Wall Street Breakfast: Must-Know News

• Shoring up financial regulation. Geithner and Bernanke testified before the House Financial Services Committee yesterday in a hearing about the government's intervention at AIG (AIG), and foreshadowed what may be the largest overhaul of banking rules in the U.S. since the 1930s. Geithner called on Congress for new powers to take over large, failing non-bank financial institutions and said U.S. banking rules need to change to include 'strong oversight' and 'appropriate constraints on risk-taking.' Geithner will testify again tomorrow and offer more details of the administration's plans. Bernanke strongly backed Geithner, and said AIG illustrates the 'intense problem' of trading with an insufficient capital cushion. (Read Bernanke's prepared testimony and Geithner's prepared testimony)
• Obama courts banks, public. Obama will meet this week with executives from 12 major U.S. banks to discuss plans for reviving the economy. An administration official says the chiefs of Citigroup (C), JPMorgan Chase (JPM) and Goldman Sachs (GS) will likely attend the March 27 meeting, along with executives from Morgan Stanley (MS) and PNC Financial (PNC). Obama is expected to stress the need to look beyond short-term interests and focus on the larger goal of reviving the U.S. economy. Obama also held a televised news conference last night to sell the American public on his $3.55T budget and a bank bailout plan. He said recovery will take time, that his budget is inseparable from the recovery, and that the White House has "a comprehensive strategy designed to attack this crisis on all fronts." (Read excerpts of Obama's remarks and a live-blog of the conference)
• Chinalco deal clears hurdle. Chinalco (ACH) won approval from Australia's competition regulator, clearing a hurdle for its planned $19.5B investment in Rio Tinto (RTP). The Australian Consumer and Competition Commission says the proposal is unlikely to affect the iron ore, copper, alumina and bauxite markets. Australia’s Foreign Investment Review Board is also reviewing the proposed deal and will provide a recommendation to Treasurer Wayne Swan. Swan will then make a final decision whether the deal is in Australia’s national interest.
• Berkshire ratings outlook lowered. S&P lowered its ratings outlook for Berkshire Hathaway (BRK.A) to negative from stable, pointing to the drop in insurance operations capital caused by stock market declines. If the value of the company's equity holdings stabilizes or improves in the next 12 months or if the firm rebuilds its capital position in the next 1-2 years, S&P will change its outlook back to stable. If capital falls further, S&P could cut Berkshire's ratings by one notch. Earlier this month, Fitch cut its ratings on Berkshire, saying no financial-oriented holding company should be rated AAA due to significant market volatility.
• MUFG, Morgan may merge unit. Sources say Mitsubishi UFJ Financial Group (MTU) will likely merge its brokerage firm unit with Morgan Stanley's (MS) Japan unit, ending up with a 60% stake in the combined entity. A merger, which could be announced as early as this week, would create the nation's third largest brokerage firm in terms of operating revenue.
• FedEx threat hinges on labor law changes. FedEx (FDX) has threatened to cancel the purchase of billions of dollars worth of new Boeing (BA) cargo planes if Congress passes legislation making it easier for unions to organize, saying the legislation could cripple the company and eliminate the need for extra planes. A FedEx spokesman said its contract with Boeing to buy 15 planes, with an option to buy an additional 15, includes language allowing the company to cancel the order if lawmakers approve the changes in labor law. The threat is the latest move in an increasingly bitter battle involving both rival United Parcel Service (UPS) and the Teamsters union. A Boeing spokeswoman said the company hadn't yet added the 30 planes to its order backlog because of the language in the contract.
• Blockbuster branches out. Blockbuster (BBI) is pushing out beyond its store locations and will let TiVo (TIVO) subscribers download movies to their home televisions from its online movie library. Blockbuster's On Demand system will join online TiVo offerings from rival Netflix (NFLX) and Amazon (AMZN). As part of the deal, Blockbuster's stores and online shop will sell TiVo's digital video recorders. Financial terms of the deal were not disclosed. BBI +4.1% premarket (7:00 ET).
• T-Mobile's high-speed plans. T-Mobile USA (DT) plans to double its high-speed wireless network coverage to reach a potential 200M wireless users by the end of 2009. Trailing rivals like Verizon Wireless (VZ), AT&T (T) and Sprint Nextel (S), T-mobile will add 100 cities to its current 3G network of 130 cities. It will also sell a WebConnect Laptop Stick, a high-speed data device to connect laptop computers to its wireless network.
• HSBC may cut jobs, offices. HSBC (HBC) may eliminate 1,000 jobs in the U.K. and close some offices, according to a person familiar with the situation. The 'cost-conscious' bank, Europe's biggest by market value, cut 500 U.K. jobs in November and 1,100 positions at its global banking and markets unit in September. An HSBC spokesman declined to comment.
• Porsche gets loan for VW stock buys. Porsche said it secured the €10B ($13.5B) loan it needs to fund purchases of Volkswagen (VLKAY.PK) stock. As of Jan. 5, Porsche owned 50.8% of Volkswagen and wants to increase that stake to 75% this year. Although the loan facility took longer-than-expected to arrange because of "the extremely difficult global economic environment and the turbulences in the bond market," Porsche said it has a 'framework agreement' to extend the accord to €12.5B in the coming weeks.
• Romania gets bailed out. Romania got a €20B ($27B) loan from the IMF, EU and other lenders, making it the sixth eastern European nation to be bailed out. The package should "more than cover Romania’s financing needs this year."
• Retail sales. Retail chain store sales fell 0.4% from a week ago, according to ICSC, and declined 1.4% Y/Y. Michael P. Niemira, ICSC chief economist, said that "although there are signs that consumer confidence is improving in recent weeks, consumer spending continues to struggle - though not any worse than earlier in the year." Redbook reported national chain store sales were flat in the first three weeks of March, and fell 1.3% Y/Y.
• Light at the end of the tunnel? The State Street Investor Confidence Index fell 2.7 points to 70.0 in March, but "there is an increasing sense among institutional investors that the rapid freefall of the real economy is approaching its end."
• Richmond Fed Index rises. The Richmond Fed's Manufacturing Index rose to -20 in March from February's -51, while shipments jumped to -15 from -56. Its employment index rose to -28, and expectations were generally on par with February, rising 3 points to 24.
• Mortgage apps rise. Mortgage applications rose 4.2% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages decreased to 4.63% from 4.89%.
• Home prices rise (.pdf). FHFA's House Price Index (.pdf) showed U.S. home prices rose 1.7% in Jan. M/M, bringing the twelve-month total to -6.3%. January's small uptick suggests prices may stop their long descent and push consumers from the sidelines into the purchase of a home.

Earnings: Tuesday After Close

• Jabil Circuit (JBL): FQ2 EPS of $0.13 beats by $0. Revenue of $2.89B (-5.6%) vs. $2.81B. Sees FQ3 EPS of -$0.08 to $0.08 vs. consensus of $0.11. Warns goodwill impairment charge may further cut into earnings. (PR)

Today's Markets

• Asian markets were mixed following overnight weakness on Wall Street. The Nikkei was down a touch (-0.1%) to 8,479.99. Hang Seng -2.1% to 13,622.11. Shanghai -2.0% to 2,291.55. BSE +2.1% to 9,667.90.
• In Europe, stocks started up but have since lost their footing. London -0.5%. Paris -0.3%. Frankfurt -0.2%.
• U.S. futures: Dow +0.3%. S&P +0.3%. Nasdaq +0.5%. Crude -2.0% to $52.89. Gold -0.3% to $920.90.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  8:30 Durable Goods Orders
  10:00 New Home Sales
  10:30 EIA Petroleum Status
  12:20 PM Fed's Pianalto speaks on forces for economic recovery
  12:30 PM Fed's Yellen speaks on the economy and policy responses
• Notable earnings before Wednesday's open: none.
• Notable earnings after Wednesday's close: PAYX, RHT, SAI

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[AndrewBaker:]

They keep on talking the banks up but we still do not know the extent of the bad assets, even though it is proposed that they are sold off. "A pig in a poke" comes to mind.

Mar 25 08:46 AM

[I am not a ...:]

Chinalco buying into Rio Tinto means that the customer becomes the supplier to itself. Australia is in danger of losing out because Chinalco will simply force down the price of the ore etc and the royalties to be paid will be miniscule.
Senator Barnaby Joyce has been a vocal critic of the Rudd governments unseemly haste to allow this deal to go through. I have to wonder if the Rudd governments announcements regarding giving away a further 48 billion as a stimulace package for the economy are somehow connected to this. Kevin Rudd is a Chinaphile who speaks fluent manadarin and Cantonese and he has already given away the nations cash surplus last year in a failed stimulace package which went know where after a week of frenzied spending.
So,perhaps the Chinese have promised to lend Australia 48 billion dollars in return for some cheap Iron ore and Buaxite .
Stranger things have happened in Australia when the Chinese have dealt with our politicians. Witness the gas deal where the chinese are able to buy Australia's gas for 2 cents per liter.
[url]www.barnabyjoyce.com.a...[/url]
[urlhttp://barnabyjoyce.com.au/Is...[/url]

Mar 25 09:03 AM

[ebworthen:]

If I was given a million dollars of taxpayers money for free to lend out at 5% my balance sheet would look better too.

Using debt to solve a debt crisis. Banks stealing our money to recover gambling losses and encourage lending to those who borrowed to gamble.

Hey look! People are returning to the craps table and the roulette wheel! Happy Days are here again!

Moan...

Mar 25 09:03 AM

[normthefedup:]

Listen..is it just me or am I missing something? Has it REALLY been two days since that idiot Felix Salmon has written something about the "inevitable nationalization of the US banking system?" Or did he finally put himself out of OUR misery???? One can only hope. Go back to writing another set of fairy tales, Felix. It seems to be your expertise. Thanks, US Government, for saving our butts. I know nothing is free, we'll all pay this back eventually. But for today, most of us are still working and eating. Have a great day, all.

Mar 25 09:08 AM

[roro:]

Blockbuster is making a smart deal with Tivo, but it's only playing catch-up since Netflix has already done the same thing. What Blockbuster does have going for it is promising new releases "within 30 days of DVD release." If that's true, Blockbuster's streaming service will be much superior than their rival's collection of cheap studio movies.

Something I do have to note as a negative, is the feature BBI touts on its website "DVD-quality looks great, even on HDTVs." Netflix is offering HD to Tivo, Xbox, and Roku....

Mar 25 09:14 AM

[BlueOkie:]

Once the gov't buys these toxic assets, what is it going to do with them?

Mar 25 09:27 AM

[jackooo:]

Go Fedex. Unions will kill any company.

Mar 25 11:02 AM

[bobbobwhite:]

When Porsche ever sells fewer $80-$170K sports cars than it did the previous year, I will finally believe that this latest econ. scandle means something more than merely an inconvenient nuisance to very rich Americans.

Other than that happening, I am so very sure that it's life-at-the-top as usual for them and crap once again for the middle class that mostly pays for everything bad that our "fearless leaders" do to us as citizens.

Mar 25 12:43 PM

[bbowen7:]

The Treasury's call to be able to take over insurance companies and other non-bank financial institutions is the biggest news of the day. In the absence of a plan to provide regulations, we should trust the politicians with the ability to nationalize any financial institution if it doesn't do as they wish. See Barney Frank and sub-prime mortgages; Nancy Pelosi and confiscatory taxes; Chris Dodd and sweetheart loans.

Mar 25 01:42 PM

[Joseph Sherman:]

Blockbuster branches out. - This can be a major step forward for Blockbuster and TiVo. The task at hand is to present the offering in an easy to use format.

Mar 25 01:44 PM

[pacman1947:]

On T-Mobile's wireless plans -- I was promised two years ago that they would have 3G service where I live within months.

Still waiting.

Mar 25 02:32 PM

[Repsonsible...:]

Ben Bernanke's Dismal by: Thomas Tan March 25, 2009
Ben Bernanke has a long history and record of predicting the market wrong. Whatever he says, in less than half year, everything seems to go very wrong in the other direction. Now he says the recession will be over by end of this year. This alone should get all of us worried.

In March 2007, he said the subprime crisis was contained when it was barely starting. When the problem of delinquencies and foreclosures started to surface, he said, “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.” We all know what happened next.

Now switching from real estate to banking, after a year when he said subprime was not a problem, in February 2008, this time he said, “among the largest banks, the capital ratios remain good and I don’t anticipate any serious problems of that sort among the large, internationally active banks that make up a very substantial part of our banking system.”
Obviously he wouldn’t count Bear Stearns or Lehman among the large banks referred in his speech since he can blame them as only investment banks. He wouldn’t count Fannie Mae (FNM) and Freddie Mac (FRE) either, since they don’t make up a very substantial part of our banking system, or do they? To keep his words, he had to bump trillions of taxpayers’ money to save Citi (C) and Bank of America (C), and forced Merrill and Wachovia to be sold, instead of letting the bondholders of those banks taking the losses in the normal "pre-packaged bankruptcy" process, since he wants to protect the big guys as bondholders are mainly large financial institutions. But how about Washington Mutual? Its failure in September 2008 is the largest bank failure in history with $307 billion in assets. Both common and preferred stockholders got totally wiped out, all subordinate bondholders were also totally wiped out, only the most senior bondholders received merely pennies back for the dollar. This is the example of "too big to fail" becoming "too big to save".

Sometimes I don’t know whether he is speaking from his mind (unlikely from his heart), or he just says what he has to say because he has no choice. In his role as a cheerleader for the financial market, he actually gets his hands tied and is not supposed to speak freely on what is in his mind. This is actually the biggest problem for the the Fed and the whole banking industry -- like a secretive skull and bones society with only a few elite members, you are sworn to protect the secrecy at all costs, including lying. If you know the truth, you just can’t say it, or better yet, you say the opposite. Let us see what happens this time, whether he remains 100% “correct” on his prediction record.

I fully expect Bernanke won’t be able to last after his first term ending next year. Even if the President nominates him again, as an academic person, he may not want to through such suffering for another term. Especially if his prediction of recession ending this year again turns out to be wrong. I am not sure he has the thick skin and endurance to take it any more either.

Mar 25 04:04 PM