Wall Street Breakfast: Must-Know News 20 comments
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- 'Leaked' (false?) stress tests. After "leaked" bank stress test results surfaced on a blog of questionable legitimacy, the Treasury was forced to clarify there was 'no basis' to the false reports and said it doesn't have the test results yet. The results posted by the blog said 16 of the nation's top 19 banks are already technically insolvent and any two of them could take down the FDIC, news (whether true or not) that helped drag down financial stocks yesterday.
- Stress tests to put more focus on loan quality. Regulators conducting bank stress tests have encountered a wide variety of underwriting standards, prompting officials to focus more closely on the quality of the loans made. Accordingly, the stress tests will reportedly place as much weight on banks' lending practices and management decisions as on macroeconomic scenarios.
- More money for Detroit. The White House will make up to $5B available to General Motors (GM) through May to help the company restructure outside of bankruptcy, and will offer an additional $500M to Chrysler through the end of April. The Treasury is putting increased pressure on Chrysler to reach a deal with Fiat by the end of the month, while some White House officials have reportedly concluded Chrysler isn't worth trying to save because of its weak product line and lack of international reach. Separately, a government report said Chrysler was turned down for additional TARP loans because it failed to get its top executives to sign compensation waivers.
- Watchdog warns on PPIP. A government watchdog issued a strong warning in a report released this morning, calling the Treasury's plan for public-private investment partnerships (PPIP) 'inherently vulnerable' to fraud, abuse, conflicts of interest and money laundering. PPIP could also expose taxpayers to increased risk without a corresponding increase in potential profit. TARP cop Neil Barofsky called on the Treasury to ensure program transparency and impose strict rules to screen investors. Geithner will testify before Congress on TARP later today. (Read the report (.pdf)) (Watch Geithner's hearing live at 10:00 ET)
- Gov't estimated $900M loss on Citi. The audit report released by Neil Barofsky disclosed an ongoing audit into federal assistance to Bank of America (BAC) in connection with BoA's acquisition of Merrill Lynch. It also revealed the Treasury estimated $900M in losses at the end of last year on the $301B of Citigroup (C) assets guaranteed by the government. An estimate for losses after Jan. 1 is not yet available. Meanwhile, senior FDIC officials reportedly held private talks to discuss who might replace CEO Vikram Pandit if Citigroup needs more aid.
- Morgan mulls regional bank buys. Morgan Stanley (MS) may buy U.S. regional banks to boost its retail banking operations. CEO John Mack acknowledged that "we are looking for potential opportunities to buy a bank that has a presence in an important market in the United States."
- IBM beats but revenue falls. IBM (IBM) beat Q1 earnings estimates but saw revenue fall a larger-than-expected 11% (see details below) as corporate spending slowed. The company reiterated its full-year profit outlook of at least $9.20 per share. Partly overshadowing IBM's earnings was Oracle's (ORCL) announced deal to acquire Sun Microsystems (JAVA), an acquisition IBM had tried to make earlier this month.
- Credit deterioration clouds BoA profit beat. Despite beating earnings expectations by $0.40 per share, Bank of America's (BAC) stock closed down 24% yesterday as investors focused on a decline in credit quality. Provisions for credit losses jumped to $13.4B from $8.5B in Q4, while non-performing assets rose to $25.7B from $18.2B. CEO Ken Lewis told investors to "make no doubt about it. Credit is bad and will eventually get worse before it stabilizes and improves." S&P maintained its hold rating on the bank's shares, but warned "a capital raise can't be ruled out."
- Rumored UBS hedge fund sales. After yesterday's announcement that UBS (UBS) will sell investment bank Banco Pactual at a 'small loss,' media reports are circulating that the Swiss bank is considering selling all or part of its hedge funds business Alternative & Quantitative Investments in a management buyout. A sale would fit the bank's new strategy to cut risks, raise capital and re-focus.
- New Fannie Mae chief. COO Michael J. Williams will become the new CEO of Fannie Mae (FNM) and will serve on the company's board. Williams is replacing Herbert Allison, who will be managing the government's TARP efforts.
- Aussies enter recession. Australia's economy has entered its first recession since 1991, said central bank Governor Glenn Stevens. He added that he's confident stimulus measures, a strong banking system and a pickup in China will help the economy rebound.
- Germany's many bad banks. The German government agreed to create several 'bad banks' to house lenders' distressed assets instead of creating just one bad bank for the entire German banking sector. A government spokesman said officials have already agreed on the 'decentralized solution,' but details of how the program would work are not yet finalized.
- Chicago Index edges down. The Chicago Fed's National Activity Index dipped slightly to -2.96 in March from -2.82 in February, bringing the three-month average to -3.27. Employment made a large negative contribution to the index, as did production and income.
- Leading indicators fall. Conference Board's Leading Indicators fell 0.3% in March, in-line with consensus. Weakness remained widespread among its components, especially for building permits, stock prices and supplier deliveries.
Earnings: Tuesday Before Open
- Autoliv (ALV): Q1 EPS of -$0.90 in-line. Revenue of $927M (-49.3%) vs. $982M. (PR)
- Comerica (CMA): Q1 EPS of -$0.16 misses by $0.07. Total assets of $67.4B. Q1 dividend reduced to $0.05 from $0.33. (PR)
- DuPont (DD): Q1 EPS of $0.54 beats by $0.02. Revenue of $6.9B (-19.9%) vs. $7.7B. (PR)
- KeyCorp (KEY): Q1 EPS of -$1.09 misses by $0.88. Revenue of $1.1B (-9.9%) in-line. Shares -2.3% premarket (7:00 ET). (PR)
- Kinetic Concepts (KCI): Q1 EPS of $0.83 beats by $0.02. Revenue of $470M (+11.9%) vs. $481M. (PR)
- Schering-Plough (SGP): Q1 EPS of $0.56 beats by $0.09. Revenue of $4.4B (-5.7%) vs. $4.6B. (PR)
- UnitedHealth (UNH): Q1 EPS of $0.81 beats by $0.14. Revenue of $20.1B (+9.4%) vs. $21.4B. (PR)
Earnings: Monday After Close
- Brown & Brown (BRO): Q1 EPS of $0.34 misses by $0.01. Revenue of $264M (+2.7%) vs. $268M. (PR)
- Boston Scientific (BSX): Q1 EPS of $0.19 beats by $0.07. Revenue of $2.0B (-1.8%) in-line. (PR)
- Canadian National Railway (CNI): Q1 EPS of C$0.64 beats by C$0.03. Revenue of C$1.86B (-3.5%) vs. C$1.82B. (PR)
- IBM (IBM): Q1 EPS of $1.70 beats by $0.04. Revenue of $21.7B (-11%) vs. $22.51B. Reiterates full-year EPS guidance of at least $9.20. Gross margin +1.9 points to 43.4%. (PR)
- Stryker (SYK): Q1 EPS of $0.71 in-line. Revenue of $1.6B (-2%) in-line. (PR)
- Texas Instruments (TXN): Q1 EPS of $0.01 beats by $0.04. Revenue of $2.09B (-36.2%) vs. $1.9B. Q2 guidance in line. Gross margin 38.6% vs. 39.3% consensus. "Demand for our products has begun to stabilize after sharp drops in the past two quarters. Many customers have increased orders for TI products as they have begun to slow down their inventory reductions. However, we remain sensitive to continuing weakness in the global economy, and we have yet to see signs of a broad-based recovery in our business." (PR)
Today's Markets
Asia gapped down Tuesday. Europe markets opened higher but have fallen sharply heading into midsession. Futures are lower.
- Asia: Nikkei -2.39% to 8,711. Hang Seng -2.95% to 15,286. Shanghai -0.85% to 2,536. BSE -0.74% to 10,898.
- Europe at midday: London -0.7%. Paris -1%. Frankfurt -0.3%.
- Futures: Dow -0.6% at 7776. S&P -0.6% to 828. Nasdaq -0.4%. Crude -0.2% to $48.43. Gold +0.2% to $889. 30-year Tsy +0.27%.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
8:55 Redbook
9:00 Bank of Canada Announcement
10:00 Geithner testifies on TARP
10:00 State Street Investor Confidence Index
5:00 PM ABC Consumer Confidence Index - Notable earnings before Tuesday's open: AKS, ALV, AMTD, BJS, BK, CAT, CMA, COH, DAL, DD, DGX, EAT, FRX, HBAN, JCI, JEF, KCI, KEY, KO, LMT, LXK, MAN, MICC, MRK, MTB, NTRS, NYT, RF, SGP, STT, TRA, UAUA, UNH, USB, USG, UTX, WBS, WU
- Notable earnings after Tuesday's close: ALTR, AMD, AMP, BRCM, CBST, CENX, CHRW, COF, CREE, FULT, GILD, HCBK, ILMN, MOLX, NBR, NSC, PPDI, SNDK, STX, TEX, WMS, YHOO
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 20 comments:
Don't you just hate it when the GAAP loss gets in the way of those good profit numbers?
On Apr 21 08:02 AM PNG wrote:
> If there was a false rumor, by individuals on their own or someone
> working in a "fund" about the stress tests for the purpose of driving down the stocks they should be found out ,prosecuted, and never to
> be able to trade in stocks, securities, currency or commodoties again.
What is and is not true or factual would be a whole lot easier to determine if the spin we get from DC were believable. The data they dish out, the policies based on that data, and the individuals making those policies are all VERY suspect. Personally I don't believe a word they say or any data they give out.
As for the banks, Far more knowledgable folks than me have reported that most of the major banks are "probably" insolvent if one could actually get in and determine what is being held in their level 2 and 3 "assets". Nobody on the outside can, so it remains a mystery. My investing assumption for most of the last year has been that no bank is solvent. Haven't lost a dime (on financials)since making that assumption.. Whatever works....
When Geithner or whoever gives the "report" on the stress tests, we will not be given any data of any individual bank to back up the analysis. They expect us to take their word, to trust their analysis and conclusions. You trust them if you want, I don't believe a word they say.
TRANSPARENCY OBAMA STYLE!!!!
Lets not nit pick too soon.
On Apr 21 10:42 AM eieinli wrote:
> Why the delay in releasing the results of the stress test!!! Just
> ask yourselves! What are they trying to hide? If the results were
> good, then there is no problem.
>
> TRANSPARENCY OBAMA STYLE!!!!
Have we learned NOTHING ??? "Too big to fail" is only a problem because we let firms get TOO BIG !!! We need more and bigger megabanks like a fish needs a bicycle.
And they're going to use TAXPAYERS funds to buy more banks ?? The government oversight is broke. How can regulators allow these welfare recipients to use the federal funds to buy up SOLVENT banks ??? The system is BROKE !!!
OK, they get a one time origination fee. But the interest - long term earnings - is halved. Let's eliminte the hype - ZIRP policy reduces the earnings of financial institutions.
On Apr 21 08:35 AM herbert hoover wrote:
> Where the hell have you been? This market has been driven by rumor,
> lies and innuendo for the last two years!
It brings to mind the old saying, 'where there's smoke ,there's fire'. Only this time the government is softening the public by getting this story told by a shock jock to a appeal to the less inclined to look further crowd.
On Apr 21 10:42 AM eieinli wrote:
> Why the delay in releasing the results of the stress test!!! Just
> ask yourselves! What are they trying to hide? If the results were
> good, then there is no problem.
>
> TRANSPARENCY OBAMA STYLE!!!!
There was no need for Australia to enter reccession. Present government policy revolves around the old Keynesian theory of the cash splash and appealing to the voter while unemployment increases at the rate of 1000 per week ( tax paying population is only 9 million ) .Unemployment is a feature of all Labor governments throughout Australia's history only this time thery are blaming the worlds financial crises and Swan, the fed treasurer has the temerity to smile while he says it.
We Had a 20 billion doaller surplus last November. It was thrown away in cash slpash abd as per usual the only beneficiaries were the plasma TV manufactureres etc. There is now talk of a second round of borrowings for a THIRD cash splash around Christmas. if you hold stocks in chinese TV companies get ready for a nice return.( I'm being facetious of course)
My only question was..If the money had been used it improve our transport infrastructure wouldn't that have made our ore exports cheaper,thus ensuring an income for a few years,thus preventing two periods of negative growth? after all the market determines prices in the end and anything you can do to meet that markets demands you do in order to make a dollar .