Wall Street Breakfast: Must-Know News

• Geithner: most banks have enough cash. Testifying in Congress, Geithner indicated the 'vast majority' of the 19 banks undergoing stress tests have more than enough capital, and those that need additional aid may get a mix of converted government preference shares and private money. His testimony helped allay investors' concerns about the possibility of political interference and widespread stock dilution, sending financial stocks up. Geithner also pointed to signs of a credit market thaw, but said the banking rescue is showing only 'mixed' signs of success and toxic assets are still 'congesting' the financial system. (Read Geithner's prepared testimony (.pdf))
• Dems consider bank limits. In a closed-door meeting with House Democrats, FDIC's Sheila Bair suggested the size of banks should be limited and their growth regulated in order to prevent lenders from becoming 'too big to fail.' Bair didn't elaborate on her proposal, but the idea was well received by those at the meeting. Bair also endorsed Rep. Nancy Pelosi's efforts to launch a comprehensive inquiry into the causes of the financial crisis.
• Banks lobby to cut TARP exit costs. The banking industry is aggressively lobbying the Treasury to make it less expensive to exit TARP. At issue are warrants that allow the Treasury to buy common stock in bailed out banks at a set price for ten years. Most of the warrants are worthless today, but banks seeking to expunge them after repaying TARP funds must get a third-party valuations of the warrants' worth, negotiate with the Treasury if there is disagreement on the valuation and allow the warrants to be sold to private investors if no compromise is reached. Bank reps say the repurchase terms are onerous, equivalent to 60% annual interest on short-term loans, but those on the other side of the aisle think it's unreasonable for banks that have been bailed out to try and get out of TARP free.
• Chrysler lenders offer debt deal. In a counter-offer to the Treasury, Chrysler's first-lien lenders agreed to take equity in a restructured automaker with a Fiat tie-up in exchange for writing off around 35% of the $7B they are owed. The lenders would retain around $4.5B in debt and take more than a one-third stake in the reinvented Chrysler. The suggested deal is significantly richer than the Treasury's proposal to cut lenders' debt to $1B, and was immediately criticized by a White House official for giving creditors an 'unjustified return' given the circumstances. The Treasury made clear it doesn't plan to accept the lenders' terms.
• Citi's Pandit faces angry shareholders. Speaking at a six-hour long annual meeting, embattled Citigroup (C) CEO Vikram Pandit promised to repay 'every dollar' to the government and fielded questions from furious investors. Despite the anger, shareholders elected every director the board had nominated, including some accused of weak oversight. With his job security a topic of speculation, Pandit told investors "I intend to see this through."
• Yahoo cuts jobs, product cuts to follow. Though "not immune to the ongoing economic downturn," Yahoo (YHOO) posted better-than-expected quarterly earnings (see details below) and plans to cut 5% of its workforce. The job cuts are the first by CEO Carol Bartz, who said the company may also eliminate more products. Bartz mentioned the importance of the search business to Yahoo but declined to comment further on Microsoft (MSFT).
• Roche drug misses goal. In a much anticipated study, Roche Holding's (RHHBY.PK) Avastin cancer drug failed to keep tumors at bay. Roche plans further tests for early-stage use. Shares -8.1% in Zurich (6:45 ET).
• IMF sees rising writedowns. In its Global Financial Stability Report, the IMF noted financial institutions are now facing losses of up to $4.1T on loans and other assets, and urged governments to take 'bolder steps,' including nationalization when necessary, to bolster firms. The IMF sees total writedowns on U.S. assets at $2.7T, up from a $2.1T estimate in January. Efforts to purge toxic assets and replenish capital have been 'piecemeal and reactive.'
• Chain store sales. Retail chain store sales fell 0.4% from a week ago, ICSC reported, and dipped 0.1% Y/Y. After three weeks of increases, "consumers took a pause in the latest week with discounters and specialty stores, such as books and jewelry, which were particularly weaker." According to Redbook, national chain store sales rose 1.5% in the first two weeks of April, and rose 0.5% Y/Y.
• Mortgage apps rise. Mortgage applications rose 5.3% from a week ago, MBA reported. The average interest rate on 30-year fixed-rate mortgages inched up to 4.73% from 4.70%.

Earnings: Wednesday Before Open

• Air Products and Chemicals (APD): FQ2 EPS of $0.89 beats by $0.07. Revenue of $1.95B (-23.1%) vs. $2.1B. (PR)
• AirTran (AAI): Q1 EPS of $0.21 beats by $0.17. Revenue of $542M (-9.1%) vs. $535M. (PR)
• Altria (MO): Q1 EPS of $0.39 beats by $0.01. Revenue of $3.81B (+5.8%) vs. $3.98B. Reaffirms full-year guidance. Believes customers are beginning to rebuild inventories. (PR)
• AT&T (T): Q1 EPS of $0.53 beats by $0.05. Revenue of $30.6B (-0.6%) vs. $31.1B. More than 1.6M iPhone activations in the quarter, more than 40% from first timers. Shares +3.8% premarket. (PR)
• Continental (CAL): Q1 EPS of -$1.07 beats by $0.12. Revenue of $2.96B (-17%) vs. $2.98B. (PR)
• Dover (DOV): Q1 EPS of $0.45 misses by $0.02. Revenue of $1.4B (-24.7%) vs. $1.5B. Sees FY '09 EPS of $2.00-$2.30. (PR)
• Elan (ELN): Q1 EPS of -$0.17 misses by $0.03. Revenue of $245M (+14.2%) vs. $265M. (PR)
• EnCana (ECA): Q1 EPS of $1.26 beats by $0.57. Revenue of $4.6B (-15.2%) vs. $4.0B. (PR)
• Freeport-McMoRan Copper & Gold(FCX): Q1 EPS of $0.11 misses by $0.02. Revenue of $2.6B (-54.1%) vs. $2.69B. Shares -2.4% premarket. (PR)
• Ingersoll-Rand (IR): FQ1 EPS of -$0.04 beats by $0.09. Revenue of $2.93B (+35.6%) in-line. After saying in February that full-year EPS could be as low as $0.95, IR now sees full-year EPS of $1.40-1.90 vs. $1.40 consensus. (PR)
• Kimberly-Clark (KMB): Q1 EPS of $0.98 beats by $0.01. Revenue of $4.49B (-6.6%) in-line. Sees full-year EPS of $4.00-$4.20 vs. $4.14. "While we are encouraged that commodity costs have declined and have begun to positively impact our gross margins, economic weakness is impacting demand for our products." (PR)
• Knight Capital Group (NITE): Q1 EPS of $0.33 beats by $0.04. Revenue of $254M (+31.1%) vs. $253M. (PR)
• Morgan Stanley (MS): Q1 EPS of -$0.57 misses by $0.49. Revenue of $3.04B (-61.6%) vs. $5.01B. Says revenue was impacted by -$1.5B on tightening of credit-spreads, and by -$1B on real-estate writedowns. Tier-1 capital ratio of 16.4%, or 12.9% net of TARP funds. Reduces dividend to $0.05. Shares -6% premarket. (PR)
• Northrop Grumman (NOC): Q1 EPS of $1.17 beats by $0.09. Revenue of $8.32B (+7.7%) vs. $7.98B. Full-year guidance in line. Shares +0.6% premarket. (PR)
• Pepsi Bottling Group (PBG): Q1 EPS of $0.10 beats by $0.05. Revenue of $2.5B (-5.4%) in-line. Raises FY '09 guidance to $2.20-2.30 EPS vs. $2.19 consensus. (PR)
• Precision Drilling (PDS): Q1 EPS of $0.30 misses by $0.06. Revenue of $448M (+30.9%) vs. $458M. (PR)
• Ryder Systems (R): Q1 EPS of $0.25 beats by $0.03. Revenue of $1.2B (-22%) in-line. Sees full-year cash flow of at least $465M vs. $565M consensus. Suspends EPS guidance. "We expect worsened economic conditions and the corresponding prolonged freight recession to continue to broadly impact our customers and our business through the remainder of the year." (PR)
• Temple-Inland (TIN): Q1 EPS of $0.30 beats by $0.25. Revenue of $941M (-0.3%) vs. $913M. Says higher box volumes and lower input and converting costs more than offset lower box prices. Shares +12.8% premarket. (PR)
• WellPoint Health Networks (WLP): Q1 EPS of $1.16 misses by $0.09. Revenue of $15.3B (-0.4%) vs. $15.6B. Issues downside guidance for FY '09, sees EPS of $5.14-5.20 vs. $5.62 consensus. (PR)
• Wells Fargo (WFC): Q1 EPS of $0.56 vs. preannouncement of $0.55. Revenue of $21B vs. preannounce of $20B. Says results "were largely driven by growth in many of our diversified businesses and the new contribution to growth now coming from Wachovia" and by lower net charge-offs due to previous writedowns. Loans more than 90 days overdue $15.1B vs. a previous $9.5B. Net interest margin of 4.16% was "highest among our large bank peers." Shares -1.4% premarket. (PR)

Earnings: Tuesday After Close

• Altera (ALTR): Q1 EPS of $0.17 beats by $0.01. Revenue of $265M (-21.3%) vs. $258M. Sees revenue up 2-7% in Q2 vs. Q1. "Q1 business environment was better than we originally anticipated yet overall remains quite challenging." (PR)
• Advanced Micro Devices (AMD): Q1 EPS of -$0.62 beats by $0.04. Revenue of $1.18B (-20.8%) vs. $978M. "Considering current macroeconomic conditions, limited visibility and historical seasonal patterns, AMD expects its Product Company revenue to be down for Q2 2009." (PR)
• Ameriprise Financial (AMP): Q1 EPS of $0.58 beats by $0.09. Revenue of $1.72B (-13.7%) in-line. (PR)
• Capital One (COF): Q1 EPS of -$0.39 misses by $0.31. Revenue of $3.7B (-5.6%) vs. $4.17B. Adds $124.1M to allowance for loan losses in anticipation of higher expected charge-offs; sees 2009 charge-offs higher than the $8.6B it forecast last quarter. (PR)
• Gilead Sciences (GILD): Q1 EPS of $0.66 beats by $0.07. Revenue of $1.53B. (PR)
• Nestle (NSRGY.PK): Q1 sales of 25.2B francs (-2.1%), short of 26B consensus. Organic sales were up 3.8% vs. 4.2% consensus. The shortfall was in part due to customers abandoning premium brands in favor of discount alternatives. Shares -0.2% in Zurich. (Bloomberg)
• Norfolk Southern (NSC): FQ1 EPS of $0.47 misses by $0.07. Revenue of $1.94B (-22.3%) vs. $2.04B. Shares -9.1% AH. (PR)
• SanDisk (SNDK): Q1 EPS of -$0.48 beats by $0.28. Revenue of $660M (-22.4%) vs. $538M. "Industry fundamentals improved in the first quarter. We are encouraged that industry supply and demand balance is becoming better aligned, resulting in higher flash pricing." (PR)
• Seagate Technology (STX): FQ3 EPS of -$0.45 in-line. Revenue of $2.15B (-30.7%) vs. $2.01B. Sees FQ4 EPS of -$0.29 to -$0.39 vs. -$0.30 consensus. "Believes opportunities exist to reduce operating costs in product development, marketing/administrative and manufacturing areas to target a cost structure that generates positive cash flow and earnings within its FY2010." (PR)
• Terex (TEX): FQ1 EPS of -$0.47 vs. consensus of -$0.08. Revenue of $1.3B (-44.9%) vs. $1.55B. "The turmoil from the global credit crisis and economic slowdown has quickly and deeply impacted sales for our industry, with certain sectors down almost 75% from year ago levels. In response, we are aggressively reducing costs... " Shares -7% AH. (PR)
• Tupperware (TUP): Q1 EPS of $0.45 beats by $0.11. Revenue of $463M (-14.8%) vs. $459M. Sees Q2 EPS of $0.57-0.62 vs. $0.50. Shares +11.7% AH. (PR)
• Vornado (VNO): Sees Q1 EPS of $0.77 vs. consensus of $0.83. Sees Q1 FFO of $1.70 vs. consensus of $1.52. Sees Q1 revenue of $682M vs. $651M. Will sell 12.5M shares, resulting in an 8% dilution. Shares -4.8% AH. (DJ)
• Yahoo (YHOO): Q1 EPS of $0.15 beats by $0.07. Revenue of $1.16B (-14.5%) vs. $1.2B after traffic acquisition costs. Expects to reduce headcount by 5%. "Yahoo is not immune to the ongoing economic downturn, but careful cost management in Q1 allowed our operating cash flow to come in near the high end of our outlook range." (PR)

Today's Markets

Asia markets were mostly lower Wednesday despite solid Wall Street gains Tuesday. Europe stocks are positive for the morning. Futures are down.

• Asia: Nikkei +0.18% to 8,727. Hang Seng -2.67% to 14,878. Shanghai -2.94% to 2,461. BSE -0.74% to 10,818.
• Europe at midday: London +0.6%. Paris +0.6%. Frankfurt +0.9%.
• Futures: Dow -0.5% to 7881. S&P -0.5% to 843. Nasdaq -0.5%. June crude +0.2% to $48.63. Gold +0.5% to $887. Euro is flat vs. dollar. Yen +0.8%. Pound -0.3%.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  10:00 Ofheo House Price Index
  10:30 EIA Petroleum Status
• Notable earnings before Wednesday's open: AAI, APD, ATI, BA, CAL, CFR, DOV, ECA, ELN, FCX, GENZ, GNTX, IR, KMB, MCD, MO, MS, NITE, NOC, PBG, PDS, R, SNV, STJ, SY, T, TIN, WFC, WLP
• Notable earnings after Wednesday's close: AAPL, ADS, AF, AFFX, BCR, CVA, DOX, EBAY, EFX, EQIX, FFIV, FR, ISIL, KNX, LEG, LHO, LOGI, LRCX, NE, NFX, NVLS, PTV, QCOM, RHI, RJF, SLM, STLD, TMK, TQNT, VMW, XLNX, YUM

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[schlumpf:]

2 headlines yesterday:

The U.S. Treasury Department has not received the results of "stress tests" on the health of the top 19 U.S. banks
and
Geithner Says Most U.S. Banks Have Enough Capital

............... ?????????????

Apr 22 08:08 AM

[stockartist:]

Yesterdays rally was a head fake. Geithner created a short covering rally in the financial's, leading those uninformed investors to believe that the banks are solvent. M Whitney has said over and over that the banks still have a lot of bad debt on their balance sheets to work off. This bank problem will only heal with time. The weak banks should be allowed to fail and wash out the system once and for all. Haven't investors had enough of this insane roller coaster ride?

Apr 22 08:30 AM

[BlueOkie:]

The government forced banks to take the TARP. Once in they started to limit pay and bonuses. Now they don't want out and make the rules to NOT allow the banks to pay back the money. Government has taken over GM and even fired the CEO. The government is buying up mortgages that are toxic. Guess they want to go into real estate business. The only growth we are getting is in the government. Sounds like socialism to me.

Apr 22 08:34 AM

[hroni:]

This just happened: At 8:50 am, about a minute into Geithner's speech, CNBC cut him off to broadcast some type of commercial with Pinochio!!! running around. That was revolutionary, a tea party in itself. I hope this was nationwide as it was hilarious yet inspiring at our ability to laugh at the face of our flawed existence and hopefully march on to recovery, financial and otherwise.

Apr 22 09:03 AM

[Tom Colangelo:]

Can't anyone listen anymore? To paraphrase Art Cashin's a.m. report :

First Geithner contended that “currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators."

A few floor cynics, thought it was cute phraseology that may have included thousands of small country banks.

Some commentators seized on that as a rebuttal of Monday rumors that 16 of the 19 biggest banks in the nation had failed the stress test.

But, when a market wants to hear hope, it hears hope however it is worded.

Apr 22 09:16 AM

[sieraromero:]

ReferenceNFC-- Norfolk Southerns negative earning announcment. This is just an observation and not directed at NFC but, the economy in general. Here in Idaho we have many miles of unused train tracks. Lately they are being filled up with parked rail cars that the railroad companies are paying to park their cars that are not being used. They stretch for miles. They are leasing the lines and paying per car with possible long term leases. In my opinion this definately , contrary to the talking heads on CNBC implies that THE ECONOMY IS NOT THAT STRONG AND MAY INDEED BE GETTING WEAKER, AND REMAINING THAT WAY FOR SOME TIME!

Apr 22 10:08 AM

[Yurasis_Dragon:]

"Most banks" can refer to the majority number, as opposed to the relatively few biggest failures that required the TARP funds.


On Apr 22 08:08 AM schlumpf wrote:

> 2 headlines yesterday:
>
> The U.S. Treasury Department has not received the results of "stress
> tests" on the health of the top 19 U.S. banks
> and
> Geithner Says Most U.S. Banks Have Enough Capital
>
> ............... ?????????????

Apr 22 10:51 AM

[conceptwizard:]

What he said was the following

"Currently, the vast majority of banks have more capital than they need to be considered well capitalized by their regulators".

He did not say that the vast majority of the 19 banks that are being stress tested are well capitalized.

It is true that the smaller banks that represent 15% of the banking industry are probably well captialized. However it still remains to be seen if those 19 banks that make up 85% of the pie are well capitilized. IMF says there is 2.7 trillion of losses yet. The bank says they are fine. Treasuries says they are fine but hide the stress results, and they require more money to back stop the banks. If the banks require more tax payer dollars THEY ARE NOT SOLVENT.
I do not believe TIM G and the indirect approach he takes to a direct question.

Apr 22 11:11 AM

[AndrewBaker:]

Truth is, no-one knows how we're doing. The IMF is predicting big losses ahead and the need for nationalization of banks and financials in certain situations, yet Geithner says the banks have enough money. Mortgage loans are supposedly on the up, but more people are losing their homes. Will we have a viable auto industry going forward? People are not spending so much, showing they feel poorer and everyone agrees jobs are being lost; so where are these green shoots we keep hearing about from various commentators? Until we get some real meaningful financial numbers, the yo-yo of the markets caused by not being able to make up their minds whether to go down or up, will continue.

Apr 22 02:57 PM

[Joseph Sherman:]

Yahoo cuts jobs, product cuts to follow. - Yahoo should focus on its winning products if it will thrive.

Apr 23 12:22 AM

[eieinli:]

Who could you trust better-the IMF or the US Treasury? Or, are they both not telling the truth? Geithner, in my book, could never be trusted!!!

Apr 23 10:15 AM