Wall Street Breakfast: Must-Know News

• AIG bonus uproar continues. According to a letter New York Attorney General Andrew Cuomo sent to Congress, among the recipients of a so-called retention bonus paid to AIG employees, eleven people no longer work for the insurer and 73 employees received bonuses of $1M or more. As public outcry over the payments continues, Geithner told congressional leaders that the U.S. will recoup executive bonuses paid by AIG (AIG) by deducting the amount from the next $30B aid installment. He also said the government will accelerate the 'wind down' process of restructuring AIG. A bipartisan group of Senators has proposed taxes totalling 70% on bonuses at AIG and other firms receiving emergency federal funds. (Read Geithner's letter to Congress (.pdf))(Read Cuomo's letter to Congress (.pdf))
• China cans Coke bid. China has rejected Coca-Cola's (KO) $2.3B bid for China Huiyuan Juice Group (CYUNF.PK), arguing the biggest foreign takeover of a Chinese company would have been 'negative for competition.' The Ministry of Commerce was concerned Coca-Cola might have used its 'dominant position' in the carbonated drinks market to raise prices and limit choices for Chinese consumers while making it more difficult for smaller rivals to survive. The decision will block Coca-Cola, which already controls more than 50% of China's soda market, from expanding its share of China's fast-growing juice market.
• Sun shines on potential IBM deal. IBM (IBM) is reportedly in talks to buy Sun Microsystems (JAVA) in a deal that would boost IBM's presence in software, on the internet and in finance and telecommunications markets. Both firms make computer systems that aren't reliant on Microsoft's (MSFT) Windows software and their product lines are less dependent than rivals' on Intel's (INTC) microprocessor technologies. If a deal goes through, IBM will likely pay at least $6.5B in cash for the acquisition, a premium of over 100% on Sun's closing price yesterday. Sources say talks could still fall apart, but a deal could go through as early as this week. Premarket: IBM -2.1%, JAVA +62.4% (7:00 ET).
• NJ sues Lehman execs. New Jersey Attorney General Anne Milgram has filed a lawsuit against 18 Lehman Brothers executives, saying the firm's misrepresentations resulted in $118M in losses for the state. Among the executives named are CEO Dick Fuld, former CFO Christopher M. O'Meara and former president Joseph M. Gregory. The state is also suing Ernst & Young, Lehman's longtime accountants, for allowing Lehman to improperly account for and disclose its true financial condition.
• Wagoner wavers on bankruptcy view. General Motors (GM) CEO Rick Wagoner has softened his stance on the possibility of bankruptcy, suggesting the company could possibly emerge from a Chapter 11 filing. While Wagoner maintains that '99%' of GM's problems can be solved without a bankruptcy that would be expensive and difficult, he conceded the possibility that bankruptcy could work. GM is currently in talks with the United Auto Workers union over labor costs and with bondholders about reducing debt; signaling that bankruptcy isn't completely off the table could strengthen GM's bargaining power in both of those negotiations.
• Patent kindles dispute. Discovery Communications (DISCA) has filed a lawsuit against Amazon (AMZN), claiming the Kindle e-book reader violates a patent Discovery registered in 2007. The company is suing for damages and future royalties, but will not try to halt sales of the popular device.
• Tax break for Madoff victims. The IRS announced unprecedented tax relief for victims of Ponzi schemes, allowing many of those affected to deduct up to 95% of their losses immediately. The move is a significant relaxation of longstanding limits on how much tax relief can be claimed by victims of investment scams. In broad terms, Ponzi scheme victims who aren't suing to recover their losses can deduct up to 95% of their losses less any recoveries from the SIPC. Individuals pursuing third-party recoveries can deduct 75% of relevant investments. Victims will also be able to make deductions for phantom income accrued over the years in addition to their principal investments.
• Sony slashes dividend. Sony (SNE) cut its dividend payment by 15% to ¥42.5 ($0.43) per share vs. the ¥50 it had previously projected. The reduced payment will help Sony conserve cash as it tries to cope with "the deterioration of the global business environment." Sony has projected a record ¥260B operating loss for this fiscal year.
• iPhone software update. Apple (AAPL) updated its iPhone software, providing developers with a range of new tools to make programs for the company's App Store, and giving developers more flexibility in how they can charge users for content. The update also includes several features phone users said were long overdue, including the ability to copy and paste text. The updates underscore how software has become an increasingly important way for Apple to continue profiting from the iPhone and adds to speculation that Apple plans to launch a new iPhone model this year.
• Nokia knocks down job count. Trying to save money as demand slumps, Nokia (NOK) announced plans to cut 1,700 jobs, or around 3% of its workforce. The company will also stop designing phones for the Japanese market. The moves are part of Nokia's efforts to trim its annual operating expenses by €700M ($907M) by the end of 2010.
• More layoffs at Caterpillar. Caterpillar (CAT) plans to fire 89 people, lay off 2,365 workers and close a plant in Georgia as demand for its construction equipment tumbles. Most of the layoffs are in addition to the 22,100 cuts Caterpillar announced in January. The company has said it may post a quarterly loss, its first in 16 years, and sales could drop 22% in 2009 to $40B.
• Retail sales dip. Retail chain store sales decreased 0.1% from a week ago, ICSC reported, and declined 1.4% Y/Y. ICSC chief economist Michael P. Niemira noted "the sales pace weakened over the last week as colder temperatures and wetter conditions around the nation slowed customer traffic." According to Redbook, national chain store sales were flat in the first two weeks of March as "sales picked up modestly in the second week, but remained below plan for the week and month to date." Sales fell 1.1% Y/Y.
• Housing starts jump. Housing Starts climbed 22.2% in February to 583K from January's 477K (revised) vs. 450K consensus. Building permits +3% to 547K vs. 500K consensus. Completions +2.3% to 767K. It's unclear whether the jump is a sign of healing, or a troublesome indication of the failure to prune inventories. However, considering housing starts hit record low levels (the worst since 1960) just last month, Barry Ritholtz said it's hardly a sign of a turnaround. He noted that gains were mainly in multi-family units; single-family starts were little changed.
• Mortgage apps rise. Mortgage applications rose 21.2% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages decreased to 4.89% from 4.96%.
• PPI inches up. Producer Price Index +0.1% in February from the month before vs. consensus of +0.4%. Core PPI +0.2% vs. +0.1%. Year-over-year PPI -1.3% vs. +0.1%, and core +4.0% vs. +3.8%. Led by higher energy prices, this marked the second month in a row of inflation at the wholesale level.
• BoJ holds rates steady. Bank of Japan kept its interest rates unchanged at 0.1% and will purchase more government bonds to ease financing conditions.

Earnings: Wednesday Before Open

• General Mills (GIS): FQ3 EPS of $0.79 misses by $0.09. Revenue of $3.5B (+3.9%) in-line. (PR)

Earnings: Tuesday After Close

• Adobe (ADBE): FQ1 EPS of $0.45 beats by $0.01. Revenue of $786M (-11.7%) vs. $784M. "We believe the major market trends driving our business remain intact, and we will continue to focus on innovation and investing in new growth businesses to increase the strategic value we provide our customers." (PR)
• Darden Restaurants (DRI): FQ3 EPS of $0.80 beats by $0.12. Revenue of $1.8B (-0.7%) in-line. Sees full-year EPS of $2.66-$2.74 vs. $2.52. (PR)
• Guess? (GES): Q4 EPS of $0.67 beats by $0.16. Revenue of $561M (+9%) vs. $529M. Sees Q1 EPS of $0.26-0.30 vs. $0.34 and revenue of $425-445M vs. $481M. (PR)

Today's Markets

• Asia markets closed with another day of solid gains, despite correcting after a bullish open. Nikkei +0.29% to 7,972. Hang Seng +1.86% to 13,117. Shanghai +0.24% to 2,224. BSE +1.27% to 8,977.
• Stocks are higher in Europe, with the exception of the U.K. which was spooked by worse than expected joblessness and talk the IMF will revise its U.K. growth forecast lower. London -0.3%. Paris +0.7%. Frankfurt +1.2%.
• Stock futures are lower after an unremarkable overnight session. Dow -0.6% to 7309. S&P -0.6% at 771. Nasdaq -0.3%. Crude -1.4% to $8.40. Gold -0.6% to $911.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  8:30 Consumer Price Index
  10:00 AIG's Liddy testifies before Congress
  10:30 EIA Petroleum Status
  2:15 PM FOMC Decision
• Notable earnings before Wednesday's open: GIS
• Notable earnings after Wednesday's close: CTAS, NKE, ORCL

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[daffy:]

I see that testimony from CEO's now makes the economic calendar. AIG this, AIG that. It is a nice diversion. I guess the fact that the new administration so joyously offer small business in America 15 billion while AIG gets 170 billion (with no end in sight). Am I the only one who sees a serious problem with this?

Mar 18 08:33 AM

[pockyclips ...:]

What a load of crap. I don't recall this kind of angst when billions in bonus money went to defense contractors. Wasteful spending only seems to count when the donkeys are in the White House. What do you expect when the revolving door goes from regulators to Wall Street?

Mar 18 09:09 AM

[JDP:]

you guys are wonks

Mar 18 09:30 AM

[bobbobwhite:]

Re: Madoff. So, I now must assume that anyone who has ever been mugged or rolled in their lifetime for their weekly paycheck can now recover the taxes they paid on the income? Yes, folks, that's the very thing Madoff victims now want and the gov't is considering, and it opens wide the taxpayer coffers for restitution claims from anyone who has ever lost earned money to crime and can prove it. As my grandaughter texts, "OMG!"

What a lawyer's goldmine this will be, and so much better than chasing ambulances. "Hey, Jimmy stole my lunch money 50 years ago, can I get my deceased parents refund of their taxes paid on it?" Makes perfect gov't sense, doesn't it?.

Mar 18 10:13 AM

[Wreckdiver:]

RE: Madoff - This is pretty drastic, someone's got good friends in congress. Now all of us get to share losses from Madoffs theft.


What about the rest of us with capital losses? We cant afford these kind of tax breaks unless they apply broadly and stimulate investment like reduction in capital gains.

Mar 18 10:32 AM

[dave mckay:]

Yea, for the rest of us, a $3,000 limitation on deductions of capital losses each year is a sad joke.

Mar 18 10:41 AM

[JCCIII:]

Our politicians want to disregard contract law, the foundation of a capitalist system, in order to get back a few million dollars from AIG people while at the same time spending billions of dollars in earmarks and pork in the recently passed and signed into law funding bill. What hypocrisy! Was this what the founders had in mind when they guaranteed the right to bear arms? I predict the tea party movement will gain momentum.

Mar 18 10:43 AM

[jackooo:]

Congress should be fired & most put in jail!!!

Mar 18 11:55 AM

[Jgutmanmd:]

Let's see if the current administration has the integrity and courage to say no to AIG's bonuses, regardless of contractual agreements done before September 2008. The point is these people took AIG down, and bonuses are not due if my taxpayer Dollars are paying for poor performance. If we behave like toilets, these banks and companies will take a Sh*t on us over and over again.

Mar 18 12:15 PM

[bobbobwhite:]

Everyone with half a brain, and that covers most of us it seems, sees this for what it truly is. The big issue is ...what do we do about it, sheeple? Nothing, right, as usual?

What if all of us banded together and refused to pay our taxes?

Let some problem go unattended and you deserve whatever happens. That's our American citizenry today. Blacks make a million man march on Washington for better male responsibility as fathers, and the rest of us...we sit at home watching TV and bitching. That's it. No tax protests, no one-man marches even, no Civil War, no Boston Tea Party, no Berkeley protests.....nothing. We are so pathetic we deserve the harsh end results of global pollution and warming that will come. Nice cars and houses you have, folks, but very inferior survival instincts toward dire threats on your very existence.


On Mar 18 08:33 AM daffy wrote:

> I see that testimony from CEO's now makes the economic calendar.
> AIG this, AIG that. It is a nice diversion. I guess the fact that
> the new administration so joyously offer small business in America
> 15 billion while AIG gets 170 billion (with no end in sight). Am
> I the only one who sees a serious problem with this?
>

Mar 18 12:19 PM

[daffy:]

bobbobwhite -

I am organizing with people for April 15th and 9/12 (my birthday). It is up to you. Define your principles and values, live by them, and identify those who know what their principles and values are.

It is an identification process. If living by principles and values becomes illegal, then help us all.

Mar 18 12:40 PM

[bbowen7:]

No mention of Chris Dodd:

- Attached amendment to November bailout bill, exempting any bonuses committed before November 11, from recision;

- Large AIG office in Connecticut;

- $103,000 in political contributions in the last cycle. (Obama was second in AIG contributions with $101,000.)

Shocked! Absolutely shocked!

Mar 18 01:24 PM

[sticktoitiv...:]

"Victims will also be able to make deductions for phantom income accrued over the years in addition to their principal investments."

I earned 100% each year. Where's my money?

That's wrong.

Mar 18 01:26 PM

[WayneS:]

After listening to the questions asked of Liddy, it is apparent that those asking the questions are either ignorant, stupid or trying to distract from their own misdeeds.

Mar 18 03:29 PM

[eddie6442:]

I am astounded at the uproar over the AIG bonus' and NOT A PEEP about the TENS OF BILLIONS funneled thru AIG to its COUNTERPARTIES!!!!!!!!!
Former AIG CEO Hank Greenberg just appeared on the Neil Cavuto show and was perfectly honest and candid about what has happened at AIG..........
Is this BONUS uproar simply a distraction away from the real issue: TAXPAYERS BILLIONS MAKING COUNTERPARTIES WHOLE -- which Mr Greenberg said never should have happened!!!!
I am painfully aware of the INCOMPETENCE OF OUR GOVERNMENT. I have recently believed that much of what has occurred has been CORRUPTION.......... Now it appears IT MAY BE EVEN WORSE!!!!!!!!!!!!!!!

Mar 18 05:05 PM

[Rating agen...:]

Marketing Research: iPhone in Russia has no future

Mar 18 06:22 PM

[pacman1947:]

Can you imagine having these conversations just over a year ago? It's like reading a comic book or watching Stewart late night -- a joke, right? The Fed floating $5 trillion in counterfeit money to pay off our banks, insurance companies, China and our foreign debtors? Bonuses of hundreds of millions to crooks that bilked the Treasury of more billions? Millions of homeowners foreclosed and on the street after their jobs were trashed? Ponzi schemers who got away for years with billions of pension and charity money from widows and orphans?

I'm not laughing anymore. It ain't funny.

Mar 19 07:28 AM

[RomanFinancial:]

I'm laughing.... hard. Life is too short to not enjoy the incompetence of society.


On Mar 19 07:28 AM pacman1947 wrote:

> Can you imagine having these conversations just over a year ago?
> It's like reading a comic book or watching Stewart late night --
> a joke, right? The Fed floating $5 trillion in counterfeit money
> to pay off our banks, insurance companies, China and our foreign
> debtors? Bonuses of hundreds of millions to crooks that bilked the
> Treasury of more billions? Millions of homeowners foreclosed and
> on the street after their jobs were trashed? Ponzi schemers who got
> away for years with billions of pension and charity money from widows
> and orphans?
>
> I'm not laughing anymore. It ain't funny.

Mar 19 03:26 PM