Wall Street Breakfast: Must-Know News

• Roche seals Genentech deal. Roche Holding (RHHBY.PK) has reached a deal to acquire the 44% of Genentech (DNA) it doesn't already own for $46.8B. The bid comes out to $95 per share, slightly higher than the increased $93/share offer Roche put on the table last week. The acquisition gives Roche control of all revenues from blockbuster cancer drugs Avastin and Herceptin and provides an attractive portfolio of new medicines. This marks the third major pharma deal this year, following Pfizer's (PFE) agreement to buy Wyeth (WYE) and Merck's (MRK) deal to buy Schering-Plough (SGP). DNA +2.0% premarket (7:00 ET).
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• Freddie loses big, taps more aid, no exit strategy. Freddie Mac (FRE) posted a record Q4 net loss of $23.9B, or $7.37 per share, and will draw another $30.8B in federal aid. The move to tap more federal aid will raise Freddie's annual dividend payment to the Treasury to $4.6B, a figure the mortgage giant said may be beyond its means. Bluntly questioning its ability to become profitable again, Freddie said in a regulatory filing that "this dividend obligation exceeds our annual historical earnings in most periods, and will contribute to increasingly negative cash flows in future periods." An inability to meet dividend payments could force the Treasury to raise interest rates, write off the debt or take full control of Freddie.
• U.S. calls for bigger stimulus, more IMF funds. As expected, the U.S. has challenged other countries to increase their stimulus spending and has proposed raising its commitment of money to the IMF. Explaining the policy push, Geithner said "if we don't get the world moving with us, then we face some prospect of a deeper, longer lasting recession in the United States." Geithner also responded to European calls for regulatory overhaul, saying the U.S. will push to redraw oversight of financial markets. The proposed U.S. increases for the IMF, which would require contributions from other countries as well, could push the IMF's lending war chest to $1T, significantly more than IMF officials requested. (Read Geithner's prepared statement)
• Insurers ask for bailout. Life insurance companies have been hard-hit by crumbling financial markets, and are turning to the government for help. A dozen life insurers have pending applications for TARP aid, while the industry as a whole is expecting a bank-style bailout in the coming weeks. In the meantime, ratings agencies and investors are growing increasingly concerned about how long the industry can avoid dealing with the distressed assets on its books. Government officials haven't yet said whether insurers will be eligible for TARP funds. Among the hardest-hit companies have been Hartford Financial (HIG), Met Life (MET) and Prudential Financial (PRU).
• MBIA comes under fire. Sources say representatives from around 15 financial institutions will meet with New York State Insurance Superintendent Eric Dinallo to complain about MBIA's (MBI) decision to split its bond-insurance unit into two companies. MBIA moved last month to separate its municipal-bond insurance business from its commitments to insure mortgage-backed bonds and other structured securities, a move that is coming under increasing fire from banks, investment funds and other policyholders. Yesterday, a group of hedge funds sought class-action status for a lawsuit against MBIA, alleging the restructuring "was nothing short of a looting" of MBIA Insurance Corp., the firm's main operating unit. The funds are asking the court to reverse MBIA's plan.
• NY AG says Merrill misled Congress. New York Attorney General Andrew Cuomo has accused Merrill Lynch of misleading Congress about its plan to grant early bonuses in December. In a court filing yesterday, Cuomo said Merrill's compensation committee had decided on Nov. 11 to accelerate the payments but told Congress on Nov. 24 that bonus payments were planned for the end of the year. In court papers, Cuomo also alleges that Merrill employees may have "marked down their portfolios only after their 2008 bonuses were set," contributing to Merrill's larger-than-expected Q4 losses.
• Madoff trial kicks off. Bernie Madoff goes to court today and is expected to plead guilty to 11 criminal charges that could put him in jail for the rest of his life. Victims of Madoff's Ponzi scheme have been invited to speak in court; anticipating a highly-charged environment, the presiding judge warned participants that "emotions are high but we have to remember to conduct ourselves in the manner that is appropriate to a courtroom proceeding." New information continues to come to light about Madoff's scam, including allegations that he used his London operations to launder client money. Yesterday, Rep. Gary Ackerman introduced legislation that would provide some tax relief for investors who lost money with Madoff.
• Google targets online behavior, phone management. Two new moves from Google (GOOG) this week. The first is an effort to target online ads based on an individual's web browsing history, raising concerns among privacy advocates. The new system is being rolled out on a trial basis across Google's network of partner websites and on its video-sharing site YouTube, and is similar to a program unveiled a few weeks ago by rival Yahoo (YHOO). The other new product is Google Voice, which is actually an expanded version of a service previously known as GrandCentral. The service is meant to simplify the way people handle phone calls, voice mail and text messages, allowing users to route all their calls through a single number that can ring their home, work and cell phones simultaneously. It also transcribes voice mail, and lets users make calls over the internet for free in the U.S. and for a small fee internationally, providing competition for internet phone companies like Skype (EBAY).
• eBay retrenches. eBay (EBAY) plans to shift focus to its online marketplace for used and overstocked goods rather than the retail market for new goods where it faces stiff competition from firms like Amazon (AMZN). Shifting away from a strategy developed just a few years ago to sell new goods, CEO John Donahoe explains "we aren't a retailer. We're going to focus where we can win." The company is trying to pitch itself as more than just an online auction site, and told analysts its greatest hopes for growth rest in PayPal, an online payment company that can benefit from overall growth in e-commerce.
• Hershey expands in Asia. Hershey (HSY) agreed to buy Barry Callebaut AG's Van Houten consumer chocolate business in Asia, providing Hershey a chance to expand its presence abroad. Diversification into foreign markets is critical for Hershey as most of its growth comes from North America as opposed to rival Cadbury (CSG) which has been a more global player. Terms of the deal were not disclosed, though the overall size appears to be small.
• Foreclosures jump. Completed foreclosures surged to a new crisis high of 122K, up from 73K in January, according to Foreclosure.com. Pre-foreclosure filings also struck new highs of 208K, from 167K in January. "Many homeowners are in trouble and rising unemployment continues to threaten to intensify the problem."

Earnings: Thursday Before Open

• Smithfield Foods (SFD): FQ3 EPS of -$0.15 beats by $0.12. Revenue of $3.3B (+7.3%) vs. $3.4B. (PR)

Earnings: Wednesday After Close

• Quiksilver (ZQK): FQ1 EPS of -$0.07 beats by $0.03. Revenue of $443M (-10.7%) vs. $436M. (PR)

Today's Markets

• Asia markets were mixed Thursday, with Japan surrendering more than half of Wednesday's 4.5% gain. Nikkei -2.41% to 7,198. Hang Seng +0.59% to 12,002. Shanghai -0.24% to 2,134. BSE +2.25% to 8,344.
• Europe stocks are down. Concern over the global economy was renewed after World Bank president Robert Zoellick said the world is on track for its worst recession since the 1930s. At midday, London -1.5%. Paris -2.5%. Frankfurt -2.3%.
• Stock futures are under pressure, mirroring overseas losses. Dow -1% to 6845. S&P -1.1% to 712.50. Nasdaq -1.1%. Crude +1.7% to $43.05. Gold +0.3% to $913.70. 30-year Tsy bond +0.55% to 126-16.

Thursday's Economic Calendar

• 8:30 Retail Sales
  8:30 Jobless Claims
  10:00 Business Inventories
  10:30 EIA Natural Gas
  4:30PM Money Supply
  
• Notable earnings before Thursday's open: SFD, SOL
• Notable earnings after Thursday's close: ARNA, ARO, PSUN

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Sober Realist:]

Rachel,
We greatly appreciate your summary of key news items. Thanks!!!!!!!

Mar 12 09:51 AM

[Sober Realist:]

Ooops...I meant Rachael.

Mar 12 09:52 AM

[daffy:]

This is starting to get ridiculous folks . . .

FRE, PRU, HIG, MET?

Is it going to stop?

WE have to start paying attention. I took the data from bea.gov, and census.gov and mapped public debt, population growth and particularly per capita public debt over the last 100 years.

With the extra spending last year, and estimate additional 3 trillion this year with - 4% GDP, and -2% GDP for 2010 with 2 trillion in additional deficit spending in 2010. And flat GDP until 2015 with no deficit spending, our public debt (state, local and federal) will be 34 trillion dollars in 2015. That does not include any additional deficit spending and debt servicing costs.

Our per capita debt will double by the end of 2010 at 80K for every man, woman and child. Our federal debt will double in the same time period. Am I the only one who sees a problem with this?

If you want the xcel spreadsheet, just write. I was worried that my estimates were too high for additional spending, but it appears they may be too low.

Mar 12 10:10 AM

[boumboum:]

Always a pleasure to read you!

Mar 12 10:22 AM

[notsosmart:]

since its all ponzi by lying ceo's.selfserving bod's,phony accounting, etc. the real ponzi should be made legal.that way you cant blame anybody but yourself if you fall for one.phony rated AAA paper is the same as made-off.the dumb-dumbs dont get it.

Mar 12 11:31 AM

[AndrewBaker:]

The bad news for financials keeps coming, and the bail-out monies from Wahington, the UK, Europe, Asia ... keep flowing, yet the financials are rallying, even with indications that the insurers will be next in line with the begging bowl! I know hope springs eternal, but reality should be kept in sight too. The expression that it's never bad to take a profit should be heeded right now for all those who've gone long financials: don't let the profit turn to loss, then bigger loss because you can't bear to believe you were wrong as you watch the indices heading south again. They can't mess with gold, so park yourself there for some while. It makes sense.

Mar 12 11:44 AM

[bbowen7:]

The next course in finance seems to be coming - insurance companies. (AIG is an exception - that was covered in the course on credit default swaps.) Prerequisites include our prior courses on the mortgage industry, investment banking, commercial banking, and derivatives. For those students who have not taken the introductory courses in statistics and logic, do not be concerned - they do not apply here.

For those students who have learned as much as they care to about the financial industry, enjoy March Madness.

Mar 12 12:58 PM

[foxy 44:]

Geithner said "if we don't get the world moving with us,then we face some prospect of a deeper, longer lasting recession in the United States..
this desaster come from US not the people but your financial sytem.
sorry to taxpayers, US will pay for that, not all countries around the world.
increase stimulus will be done by Geithner no one else!!!

Mar 12 01:05 PM

[PainfullyAware:]

Fantastic Financial Laureate Lady.

Keep Up The Great Work.

Mar 12 03:40 PM

[Joseph Sherman:]

Hershey expands in Asia - more American companies should follow Hershey. The the solution to the economy may be better addressed in Shanghai than Washington.

Mar 12 06:19 PM

[kalasend:]

Although this sounds comedic but it does carry some sense. You see, a big problem we have is that people trust government monitoring to do the job but government has historically been among the most incompetent, if not outright corrupted, organizations in any society.


On Mar 12 11:31 AM notsosmart wrote:

> since its all ponzi by lying ceo's.selfserving bod's,phony accounting,
> etc. the real ponzi should be made legal.that way you cant blame
> anybody but yourself if you fall for one.phony rated AAA paper is
> the same as made-off.the dumb-dumbs dont get it.

Mar 12 11:13 PM