Wall Street Breakfast: Must-Know News

• 'Growing concern' about GM. General Motors' (GM) auditors raised 'substantial doubt' about the company's viability (see 10-K). The 'going concern' warning had been widely expected, but underscored just how desperate GM's situation has become and helped push shares down 15.45%. The disclosures were made in GM's delayed annual report and in a 25-page discussion of the growing risks facing the automaker. Although GM has stated repeatedly that bankruptcy is a non-option and could force a liquidation, sources say top execs are growing more open to the idea of a speedy government-financed bankruptcy reorganization.
• House okays mortgage cramdowns. The House of Representatives approved a mortgage 'cramdown' bankruptcy bill by a vote of 234-191. The legislation will allow at least 1M Americans to reduce their mortgage payments through bankruptcy, and enables federal bankruptcy judges to lengthen loan terms, cut interest rates and reduce mortgage balances. The bill, which will now go to the Senate, would also permanently increase the FDIC's coverage of bank deposits to $250,000.
• GE saga spirals. Trying to calm jittery investors, General Electric (GE) CFO Keith Sherin acknowledged a cut in the company's top-tier credit rating was possible but said there's no 'time bomb' in the company's finance arm and that he can't imagine GE's rating being cut beyond the double-A range. Sherin also said GE's capital unit will be profitable for Q1 and for the full year, and the company won't need fresh capital or government aid. After three days of sharp declines, Sherin's comments helped the stock level out to close at $6.66 (-0.45%), a 17-year low. Not everyone was reassured, however: credit-default swaps are now pricing in a 22.5% chance of GE going bankrupt within the next 12 months.
• Paying back TARP. Representative Barney Frank said U.S. Bancorp (USB) and Northern Trust (NTRS) will return TARP funds. Frank didn't specify a timeline but said Northern Trust will return $1.6B and U.S. Bancorp, which received $6.6B, will return $6B for now. Three smaller lenders - TCF Financial (TCB), Iberiabank (IBKC) and Sussex Bancorp (SBBX) - all decided in the last week to give back TARP money as well. As far as Frank is concerned, "it shows that things are beginning to stabilize. The more money that comes back in the Treasury, the better I like it."
• SEC hikes fees... The SEC announced that it is more than quadrupling the transaction fees it charges exchanges in response to plunging stock prices. Effective as of April, the SEC will charge $25.70 per $1M in securities sales, up from $5.60. The regulator said the spike is necessary for it to reach its targeted collection amount of $1.02 in FY 2009. John Giesea, president of the Securities Traders Association, said the increase was expected and would not be 'a shock to the system.'
• ...while FDIC may lower theirs. The FDIC may reduce an emergency fee on banks if Congress increases the agency's borrowing limit from the Treasury. Chairman Sheila Bair said the existing $30B credit line 'provides a thin margin of error' and asked that the line be increased to $100B. Bair's request follows a banking industry outcry over the increased fees, with many executives warning the one-time payment could significantly hurt 2009 earnings. The House of Representatives approved the $100B credit line yesterday, a move the Senate must vote on as well. Senator Chris Dodd plans to introduce a measure raising the credit limit to $100B permanently and to $500B through Dec. 31, 2010.
• More homeowner winners and losers. Homeowners with Fannie Mae (FNM) mortgages may receive less generous relief than those with Freddie Mac (FRE) mortgages. Under Obama's foreclosure relief plan, Freddie will eliminate the upfront fees it typically charges lenders based on consumers’ credit scores and home equity, while Fannie has left similar charges 'largely unchanged.' Fannie's decision to leaves its fees unchanged means borrowers face new rates 0.06%-0.81% higher than similar loans at Freddie. A Fannie spokeswoman said borrowers can 'shop around' to find a lower rate, as opposed to Freddie borrowers who can only work through Freddie.
• Yahoo eyes European search. Yahoo (YHOO) is reportedly in talks to make its mobile search product the default software on phones sold by Vodafone (VOD) in Europe. Trying hard to close the gap with Google (GOOG), Yahoo already has partnerships in Europe with wireless operators, and last year closed deal with T-Mobile USA (DT) and AT&T (T). Sources say Vodafone, whose distribution deal with Google expires this year, is talking to other parties as well.
• Citi visits the dollar store. Citigroup (C) closed at $1.02 yesterday, but not before breaking the $1 mark during trading for the first time in its history. Shares fell as low as $0.97 during intraday trading, a far cry from the once-giant bank's $55.70 peak in late 2006. In the last year, Citi's shares have lost 85% of their value, and in the last two years Citi's market cap has eroded to a little over $5.4B from over $270B.
• Brown wants global code on banking, tax havens. U.K.'s Gordon Brown has big plans for an economic summit in London on April 2. Convinced he can get the U.S. and G-20 to sign up to a package of ambitious financial reforms, Gordon plans to propose a global code on executive pay and bonuses in the banking sector in an effort to eliminate 'short-term' incentives he believes drove the current crisis. Brown is also expected to push for new international standards on offshore taxes and regulatory havens.
• Retail sales pick up. Retail sales posted a monthly gain for the first time since September as Americans cautiously began spending again in February. Wal-Mart (WMT) once again put in an excellent showing, posting its best sales performance in nine months (same-store sales +5.1% vs. +2.4% consensus). Luxury retailers, midpriced department stores and clothing chains are still struggling to attract shoppers, while consumers spend more on groceries, countertop appliances and cookware and head to discounters. Other discounters that reported strong gains were BJ's Wholesale (BJ) (same-store sales +11.5%) and Costco (COST) (same-store sales +4%).
• ECB rate cut. The European Central Bank cuts its key rate by half a percentage point to 1.5%, as expected. ECB chief Trichet told reporters inflation will stay well below 2% through 2010. The ECB now expects the euro area to contract 2.2% to 3.2% in 2009, up from a previous range of 0% to -1%. All signs point to further rate cuts.
• Jobless claims drop. Initial Jobless Claims dropped to 639K from last week's 670K (revised), less than the 650K consensus. Continuing claims down 14K to 5,106,000.
• Productivity falls,... Revised Q4 productivity was -0.4%, down from February's estimate of +3.6%. On the year, non-farm productivity was unchanged at +2.8%.
• ...so do factory orders. January's factory orders -1.9% vs. -3.5% consensus, the sixth consecutive month of declines. Ex-transportation, orders -0.9%.

Earnings: Friday Before Open

• H&R Block (HRB): FQ3 EPS of $0.20 beats by $0.10. Revenue of $993M (+11.0%) vs. $975M. (PR)

Earnings: Thursday After Close

• Intrepid Potash (IPI): Q4 EPS of $0.30 in-line. Revenue of $79.5M (+41.2%) vs. $77.7M. "The potash market will guide business decisions in 2009, specifically those related to production and capital allocation." Shares -2% AH. (PR)
• Marvell Technology Group (MRVL): Q4 EPS of $0.05 beats by $0.04. Revenue of $513M (-35.2%) in-line. Plans to reduce global workforce by 15% - 850 jobs. Shares +9.2% AH. (PR)

Today's Markets

• Asia markets fell sharply Friday, although losses were more moderate than Thursday's U.S. selloff. Nikkei -3.5% to 7,173, a four-month low. Hang Seng -2.37% to 11,922. Shanghai -1.26% to 2,193. BSE +1.56% to 8,326.
• Europe stocks surrendered early gains to follow U.S. stocks lower. London -0.25%. Paris -0.9%. Frankfurt -0.7%.
• Stock futures are flat-to-lower in cautious trade ahead of today's nonfarm payrolls data (calendar). Dow -0.5% at 6600. S&P -0.3% to 684. Nasdaq flat. Crude +2.2% at $44.60. Gold +1.2% to $939. 30-year bond +0.57% to 129-00.

Friday's Economic Calendar

• 8:30 Non-farm payrolls
  11:15 Fed's Dudley speaks to the Council on Foreign Relations
  12:00 PM Fed's Plosser speaks on the future role of government in finance
  3:00 PM Consumer Credit
• Notable earnings before Friday's open: ANN, HRB, TSTY

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Joseph Sherman:]

Growing concern' about GM. - GM needs radical change at every level.

Mar 06 08:07 AM

[winindthedust:]

Looks like it's time to buy!

Mar 06 08:08 AM

[Jersey:]

Considering the state of our economy and the constant attention it's deterioration seems to be getting from the adimistration I'm wondering if such a scenerio might be a possibility It seems that everything is collapsing all around us. I was thinking
about AIG and couldn't help wondering; in your opinion, do you think
it's possible that , gezz I can't believe I'm even thinking such a
question but, if the insurance companies collapse can life insurance
policies collapse with them? They aren't even FDIC insured. What a
chilling thought. Do you believe it's a remotest possibility?

Mar 06 08:16 AM

[Walt17:]

Barney Frank said, "it shows that things are beginning to stabilize. "

Another possibility is that banks which didn't want TARP money were "encouraged" to take it. After discovering all the hidden strings which were attached they decided to free themselves. When BAC and C return the money, that will indicate things are beginning to stabilize.

Mar 06 09:00 AM

[axelrod608:]

When a bank can get TARP money at 0 - 3% interest and loan it on credit cards, for example, at 10 - 15%, why not take it ?? When the feds add punitive measures to takers of TARP funds, the smart ones pay it back.

Sounds like business as usual to me.

And, if an investior is looking for a company to invest in, it might be smart to look at the ones that pay TARP back first. It appears to be a sign of financial soundness.

Mar 06 09:35 AM

[cryan:]

But the time will come when New England will be as thickly peopled as old England. Wages will be as low, and will fluctuate as much with you as with us. You will have your Manchesters and Birminghams; and, in those Manchesters and Birminghams, hundreds of thousands of artisans will assuredly be sometimes out of work. Then your institutions will be fairly brought to the test.
- Thomas Babington Macaulay
May 23, 1857

Mar 06 09:36 AM

[surgeon:]

Great Idea for any one-- Greenspan dart board- you will feel lot better after throwing a few darts

Mar 06 09:40 AM

[gregth:]

GE - "INDEPENDENT STUDY REGARDING BREAKING UP GE" was listed on my ProxyVote.com proxy ballot for an April 22 shareholder meeting. The board of directors suggested vote is "Against."

Mar 06 10:32 AM

[gregth:]

GE: "INDEPENDENT STUDY REGARDING BREAKING UP GE" is on the ballot for the April 22 shareholder meeting. The Board recommends an "against" vote.

Mar 06 10:35 AM

[hanson001:]

I hope Ford makes it through this slump and doesn't go to the taxpayer for a bailout like GM and Chrysler. I bet not focusing on how someone else is going to save you might produce a better business plan and better products. My next vehicle will be a Ford. Now, how about these mortgages.

Here we are with false interest rates (not market driven) for mortgages. The government and American people seem to be "all in" on the bailout of the most outrageous over consumption of an asset in history. I would like to ask everyone SA to originate your own mortgages at 4 - 4.5% and carry them on your balance sheets. If you choose to do this, I bet you would also be in line for a bailout in five years.

What's happening is crazy with no thought of the future. Interest rates will be heading a lot higher in the years to come because of all the world's government involvement.

Home prices should be allowed to adjust in the free market. The prices are too high for the new slower growing economy of the future. Someone has to take the loss. Looks like once again, it's the taxpayer, or the taxpayer that lived within his/her means.

Mar 06 10:37 AM

[notsosmart:]

who can believe anything said by GE management.not me & im a stockholder.for that matter who can believe anything anymore.not me.think for yourself as all have an agenda & that does not include you.its all made-off ponzi.what does it take for the dumb-dumbs to finally figure this out?

Mar 06 11:23 AM

[axelrod608:]

surgeon sez -
>> "Great Idea for any one-- Greenspan dart board- you will feel lot better after throwing a few darts " >>

I'd buy one.

Mar 06 11:30 AM

[Drew Horn:]

Surgeon, your idea for a Greenspan dart board is fantastic! Add others for Geithner, Bernanke, etc. and you have a new way to vent frustration.

However, you didn't mention the point scoring system. Perhaps it should be that the outer ring gets us nationalized banks, the inner ring, a rethink and a bulls eye gets a replacement. We can play our own games.With such a great game, who needs a shrink?

Mar 06 12:03 PM

[rcomment:]

My understanding is IF the primary insurer (insurance co) has inadequate assets to cover all claims and there is no back up AIG , Berkshire,... then the insured loses will be re-reimbursed at less than the stated policy %. Read your policy - call your insurance broker / agent.


On Mar 06 08:16 AM Jersey wrote:

> Considering the state of our economy and the constant attention it's
> deterioration seems to be getting from the adimistration I'm wondering
> if such a scenerio might be a possibility It seems that everything
> is collapsing all around us. I was thinking
> about AIG and couldn't help wondering; in your opinion, do you think
>
> it's possible that , gezz I can't believe I'm even thinking such
> a
> question but, if the insurance companies collapse can life insurance
>
> policies collapse with them? They aren't even FDIC insured. What
> a
> chilling thought. Do you believe it's a remotest possibility?

Mar 06 12:48 PM

[AndrewBaker:]

GM may go bust, some banks may return TARP funds early whilst others may not be around to do so, and the UK's Gordon Brown will propose remuneration packages that don't encourage short termism. Trouble is, the way things are going, who knows who can look forward to staying in their job more than short term anyway (including Gordon Brown {who has an election this year or next}). Obama with nearly four years left has the longest known tenure, and not many will back him for four more the way things look now.

Mar 06 01:17 PM

[jackooo:]

I thought GM was a bankruptcy candidate 6 months ago and I am not into accounting. The government is a moron to pursue bailouts for all three car manufactures.

Mar 06 01:58 PM

[Jersey:]

Thank you rcomment .... I think, as I sit here watching a discussion on CNBC about the real possibility of the Dow going to zero. Try to have a good weekend all.

Mar 06 03:02 PM

[Go ...Marc ...:]

A New Indicator..... bottom will arrive when the last CHRONIC BULL Idiot Larry Kudlow at CNBC , finally gives up.... Then you know the bottom is in...

Mar 06 07:53 PM

[Richard S:]

The bad banks take tarp .

The good conservative banks do not .

The bad banks buy the good banks , with our money .

Screwed again, no kiss just S .

Mar 07 12:49 PM

[JoeChase:]

From IndexBeating.com:
GE Breakup? Being a GE shareholder I received my proxy vote form this morning for the April 22st annual meeting. Aside from the normal election of board memebers, there was one question that caught my eye. It simply read “Independent Study Regarding Breaking Up GE” The board of directors recommends a “No” vote. There is an obvious reason for this, an independent study would find that shareholders would realize value if GE was broken up, but the directors of the board would be directing a much smaller company. There is lots of data that shows when there is a spin-off the combines value of the new companies is worth more than the value of the old company. In GE’s case this is happening from the financial arm right now, they are dragging down all the healthy businesses connected with GE. John Hepburn wrote the proposal for the proxy statement and really says it well (GE down 75% since he wrote this)

Mar 26 08:33 AM