Wall Street Breakfast: Must-Know News

• If the first two rescues fail, try more money. The government has stepped in to save AIG (AIG) for the third time, giving it a new $30B lifeline as it posts a major quarterly loss today (see details below). The new rescue package approved by AIG's board includes more lenient terms on the government's preferred shares investment and lower interest rates on a government credit line. In exchange for erasing some of AIG's debt, the Fed will get stakes in AIG's American Life Insurance Co. ((Alico)) and American International Assurance Co. (AIA). It seems that officials felt it was cheaper to pump more taxpayer money into AIG than to risk letting it fail, but the move shifts the government from a short-term lender to a longer-term equity investor. Shares +9.5% premarket (7:00 ET). (Read the Treasury's press release and term sheet (.pdf))
• AIG's titanic loss. AIG (AIG) posted an even worse-than-expected Q4 loss of $61.7B, or $22.95 per diluted share. Net loss for the full year was $99.3B, or $37.84B per diluted share. The quarterly results were negatively affected by continued severe credit market deterioration, particularly in commercial mortgage backed securities, and charges related to ongoing restructuring-related activities. (PR)
• HSBC to raise money, close units. HSBC (HBC) plans to raise £12.5B ($17.7B) in Europe's biggest rights offering to bolster its capital and calm nervous investors after racking up major subprime losses. Net income for 2008 fell to $5.73B, a far cry from consensus estimates of $13.6B and from 2007 net income of $19.1B. The bank will also eliminate 6,100 positions and close most of its 800 branches in the U.S. It will keep its credit card operation in the U.S., which represents about $50B in assets. Shares -20.2% premarket (7:00 ET).
• Berkshire profit plunges. Berkshire Hathaway (BRK.A) reported Q4 net income fell 96% to $117M ($76/share), and book value per share dropped 9.6%, its worst performance since CEO Warren Buffett took the helm in 1965. In his annual letter to shareholders, Buffett admitted "during 2008 I did some dumb things in investments," referring to a big buy of ConocoPhillips (COP). He also said he's "certain" the economy will be in shambles throughout 2009, "but that conclusion does not tell us whether the stock market will rise or fall." On a more positive note, Buffett said he remains happy with big investments in General Electric (GE) and Goldman Sachs (GS), adding the subsequent drop in market value could help him boost Berkshire's stake. (Read Buffett's letter to investors (.pdf))
• Battered UBS raises banker pay. Facing pressure from U.S. authorities to reveal client information, from Swiss authorities to keep client identities secret, and from the general public to keep bonus payments in check, sources say UBS (UBS) has decided to raise the base salaries of investment bankers as a way to compensate for sharply reduced bonuses. People close to the matter say the bank has decided not to publicly disclose the changes, which are part of a broader overhaul of UBS' compensation system. Meanwhile, new CEO Oswald Gruebel says it could take at least 2-3 years before UBS is back to making a sustainable profit. Shares -2.4% premarket (7:00 ET).
• RBS tries to sell Asian assets. Sources say Royal Bank of Scotland (RBS) is in talks to sell its Asian retail and commercial assets to Australia and New Zealand Banking Group (ANZBY.PK) for around £1B ($1.43B). The deal would indicate RBS is moving swiftly ahead with its new plans to sell non-core assets and narrow the bank's focus. A spokesman from Australia and New Zealand Banking declined to comment. RBS -3.2% premarket (7:00 ET).
• GE dividend gets a haircut. Over the weekend, General Electric (GE) cut its quarterly dividend by 68%, to $0.10/share from $0.31/share. This was GE's first dividend cut since the Great Depression and will save the company $9B annually, but its AAA credit rating remains at risk. As recently as Feb. 5, CEO Jeffrey Immelt said the dividend was safe and wasn't holding the company back, but the depth of the economic downturn has forced GE, along with many other companies, to make rapid about-faces on once-firm policies.
• Two more banks bite the dust. On Friday, regulators shut two small banks - Heritage Community Bank in Illinois, and Security Savings Bank in Nevada. The FDIC estimates that the combined cost to its deposit insurance fund will be $101.7M. Sixteen banks have failed so far this year, with the pace of bank collapses much faster then in 2008.
• No aid for Eastern Europe. EU leaders refused over the weekend to consider a coordinated bailout package for troubled Eastern European economies, sending the euro down along with local stocks. Angela Merkel said Germany and other EU countries are willing to help Eastern European countries on a case-by-case basis, pointing to Hungary as an example, but warned 'the situation is very different' between affected economies and "we cannot compare Slovakia nor Slovenia, with Hungary."

Earnings: Monday Before Open

• Allied Capital (ALD): Q4 EPS of -$3.24 misses by $3.46. Will separate the roles of Chairman and CEO effective tomorrow. John M. Scheurer will become CEO, William L. Walton will remain Chairman. (PR I, II)
• American Capital (ACAS): Q4 EPS of $0.21 misses by $0.43. "It will be a challenge to navigate through this terrible recession, but we have a diverse and high quality portfolio, an entrepreneurial spirit and an exceptional team who are working passionately to rebuild shareholder value." (PR)
• Central European Distribution (CEDC): Q4 EPS of $1.12 beats by $0.09. "The recent currency weakness in the region has obviously impacted our results... however our core underlying business remains solid and we believe we will emerge out of this crisis as a stronger company with fewer competitors." (PR)
• DISH Network Corp. (DISH): Q4 EPS of $0.48 misses by $0.01. Revenue of $2.92B (+1.0%) vs. $2.96B. (PR)
• FTI Consulting (FCN): Q4 EPS of $0.58 beats by $0.04. Revenue of $322.9M (+15.1%) vs. $318.6M. (PR)
• KKR Financial (KFN): Q4 EPS of -$7.85 misses by $8.19. Revenue of $228M (-22.4%) vs. $216M. (PR)
• Reliant Resources (RRI): Q4 EPS of -$1.26 misses by $0.98. Revenue of $2.6B (-2.9%) vs. $2.0B. (PR)

Today's Markets

• Global recession fears pulled Asian markets down. Nikkei -3.8% to 7,280.15. Hang Seng -3.9% to 12,317.46. Shanghai +0.5% to 2,093.45. BSE -3.2% to 8,607.08.
• In Europe at midday, markets are following Asia down. London -4.55%. Paris -3.9%. Frankfurt -3.4%.
• U.S. futures: Dow -2.1%. S&P -2.5%. Nasdaq -2.4%. Crude -5.7% to $42.20. Gold +0.9% to $951.

Monday's Economic Calendar

• 8:30 Personal Income and Outlays
  10:00 ISM Manufacturing Index
  10:00 Construction Spending
  12:45 PM Fed's Lacker speaks at NABE's economic policy conference
• Notable earnings before Monday's open: ACAS, ALD, CEDC, CNO, DISH, EIX, FCN, KFN, RRI
• Notable earnings after Monday's close: EGLE, FR, HPT, MDR, PDLI, POM, TIVO

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Jim Hawthorne:]

Wow! Nobody was expecting GOOD news today, but your excellent post this morning has PANIC written all over it, Rachael! Watching the Big Banks, Central Banks, Insurers, and Governments these days is like watching old 'Keystone Cops' clips... but in dead silence and with nobody laughing.....

Insanity truly does consist of doing the same old things over and over again while hoping, praying and expecting a different outcome...

Mar 02 07:38 AM

[eddie6442:]

Mark-to-Market accounting is BANKRUPTING our financial system and soon the dollar printing presses will over heat and......................
AMERICA WILL BE BANKRUPT!!!!!!!!!!!!!!

Way to go --- GENIUS'...............

IMHO

Mar 02 08:18 AM

[daffy:]

does anyone else see how asinine it is to let a company survive whose loses are 62 Bln in one quarter . . .

beat 'em down with a big stick.

We really have to get rid of this idea that something, anything is too big to fail. Let them fall!

Bring back the free market!

Mar 02 08:56 AM

[ebenezer:]

Please, eddie6442, mark-to-market accounting has not as a fundamental rule "caused" any problems. It forces recognition of the current value of an asset to more accurately reflect a company's financial exposure...and require proper adjustment to reserves if necessary, and there is nothing inherently wrong with that. The issues today have been caused by a leadership crisis compounded by a lack of integrity and honesty in business dealings, and further compounded by unregulated leveraged "gambling" in the financial markets by people who knew better. Most of them still have their same old jobs and are trying to come out unscathed...to heck with their customers. The roll-off on the average investor has been horrendous, but when it is all over these guys will still be all right and the rest of us will be starting over. That is the shame.

Mar 02 08:57 AM

[axelrod608:]

Thanks for the news Rachael, even if it's bad news. aig is insolvent and unsustainable. Its ultimate outcome is clear, but I wonder how many more tax dollars they're going to flush with it. I also wonder how many executives that caused their demise are still working there and bringing home the fat salaries.

The future is worse in Europe. If the EU doesn't bail out its eastern European neighbors ( I'm not suggesting they do - I'm again' bailouts) the IMF doesn't have enough money to cover the bad loans held by Western European countries. Western European losses will be staggering. It will crush W. European lenders.

We are seeing a run of financial dominoes with no end in sight.

Here in the New World, commercial real estate and automakers are teetering on the edge of the cliff. Hang on and keep your seatbelts fastened.

Mar 02 09:07 AM

[AndrewBaker:]

Jim, you're right. Our great leaders don't know what to do so keep throwing our tax dollars at their cronies in charge of banks, motor companies and any other business that has wrecked itself through corporate excesses and has a big enough begging bowl to take the cash that Washington will cram into it.

UBS is increasing pay to make up for lost bonuses, RBS (in the UK) is paying its last leader nearly a £1m per year pension at age 50 because he wrecked the bank and can't get another job! Whatever happened to cutting ones suit according to ones cloth? If our leaders can't manage money properly, what hope do we have?

Mar 02 09:42 AM

[FrancisW:]

The news are a reality, yes, they are bad and intimidating and scaring. It will be handled, it will be over just a tough road to be walked... All since consider It was very good to see a beautiful face with a very, very, gracious, sincere, and beautiful smile. Rachael Granby you have a beutiful face and smile for a news lady. Thanks.

Mar 02 10:21 AM

[chk2595:]

Money and more money and too much money for AIG.
Will we ever flood out where the money is going or is this a bottomless pit/hole?
I guess we will let the fox run the hen house and we are all chickens.

Mar 02 10:21 AM

[OldNavySailor:]

These insolvent financial institutions are a gangrene on the health of the economic body. Any competent surgeon knows the only recourse is to cut our the poison less the entire body will die.

Mar 02 11:05 AM

[Drew Horn:]

Another $100 bn given to AIG should be enough pay off most of the credit default swaps and placate the heavy hitters that have been filling Paulsen and Geithner with the fear that they won't take them sailing, etc.

There are lots of useful things to do but the moneylenders have proven that they are incapable of recognizing them.

Mar 02 11:15 AM

[ebenezer:]

Regarding the CDS paper...don't forget AIG's positions had a significant impact on the financial health of Goldman Sachs. If AIG fails, Goldman would take an extremely heavy hit. Why does anyone think Paulson (ex-Goldman) bailed AIG in the first place, while letting Bear Stearns, et al fail?

Mar 02 11:37 AM

[ConserveMoney:]

The U.S. people can save a lot of money by forcing the Federal government to stop spending our dwindling tax dollars and borrowing trillions of dollars on the Middle East. This would solve many other problems including forcing Israel to a real peace deal, killing 100s of thousands of innocent people, pulling out of Afghanistan (Israel's war and a war that cannot be won by the U.S.) and stopping the growth of ME terrorism.

Mar 02 11:50 AM

[bbowen7:]

Where is the plan? Obama assembled all of the greatest financial minds and came up with what? Priority One for the Bush administration was stabilizing the financial system after the collapse of Lehman. The first $350 billion of the TARP did a pretty good job of that - albeit by direct infusion of capital rather than by the advertised plan for purchase of toxic assets. So the Obama team has focused on huge spending plans without any apparent plan for the financial system - continue the piecemeal bailout of AIG; continue to discuss some method of buying the toxic assets; continue the drip-drip entry into the auto industry.
The markets want to know what will happen. Bad news is better than no news.

Mar 02 12:38 PM

[Sober Realist:]

Why does anybody even still say, "when the economy recovers...."? This phrase should no longered be uttered in any sentence in any context. How about, "when the economy stabalizes to its newer, smaller, anorexic state." This would be a more apt statement.

Mar 02 03:11 PM

[Nanacat:]

Axelrod608 says:

Here in the New World, commercial real estate and automakers are teetering on the edge of the cliff. Hang on and keep your seatbelts fastened.

If I am in a car teetering on the edge of the cliff, the last thing I might want to do is to hang on and keep my seat belt fastened. I am going to try to get out of that car any way I can. I'm not sure what this means in terms of the analogy; I just know I don't want to go down with the business

Mar 02 03:26 PM

[Nanacat:]

James Rickman: JFK once said, “We have nothing to fear but fear it- self”.

Wasn't that FDR? Good, very good, comment though.

Mar 02 03:30 PM

[hwood007:]

you should read the health plan in the new bill and see how the military will soon be paying much more for medical care. Let me see, we bust them up and then charge them more to fix them. we may have a manpower problem if that really happens.


On Mar 02 01:56 PM Welcome Home Soldier, Thanks for the Sac wrote:

> Welcome Home Soldier, Thanks for the Sacrifices – Invisible Costs
> of the Iraq War
>
> By James Rickman , (Author / Entrepreneur – March 3, 2009)
>
> Most breathed a sigh of relief as the new President announced the
> troops would return from Iraq by the end of August 2010. Gee, what
> a treat for their sacrifices. They return to a country trillions
> of dollars in debt, financial chaos, Wall Street bailouts, growing
> 10% unemployment, increased crime, school budget cuts, and broken
> healthcare systems. It should be no wonder if a solider or two questions
> just what their sacrifices really accomplished.
>
> So far very little open national dialogue has focused around caring
> for the returning soldiers, the “invisible” costs of the Iraq war.
> For example, a recent RAND Center - National Security Research Division
> study found that of the 1.64 million troops deployed since October
> 2001; of those an estimated 620,000 return with invisible wounds
> including, serious mental health and cognitive disabilities: post-traumatic
> stress disorder (seekingalpha.com/symbo...), major suicidal
> depression and traumatic brain injury (seekingalpha.com/symbo...).
>
>
> Given the sobering statistics, perhaps the national dialogue might
> pause just for a moment from its focus on Wall Street bailouts, to
> consider the lifetime costs associated with war time lost lives,
> injuries, and medical treatments estimated at between $700 billion
> and $1.2 trillion through 2015.
>
> For example, annual costs of a single service member diagnosed with
> moderate traumatic brain injury reached $383,227 in 2007. All of
> these related conditions affect mood, thoughts, and behavior; yet
> these invisible wounds often go unrecognized and unacknowledged.
> The effects of mental health and traumatic brain injury are sometimes
> poorly understood, leaving a large gap in knowledge related to how
> extensive the problem is or how to address it.
>
> Iraq war soldiers are found to return with very high rates of suicide,
> intimate / marriage relationship and substance abuse problems, unable
> to hold jobs, homelessness, and other disabling social issues. It
> will require significant trained medical staffing to coordinate the
> large numbers of soldiers and their families that will seek treatment
> some for the rest of their lives.
>
> Most would not dispute that mistakes were made in launching the Iraqi
> military campaign but we should accept what has occurred remaining
> focused on providing the best possible treatment for those men and
> woman returning with invisible wounds.
>
> The 1.64 million brave soldiers gave their hearts and sole in support
> of our country despite many questions that will linger on forever
> as to the mission and its effectiveness in accomplishing any significant
> tangible goals that actually improve the daily lives of Americans.
>
>
> Based on the facts one must ask former President, George W. Bush;
> was the Iraq war more important than investing in competitive jobs,
> better education for our kids, crumbling infrastructure and healthcare
> for the 48-million plus Americans with no medical coverage?
>
> Are Americans more secure as a result of the Iraqi war? Was it all
> simply a misguided distraction during years of opportunity to investment
> in rebuilding at a predictably critical strategic time that would
> have enabled the United States of America to maintain it’s now lost
> global leadership role.
>
> Were there other critical national security interests to begin planning
> for such as the coming “clean water” crisis, already being addressed
> by many Asian countries, that has the potential to devastate large
> segments of global populations effecting food supply, disease sanitation,
> and employment?
>
> For example, California Governor, Arnold Schwarzenagger’s declared
> a state-of-emergency due to draught and clean water issues that have
> cost that state over $2.8 billion and 95,000 jobs lost in 2008.
>
>
> This is only a small preview of the coming global clean water crisis
> that could leave 20% of the Earth’s species extinct, one fact already
> being studied by leading scientist such Dr. James Martin of the Oxford
> University Institute of Science & Civilization.
>
> Perhaps these questions bare serious scrutiny and truthful answers,
> so that future decisions of national security involving trillions
> of tax-payer dollars are better spent next time on directly improving
> people’s lives.
>
> As the new President, Obama stated, “the time of reckoning” has arrived.
> Every one of our citizens should make standard of living sacrifices
> for the good of the whole. By 2025 the worldwide population is calculated
> to exceed eight (8) billion people, a level that will consume resources
> beyond the capacity found on Earth.
>
> Obama made his initial opening move on a health care overhaul last
> week: his speech to Congress and a budget that set aside $634 billion
> over 10 years as a down payment on coverage for all Americans. It's
> a goal that could ultimately cost $1 trillion or more.
>
> The Obama Health Plan attempts to expand coverage while slowing the
> rate of increase in costs. Administration officials say they hope
> that will lead to a more affordable system, without the coverage
> gaps that now leave an estimated 48-million people uninsured.
>
> Regardless of how the crisis dialogue is often presented, the fact
> remains starting in 2010 the Iraq mission will end as thousands of
> soldiers that have been deployed for months and years will return
> to our country. Over 620,000 of these returning soldiers are known
> to require temporary and costly lifetime disability treatment for
> invisible wounds, a symptom of their sacrifice to our country. <br/>
>
> The costs of being lead astray with neat slogan campaigns is the
> real, “shock and awe” that will haunt America not in some far off
> land but rather increasingly close at home requiring we deliver truthful
> answers to the people of our country so that we can find innovative
> practical solutions.
>
> How could we have been lead so astray? JFK once said, “We have nothing
> to fear but fear it- self”. In this case these are fitting words
> to ponder, we might all take a moment to examine the depth of “fear”
> tactics that manipulated many decent people.
>
> Did the facts ever really exist to justify launching the decade long
> war costing trillions of American tax-payer dollars that resulted
> in the displacement of an estimated 5.2 million Iraqi people?
>
> Instead of chasing “terrorists” in Iraq, should we have used that
> money here at home to rebuild tangible national security interests
> including, innovative training and education, infrastructure and
> affordable health care?
>
> Throughout history America has always lead the world not only as
> an economic power but even more important is its defining role as
> the “truthful, moral and ethical” beckon of light.
>
> Perhaps, we should each thoughtfully consider the millions of citizens,
> soldiers and their family’s lives that could have been spared the
> scars of deep wounds that will cost this country and others worldwide
> for generations.
> ###
>
> About Author
> As the Founding principal partner of Sustainable Virtual BiZ, LLC.
> Mr. Rickman has over 18-years of enterprise experience and he's an
> expert in sustainable "green" virtual business support services.
> He is a member of the Oregon Sustainability Angels Network - venture
> capital association.
>
> He is a Founding Director of Business Development for Artel Software,
> Inc., IMAGRAPH Corporation, and Interactive MicroSystems, Inc. He
> is a sought after published technical evangelist including COMDEX
> (Consumer Electronics) and the (seekingalpha.com/symbo...)
> National Association of Broadcasters. He holds advanced degrees from
> Boston University.
>
> In his free time, Mr. Rickman enjoys involvement in educational service
> roles within the Portland State University, Hillsboro, and Beaverton,
> Oregon community. His hobbies include reading, golf, SCUBA, hiking,
> kayaking, and fishing.

Mar 02 09:30 PM

[bobbobwhite:]

AIG loses more money in one quarter than the lowest 50 country's annual GDP combined, and still wants more and the gov't is still listening. That is "What is Wrong With This Country", in a nutshell.

GE CEO Immelt is using the "that was then, this is now" excuse of all politicians(most CEO's are more politician than leader) to justify cutting GE divvies less than one month after saying he wouldn't.

Thanks to this junk, I don't even trust my dog any longer.

Mar 03 11:06 AM

[mwfall:]

one of the biggest criminal rings in the u.s. is government worker pensions. my cousin worked for 20 years as a social worker. she retired after only 20 years with a pension equal to her last years pay plus benefits every year for the rest of her life. if she lives to 85 thats about $3 million dollars !

that means for her job as a counselor she will be compensated the equivalent of about $111.00 per hour.

are children are shouldered with the burden from the government criminals that vote themselves these pensions.

here's an article

www.bloomberg.com/apps...

Mar 03 07:57 PM