Wall Street Breakfast: Must-Know News

• Underwater homeowners get a rescue. The White House launched its $75B foreclosure relief plan yesterday as new data showed 20% of homeowners with mortgages are "under water," or owe more than their house is worth. The program, which could help as many as 1 in 9 homeowners, offers cash incentives to loan servicers to cut monthly payments, will modify mortgages on single-unit homes up to $729,750 (with a higher limit for multiple-unit properties) and will apply only to loans originated before January 1. In the past, being under water ruled out the possibility of refinancing, but the new plan will allow homeowners with negative home equity to modify their loans. Still, as with any broad effort, the foreclosure relief plan creates distinct winners and losers among homeowners. Obama is also pushing for legislation to allow bankruptcy judges to alter loan terms; the House of Representatives is expected to pass a bill today allowing these mortgage "cramdowns."
• UBS stays mum. UBS (UBS) has refused to provide the U.S. government with the details of 52,000 clients as part of a tax evasion probe, arguing that doing so would violate Swiss law. Last month, UBS agreed to pay $780M and disclose around 300 client names as part of a separate tax evasion settlement. Testifying in the Senate yesterday, UBS exec Mark Branson said bank officials "believe that UBS has now complied with the summons to the fullest extent possible without subjecting its employees to criminal prosecution in Switzerland," as the Swiss government recognizes only tax fraud, not tax evasion, as a crime. UBS therefore suggested the dispute should be resolved through diplomacy, not a legal suit. However, a top Justice Department official warned the agency may prosecute senior UBS executives.
• Fed okays CDS clearinghouse. The Federal Reserve approved a credit-default swap clearinghouse plan presented by IntercontinentalExchange (ICE), leaving SEC approval as the final hurdle for the futures clearinghouse. Intercontinental has been competing with three rivals, including CME Group (CME), to back the $27T CDS market; the winner stands to gain up to $400M annually in revenue. An SEC spokesman said Intercontinental's proposal is 'under active consideration' but he didn't know when the agency would make a decision.
• Beige book sees long recession. The Fed's Beige Book noted consumer spending remained sluggish on the whole, although many districts saw some improvement in January/February after a dismal holiday season. Travel and tourism fell noticeably, and manufacturing declines were pronounced. A near-term recovery looks unlikely, "with a significant pickup not expected before late 2009 or early 2010." (Read the Fed's summary or full report)
• Subpoenas for Merrill's merry millionaires. New York Attorney General Andrew Cuomo has issued subpoenas to seven top Merrill Lynch executives who received over $10M in cash and stock last year. Among the execs are top investment banker Andrea Orcel, global sales and trading chief Thomas Montag and former head of strategy Peter Kraus, each of whom made more than $25M apiece in 2008. Cuomo is investigating whether the bonus payments violated securities laws, and will ask the execs about their individual bonuses, their communications with John Thain and the timing of the bonuses. Bank of America (BAC) has filed a petition in New York state court to keep the pay data confidential.
• Ford's new debt plan. Ford (F) launched a major debt restructuring and plans to cut up to $10.4B, or around 40% of its debt, by offering cash and new shares to creditors. The automaker will make up to $2.2B in cash available for the restructuring, and is paying between $0.30-$0.55 on the dollar as an incentive to convert debt. Following the announcement, S&P cut Ford's credit rating to CC from CCC+, calling the move a distressed debt exchange but noting the downgrade does not reflect an increase in Ford's risk of bankruptcy. Fitch left its rating unchanged at CCC.
• Hartford may sell life unit to Sun Life. Sources say Hartford Financial Services (HIG) is in talks to sell most of its unprofitable life insurance unit to Canada's Sun Life Financial (SLF). Hartford has suffered from three credit-rating downgrades, and has watched its share price plunge 72%. As recently as this week, S&P cut the company's rating to BBB, saying losses at the life division, which has $247.9B of assets, are threatening the other half of the company. Hartford had previously held talks with MetLife (MET) but no agreement was reached.
• MGM loan talks collapse. MGM Mirage (MGM) and Dubai World failed to reach an agreement with Deutsche Bank (DB), according to people close to the situation, and talks on a $1.2B loan to complete the Las Vegas CityCenter project have collapsed. Deutsche had been seeking equity and debt stakes in the $11.2B Las Vegas development. MGM Mirage and Dubai World are now said to be holding talks with other parties. Yesterday, MGM Mirage also warned it may breach its debt covenants this year if economic conditions worsen.
• Wyeth loses key drug case. Wyeth (WYE) lost a key court case, as the Supreme Court ruled drugmakers can be sued in state court over alleged drug defects, even if the FDA has already approved a medicine's use and the attached warning label. The decision eases the way for liability lawsuits, and could have significant implications for industries beyond pharmaceuticals. Justice John Paul Stevens wrote on behalf of the court that with 11,000 drugs on the U.S. market, the FDA's own advisory panels have said they lack the resources to protect the public.
• YouTube said to be in talks on music website. YouTube (GOOG) is said to be in talks with Vivendi's Universal Music Group to create an online music website with the working title "Vevo." Universal approached YouTube at the end of last year and proposed a site that would include videos from all the major music labels, with YouTube providing the technology to sell ads accompanying the videos. Discussions are in an advanced stage but could still fall apart.
• China holds back from new stimulus. The Shanghai Composite Index gained over 6% yesterday on expectations that new Chinese stimulus measures would be announced today, but investors were left disappointed when no such announcement came. In his annual speech to China's parliament, Premier Wen Jiabao said an 8% growth target is within reach this year, signalling the government sees an additional stimulus as unnecessary. The IMF forecasts just 6.7% growth for the country, the slowest rate in nearly 20 years.
• Germany provides corporate credit. Germany created a €100B ($126B) fund to help corporations struggling with tight credit conditions. The fund will offer €75 billion in liquidity guarantees and €25 billion in direct loans. GM's (GM) German unit Opel could be one of the first companies to tap the fund, after GM Europe warned it needs €3.3 billion in aid.
• Job cuts. Challenger reported that firing announcements fell 23% in February vs. the month before, to 186,350, but were up 158% Y/Y. "The decline in job cuts last month offers some hope that January was the peak and we will now see layoffs begin to fall or at least stabilize." However, ADP reported (.pdf) that the private sector shed 697,000 jobs in February, worse than the -630,000 economists expected and a big drop from January's -614,000 (revised from -522,000). Monster's online employment index edged up 4 points in February to 122, but is down 26% Y/Y. "The gain in the February Index is the first since October of 2008.... suggests that traditional annual hiring cycles remain somewhat intact."
• BoE rate cut. As expected, the Bank of England cut its key rate by half a percentage point this morning to 0.5%. BoE said lowering its key rate probably won't suffice, and resolved to take further actions to boost money supply, including buying up £75B of public- and private-sector debt - mainly the former - over the next three months.
• More non-mfg contraction. Economic activity in the non-manufacturing sector contracted in February, registering 41.6% on the ISM Index vs. January's 42.9%. This is the fifth month in a row of sector contraction.

Earnings: Thursday Before Open

• Canadian Natural Resource (CNQ): Q4 EPS of $1.29 beats by $0.53. Revenue of $2.5B (-21.5%) vs. $2.1B. (PR)
• Ciena (CIEN): FQ1 EPS of -$0.09 misses by $0.02. Revenue of $167M (-26.4%) vs. $172M. (PR)
• Talisman Energy (TLM): Q4 EPS of $0.53 beats by $0.16. Revenue of $2.20B (-8.1%) vs. $2.25B. (PR)
• Urban Outfitters (URBN): Q4 EPS of $0.24 misses by $0.04. Revenue of $508M (+9.2%) vs. $515M. (PR)

Earnings: Wednesday After Close

• Adobe (ADBE): Sees FQ1 EPS of $0.44-0.45 vs $0.42 consensus and revenue of $783-786M vs. $792M. Sees FQ2 revenue of $675-725M vs. $776M consensus. Shares +8.8% premarket. (PR)
• Foot Locker (FL): Q4 EPS of $0.24 beats by $0.08. Revenue of $1.32B vs. $1.37B. Shares -3.7% AH. (PR)
• Gymboree (GYMB): Q4 EPS of $1.00 beats by $0.02. Revenue of $289M in-line. Sees Q1 EPS of $0.18-0.25 vs. consensus of $0.76, and negative comps in the range of 20-25%. Shares -32.1% AH. (PR)
• Jackson Hewitt (JTX): FQ3 EPS of $0.74 beats by $0.02. Revenue of $97.8M vs. $104.7M. Sees 2009 EPS of $1.00-1.10 vs. $1.48 consensus and revenue of $250-255M vs. $295M. Shares -3% AH. (PR)
• PetSmart (PETM): Q4 EPS of $0.62 beats by $0.03. Revenue of $1.36B in-line. Sees 2009 EPS of $1.40-1.50 vs. $1.49 consensus and revenue growth in mid-to-high single digits. Shares -4.4% AH. (PR)
• Sigma Designs (SIGM): Q4 EPS of $0.38 beats by $0.20. Revenue of $1M (-38%) vs. $47.3M. "The IPTV market is showing resiliency to the current economic turmoil and we are confident that it will continue to demonstrate strength throughout this year." Shares +9.7% AH. (PR)
• Weight Watchers International (WTW): Q4 EPS of $0.56 beats by $0.04. Revenue of $338M (-1.6%) vs. $356M. 2009 guidance in-line with Street. Shares +6.6% AH. (PR)

Today's Markets

• Asia markets were mixed Thursday after China Premier Wen reaffirmed the country's 8% growth goal for 2009, but was silent on the much-rumored extra stimulus money that sent Shanghai soaring Wednesday. Nikkei +1.95% to 7,433. Hang Seng -0.97% to 12,211. Shanghai +1.04% to 2,221. BSE -2.94% to 8,198.
• In Europe, markets are sagging at midday. London -2.5%. Paris -2.2%. Frankfurt -2.6%.
• U.S. stock futures failed to carry Wednesday's strength into the overnight session. Dow -1.3% to 6740. S&P -1.7% at 697. Nasdaq -0.8%. Crude -2.7% to $44.15. Gold +1.1% to $917. 30-year Tsys +1.01%.

Thursday's Economic Calendar

• 6:00 Chain Store Sales
  6:00 Monster Employment Index
  7:00 BoE Announcement
  7:45 ECB Announcement
  8:30 Jobless Claims
  8:30 Productivity and Costs
  9:00 RBC CASH Index
  10:00 Factory Orders
  10:00 Fed's Kohn testifies on AIG
  10:30 EIA Natural Gas Report
  4:30 PM Money Supply
• Notable earnings before Thursday's open: CIEN, CNQ, TLM, URBN
• Notable earnings after Thursday's close: IPI, MRVL

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Drew Horn:]

It will be interesting to watch congress as it reacts to Obama's house bail out proposal. There are few details at this time but the standards for honesty in applications will be minimal, and the speculators who gamed the system in the past will do so again. It is a gift to the scam artists from conservative US savers.

The house bail-out will serve to continue the price bubble thus making owners feel a little better about their own balance sheets. But the down direction of world economics will continue for at least two years and low future consumer confidence and spending (per capita)may not rebound any time soon.

The hard to predict variable is the influence of "technology". If a confluence of a drive to more efficiency in our lives, environmental pollution control, and longer term investment amortization happens, a new renaissance might be in the foreseeable future.

Mar 05 08:32 AM

[brahmburgers:]

From half a world away, in Thailand, it's an eye-opener to see the house of cards crumble from above (the fattest corporations) rather than from below - or maybe it just appears that way, because news headlines showcase the tribulations of the big players.

Mar 05 08:32 AM

[wg:]

My question is, will the Obama administration be paying the mortgages of people who lied on their mortgage applications? And with OUR money?

Mar 05 09:18 AM

[axelrod608:]

This is silly. Already we have reports from financials that have been "modifying" mortgages that 50% of modified mortgages are re-defaulting or going to foreclosure. What is it about mortgage modification that policymakers don't get ??

Rocks are hard, water is wet and modifying mortgages DOES NOT WORK in the long term.

Mar 05 09:51 AM

[Richard Col...:]

I have to agree with axelrod608, the sooner you get the bad news out of the way the better it will be for the market and everyone concerned.

If they lose their home and have to live in an apt. until they can afford to buy another home. Well what's so bad about that?

Daniel Kowkabany

Mar 05 11:06 AM

[jackooo:]

Sure they will. Did you ever doubt it.?
The people that had common sense will get to pay for the others.


On Mar 05 09:18 AM wg wrote:

> My question is, will the Obama administration be paying the mortgages
> of people who lied on their mortgage applications? And with OUR money?

Mar 05 11:07 AM

[jackooo:]

Nothing at all. They will then have more money to spend do to lower rent versus mortgage payments. They can also keep their pets and not use the excuse it cost to much to feed them.


On Mar 05 11:06 AM Richard Collins; Claremont, CA wrote:

> I have to agree with axelrod608, the sooner you get the bad news
> out of the way the better it will be for the market and everyone
> concerned.
>
> If they lose their home and have to live in an apt. until they can
> afford to buy another home. Well what's so bad about that?
>
> Daniel Kowkabany

Mar 05 11:10 AM

[aware:]

Get the guns ,and get ready.

Mar 05 11:56 AM

[Richard Col...:]

What the liberals are doing now is what they usually do:
They are spraying for leaf blight __ when the problem is root-rot.

Liberal policies got us to this point. Now, liberal tactics are going to solve the problem? It's just further erosion of sound economic principles.

Do you ask the ARSONIST that burned your house down to REBUILD IT ?

Republicans, the so called conservatives, are only slightly better. Conservatives know how to solve the economic crisis. Here's what they won't do:
They will not set regulations for the "dingy collar" crooks __ upper management (or is it mismanagement?) of publicly traded corporations.

What do you call a BONUS for failing CEOs of publicly traded corporations? GRAND THEFT!
I thought this was a felony!

Richard Collins
Claremont, CA

Mar 05 12:23 PM

[AndrewBaker:]

Yep, those of us who stayed within financial solvency by prudent money management, even if it meant we didn't live quite the high life we would have liked, are now going to be paying for those whose financial acumen is suspect, at least, and may even have bordered on deceit when completing their mortgage application (oh, yes I earned mega-$s last year ...). I just hope it's all worth it in the end, but I have my doubts.

Mar 05 01:00 PM

[Chuck-A-Luck:]

Did I game the system? Do I deserve to default?

L.A. CA
-1996: bought my first house at age 36 for $178K w/ 20% down.
-2002: I saw it was going up quickly and decided to press my bet. I sold for $335K (80% gain) and bought a semi-fixer in a nicer area for $429K. Put down $100K. Put $80K into improvements.
-2005: Thought the market was topping, put it on sale for $749K and watched my realtor work the phone one afternoon 7 days later as he got it up to $785K (80% gain). Rented and waited.
-2006: got tired of throwing away money and made a low-ball offer on a house near the beach. Bought a house in good condition for $850K, put $450K down. $400K interest-only loan for 10 years, then re-set.

I work in Hollywood film production. The town is dead from both the world economy and the threatened SAG strike. I'm working 0-1 days/week currently.
FICO scores around 800. NO debt aside from the mortgage.
Do I, or anybody, deserve a hand-up from Uncle Sam to keep me in my house until I can find work again?

Thanks for your opinion.

Mar 05 01:47 PM

[axelrod608:]

Rickman - the reason people don't dwell on the plight of veterans here is this is a FINANCIAL blog.

You want to submit an article ? Click on "become a contributor" above left.

Having said that, your piece is good and I totally agree. I'm a disabled Vietnam vet and I know the treatment I got from an ungrateful nation. Poeple mad at the war took it out on the vets. Disability compensation is marginally above the poverty level and VA health care is a nightmare.

The young guys I see at the VA hospital are almost all missing limbs and the emotinal trauma cases are way worse than for earlier wars. The COST of our misadventure in Iraq will be horrendous. These vets are going to need far more extensive rehab. I hope and pray that the majority of folks who say they "support the troops" will pay the tab. My generation got more lip service than medical service.

Mar 05 04:30 PM

[Sober Realist:]

Another anecdotal story that reflects the strange time we are in:
A friend of mine, who is an unemployed plumber, recently got a job at a gun shop. I asked him if he could run a gas line(17 ft) for me for $400. He said no, "business is booming at the gun shop and I don't have time."
Maybe I'm naive or just late in keeping up on all the news, so I googled it and yes, the gun business is realling booming:
Feb 25, 2009 - YouTube - Gun Store Owner Talks About BOOMING Gun Sales on Glenn Beck
www.youtube.com/watch?...

Is Obama boosting gun and ammo sales?
March 3, 2009
www.gather.com/viewArt...

Mar 05 09:02 PM