- Citi deal calls for investor participation. Sources say the U.S. is ready to take a major stake in Citigroup (C), and expect the deal to be announced this morning. In addition to substantially increasing its stake in the troubled institution, the government will also require Citigroup to overhaul its board of directors so that a majority of directors are independent. CEO Vikram Pandit is expected to keep his job. According to terms being finalized late last night, the Treasury will convert its stake only to the extent that Citi can persuade private investors to do so as well; the Treasury will match private investors' conversions dollar-for-dollar up to $25B. The Treasury's stake is expected to rise to up to 40% of Citigroup.
Update: Citi confirmed the deal at 7:00 a.m. U.S. gov't to match private equity in exchanging up to $25B (for gov't and max. of $27.5B private) of its preferred stock to common shares at $3.25/share - increasing Citi's TCE (tangible common equity) to as much as $81B from $29.7B. Full conversion would result in gov't owning 36% of C and existing shareholders owning 26%. Any non-matched preferreds will convert to new preferreds at 8% coupon. Citi also announced a Q4 impairment charge of $9.6B (it had previously said this was under review).
- Aid for auto-parts suppliers. The White House is reportedly looking for ways to help struggling auto-parts suppliers, possibly by creating a lending facility to distribute aid to hundreds of companies. Sources say it would be difficult for the Treasury to administer loans directly because there are so many suppliers, so any aid plan would be contingent on finding a mechanism to streamline and centralize the process. Two groups, the Original Equipment Suppliers Association and the Motor Vehicle & Equipment Manufacturers Association, have already requested about $18.5B in aid.
- Yahoo hits refresh. CEO Carol Bartz unveiled her reorganization plan for Yahoo (YHOO). Trying to simplify Yahoo's management structure, various technology and product groups will be combined into one unit led by Chief Technology Officer Ari Balogh. The company will divide the world into two regions - North America and International - instead of four. The new organization, which aims to make speedier decisions and put a renewed focus on the customer, centralizes power and control around Bartz. Separately, CFO Blake Jorgensen became the latest executive to announce he is leaving Yahoo. (Read Bartz's blog post about the changes)
- FDIC poised to fatten fees. The FDIC is expected to more than double the fees it charges banks in an effort to refill the coffers of its deposit insurance fund. The move will protect consumers by bulking up the FDIC's reserves in the event of bank failures, but some government officials worry already-fragile banks won't be able to shoulder the extra costs and have urged the FDIC to explore other ways to replenish the fund. As of the end of Q4, the FDIC had $18.8B in its deposit-insurance fund to protect around $4.8T in insured deposits. Fourteen banks have already failed in 2009, bringing the total to 35 since July, while 252 banks were on the government's 'problem list' at the end of Q4 vs. 171 in Q3.
- Budget blues. Obama's budget will cost a whopping $3.6T over the next ten years. It projects a $1.75T deficit which, at 12.3% of GDP, is the highest level since World War II. Among the expenditures, $634B has been earmarked to expand healthcare, $750B of new money was set aside for bank bailouts, and $75B is for Iraq and Afghanistan through this fall. Obama called the budget "an honest accounting of where we are," and wants to "go through the books page by page, line by line" to cut unnecessary or inefficient programs. (Policy wonks who want to read all 146 pages of the budget overview can find it here.)
- NY AG demands Merrill bonus list. New York Attorney General Andrew Cuomo has subpoenaed Bank of America (BAC) CEO Ken Lewis to provide the names of Merrill Lynch employees who received 2008 bonuses and how much they received. Lewis testified for around four hours yesterday, and said he had answered questions "to the best of my knowledge and hopefully brought some clarity." Cuomo's office said it was 'very disappointed' Lewis hasn't yet produced the list despite multiple requests.
- Massive losses hit Fannie. Fannie Mae (FNM) reported a Q4 loss of $25.23B, or $4.47/share, its sixth consecutive quarterly loss (see earnings details below). The mortgage giant's net worth fell below zero at the end of the quarter, forcing the company to request government funding. Fannie will draw more than $15B of assistance from the Treasury, and expects "the market conditions that contributed to our net loss for each quarter of 2008 to continue and possibly worsen in 2009, which is likely to cause further reductions in our net worth."
- Profits drop at Dell. Dell's (DELL) quarterly profit fell by nearly half to $351M from $679M the year before (see earnings details below). The company said it expects demand to remain weak in the coming months amid a 'very challenging' economy. Dell, which has experienced a prolonged slump, will raise its cost-cutting target by $1B to a total of $4B by 2011.
- Deutsche Telekom surprises with loss. Deutsche Telekom (DT) reported a surprise Q4 loss of €730M ($920M) on an impairment charge vs. consensus of a €763M profit. The dividend was held at €0.78, unchanged from last year. Revenue rose to €16.1B from €15.9B the year earlier. Europe’s biggest telephone company, Deutsche Telekom will overhaul its structure and management to cut costs and increase its market share. Its fixed-line and mobile-phone operations will be combined into one unit. Timotheus Hoettges will replace Karl-Gerhard Eick as finance chief; Eick said in December he plans to leave before his term ends.
- Durable goods decrease. Durable Goods Orders fell 5.2% ($9.0B) in January, markedly worse than consensus of -2.5%. Inventories decreased 0.8% ($2.8B) to $340.7B. Shipments were down 3.7% ($6.9B) to $183.1B following December's 1.5% dip.
- Jobless claims surge. Initial Jobless Claims surged to 667,000 this week from 631,000 (revised) last week - far more than the 625,000 economist consensus. Continuing claims jumped above 5M to 5,112,000 - up 114,000. This week's jobless claims is the highest since 695,000 Americans applied for unemployment assistance in October 1982. The insured unemployment rate of 3.8% (up from 3.7% last week) is the highest since July 1983.
- Home sales fall. New home sales in January fell 10.2% to 309,000 from December, short of the expected 330,000. Dec. was revised to 344,000 from 331,000. Median price was $201,100. At the current sales rate, there's 13.3 months of supply.
Earnings: Friday Before Open
- Interpublic Group (IPG): Q4 EPS of $0.39 beats by $0.10. Revenue of $1.9B (-4.1%) in-line. "While meeting our 2008 financial objectives is gratifying, the latter part of the fourth quarter and the early part of 2009 have begun to show the negative effect that the broader economic situation is having on the marketing services sector." (PR)
Earnings: Thursday After Close
- AES (AES): Q4 EPS of $0.18 misses by $0.06. Revenue of $3.54B (-3.1%) vs. $3.65B. Sees 2009 EPS of $0.97-1.07 vs. $1.10. (PR)
- Autodesk (ADSK): Q4 EPS of $0.31 beats by $0.10. Revenue of $490M (-18.2%) vs. $484M. Sees Q1 EPS of flat to $0.12 vs. $0.27 consensus and revenue of $400-440M vs. $472M. Shares -2.1% AH. (PR)
- CommScope (CTV): Q4 EPS of $0.55 beats by $0.02. Revenue of $862M (-18.9%) vs. $867M. Sees Q1 revenue of $720-770M vs. $823M. (PR)
- Covanta (CVA): Q4 EPS of $0.22 misses by $0.03. Revenue of $414M (+4.8%) vs. $410M. Sees 2009 EPS of $0.75-0.90 vs. $0.93. Shares -6.5% AH. (PR)
- Dell (DELL): Q4 EPS of $0.18 ($0.29 ex-items) vs. consensus of $0.26. Revenue of $13.43B vs. $14.18B. Raises 2011 cost-reduction goal to $4B from $3B. "Global IT end-user demand will continue to be uncertain and challenging." Shares +1.8% AH. (PR)
- Fannie Mae (FNM): Q4 loss of $25.23B ($4.47/share) on revenue of $5.64B. Results include $12.3B in net fair value losses, credit-related expenses of $12B, and a $4.6B writedown on the value of its mortgage-backed securities. Asks gov't for $15.2B in aid. "We expect the market conditions that contributed to our net loss for each quarter of 2008 to continue and possibly worsen in 2009, which is likely to cause further reductions in our net worth."(PR)
- Gap (GPS): Q4 EPS of $0.34 beats by $0.02. Revenue of $4.08B (-12.7%) in-line. Sees net square footage down 2% in 2009. Shares -2.5% AH. (PR)
- Geron (GERN): Q4 EPS of -$0.22 misses by $0.01. Revenue of $0.5M (+88.5%) vs. $0.7M. Shares +0.2% AH. (PR)
- Hansen Natural (HANS): Q4 EPS of -$0.25 vs. consensus of $0.42. Revenue of $254.4M (+3.2%) vs. $243.7M. (PR)
- Human Genome Sciences (HGSI): Q4 EPS of -$0.41 beats by $0.07. Revenue of $12.9M (+3.2%) vs. $12.3M. Sees 2009 revenue of $250M vs. $223M. Shares +3.6% AH. (PR)
- Kohl's (KSS): Q4 EPS of $1.10 beats by $0.07. Revenue of $5.2B in-line. Same-store sales fell 9.1%. Sees Q! EPS of $0.27-0.34 vs. $0.35 and full-year EPS of $2.00-2.30 vs. $2.40. Shares -4.1% AH. (PR)
- Leap Wireless (LEAP): Q4 EPS of -$0.81 beats by $0.02. Revenue of $519M (+20.7%) vs. $543M. Shares +0.9% AH. (PR)
- Novell (NOVL): FQ1 EPS of $0.07 beats by $0.01. Revenue of $215M (-6.9%) vs. $230M. Shares +3% AH. (PR)
- OmniVision Technologies (OVTI): FQ3 EPS of -$0.24 misses by $0.08. Revenue of $80M (-64.4%) vs. $89.8M. Shares -16.8% AH. (PR)
- Public Storage (PSA): Q4 FFO of $1.49 beats by $0.21. Revenue of $333M (+1.6%) vs. $415M. Shares -4.6%. (PR)
- Republic Services (RSG): Q4 EPS of $0.41 misses by $0.03. Revenue of $1.24B (+56.3%) vs. $1.81B. Sees 2009 EPS of $1.70-1.75 vs. $1.93. (PR)
- SandRidge Energy (SD): Q4 EPS of $0.06 beats by $0.05. Revenue of $201M (-7%) vs. $250M. Shares -0.5% AH. (PR)
- SBA Communications (SBAC): Q4 EPS of $0.02 beats by $0.13. Revenue of $134.4M (+23.4%) vs. $128.3M. (PR)
- Scientific Games (SGMS): Q4 EPS of $0.18 misses by $0.06. Revenue of $264M (-1.5%) vs. $280M. (PR)
- Senior Housing Properties Trust (SNH): Q4 FFO of $0.43 in-line. Revenue of $72.9M (+37.3%) vs. $63.7M. (PR)
- Sotheby's (BID): Q4 EPS of -$0.13 vs. consensus of $0.20. Revenue of $166.2M (-51.9%) vs. $177.9M. "For the first nine months of 2008, our aggregate auction sales were at record levels. But from October onwards, virtually every auction around the world experienced declines." (PR)
- Southwestern Energy (SWN): Q4 EPS of $0.30 misses by $0.02. Revenue of $500M (+24.2%) vs. $540M. Shares -1.9% AH. (PR)
- Japan closed off the week with strength even as the rest of Asia saw red. Nikkei +1.48% to 7,568. Hang Seng -0.65% to 12,812. Shanghai -1.81% to 2,083. BSE -0.71% to 8,892.
- In Europe, stocks opened down and have traded in a range. At midday: London -1.9%. Paris -1.5%. Frankfurt -2%.
- U.S. stock futures have edged lower overnight in a light-volume session. Dow -0.4% to 7150. S&P -0.5% to 748.50. Nasdaq -0.5%. 30-year bond +0.14%. Crude -2.9% to $43.92. Gold +0.6% to $948.
Friday's Economic Calendar
- 8:30 GDP (preliminary)
9:45 NAPM Chicago Business Barometer
9:55 University of Michigan Consumer Sentiment
10:15 Fed's Yellen and Bullard speak on oil and the economy
1:30 PM Fed's Rosengren and Plosser speak on monetary policy during the crisis
3:00 PM Farm Prices
- Notable earnings before Friday's open: BX, CDE, CSE, DRH, DT, ENDP, IPG, JRCC, MIR, PNX, WR, WTR
Seeking Alpha editor Eli Hoffmann contributed to this post.
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