- TARP repayment restrictions. Bailed-out banks will have to do more than raise cash in order to pay back TARP funds; they will also have to pass a test to determine whether the repayment is in the nation's economic interest, said a senior government official. The three-part test will check to "make sure the system is stable," ensure that repayment doesn't create "incentives for more deleveraging which would deepen the recession," and ensure the system has enough capital to "provide credit to support the recovery." The comments come as Goldman Sachs (NYSE:GS), JPMorgan Chase (NYSE:JPM) and other relatively strong banks push to be allowed to repay bailout funds.
- So long IBM, hello Oracle. Oracle (NYSE:ORCL) announced Monday morning it has agreed to buy Sun Microsystems (JAVA) for $7.4B, including $1.8B in debt assumption and $9.50 cash per share. "Oracle will be the only company that can engineer an integrated system - applications to disk - where all the pieces fit and work together so customers do not have to do it themselves," CEO Larry Ellison said in a press release this morning. ORCL -4.25% premarket. JAVA +27% to $8.50. (7:30 ET)
- Gov't may take bank equity stake. In a marked shift, the White House and Treasury have reportedly concluded they can prop up the banking system without asking Congress for more money and make TARP funds last longer than previously expected by converting government loans to the country's 19 biggest banks into common stock. However, officials have to weigh the advantage of avoiding a confrontation with Congress against the inevitable backlash from what critics will call back-door nationalization. The potential equity conversions would also increase taxpayer risk by exposing the government to the fluctuations of the common shares' prices.
- Glaxo reaches $3.6B Stiefel deal. The latest in a series of pharmaceutical industry deals, GlaxoSmithKline (NYSE:GSK) has agreed to buy Stiefel Laboratories for up to $3.6B. Glaxo will pay $2.9B in cash and expects to assume $400M of net debt. Depending on future performance, Glaxo could make a further $300M cash payment. Stiefel makes remedies for skin ailments like acne and diaper rash, and the purchase fits squarely with CEO Andrew Witty's strategy to expand in consumer products and diversify away from pure pharmaceuticals.
- Obama to tackle credit card fees. Obama has high credit card fees and interest rates in his sights, and will soon focus "on a whole set of issues having to do with credit card abuses," said White House economic adviser Larry Summers. It's unclear whether or how Obama's efforts will differ from credit card legislation being pushed by Democratic lawmakers. Summers is scheduled to meet with the heads of some of the largest U.S. credit card issuers on Thursday.
- Pepsi's bottler buyout. PepsiCo (NYSE:PEP) has offered around $6B in cash and stock to buy out other shareholders of Pepsi Bottling Group (PBG) and PepsiAmericas (PAS), its two biggest bottlers. The offers mark a 17% premium on each bottler's April 17 closing price. The move is meant to give PepsiCo full control of around 80% of its North American beverage market, an area where both volume and profitability have fallen. PepsiCo estimates the acquisitions will add at least $200M to annual pretax profit. Separately, the company announced better-than-expected Q1 earnings this morning (see details below).
- UBS sells unit at a loss. UBS (NYSE:UBS) will sell Brazilian investment bank Banco Pactual back to one of its original owners at a 'small loss' in order to reduce risk and raise capital. Pactual will be sold for $2.5B, raising UBS' Tier 1 ratio by 0.6% for a Q1 ratio of roughly 10.6%. CEO Oswald Grubel has committed to shrinking UBS in order to bring the bank back to profitability, but a spokeswoman declined to comment on potential further disposals.
- AIG delays proxy filing, may reshuffle board. AIG (NYSE:AIG) has delayed the filing of its annual proxy statement and will reschedule its annual meeting, possibly in order to expand and reshuffle its 11-member board. Since being bailed out in September, AIG's board has remained largely unchanged, though AIG previously announced three board members are expected not to stand for re-election. AIG's statement on the delay is vague, saying only "we are in ongoing discussions regarding several issues and as a result have not yet filed our proxy statement." Separately, AIG revealed in an 8-K filing this morning that the Treasury will provide it with another $29.84B for five years, in exchange for a swap of its preferred shares to a different class of preferred shares. Their agreement restricts AIG's ability to repurchase shares and requires it to maintain certain corporate policies. AIG -9.3% premarket to $1.47 (7:30 ET).
- GM draws closer to Ch. 11. Still trying to stay afloat, General Motors (NYSE:GM) CEO Fritz Henderson conceded bankruptcy remains a 'probable' outcome for the automaker. Negotiations with bondholders and its union have been slow to produce results. Asset sales are not going particularly well either: the company took its AC Delco off the market after failing to get enough cash for the parts business, and may sell its Opel stake for zero gain. GM says it needs another $4.6B in government loans in Q2 to stay afloat, money the Treasury has not yet approved.
- Upset on the Fortune 500 list. Exxon Mobil (NYSE:XOM) bumped Wal-Mart (NYSE:WMT) from the top spot on the 2009 Fortune 500 list of largest publicly traded companies. Exxon managed to rake in revenue of $442.9B in 2008 despite the year-end fall in energy prices and posted $45.2B of profit. Wal-Mart's revenue rose 7% to $405.6B. Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP) and General Electric (NYSE:GE) placed third, fourth and fifth, respectively. Overall, Fortune 500 earnings fell 85% last year, the biggest drop since the list began 55 years ago. (Check out the Fortune 500 list)
- Bye bye, bank. Friday saw the 24th bank failure this year as regulators closed Missouri's American Sterling Bank. Metcalf Bank will assume the failed bank's $171.9M in deposits and buy roughly $173.6M of its $181M in assets. American Sterling's failure will cost the FDIC around $42M.
Earnings: Monday Before Open
- Bank of America (NYSE:BAC): Q1 EPS of $0.44 beats by $0.40. Revenue of $36.0B (+111.7%) vs. $27.1B. (PR)
- Eaton (NYSE:ETN): Q1 EPS of -$0.22 beats by $0.03. Revenue of $2.8B (-19.5%) vs. $3.1B. (PR)
- Eli Lilly (NYSE:LLY): Q1 EPS of $1.20 beats by $0.21. Revenue of $5.05B (+5.0%) in-line. Shares +2.2% premarket (7:00 ET). (PR)
- Halliburton (NYSE:HAL): Q1 EPS of $0.44 beats by $0.03. Revenue of $3.9B (-3.0%) vs. $4.0B. (PR)
- Hasbro (NASDAQ:HAS): Q1 EPS of $0.14 in-line. Revenue of $621.3M (-11.8%) vs. $644.9M. (PR)
- PepsiCo (PEP): Q1 EPS of $0.71 beats by $0.04. Revenue of $8.3B (-0.8%) in-line. (PR)
- Weatherford International (NYSE:WFT): Q1 EPS of $0.27 misses by $0.02. Revenue of $2.3B (+2.7%) in-line. (PR)
Asia markets managed to eke out modest gains, but Europe has drifted lower and futures are under pressure.
- Asia: Nikkei +0.19% to 8,925. Hang Seng +0.96% to 15,751. Shanghai +2.14% to 2,557. BSE -0.4% to 10.980.
- Europe at midday: London -1.2%. Paris -1.9%. Frankfurt -2.5%.
- Futures at 7:00: Dow -1.1% to 7993. S&P -1.2% to 853.50. Nasdaq -1.6%. June crude -3.7% to $50.31. June gold +0.4% to $871.
Monday's Economic Calendar
8:30 Chicago Fed National Activity Index
10:00 Leading Indicators
- Notable earnings before Monday's open: BAC, ETN, HAL, HAS, LLY, MMR, PEP, WFT
- Notable earnings after Monday's close: BRO, BSX, BXS, CNI, IBM, PKG, SYK, TXN, ZION
Seeking Alpha editor Eli Hoffmann contributed to this post.
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