Wall Street Breakfast: Must-Know News

• Geithner lays out toxic asset plan. As anticipated, the Treasury is launching its plan to rid banks of toxic assets with $75B-100B from existing financial rescue funds. To spur participation, Geithner said private investors will not face executive pay restrictions. Part of the plan aimed at private securities will have the Fed broaden TALF. Another component, focused on bad loans, will see the Treasury provide up to 80% of the initial capital while the FDIC will offer debt financing for up to six times the combined public-private capital pool. Lawrence Summers hopes to see the first loans within 60 days or less. Markets soared following Geithner's statements, though economists were mixed about the plan's viability (see below). (Read the Treasury's press release and white paper (.pdf))
• Markets cheer Geithner plan, economists mixed. U.S. stocks rallied strongly (Dow +6.8%, S&P +7.1%, Nasdaq +6.8%), capping the market's steepest two-week gain since 1938 . BlackRock, the largest publicly traded U.S. asset manager, threw its support behind the toxic-asset program and will participate in the plan. Pimco, the world's largest bond fund, will also participate in the plan, and manager Bill Gross said "this is perhaps the first win/win/win policy to be put on the table and it should be welcomed enthusiastically." Economists were less enthused. Paul Krugman said he's in 'despair' over a program that is sure to fail, while Michael Spence thinks the plan has a good chance of working. Paul Kedrosky argued a fool with a plan might be better than no plan at all. Matthew Yglesias is worried the plan takes us back to where we started, with "banks that are so large that they’re too politically powerful to regulate effective and too systemically important to be allowed to fail," while Felix Salmon mused the plan could actually make things worse.
• Preventing an AIG repeat. An administration official says Geithner is expected to call for expanded government powers and regulatory reform to deal with failing non-bank financial institutions like AIG (AIG). While testifying in Congress later today, Geithner will likely focus on the need for new tools and new authority to enable the Treasury, in collaboration with the Fed, regulators and the president, to step in and combat problems at systemically important institutions, and to wind down failing companies. The expanded powers to help monitor and respond to risk, and potentially limit the ability of big firms to take risks, would require Congressional approval.
JOIN THE DEBATE!

At 2:30 p.m. EDT today on Seeking Alpha: A live discussion on the Treasury's recently-announced bank recovery plan. Panelists: Felix Salmon of Portfolio.com, James Kwak of The Baseline Scenario, and UC Berkeley professor Brad DeLong.



• Goldman mulls partial sale of ICBC stake. Goldman Sachs (GS) is reportedly considering selling part of its 4.9% stake in Chinese bank ICBC, a move that could raise more than $1B and potentially pay down its TARP loans. Any sale would have to wait until late April when a lockup on half the stake expires. Other sources say ICBC is preparing to announce that Goldman has no immediate plans to reduce its stake. Goldman's shares in ICBC are valued at around $7.5B.
• AIG bonus clawbacks. New York Attorney General Andrew Cuomo reported fifteen of the top twenty bonus recipients at AIG (AIG) agreed to return the money they received and as much as half of the $165M paid out may ultimately be recovered. Cuomo and AIG applauded the voluntary returns. The Senate may delay considering a tax increase on employee bonuses after Obama signaled reservations and Republican opposition hardened. Separately, the IRS is challenging some of the tax deals structured by AIG Financial Products Corp., the unit which received the contentious $165M in bonuses.
• GE rises as credit rating falls. Moody's downgraded General Electric (GE) and its GE Capital Corp. two notches to AA2 from AAA, following a one-notch downgrade by S&P earlier this month. Moody's cited concerns with increased losses and delinquencies for GE Capital's roughly $600B in assets. After the downgrade, Moody's placed a stable outlook on both ratings. The downgrade was widely expected and investors were largely unfazed. Shares closed up 9.3%.
• BoA investor tries to oust Lewis. Longtime Bank of America (BAC) investor Jerry Finger launched a formal campaign to oust CEO Ken Lewis from his position as chairman, saying the bank took on too much risk with its Merrill Lynch acquisition. Finger is urging shareholders not to reelect Lewis and two directors during the bank's April 29 annual meeting. Separately, two large U.S. pension funds are looking to bring a class-action lawsuit against BoA over its Merrill acquisition.
• Uptick update in the works. SEC officials are working on an updated version of the uptick rule, according to people familiar with the situation. Two sources said the SEC was considering at least two different types of price test options, along with a range of questions that could lead to yet another type of price test proposal. The SEC is scheduled to meet April 8 to consider short sale price test proposals. The SEC's considerations are in preliminary stages and could change before the meeting.
• Obama nominates for Treasury jobs. The Treasury, which has been short-staffed while dealing with the financial crisis, may soon have three more posts filled. Obama moved to fill three top jobs, including nominating Neil Wolin to be deputy treasury secretary. Wolin must be confirmed by the Senate. The other two announcements were Lael Brainard as the Treasury's top official for international affairs, and Stuart Levey, who will stay on as the top counterterrorism official at the department.
• Auto output crumbles along with demand. Toyota (TM), which is expecting its first loss in 59 years, said its global production fell the most in at least 23 years on tumbling demand in North America and Europe. Toyota's output dropped 53% in February from the year before. Honda's (HMC) output dropped 43%. Nissan (NSANY) saw output fall 51%.
• China calls for dollar replacement. Concerned about the role of a shaky U.S. in the global economy, China is calling for the creation of a new currency to replace the dollar as the world's standard. The proposal is unlikely to change the dollar's role in the short term because of enormous technical and political hurdles, but it underscores the increasingly assertive approach China is taking in shaping the global response to the financial crisis. Russia made a similar proposal earlier this month.
• Chicago Fed Index still weak. The Chicago Fed's National Activity Index edged up to -2.83 in February from -3.74 in January, bringing the three-month average up to -3.48. Despite the small improvement, employment, production, consumption and housing all made negative contributions to the index.
• Home sales rise. Existing home sales rose 5.1% to 4.72M/year in February, but were down 4.6% from a year ago. NAR's Lawrence Yun said first-time buyers accounted for half of home sales last month as distressed sales pulled down median prices (-15.5% Y/Y).

Earnings: Tuesday Before Open

• Williams-Sonoma (WSM): Q4 EPS of $0.31 beats by $0.15. Revenue of $1.0B (-26.6%) vs. $976M. (PR)

Earnings: Monday After Close

• Focus Media (FMCN): Q4 EPS of $0.39 misses by $0.05. Revenue of $192M (-14.5%) vs. $194M. (PR)

Today's Markets

• Asia markets hit a two-month high Tuesday following Monday's massive Wall Street rally, largely attributed to initial enthusiasm over the Treasury's latest plan to detoxify banks. Nikkei +3.32% to 8,488. Hang Seng 3.44% to 13,910. Shanghai +0.56% to 2,338. BSE +0.5% to 9,471.
• Europe stocks gapped up in deference to yesterday's U.S. strength, but quickly retreated. At midday, London -1.1%. Paris flat. Frankfurt +0.1%.
• Stock futures drifted lower overnight, but losses aren't big. Dow -0.8% at 7652. S&P -0.9% at 810. Nasdaq -0.6%. Crude -1% to $53.24. Gold -2.4% to $930. While impressive, skeptics wonder whether ad-hoc rescue plans can power sustainable rallies.
• Treasurys are lower, continuing Monday's trend. 30-year futures -0.77%. 10-year -0.28%. 5-year -0.12%. 2-year -0.04%.

Tuesday's Economic Calendar

• 6:00 Fed's Evans discusses central banking in times of crisis
  7:45 ICSC Retail Store Sales
  8:55 Redbook
  10:00 State Street Investor Confidence Index
  10:00 Bernanke, Geithner testify on AIG
  10:00 Richmond Fed's Manufacturing Index
  10:00 Ofheo House Price Index
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: CCL, CMC, WSM
• Notable earnings after Tuesday's close: JBL

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[watchdog99:]

What the wall street cowboys constantly forget in their adolescent lust for money and power is that the US is no longer the only big player in the world. Their reckless irresponsible behavior is directly linked to the value and integrity of the dollar.( I am reacting to the notion that China and Russia are talking about a new standard). These cowboys are truly the enemies within and must be roped in if we are to survive in this new and dangerous global economy.

Mar 24 09:54 AM

[billp37:]

College and University employees retirements are often funded by TIAA/CREF.

CREF is the variable annuity portion of these employees retirement funds.

TIAA is fixed annuity.

2008 ANNUAL REPORT, COLLEGE RETIREMENT EQUITIES FUND received Monday March 22, 2009 contained truly terrible numbers.

Below is hard to read because the Inception date, 1 year, 5 years, 10 years and since inception must be aligned with columns in the table.


PERFORMANCE OVERVIEW AS OF DECEMBER 31, 2008
Total return Average annual total return
since
Inception date 1 year 5 years 10 years inception


EQUITIES
CREF Stock 8/1/1952 -39.68% -1.49% -0.73% 9.38%
CREF Global Equities 5/1/1992 -42.29 -1.21 -1.01 5.61*
CREF Growth 4/29/1994 -39.78 -3.64 -4.94 4.16*
CREF Equity Index 4/29/1994 -37.50 -2.33 -1.12 6.37*

FIXED INCOME
CREF Bond Market 3/1/1990 1.24 3.53 5.00 6.73*
CREF Inflation-Linked Bond 5/1/1997 -1.78 3.84 6.48 6.09*

EQUITIES & FIXED INCOME
CREF Social Choice 3/1/1990 -23.45 0.23 1.52 7.67*

MONEY MARKET
CREF Money Markett 4/1/1988 2.44 3.18 3.34 4.61”
NET ANNUALIZED YIELD NET ANNUALIZED YIELD
(30-day period ended 12/31/2008) (7-day period ended 12/30/2008)
Effective Current Effective
CREF Bond Market 3.50% CREF Money Markett 1.26% 1.27%



* The performance shown is computed from the inception date of the account (the date on which the account became publicly available). Previously, performance for this account was computed from the day prior to the inception date.
As with all the CREF variable annuity accounts, the funds you invest in the CREF Money Market Account are neither insured nor guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. The current yield more closely reflects current earnings than does the total return.

The returns in this report show past performance, which is no guarantee of future results. Returns and the principal value of your investment will fluctuate. Current performance may be higher or lower than that shown, and you may have a gain or a loss when you redeem your accumulation units. For current performance information, including performance to the most recent month-end, olease visit tiaa-cref.org, or call 800 842-2252.

so I post some jpgs at

home.comcast.net/~bpayne37/whitman59/w...

CREF, my wife reports, resets variable annunity in May.

Mar 24 10:35 AM

[AndrewBaker:]

We're still living in hope: no amount of hype can hide the fact that the toxic assets are not worth anything like the price the banks will want, and that any asset a bank wants to sell will be near worthless, else they would keep it. While you may get some people to buy, probably mutual funds who are spending someone elses' money, not their own, it won't add a penny to the real worth, and will result in big losses further down the line. Someone has to carry those losses, and it will be private investors and taxpayers, not the banks who made the whole mess in the first place. And we are bidding up their stock before we find out just how much rubbish they are holding, which surely even people spending someone elses' money won't buy. Get rid of your bank stocks now whilst the price is artificially high: don't hold to regret it.

Mar 24 11:23 AM

[AndrewBaker:]

And the whole thing is damaging the dollar even more than it is hurt already. The Chinese, who hold trillions in dollars, don't want it to be the world's main currency; and who can blame them too much when we are printing our way out of a hole, devaluing the dollar in the process, and as a result many commodities priced in dollars will increase in dollar cost. We must let bad business go down, else we will prolong the pain even further into the future than it is already likely to be.

Mar 24 11:30 AM

[axelrod608:]

billp37's comment on TIAA/CREF is perhaps the least reported aspect of this entire financial meltdown. Actuaries put in a lot of work trying to figure out levels of investments to keep paying pensions. The losses by pension funds are staggering. And given the ZIRP policy, there is simply NO WAY to recoup the amounts needed to ensure pension fund solvency.

Florida's state pension plan was left holding a ton of Lehman preferred, now worthless. Wisconsin's teacher pension plan lost ( from memory) ?? 47% of variable, ?? 9% of fixed income securities. You don't have to be an actuary to understand that monthly pension checks must be cut if these plans are to survive over time.

I have yet to see an article totalling pension fund losses, but the damage to retirement systems has to be catastrophic.

Here's a question for the folks - myself included - who are incensed at the new federal "budget" : what will the federal budget look like when Social Security has to step in and take over for insolvent pension funds ???

Nero is said to have fiddled while Rome burned. Our entire federal government is fiddling with uptick rules, bonus clawbacks, and other minutia while the financil institutions that provide millions of Americans with their only source of income are sinking in a pit of toxic "securities" quicksand. And judging from the silence, our "leaders" don't even know it's a problem.

Mar 24 12:50 PM

[jr007:]

The wealthy are dead set against anything that could endanger their cushy cash and equity positions...who can blame them? However, what they do not seem to realize is.. that those who have profited mightly and... are among this wealthy group.. are the source of the problem and will be among the means to the cure. They will ultimately have to bear the lions share of the paybacks, not only because they have the assets but also because the masses have reached their tollerance level for this historic inequity and are now voting for CHANGE.
Sorry guys but it's time to get used to it...I have. The next few years will be very interesting.

Mar 24 01:38 PM

[notsosmart:]

the rating agencies downgrade GE. GE goes up.dont pay attention to these phony ratings.this is a useless group.think for yourself.

Mar 24 03:03 PM

[backtoreality:]

history repeats...glass-steegal has to be put back in, or there will be another 1929...2009...etc..etc..

glass-steegal keeps the banker/broker chiselers from making wall street a casino operation

Mar 24 03:40 PM

[Lynn:]

Finally! A shareholder (Jerry Finger) is taking action to oust a bank CEO (Ken Lewis). I've been wondering when the shareholders would get fed up and take action.

Mar 24 03:53 PM

[bbowen7:]

What is hard to understand is that it took us 38 years from the time that we went off of the gold standard to become so offensive in our financial behavior to get the rest of the world to call for the replacement of the dollar as the international reserve currency.

Mar 24 05:54 PM

[BerkeleyBob:]

I am in the happy position of not owning 1 million or so BofA stock, like the Finger family, so I have no dog in that particular fight. However, I don't see why any shareholder would not be more irate over the Countrywide acquisition and the abysmal result of Ken Lewis's (and sleazebag A. Mozillo) opinions that the purchase was a great deal for everybody. Merrill Lynch appears solvent and was no more than a conduit for the toxic loan packages, right?

Mar 24 08:27 PM