Wall Street Breakfast: Must-Know News

• Geithner pushes regulatory overhaul. Testifying before Congress later today, Geithner is expected to ask for large hedge funds, private-equity firms and derivatives markets to be brought under federal supervision for the first time. Under his proposal, the government would be empowered to seize and wind down any financial company large enough to destabilize the banking system. Geithner acknowledged yesterday that public anger over taxpayer-financed financial rescues has created a "broad-based will to change things that people did not want to change in the past." Officials said the Treasury will also call for stronger anti-fraud protection, an elimination of gaps in oversight and closer coordination with international counterparts. Details on those plans will be unveiled in the coming weeks.
• MUFG, Morgan merge units. As speculated, Morgan Stanley (MS) and Mitsubishi UFJ Financial Group (MTU) will merge their Japanese securities businesses to create the country's third-largest brokerage. The two units will be combined into a new venture by March 31 of next year, with the ownership split 60% to Mitsubishi UFJ and the rest to Morgan Stanley. Morgan CEO John Mack said the agreement is "one of many areas of collaboration that we are pursuing with MUFG," and "underscores our strong commitment to Japan."
• Roche to delist Genentech. Roche (RHHBY.PK) has secured more than 96% of Genentech's (DNA) shares, effectively completing its $46.8B buyout of the biotech company. Remaining holders of Genentech will get $95/share. Roche plans to make Genentech a wholly owned subsidiary as soon as possible and will delist the company from the New York Stock Exchange following the merger.
• More auto aid likely. Obama's auto task force will begin announcing its decisions in the next few days, and looks set to grant more loans with extra strings attached. Interviews with members of the task force suggest the White House doesn't want General Motors (GM) or Chrysler to slip into bankruptcy protection. Instead, the task force will likely say it sees a viable future for both firms, but only if there are sacrifices made by management, unions and GM's bondholders. Though the task force will likely agree to grant more aid, it may not disburse the funds immediately, choosing instead to hold on to the money as leverage. Separately, a document from the Original Equipment Suppliers Association suggests Citigroup (C) may become the 'third-party servicer' chosen to supply $5B in aid to auto-parts suppliers.
• BoA folds Premier into Merrill unit. Bank of America (BAC) will fold its Premier Banking unit into Merrill Lynch Global Wealth Management and fire several hundred workers. The bank once hailed the division as a potential driver of growth and profit, but now says the shift will better position BoA as a wealth manager for 'mass affluent' clients. As a result, Premier's client managers will become 'banking specialists' and assist the firm's 18,000 financial advisers, most of whom came from Merrill, with recommendations on banking products.
• BoA faces lawsuit. Five public pension funds are seeking lead status in a class-action lawsuit against Bank of America (BAC). The funds allege that BoA made 'untrue statements' in the run-up to its Merrill Lynch purchase and withheld material information from shareholders. The five pension funds claim to have lost $274M on their BoA investments between July 21, 2008 and Jan. 20, 2009.
• Geithner goof briefly hits dollar. Geithner briefly caused a sharp drop in the dollar when he appeared willing to entertain China's call for an international currency to replace the dollar as the world's standard. Answering questions, Geithner said he was 'quite open' to the idea, immediately sending the euro up over 1% against the dollar. The dollar also fell against the yen. Later asked to clarify his view, Geithner said "the dollar remains the world's dominant reserve currency. I think that's likely to continue for a long period of time." The clarified remarks calmed markets, and by late Wednesday the dollar was just modestly weaker against the euro and yen.
• Goldman holds onto ICBC shares. Goldman Sachs (GS) pledged to keep 80% of its ICBC shares, sending the Chinese bank up 15%. Goldman's lock-up agreement on the shares will be extended one year, to April 28, 2010.
• IBM shifting jobs abroad. Sources say IBM (IBM) plans to lay off around 5,000 U.S. employees and transfer many of the jobs to India. The cuts will target the company's global business-services unit, and are part of IBM's efforts to steadily build up its foreign workforce. Foreign workers accounted for 71% of IBM's employees at the start of the year, up from 65% in 2006.
• Durable goods rise. Durable Goods Orders rose 3.4% in February, while economists were expecting -2.5%. January's orders were revised to -7.3% from -5.2%, which accounts for some of the difference. Inventories -0.9% after -1.1% in January.
• Home sales are up. New home sales in February rose 4.7% to an annualized 337,000, better than the 315K consensus. January was revised to 322K from 309K. The Median price was $200,900. At the current sales rate, there's 12.2 months of supply.

Earnings: Thursday Before Open

• Dr Pepper Snapple Group (DPS): Q4 EPS of $0.39 beats by $0.02. Revenue of $1.4B (-0.9%) vs. $1.3B. (PR)

Earnings: Wednesday After Close

• Paychex (PAYX): FQ3 EPS of $0.36 in-line. Revenue of $529M (-0.7%) vs. $537M. (PR)
• Red Hat (RHT): Q4 EPS of $0.22 beats by $0.02. Revenue of $166M (+17.5%) vs. $167M. (PR)
• SAIC (SAI): Q4 EPS of $0.30 beats by $0.01. Revenue of $2.52B (+8%) in-line. (PR)

Today's Markets

• Asian markets posted strong gains. Nikkei +1.8% to 8,636.33. Hang Seng +3.6% to 14,108.98. Shanghai +3.1% to 2,361.70. BSE +3.5% to 10,003.10.
• In Europe at midday, London +0.2%. Paris -0.2%. Frankfurt +0.5%.
• U.S. futures: Dow +0.8%. S&P +0.9%. Nasdaq +1.1%. Crude +1.1% to $53.36. Gold -0.1% to $934.50.

Thursday's Economic Calendar

• 5:00 Fed's Lockhart joins panel on 'Food, Water, Inflation and Monetary Policy'
  8:30 GDP Q4 (final)
  8:30 Jobless Claims
  8:30 Corporate Profits
  10:00 Geithner testifies on financial regulation
  10:30 EIA Natural Gas Report
  12:00 PM Fed's Fisher speaks on current economic issues
  12:40 PM Fed's Lacker speaks on the economic outlook
  1:00 PM Fed's Stern discusses 'too big to fail'
  4:30 PM Money Supply
• Notable earnings before Thursday's open: BBY, CAG, DPS, GME
• Notable earnings after Thursday's close: ACN, ERJ, TIBX

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[AndrewBaker:]

There's a lot of action going on surrounding financials: more regulation, orderly wind-ups, sales and consolidation of unwanted or less important units, as well as the toxic assets sale program. Will it help? Well, it must makes matters better going forward, but I'm still bothered by the fact that we don't have enough facts yet about these toxic assets and potential further write-downs. I've been forced into being a short-term bull, but further out, my bears are still roaming the woods.

Mar 26 09:01 AM

[axelrod608:]

>> "the government would be empowered to seize and wind down any financial company large enough to destabilize the banking system" >>

The government already has a system to do exactly this - bankruptcy. Among the positive features of bankruptcy is that the firm is run by an independent trustee who gets rid of the incompetents who ran the company into the ground. Also, in bankruptcy the firm's books are scoured by forensic accountants to find fraud and abuse and the perps are prosecuted.and put in prison where they belong.

The reason for all the various "bailouts" is to keep the perps that brought our financial system to its knees employed and to protect them from the rightful consequences of their greed, fraud and incompetence.

Our founding fathers thought enough of bankruptcy to write it into the Constitution as the ONLY remedy for incompetent businesses. I think they were a whole lot brighter than the current crop of bailouters and stimulators and financial cretins.

"Too big to fail" is an oxymoron.

Mar 26 09:32 AM

[bobbobwhite:]

If the gov't makes lap pets out of GM and Chrysler, the cars they both make will end up being even worse than they are now. Nothing will be improved, except Detroit's perpetuation of a bad business model and it's end result every time.......intentional mediocrity at best.

"We don't have to make good cars, we are protected by the gov't. HAHAHAHA."

Mar 26 09:43 AM

[Glen L.:]

axelrod608: "Our founding fathers thought enough of bankruptcy to write it into the Constitution as the ONLY remedy for incompetent businesses. I think they were a whole lot brighter than the current crop of bailouters and stimulators and financial cretins."

I think integrity and honesty of the founders was the key, not necessarily superior intelligence alone. In fact, Alexander Hamilton was the evil genius that brought mercantilism and crony capitalism to America, and Bernanke, Geithner, and all the rest are his intellectual heirs.

The slow-motion demolition of the Constitution and the American Dream continues apace. Bankruptcy law and the sanctity of contracts are the latest casualties.

Mar 26 10:32 AM

[Buckoux:]

"Geithner acknowledged yesterday that public anger over taxpayer-financed financial rescues has created a "broad-based will to change things that people did not want to change in the past."

This portends of medicine that will worse than the disease.

Government types always tend to consider themselves to be, "too smart to fail".

Mar 26 10:32 AM

[Drew Horn:]

Trying to "fix" car companies isn't likely to solve the basic problems of the transportation industry and will only put a temporary prop under companies that have long lost the sense of imagination and creativity that was their foundation. We would be better served if tax resources were given to a consortium of creative thinkers (Stanford, MIT, RPI and the like) with the assignment of fundamentally changing the basic approach to moving from place to place. Helping GM without addressing the failings of our current transportation paradigm is like putting money into newspapers. We all know they will and must change but the direction isn't clear. GM & Chrysler operate the equivalent of obsolete printing presses. We need to focus on the "Internet" of transportation!

Mar 26 11:23 AM

[bbowen7:]

Bankruptcy is not the only tool. The FDIC has long done a good/quiet/behind-the-... job of cleaning up and disposing of banks that fail. Wiser heads than us need to look at the two approaches and determine when and how each is appropriate.

Mar 26 12:36 PM

[Shaggieman:]

Drew you hit on something there. I think if the government fibers-up every house in America (where it makes sense to do) then a lot of trips become unnecessary. I believe the new Obama package has some money in there for that purpose.

Mar 26 12:43 PM

[Dr. Wolfgan...:]

When I study all the cross-currents, I see at least a plan by the government plans that are now started. The market weighs this as a positive sign as it seems that action is better than doing nothing. But whether these plans will have succes is an open question; nobody does know it about the outcoming results. This means that we have to take into consideration pitfalls in the ongoing course. And from this point of view I judge our rally not as a first move of a bullmarket. This is for sure too early. But one thing I am sure about - and that will be a problem: if the current plans are followed consequently, will will have inflation and the dollar will weaken...perhaps within one year.
Dr. oec. Wolfgang Eisenbeiss, CH-9008 St.Gallen (Switzerland)

Mar 26 01:06 PM

[Joseph Sherman:]

MUFG, Morgan merge unites - The challenge for the new unit will be to integrate culturally. How will the people work together?

Mar 26 03:16 PM

[Drew Horn:]

Shaggieman, thanks for the positive comment.

Looking at the history of the US, we started exploiting natural resources followed by efficient manufacturing + building the potential of average people ( free libraries, land grant colleges, etc.) to contribute. In the last 70 years we developed computers that give us the potential to solve problems previously insoluble. Its time to move beyond the concepts that started in the 19Th century (automobiles) by using our technical skills and our ability to manage risks (government seed money + venture capital).

If we believe our own rhetoric, there is no other useful option!


On Mar 26 12:43 PM Shaggieman wrote:

> Drew you hit on something there. I think if the government fibers-up
> every house in America (where it makes sense to do) then a lot of
> trips become unnecessary. I believe the new Obama package has some
> money in there for that purpose.

Mar 26 03:25 PM