Wall Street Breakfast: Must-Know News

• TARP watchdog: fire execs, liquidate banks. As expected, the congressional panel overseeing TARP released a report suggesting the best course of action may be to fire top executives and liquidate problem banks. The report also said the Treasury may be taking too optimistic a view of the economic downturn and the value of toxic assets, and that the program's success has been 'mixed.' Panel chair Elizabeth Warren commented "things may be getting a little better" under Geithner, but "we still have a long way to go, a very long way." The conclusions were not unanimous, and at least three members of the oversight panel disagreed with some of the findings.
• Life insurers get gov't aid. After months of indecision, sources say the Treasury has decided to extend bailout funds to several struggling life insurers. Only insurers who own federally chartered banks will qualify for the program. The Treasury says it has around $130B of TARP funds remaining, though how much will be available to insurers is still unclear. Among life insurers that have applied for government aid are Hartford Financial (HIG), Lincoln National (LNC) and Prudential Financial (PRU). An announcement of the decision could come in the next several days.
• Stress tests under wraps. The Treasury is reportedly planning to keep the results of any completed bank stress tests private until after the Q1 earnings season so as not to complicate stock market reactions. In addition to the timing of the releases, the Treasury is still debating how much information to make public and may ultimately disclose the tests in summarized results that are not institution-specific. Banks are at liberty to release their own results, but officials hope the banks will hold off until the end of April.
• Centex, Pulte get homey. Centex (CTX) and Pulte Homes (PHM) will merge, creating America's largest homebuilder, with Centex shareholders receiving 0.975 shares of Pulte for every Centex share they own. That amounts to $10.50 based on yesterday's close - a 32.6% premium. The combo will have a market cap of $4.1B. Pulte shareholders will own about 68% of the new firm.
• AIG unit asks for credit line. AIG's (AIG) aircraft leasing unit is in talks to take a $5B credit line from the Federal Reserve to facilitate the sale of the unit. The unit, which is profitable and is a top customer to both Boeing (BA) and Airbus, is in advanced talks with three private equity groups but needs additional liquidity because AIG's collapse has closed off access to many traditional sources of funding. If the Fed proceeds with the unusual move, it will effectively raise the government's stake in the stricken insurer, though the exact details remain sketchy.
• Job cuts at RBS. Royal Bank of Scotland (RBS) might cut as many as 9,000 jobs worldwide as it tries to reduce costs and repay government funds. The job cuts would be in addition to the 2,700 already announced in the U.K. for this year. CEO Stephen Hester said "we have set a new strategy for RBS to restore the bank to stand-alone strength as soon as practicable... To do so, we need to cut our costs, as in all businesses given the current recession."
• Pfizer outlines R&D. Pfizer (PFE) will break its research and development into two separate organizations, one for traditional chemical pills and the other for biologic drugs made from living cells. The move is part of its efforts to quickly integrate Wyeth (WYE) and move ahead with drug development. The chemical unit will be led by Pfizer's current R&D chief Martin Mackay, while Wyeth's R&D leader Mikael Dolsten will oversee the biologics. Pfizer will also retain Wyeth's head of vaccines, Emilio Emini, and Wyeth's head of discovery, Menelas Pangalos.
• Alcoa miss spurs cost cutting. Alcoa (AA) posted its second consecutive quarterly loss yesterday (see details below) for the first time in 15 years. In response to the earnings miss, the company aims to save $400M annually by reducing its payroll and other cost-cutting measures, and is banking on productivity gains and China's economic stimulus plan to help prop up 2009 results. Even with cost reductions, Alcoa may face another loss in Q2.
• Possible Lewis successors. Bank of America (BAC) CEO Ken Lewis has managed to hold on to his job thus far, but has signaled he could leave the bank as soon as the current crisis is over and at most within three years. Gaining ground as a possible replacement for Lewis is Brian Moynihan, the lawyer put in charge of Merrill Lynch after John Thain was ousted. Though Moynihan has clashed with some top Merrill executives, he has emerged as a key right-hand man to Lewis. Other top execs under consideration include mortgage head Barbara Desoer and CFO Joe Price.
• Quotables. Calling for reforms to Wall Street pay and regulation, Goldman Sachs (GS) CEO Lloyd Blankfein said "we have to recognize a higher responsibility... to act like an owner responsible for the integrity of the system." Compensation practices "look self-serving and greedy in hindsight."
• Biogen buyout rumors. Shares of Biogen Idec (BIIB) gained 4.9% yesterday afternoon amid speculation the biotech firm might be a takeover target. Traders in Europe reported rumors that Sanofi-Aventis (SNY) could bid at least $75/share for Biogen, a marked premium on Wednesday's close of $52.09. Biogen declined to comment.
• Britain's economy shrinks, again. U.K. GDP fell 1.5% in Q1, adding to a 1.6% decline in Q4, Niesr said today. At this stage the deterioration looks very similar to that of 1979 - which could mean a recovery to 2008 levels is at least three years away. Meanwhile, consumer confidence fell to a four-year low, according to a separate report. (read Niesr's GDP forecast and Nationwide's consumer confidence report (.pdf))
• Retail sales rise. Chain-store sales rose 0.6% over the week, but were down 0.3% vs. the same week a year ago, according to ICSC's survey. According to Redbook, sales were up 0.5% over the past five weeks vs. a month ago, and down 0.8% vs. March 2008. The bottom line is that sales are showing some improvement, but are still contracting on a year over year basis.
• Consumer credit drops. Consumer Credit fell $7.5B (-3.5%) in February vs. consensus of -$3B. Revolving credit took the biggest hit at -9.75%. It's not hard to see how this can impact spending...

Earnings: Wednesday Before Open

• Family Dollar Stores (FDO): FQ2 EPS of $0.60 in-line. Revenue of $1.99B (+8.7%) in-line. Sees FQ3 EPS of $0.54-0.58 vs. $0.50. (PR)

Earnings: Tuesday After Close

• Alcoa (AA): FQ1 EPS of -$0.59 misses by $0.02. Revenue of $4.15B (-40.7%) vs. $4.08B. The sharp drop in revenue resulted from the impact of the economic downturn on Alcoa's end markets - automotive, transportation, building and construction and aerospace, which saw metal prices down 26% Q/Q and 60% since last summer. Says stimulus spending should improve prospects. (PR)
• Bed Bath & Beyond (BBBY): FQ4 EPS of $0.55 beats by $0.11. Revenue of $1.92B (-0.5%) in-line. (PR)
• Mosaic Co. (MOS): FQ3 EPS of $0.18 misses by $0.06. Revenue of $1.38B (-35.9%) vs. $1.89B. Sees FQ4 stronger than Q3, but weaker than recent past. Also notes potash customers continue to be cautious. (PR)

Today's Markets

Overseas markets moved lower Wednesday, as two straight days of U.S. losses gave bulls the chills. But futures have moved off overnight lows over the past couple hours.

• Asia: Nikkei -2.69% to 8,595. Hang Seng -3.04% to 14,475. Shanghai -3.76% to 2,347. BSE +1.97% to 10,742.
• Europe at midday: London -0.5%. Paris -0.2%. Frankfurt -0.1%.
• Futures: Dow -0.5% to 7721. S&P -0.4% to 811. Nasdaq -0.1%. Crude -2.7% to $47.84. Gold +0.7% to $889.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  10:00 Wholesale Inventories
  10:30 EIA Petroleum Status
  2:00 PM FOMC Minutes
• Notable earnings before Wednesday's open: FDO, RPM, SGR, STZ
• Notable earnings after Wednesday's close: none.

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[pacman1947:]

Michael Gerson reported in his national column today that Obama had managed to become the "most polarizing president in history", with a 61 percent difference between Democratic and Republican perceptions of his performance. This was even greater than Bush's spread on polarity. The TARP oversight panel, in your first story, also suffers on this polarization issue if you read the Bloomberg story. Both Pubs on the panel dissented from the group opinion.

Centrists have no place in government if the two-party system has settled on a black and white stand on all issues. In a democracy, the middle ground should be the place of deal making. It will not work if these two sides cannot seek commonality.

Apr 08 07:57 AM

[mgdimarco:]

The polarity is not Republican vs. Democrat, but capitalism vs. socialism. Add Obama's brand of socialism includes fascist tendencies (see Italy circa 1920s and 1930s), the new el Duce threatens the fabric of our democratic Republic. This "fight" is for the survival of republic as formed by the founders and not as envisioned by this administration.

This is what Mussolini said in 1929:

“In the creation of a new State which is authoritarian but not absolutist, hierarchical and organic - namely, open to the people in all its classes, categories and interests - lies the great revolutionary originality of Fascism, and a teaching perhaps for the whole modern world oscillating between the authority of the State and that of the individual, between the State and the anti-State. Like all other revolutions, the Fascist revolution has had a dramatic development but this in itself would not suffice to distinguish it. The reign of terror is not a revolution: it is only a necessary instrument in a determined phase of the revolution.”

Apr 08 08:21 AM

[Jersey:]

The one thing Obama promised that he has unquestionably kept his word on is change and change we will, weather the people like it or not. There have been countless demonstrations of outrage regarding issues this President has created and if they have one thing in common it is that he doesn't care what the people think any longer, he has convinced himself he knows best even as he makes a fool of himself touring Europe he conveys he is much wiser than any other leaders with decades of experience. I believe he also has addressed the issue of reelection into account as well and has assured reelection regardless of votes as demonstrated in many other Countries where the incumbent wins regardless of the voter outcome which is masterfully manipulated to the point no one could challenge anything let alone attempt to prove anything starting with his falsifying his natural birth records and guaranteeing the Supreme Court never addresses it. The entire political system, the voting system, and even the notion or threat of losing reelection or calling your Representative to complain has become history, again, weather you like it or not, he said, "there WILL be change and change has come. If you think it sounds like science fiction or any other kind of fiction you want to label it I will not argue with you, I cannot believe the change I see on a daily basis myself and just for the record, no, I don't like it, I don't like it one bit.

Apr 08 08:34 AM

[Jersey:]

Let's play a little word association game shall we? If I say, Congressman A, you say? If I say Change, you say? If I say the birthplace of organized crime, you say? If I say you're a coward, you say?

Apr 08 09:00 AM

[Longinvestor:]

Should one confuse all this jockeying for the President's ear to be of any significance to Obama? I think not. Obama is not through the 3rd month of his term yet. He has had the foresight to pick helpers experienced in the government functions even though their political and economic ideology is less than useful. However, Obama made is crystal clear that he is one who sets the Executive Branch policy...the helpers help or will soon disappear from the scene. Of course, Civics teaches us that there are two other Branches of the Federal Government...and then there are state governments.


On Apr 08 07:57 AM pacman1947 wrote:

> Michael Gerson reported in his national column today that Obama had
> managed to become the "most polarizing president in history", with
> a 61 percent difference between Democratic and Republican perceptions
> of his performance. This was even greater than Bush's spread on polarity.
> The TARP oversight panel, in your first story, also suffers on this
> polarization issue if you read the Bloomberg story. Both Pubs on
> the panel dissented from the group opinion.
>
> Centrists have no place in government if the two-party system has
> settled on a black and white stand on all issues. In a democracy,
> the middle ground should be the place of deal making. It will not
> work if these two sides cannot seek commonality.
>

Apr 08 09:03 AM

[Jersey:]

Exactly, Obama isn't even through his 3rd month yet, Good lord, look out man, look out.

Apr 08 09:09 AM

[AndrewBaker:]

Well, life insurers are joining the banks in needing bail-out funds, whilst financial bosses still in place are letting us know that they're going to go anyway. Meanwhile stress test results are maybe not going to be released to us. If anything good was in them, they would tell us soon enough, and holler it from the penthouse office roof garden tops. Those financials are still in big trouble even with all the money we've poured in. Anyone expecting good results to be coming out? I'm not.

Apr 08 09:37 AM

[The Geoffster:]

"The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."
-Lenin

Apr 08 10:24 AM

[hershfin:]

It amazes me to realize that Republicans know only how to criticize when they're out of office. They question Obama's birth. They call him a socialist, a communist, and now a faschist. What is George W.? He certainly wasn't a President of merit. All that our current President is trying to correct was rampant under Bush's watch.

Apr 08 10:29 AM

[eieinli:]

WAKE UP AMERICA BEFORE IT'S TOO LATE!
Stress test results (of banks) being kept under wraps! That's TRANSPARENCY, Obama style.

Life insurers will get aid while one CEO of a top notch insurer is furiously exercising his stock options!

Here's what the FED wants you to do: SPEND YOUR MONEY NOW or else; we'll FLOOD THE ECONOMY WITH CHEAP DOLLARS! What a tragedy! Another dagger in the hearts of those who played by the rules.









S

Apr 08 11:57 AM

[notsosmart:]

blah,blah,blah."mission accomplished & " im the decider" put this guy in office.the american dumb-dumbs get what they deserve,

Apr 08 12:31 PM

[backtoreality:]

hershfin...it helps to understand the GOP FAITHFUL, if you accept that they are ordained by god to gloat when they are in power and criticise when their failures boot them out


On Apr 08 10:29 AM hershfin wrote:

> It amazes me to realize that Republicans know only how to criticize
> when they're out of office. They question Obama's birth. They call
> him a socialist, a communist, and now a faschist. What is George
> W.? He certainly wasn't a President of merit. All that our current
> President is trying to correct was rampant under Bush's watch.

Apr 08 12:43 PM

[sticktoitiv...:]

"TARP released a report suggesting the best course of action may be to fire top executives and liquidate problem banks"

And the market is up today.

Apr 08 12:49 PM

[jambo:]

It would be a major mistake to try to politicize this in terms of Bush or Clinton or Reagan or Carter. We know the unfortunate facts are that it is money and wealth that buy power and that includes the making the rules "rules". There hasnt been a pres since Hoover that knew a damn thing about economics... and yet so much is attributed to each of them. No, its who sings the sweetest song in their ear, pats the back and has the hand full of cash -all for "the cause" mind you- that makes the most policy.
Rule # 1; gold rules, always has, even in post apocalyptic commie Russia.
Rule # 2; see rule 1...
And to suppose that each of us is not culpable is pure folly- hey how about those times when your home was up another percent THIS week- where did that money come from? It isnt as if someone had actually produced anything to create that bogus "wealth". And most of us have enough sense that we knew inside, but went for the ride just the same.
Please tell me what in hell BUSH, or any other epithet had to do with that.
puhleeeze! Own up, pay the bills, quit whining, stop printing money and give our kids a chance to do better, the only alternative is eventual war. Look it up.



On Apr 08 10:29 AM hershfin wrote:

> It amazes me to realize that Republicans know only how to criticize
> when they're out of office. They question Obama's birth. They call
> him a socialist, a communist, and now a faschist. What is George
> W.? He certainly wasn't a President of merit. All that our current
> President is trying to correct was rampant under Bush's watch.

Apr 08 12:59 PM

[PainfullyAware:]

Republican/Democrat Is A Fallacy - They Are One In Action; The Money Party.

Those that put their faith in words or labels will be disappointed when it is discovered they were deluded.

Action and Event are the only measure of Reality.

Do Not Consider What Is "Expected"; Consider What "Is".

Evaluation must be made by analysis of the individual, Not By Party Affiliation.

What I Am Seeing Will Lead To Grim Consequences.

Be American First - Club Member Last.

Apr 08 03:09 PM

[BlueOkie:]

Obama says no international experience so picks Joe Biden. Then O goes to Europe and disses on the USA all the while sending Biden to throw out the first pitch at Baltimore. Hello!

Apr 08 03:30 PM

[axelrod608:]

Sure would be nice to get some FINANCIAL comments rather than rabid partisan opinions. C'mon folks, this isn't talk radio.

I'm not a fan of this or the seven previous administrations and I've not thought well of anyone in Congress since Gaylord Nelson and Bill Proxmire retired.

There is only one way to fix the financial mess we're in - let the markets and the bankruptcy courts do it the CONSTITUTIONAL way.

Write your reps and senators and for God's sake if you live in Pelosi, Frank. Dodd's etc district, retire them and make them get a REAL job for the first time in their miserable life.

Obama is a lawyer. What did you expect ? I haven't voted for a lawyer in any election at any level for decades. I spent most of my working days with lawyers and know 2 with whom I'd trust my lunch money.

We need free, regulated markets and regulators that are capable of monitoring the perps and outlawing every trick they devise to swindle folks. Congress can't do it. They are illiterate - can't tell the difference between "overlook" and "oversee". So instead of oversight we get a total lack of any watchdog activity. How many Congressional investigations are now ongoing into the fraud that created this mess ? ZERO. Draw your own conclusions.

The first article is entitles "TARP watchdog". If anyone in government is involved the only possible explanation is that it involves people watching dogs.

We need another tea party for BOTH of the ruling parties that got us here. The Republicrats are one party with two divisions. And one goal. And if you don;t believe that, YOU are the problem.

Apr 08 06:23 PM

[Repsonsible...:]

I think Obama believes he was elected King . I bet he associates with that new NBC series on Sunday nights Kings.
I mean he doesnt have the experience to be a President 2 years in the Senate, One of which he spent on the campaign trail. Certainly doesnt qualify ! But now a King well he doesnt really require any experience just the Love of the people and 60% of America Loves Obama , as for now lets see how they feel in a year. ??

Apr 08 10:26 PM

[Hal.P.:]

This is crazy. Our free market society was supposed to liquidate these bad banks to begin with. That’s what it does with failed businesses. It’s what keeps the markets strong and thriving. Should have liquidated them to begin with. No business or country for that matter is too big to fail.

What’s too bad is I doubt that the advice of liquidating them will be heeded.

Apr 09 05:28 PM