Wall Street Breakfast: Must-Know News

• Lewis may face SEC probe. Bank of America (BAC) CEO Ken Lewis may come under SEC scrutiny for failing to disclose mounting Merrill Lynch losses. Lewis had testified in February that the Treasury and Federal Reserve strongly pressured him to stay quiet on potential problems with the deal, a claim that both Bernanke and then-Treasury chief Paulson deny. Even if Lewis had been under government pressure, he was still required by law to disclose the potential losses to his shareholders. New York AG Cuomo suggested the SEC "appears to have been kept in the dark" about talks between Bank of America and the Fed and Treasury, while the SEC says it is now "actively reviewing the disclosure."
• Gov't plans for possible Chrysler bankruptcy. As Chrysler nears its deadline to cut its costs and reach a Fiat tie-up, the Treasury is preparing a bankruptcy filing out of 'due diligence.' As of yesterday afternoon, Chrysler was nearing a labor deal with its Canadian union and had substantially completed negotiations with the United Auto Workers as well. Chrysler's lenders and the Treasury have been going back and forth about the terms of a possible debt swap. However, some sources say Chrysler is preparing to file for bankruptcy as early as next week, regardless of whether it reaches a deal with lenders or Fiat.
• Fed opens up its books on Bear. The Federal Reserve provided more details on its efforts to shore up the financial system and the accompanying jump in its balance sheets. The Fed's combined assets hit $2.25T as of Dec. 31, a sharp rise from $1.33T a year ago. Of the $74B in assets the Fed took on from Bear Sterns and AIG (AIG), the Fed had an unrealized loss of $9.6B as of Dec. 31. The value of the Bear Sterns commercial mortgage holdings owned by the Fed was written down by 28% to $5.6B, and residential loans were written down by 38% to $937M.
• Madoff investors sue JPMorgan. Florida investors filed a lawsuit against JPMorgan Chase (JPM), claiming the bank 'entered into a conspiracy' with Bernie Madoff after learning his returns were false in September 2008. The investors lost $12.8M in Madoff's Ponzi scheme. According to the complaint, JPMorgan 'quietly liquidated its entire $250M cash position' with a fund that invested in Madoff while continuing to provide fee-generating services to Madoff's business.
• Morgan may spin-off trading unit. Morgan Stanley (MS) may make major changes to its biggest proprietary-trading desk, including spinning it out into a hedge fund or opening up the unit to outside investors. Sources don't expect a quick decision on the matter and say Morgan may choose to leave the unit unchanged. However, Morgan has already eliminated several proprietary-trading desks since the financial crisis began, in part because of the repercussions of the government's intervention in the financial industry.
• HSBC closes Japan units. HSBC (HBC) will close its equity research and trading businesses in Japan, laying off around 40 workers and moving the equity operations to Hong Kong. Several other banks have recently retreated from the world's second-largest economy, including UBS (UBS), Goldman Sachs (GS) and Citigroup (C).
• NYSE, Deutsche Borse resume talks. Deutsche Borse and NYSE Euronext (NYX) resumed talks on a possible deal, after potential merger discussions were abandoned in December. There are conflicting reports about the nature of the talks; some say the firms are less serious than the first time around and are unlikely to see a near-term tie-up, while at least one business publication reported the talks are in an advanced stage already and a deal could be struck in a few weeks.
• Promotions, Kindle boost Amazon. Amazon (AMZN) beat quarterly earnings expectations (see details below) as Kindle sales picked up and online shoppers were drawn to low prices on Amazon's website. Though some analysts have worried how deep discounting will affect Amazon's bottom line, the company reported operating margins for the quarter of 6.6%, among the highest in recent years.
• Microsoft hit by PC slump. Microsoft (MSFT) met expectations for quarterly earnings (see details below) but fell short on revenue, posting a 5.6% drop from the year before, its first ever decline in quarterly revenue. Four of Microsoft's five business divisions recorded lower sales, which executives blamed on a general pullback in PC spending by both consumers and businesses. The company expects the rest of the calendar year to 'remain very challenging.'
• EU passes rating rules. The EU approved new rules to create European oversight for ratings agencies. The rules primarily aim to avoid conflicts of interest in the ratings process and to improve the way agencies rate debt. They also demand some increased disclosure to ensure agencies understand the risks of the debt being rated.
• Moody's warns on U.K. finances. The pound fell against the yen, euro and dollar after Moody's said the U.K.'s finances are 'deteriorating rapidly' and the government is taking 'risks.' Moody's and S&P are reviewing the U.K.’s AAA sovereign credit rating after the government said the nation’s debt will reach £1.4T ($2.05T) over the next five years.
• U.K. GDP shrinks. The U.K. economy shrank a larger-than-expected 1.9% in Q1, the third consecutive quarter of output declines and the largest quarterly decline since 1979.
• Jobless claims rise. Initial Jobless Claims rose to 640K, up from last week's 613K (revised) and in-line with estimates. Continuing claims rose 93K to 6,137,000.
• Home sales dip. Existing home sales fell to 4.57M in March from 4.72M last month, short of the 4.7M expected by economists. NAR chief economist Lawrence Yun noted that first-time buyers seem to be returning, but sales in the upper price ranges remain stalled.

Earnings: Friday Before Open

• American Electric Power Company (AEP): Q1 EPS of $0.89 beats by $0.08. Revenue of $3.5B (+0%) in-line. Reaffirms full-year guidance. (PR)
• Ford (F): Q1 EPS of -$0.75 beats by $0.48. Revenue of $24.8B (-42.7%) vs. $22B. Says it's still on track to meet or beat financial targets, including breakeven or better in 2011. On track to reduce costs by $4B in 2009. Q1 cash burn $3.7B. Shares +14.7% premarket. (PR)
• Honeywell (HON): Q1 EPS of $0.54 in-line. Revenue of $7.57B (-14.9%) in-line. Full-year guidance in line. (PR)
• ITT Industries (ITT): Q1 EPS of $0.72 beats by $0.14. Revenue of $2.56B (-8.9%) in-line. Full-year guidance in line with expectations. (PR)
• Metavante (MV): Q1 EPS of $0.39 beats by $0.01. Revenue of $427M (+0.5%) in-line. (PR)
• Schlumberger (SLB): Q1 EPS of $0.78 beats by $0.05. Revenue of $6B (-4.6%) in-line. "We do not see any significant recovery in North American gas drilling before 2010." (PR)
• Xerox (XRX): Q1 EPS of $0.05 beats by $0.01. Revenue of $3.55B (-18%) in-line. Sees Q2 EPS of $0.10-0.12 vs. $0.14. (PR)

Earnings: Thursday After Close

• Amazon.com (AMZN): Q1 EPS of $0.41 beats by $0.10. Revenue of $4.89B vs. $4.76B. Sees Q2 revenue of $4.3-4.75B vs. $4.61B consensus. Says "Kindle sales have exceeded our most optimistic expectations," but no numbers. Shares +3% premarket. (PR)
• American Express (AXP): Q1 EPS of $0.32 beats by $0.20. Revenue of $5.93B (-18.1%) vs. $6.45B. Consolidated provisions of $1.8B vs. $1.2B last year "primarily reflecting additions to the lending credit reserves in view of increased write-offs and past due loans." Tier-1 ratio 14.8%. "While we did see some recent improvement in early delinquency rates, overall credit indicators reflected rising unemployment levels and the broad-scale weakness in the economy. Based on current indicators, we expect Q2 U.S. lending write-off rates on a managed basis to rise between 200 and 250 bps over Q1 levels. We expect an additional increase of 50 bps or less in Q3, before leveling off during Q4." "If permitted by our supervisors and if supported by the results of the stress assessment, we intend to repay the government investment of preferred shares and warrants." Shares +8.9% premarket. (PR)
• Amgen (AMGN): Q1 EPS of $1.08 misses by $0.07. Revenue of $3.31B (-8.4%) vs. $3.63B. Full-year guidance in line with expectations. Shares -2.5% AH. (PR)
• Burlington Northern Santa Fe (BNI): Q1 EPS of $1.05 beats by $0.09. Revenue of $3.42B vs. $3.68B. Shares +2.1% AH. (PR)
• CF Industries (CF): Q1 EPS of $1.23 beats by $0.52. Revenue of $681M (+2%) vs. $479M. Shares +4.1% AH. (PR)
• Chartered Semiconductor Manufacturing (CHRT): Q1 EPS of -$0.26 beats by $0.16. Revenue of $244M (-37.2%) vs. $240M. Sees Q2 EPS of -$0.09 to -$0.05 vs. consensus of -$0.35, and revenue of $321-333M vs. $269M. Shares +15% AH. (PR)
• Chubb (CB): Q1 EPS of $1.43 beats by $0.05. Shares +0.7% AH. (PR)
• DeVry (DV): FQ3 EPS of $0.70 beats by $0.03. Revenue of $392M (+34.7%) vs. $388M. Shares +0.7% AH. (PR)
• Host Hotels & Resorts (HST): Q1 EPS of $0.10 misses by $0.01. Revenue of $882M (-16.2%) in-line. Will sell 60M shares for cash for operations and to pay down debt. Shares -4.3% AH. (PR)
• Interactive Brokers (IBKR): Q1 EPS of $0.30 misses by $0.16. Revenue of $312.5M (-51.3%) vs. $422.5M. "Our strict risk controls have not completely immunized us from the secondary effects of the financial crises as our results have been largely impacted by competitive pressures on spreads. Exchange listed options are one of the few life rafts still afloat and more and more traders are trying to hold onto it." Shares -12.8% AH. (PR)
• Juniper Networks (JNPR): Q1 EPS of $0.17 in-line. Revenue of $764M (-7.1%) in-line. Shares +7.2% AH. (PR)
• KLA-Tencor (KLAC): FQ3 EPS of -$0.34 misses by $0.08. Revenue of $310M (-48.5%) vs. $300M. Shares -1.6% AH. (PR)
• MEMC Electronic Materials (WFR): Q1 EPS of $0.01 beats by $0.03. Revenue of $214M (-49.7%) vs. $217M. Won't provide guidance due to limited visibility. Shares -1.9% AH. (PR)
• Microsoft (MSFT): FQ3 EPS of $0.39 in-line. Revenue of $13.65B (-5.6%) vs. $14.09B. "We expect the weakness to continue through at least the next quarter." Shares +3.9% AH. (PR)
• Mohawk Industries (MHK): Q1 EPS of -$1.55 vs. consensus of -$0.85. Revenue of $1.21B (-30.5%) vs. $1.38B. Shares +7.1% AH. (PR)
• Netflix (NFLX): Q1 EPS of $0.40 beats by $0.09. Revenue of $394M vs. $391M. Sees full-year EPS and revenue in line. Shares -6.7% AH. (PR)
• Riverbed Technology (RVBD): Q1 EPS of $0.11 beats by $0.01. Revenue of $88.5M (+21.2%) vs. $85.12M. Shares +5.3% AH. (PR)
• SunPower (SPWRA): Q1 EPS of $0.05 misses by $0.19. Revenue of $214M (-21.8%) vs. $269M. Sees full-year EPS of $1.25-1.75 vs. $1.90. Shares -7% AH. (PR)
• Western Digital (WDC): FQ3 EPS of $0.30 beats by $0.18. Revenue of $1.59B (-24.6%) vs. $1.48B. Shares +2% AH. (PR)
• YRC Worldwide (YRCW): Q1 EPS of -$2.63 misses by $0.73. Revenue of $1.5B (-32.7%) vs. $1.61B. Shares +1.4% AH. (PR)

Today's Markets

Asia markets closed mixed Friday. Europe has moved higher, while futures are flat.

• Asia: Nikkei -1.57% to 8,7008. Hang Seng +0.29% to 15,259. Shanghai -0.62% to 2,449. BSE +1.74% to 11,329.
• Europe at midday: London +1.8%. Paris +1.6%. Frankfurt +1.6%.
• Futures at 7:00: Dow +0.1% to 7920. S&P +0.1% to 849.50. Nasdaq +0.3%. Crude +0.8% to $50. Gold +0.5% to $911.50. Euro +0.8% vs. dollar. Yen +0.9%. Pound -0.75%.

Friday's Economic Calendar

• 8:30 Durable Goods Orders
  10:00 New Home Sales
  4:30 PM Geithner speaks after meeting of G7 finance ministers
• Notable earnings before Friday's open: ACI, AEP, F, HON, ITT, MMM, MV, SLB, SWK, WL, XRX

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Speedspirit:]

Ken Lewis probally wasnt the only one pressured to stay quiet. If the others will come out to defend him then maybe we can start to get to the real cause of the crisis. Safety in numbers.

Apr 24 07:51 AM

[mrktcap:]

7 week rally again! Go figure....big banks and the bank corporates that steal our money every day. I guess there isn't anything we (consumers) can do....except go with the flow.

Apr 24 08:37 AM

[JedBarone:]

Odd, that since JANUARY, JPMorgan's role in the Madoff debacle has been continuously profiled in "Bernie's Blog"...yet it takes four months for investor law suits--but the Madoff trustee, the SEC and DOJ have yet to even lift a paper clip... gotta love the wheels of justice--and Jamie Dimon's teflon suit. So TARP money goes to JPMorgan, JPMorgan is potentially on the hook for withdrawing $250 million from Madoff when they smelled a rat in September of '08...the beat goes on..gotta love bernie's blog, eh?
bernard-madoff-scam.bl...

Apr 24 08:53 AM

[Stocks007:]

Another silly "beat" on the economic indicators this morning, with Durable Goods (ex transport) coming in at -0.6% in March vs. -1.2% consensus estimates. Of course, as seems to be the current trend, the prior month's data was substantially revised downward. In this case, from 3.9% down to 2%. It pains me that so few people do the math to figure out how revisions are not just "in the past" - they affect the current results (since it's based on sequential change).
For instance, if we start with an indexed 100 on Jan 31, the current month was estimated to be 102.7 on an absolute basis (100 x +3.9% for Feb, -1.2% est for March = 102.7). Instead, the big revision gets us to 101.4 for March (100 x +2.% revised Feb, -0.6% actual for March = 101.4). So, today we're at 101.4 instead of the 102.7 that estimates implied... how is that better than expected?
And I'm sure this month's -0.6% will just be revised to -1.2% next month anyway. Ever wonder why revisions during the last year have almost always been to the downside? hmm...

Apr 24 09:02 AM

[notsosmart:]

whats the problem? its all ponzi.made-off is a piker compared to all the scoundrels & lying ceo's.if you believe anybody about anything you deserve what you get.the teabags are only good for making tea.LOL

Apr 24 10:59 AM

[sticktoitiv...:]

"Moody's warns on U.K. finances. The pound fell against the yen, euro and dollar after Moody's said the U.K.'s finances are 'deteriorating rapidly' and the government is taking 'risks.'"

Our turn! Our turn!
No USA, not for a little bit yet.

Apr 24 11:10 AM

[jackooo:]

When BAC bought Merill months ago I thought they said then that he was forced to buy it? Did I read it wrong? Did I misinterpret it wrong?

Apr 24 11:42 AM

[SW Richmond:]

"...talks between Bank of America and the Fed and Treasury..."

Yes they were "talking", but after Lewis asked for something in writing they also told Lewis that they didn't want to create a "discloseable event". Given this testimony from Lewis under oath and the discussed desire for non-disclosure of the information to shareholders, this activity seems to rise from "talks" to the level of "conspiracy."

Grand Jury, please.

Apr 24 12:30 PM

[SW Richmond:]

Next question: TurboTax Timmy was president of the New York Fed during the time in question. What did he know, and when did he know it?

Apr 24 12:33 PM

[woodsey:]

Fed opens books on Bear. You call these write downs ? I'm waiting for some other books to open.

Apr 24 12:58 PM

[Joseph Sherman:]

HSBC closes Japan units. - What does this mean for "Made in Japan" as a brand?

Apr 24 01:16 PM

[ArtfulDodger:]

RG:

As always, thank you for your reporting. Nice to have it all together.

Keep it up, please. AD

Apr 24 02:00 PM

[sticktoitiv...:]

Donkey? Sorry just guessing.

Apr 24 02:31 PM

[SW Richmond:]

Difficult to imagine that the President of the New York Fed knew nothing about the Lewis/Bernanke/Paulson pressure, terms of the deal, etc. I think we need to empanel a Grand Jury and invite these criminals to either take the fifth, narc on one another, or invoke some imaginary privilege.

Paulson: "Executive Privilege / National Security"
Bernanke: "Trade Secrets"
Lewis: "I'm the Fall Guy"
Geithner: "My software at the Fed didn't tell me what to do."


On Apr 24 12:35 PM Cetin Hakimoglu wrote:

> Maybe he knew nothing. Maybe this finger pointing is unjustified.
>

Apr 24 03:30 PM

[AndrewBaker:]

Well, all I can say right now is that whatever is disclosed or dicsussed about any business issue, it will be sanitized, given a coat of paint and presented as great news for the recovery that is just over the horizon ...

Apr 24 03:40 PM

[sticktoitiv...:]

SW Richmond

The fed is a corporation technically. I always assumed the anonymous shareholders were these large banks. What is being said is disturbing, but who is really forcing whom? It's hard to believe a employee could force a large shareholder to do anything without negative consequences to themselves.

Apr 24 03:50 PM

[Allan Frain:]

I encourage a different perspective on the Ken Lewis, Paulson, Bernanke mess.

Our American Revolution was fought, and our Constitution written (in part) to ensure that the [Central] Bank of England power structure (est. 1694) was not repeated in the United States.

In 1913 this portion of our Sovereign Heritage was discarded with passage of the Federal Reserve Act. Since then, the Government/Banking Cabal thereby created has parlayed this considerable and arbitrary power into the spectacle we see before us today.

This behemoth has grown invulnerable to destruction from without, including at the ballot box--The Game has been rigged to that extent.

The only way that our economy, our dollar, and our sovereignty can survive is for this Fed-era Game to disintegrate from the inside before the productive sector is bled to death.

They are now starting to turn on each other which is the first step in the necessary process of dismantling the fractional reserve central banking/government breakdown. It is poetic that the triangle includes Banking, Treasury, and the Fed.

The light that shines through this crack in the cabal shows the way out.

Apr 24 07:01 PM

[Buckoux:]

"Our American Revolution was fought, and our Constitution written (in part) to ensure that the [Central] Bank of England power structure (est. 1694) was not repeated in the United States."....comment by Allan Frain.

I agree, Allen. There is something definitely un-American regarding the behavior and malevolent influence of the Federal Reserve. Nixon and Watergate pale in comparison to the Fed and Treasury resorting to extortion in the BOA/Merrill deal.

Apr 25 01:25 PM