contact with authorities about their businesses. These changes have faced resistance from many U.S. funds, but global pressure is growing to institute financial reform and extend hedge fund regulations.
• JPMorgan slashes dividends. JPMorgan (JPM) cut its common stock dividend by 87%, to $0.05 from $0.38. The surprise move will save JPMorgan around $5B a year, money it hopes to use to speed its repayment of $25B in TARP funds. CEO Jamie Dimon said the firm cut its dividend out of a "normal abundance of caution," and that "extraordinary times must call for extraordinary measures." The bank also said it has been 'solidly profitable' this quarter and quarterly outlook is 'roughly in line' with consensus forecasts.
• Roche bid still too low. Roche Holding (RHHBY.PK) will likely have to raise its bid for the 44% of Genentech (DNA) it doesn't already own after Genentech urged shareholders to reject Roche's $42B bid, saying it substantially undervalues the company. Before Roche went forward with its $86.50/share hostile offer, Genentech's banker had proposed $112/share as an acceptable price, showing just how far apart the two sides are on a fair valuation of the deal. Analysts believe the companies will ultimately meet somewhere in the middle, around the $95-$100 range.
• Employee churn at News Corp. Peter Chernin, the highly regarded President and COO of News Corp. (NWS), plans to leave the company when his contract expires this summer. Chernin has run News Corp.'s Fox television and film production, one of the company's largest divisions, for over 12 years. No replacement was named, and businesses Chernin oversaw will instead report directly to CEO Rupert Murdoch. Chernin's departure comes at a difficult time for the media giant, whose stock price has dropped by more than two-thirds in the past year.
• Yahoo upgrades ad services. Trying to win back business as the economy falters, Yahoo (YHOO) will unveil several new tools today to help create better matches between online ads and their target audiences. Among the services offered, ads can be customized based on which websites consumers have visited and their behavior on those sites, and marketers will be able to buy text ads targeted to users at a certain time of day or based on other factors like age or gender. Though other companies already offer some similar features, Yahoo is betting on its ability to harness a user base of hundreds of millions of monthly visitors.
• Here's $300. Now shoo! American Express (AXP) is offering select customers a $300 prepaid AmEx gift card to pay off their balances and close their accounts. The unusual move underscores how badly the credit card market has deteriorated and the steps companies are willing to take to avoid what could become a massive surge in credit card defaults. American Express declined to disclose the specifics of which customers are eligible for the offer, but said the offer applied to a "relatively small number of cardmembers who have sizeable balances and little spending and payment activity."
• Dark news from regional Feds. The Chicago Fed's National Activity Index inched up to -3.45 from -3.65 in December, but the three-month average of -3.41 was the lowest since at least 1975. According to the Dallas Fed's Texas Manufacturing Outlook Survey, factory activity deteriorated further in December. New orders and capacity utilization fell precipitously, with declines outnumbering increases 5 to 1.
• German confidence keeps falling. German business confidence fell to a 26 year low in February as the worst recession since WWII led companies to slash production and fire workers. The IMF expects Germany's economy to contract 2.5% this year, despite stimulus efforts.

Earnings: Tuesday Before Open

• FirstEnergy (FE): Q4 EPS of $1.09 beats by $0.06. Revenue of $3.2B vs. $3.32B. (PR)
• Foster Wheeler (FWLT): Q4 EPS of $1.03 beats by $0.08. Revenue of $1.6B (+11.9%) vs. $1.8B. (PR)
• GrafTech International Ltd (GTI): Q4 EPS of $0.49 beats by $0.11. Revenue of $265M (-1.7%) vs. $280M. (PR)
• Heinz (HNZ): FQ3 EPS of $0.76 beats by $0.12. Revenue of $2.4B (-7.5%) vs. $2.5B. (PR)
• Home Depot (HD): Q4 EPS of $0.19 beats by $0.04. Revenue of $14.6B (-17.3%) vs. $14.7B. (PR)
• Macy's (M): Q4 EPS of $1.06 beats by $0.05. Revenue of $7.9B (-7.7%) in-line. (PR)
• Magna International (MGA): Q4 EPS of -$0.68 in-line. Revenue of $4.8B (-29.3%) vs. $4.7B. (PR)
• Medco Health Solutions (MHS): Q4 EPS of $0.59 beats by $0.01. Revenue of $13.0B (+13.9%) vs. $12.7B. (PR)
• Office Depot (ODP): Q4 EPS of -$0.73 vs. consensus of -$0.06. Revenue of $3.27B (-15.4%) vs. $3.47B. Takes $1.27B charge for goodwill and trade-name impairments. (PR)
• Pacific Gas & Electric (PCG): Q4 EPS of $0.70 beats by $0.04. "Looking ahead, we are confident that we are well positioned to continue making the needed investments to strengthen energy reliability and services for our customers." (PR)
• Parker Drilling Company (PKD): Q4 EPS of $0.27 beats by $0.12. Revenue of $212.4M (+17.5%) vs. $225.7M. (PR)
• Quanta Services (PWR): Q4 EPS of $0.24 beats by $0.05. Revenue of $921.5M (+4.8%) vs. $913.5M. (PR)
• RadioShack (RSH): Q4 EPS of $0.50 misses by $0.20. Revenue of $1.3B (-7.7%) vs. $1.4B. (PR)
• Sempra Energy (SRE): Q4 EPS of $1.30 beats by $0.39. Revenue of $2.3B (-26.3%) vs. $2.55B. (PR)
• Target (TGT): Q4 EPS of $0.81 misses by $0.02. Revenue of $19.02B vs. $19.53B. Credit card receivables increased 9.6% to $9.1B from a year ago. (PR)
• Tenet Healthcare (THC): Q4 EPS of -$0.02 in-line. Revenue of $2.2B (+5.7%) in-line. (PR)
• Valeant Pharmaceuticals International (VRX): Q4 EPS of $0.52 beats by $0.24. Revenue of $183M (-3.1%) vs. $185M. (PR)
• ViroPharma (VPHM): Q4 EPS of -$0.01 misses by $0.16. Revenue of $50M (+4.8%) vs. $61M. (PR)

Earnings: Monday After Close

• DTE Energy Company (DTE): Q4 EPS of $0.80 misses by $0.18. Revenue of $2.17B (-1.8%) vs. $2.1B. Shares -2.4% AH. (PR)
• Forest Oil (FST): Q4 EPS of $0.32 beats by $0.01. Revenue of $281M (-15.7%) vs. $331M. Shares +2.4% AH. (PR)
• General Growth Properties (GGP): Q4 FFO of $0.70 misses by $0.15. Revenue of $1B (-2.8%) vs. $830M. Shares +16.7% AH. (PR)
• Health Management Associates (HMA): Q4 EPS of $0.07 in-line. Revenue of $1.11B (+3.3%) in-line. (PR)
• Healthcare Realty Trust (HR): Q4 EPS of $0.38 in-line. Revenue of $57.1M (+13.5%) vs. $58.3M. Shares +7.6% AH. (PR)
• Hecla Mining Company (HL): Q4 EPS of -$0.24 misses by $0.13. Revenue of $27.5M (-24.1%) vs. $73M. Shares -1.2% AH. (PR)
• Hertz Global (HTZ): Q4 EPS of -$0.22 misses by $0.17. Revenue of $1.79B (-16.4%) vs. $1.95B. (PR)
• Mohawk Industries (MHK): Q4 EPS of -$1.87 vs. consensus of $0.24. Revenue of $1.49B (-17.8%) vs. $1.54B. Sees Q1 EPS of -$0.89 to -$0.80 vs. $0.28 consensus. Shares -15.1% AH. (PR)
• Nordstrom (JWN): Q4 EPS of $0.31 beats by $0.01. Revenue of $2.3B (-8.5%) in-line. Sees 2009 EPS of $1.10-1.40 vs. $1.22. Shares +13.3% AH. (PR, earnings call transcript)
• ONEOK (OKE): Q4 EPS of $0.65 misses by $0.02. Revenue of $2.84B (-28.7%) vs. $3.49B. Shares +1.6% AH. (PR)
• St. Mary Land (SM): Q4 EPS of $0.43 misses by $0.11. Revenue of $258M (-6.2%) vs. $264M. Shares -2.1% AH. (PR)
• Whiting Petroleum (WLL): Q4 EPS of -$0.07 misses by $0.01. Revenue of $224M (-3.7%) vs. $220M. Shares +2.5% AH. (PR)

Today's Markets

• Asia markets declined Tuesday, largely a reaction to the lack of buying in Monday's U.S. session. Nikkei -1.46% to 7,269. Hang Seng -2.86% to 12,798. Shanghai -4.56% to 2,201. BSE Sensex -0.24% to 8,882.
• In Europe markets opened down and moved lower, but are off from their lows at midday. London -1.1%. Paris -1.35%. Frankfurt -2.1%.
• U.S. futures are up in the overnight session. Dow +0.6% to 7,160. S&P +0.6% to 749. Nasdaq +0.4%. Crude +0.3% to $38.56. Gold -0.5% to $989.40.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:55 Redbook
  9:00 S&P/Case-Shiller Home Price Index
  10:00 Consumer Confidence
  10:00 Bernanke speaks to Senate Banking Committee
  10:00 Richmond Fed's Manufacturing Index
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: FE, FWLT, GTI, HD, HNZ, M, MGA, MHS, ODP, PCG, PKD, PWR, RDN, RSH, SRE, TGT, THC, VPHM, VRX
• Notable earnings after Tuesday's close: CBI, CCI, FSLR, HCN, HLX, IAG, NBR, QCOR, RRC, WYNN, XCO

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[axelrod608:]

AIG may post the largest corporate loss in history and wants more public money to shore it up. What if AIG is BOTH too big to fail AND too screwed up to succeed ? The choices being made in DC worry me.

Feb 24 08:18 AM

[sieraromero:]

aig- doesn't deserve to be in capital letters! A 60 Billion loss in 1 quarter. In american capitalism, the business model is that the ceo's and the board of directors get exhorbatant salaries which they have the authority to grant themselves. Then they need bailed out by the federal government, However, they don't want the government to control them because big business is so astute and run things so much efficiently. LOL--Good Luck to you all when reality sets in. It is not going to be very pretty!

Feb 24 08:31 AM

[BlueOkie:]

AIG continues to fail into a size that is not to big to fail. (G)

Feb 24 08:40 AM

[Cesato:]

The Government should pull off the breathing machine to AIG, it won't cause more damage to the economy than it already has and the medicine can go to non-terminal patients. I don't believe that AIG being to big to fail is a valid argument anymore, IT HAS ALREADY FAILED!!

Feb 24 08:49 AM

[Jim Hawthorne:]

So history repeats and it's back to the well for AIG!
Is this to be a truly bi-partisan bailout for the long-suffering taxpayer to swallow? Obama has to out-spend Bush? Is there no end in sight?

Why is failure not an option for this turkey?

Feb 24 09:38 AM

[pacman1947:]

The worst thing about the bailouts is that the companies being helped are the most culpable for their speculation and poor management. AIG, C, BAC, et al deserve to fail and are so badly managed, even now, that they still cannot produce a dollar of business for every dollar dumped into their coffers from our childrens' future. People complain about the auto group bailout, but that is an obvious case of national pride over good judgment.

The latest plan to buy stock in the losers sticks in my craw. The good banks and insurance companies are put in the position of competing for business against government subsidized institutions.

Reward success and it breeds success. Reward failure and it breeds more idiots. Darwinian Theory needs to be resumed in our schools. CEOs and politicians apparently never learned it. Geithner and Co. need a primer.

Capitalism and Darwinian Theory are actually the same. It's about survival of the fittest.

Feb 24 10:08 AM

[hanson001:]

"What if AIG is BOTH too big to fail AND too screwed up to succeed ?"

That's what I am thinking axelrod. And this is what worried me when we started all this bailout mess. It is like we have to support a bunch of GMs; entities sucking away resources and giving nothing in return.

Feb 24 10:22 AM

[Drew Horn:]

1) Its time for AIG to sell divisions. Breaking them up is the right answer to the problem of being "too big to fail" and will give them some cash as well.
2)Have them go into chapter 11 and abrogate all their credit default swaps. AIG is a global insurer yet the US is being asked to bail out all their global business. US taxpayers should not be asked to support Swiss, English and other international interests.
3) If they want cash, I will loan them mine but not @ 3%.

Feb 24 12:28 PM

[bbowen7:]

Hedge Fund regulation? The logic for avoiding it has been that the participants are sophisticated enough and rich enough to take on the risk. The problem is that they pose a large systemic risk to all of us - regulation must protect the system as well as the individual investors. Hopefully, the Obama regulation concept will be comprehensive - and will show up soon. (Does anybody remember that Paulson and McCain were ridiculed when they called for comprehensive regulation reform?)
At least it sounds as if Obama will tax the hedge fund managers on income, rather than the current scam of calling it all capital gains.

Feb 24 02:27 PM

[wallyjm:]

boo-ya

Feb 24 02:35 PM

[David White:]

FWLT presents an interesting opportunity. It beat its expectations by +$.08. However, the stock is currently down by about $3 at this time today. Zacks wrote a negative article about it. Zacks pointed out its order backlog shrinkage. Zacks pointed out its sales decrease in Q4. Zacks pointed out its solid fuel boilers were falling out of favor with the advent of solar energy. Zacks said its boom years were behind it. To some extent this is likely all true. On the flip side of that, all of us who follow Dry Bulk Shipping know that China stopped importing almost everything in Q4. That's not even mentioning the other countries. Since then China has stepped up its coal and iron ore importation demonstrably, even in this weak economic environment. China is doing a huge infrastructure build out over the next two years based mostly on its stimulus package. There is also talk of a second stimulus package. I am sure most of this money will go to Chinese companies. However, I am inclined to believe some of it will find it way into FWLT's coffers. Further China is so energy hungry that it will likely continue to use all forms of energy, including the solid fuel boilers that FWLT makes. You simply cannot discount this huge customer as Zacks has done. You cannot write off a terrifically successful company due to one particularly bad quarter (in which they grew EPS yoy and beat estimates). Rather this big fall in share price due to the Zacks commentary (and the results) may be a buying opprotunity. If infrastructure is being emphasized over the next two years by two of the biggest economies in the world (China and the US), it seems likely that FWLT will manage to do adequately during this time. They will likely take up where they left off after the recession.

The US is building a national grid for its energy. Is China? I haven't heard that. That likely means that in many cases China will want to build some kind of solid fuel power plant, which takes up less space than solar, next to its areas of big usage. FWLT should get a good portion of this business. Even if China builds a national grid, a lot of this will still hold true. Keep in mind that FWLT can also adapt itself to a changing environment. It is still one of the foremost engineering firms in the world. That did not all disappear based on one comment by Zacks.

If the market continues upward (a big if), FWLT may well fill this gap down quickly. It had good results in a bad economy. Other companies are going up on much worse results. Is there a modicum of truth in what Zacks has said? Yes, there is. But are almost all companies hurting right now? Yes, they are. FWLT is very reasonably valued. It does not need to go dramatically down in price to become more so. I don't think the bottom is completely falling out of its market. If the Dry Bulk market is a decent indicator, it may be that Q4 was the worst quarter it will have.

Feb 24 02:54 PM

[David White:]

I should have added that S&P had made predictions about FWLT's performance (before this earnings release), which seem to have predicted the weaknesses seen in the Q4 results. Yet S&P still rated FWLT 4 stars. S&P also predicted a good comeback by FWLT in late 2009 and in 2010. I tend to agree more with S&P on this score. Admittedly I have not seen an updated research report from them yet.

Feb 24 03:13 PM

[john s. gordon:]

well if you break off the insurance part of aig & toss the rest (including the top executives who have proven their incompetence) on the scrap heap, the insurance part might be the right size to not fail/
> jack

Mar 02 05:22 PM