Wall Street Breakfast: Must-Know News

• Chrysler gets union concessions. Chrysler reached a tentative agreement with the United Auto Workers union, pending a vote by UAW members. Chrysler also won contract approval from the Canadian Auto Workers union for a contract that could save the automaker C$240M ($197M) annually. A company spokesman called the concessions 'important steps,' but Chrysler still has work out a deal with lenders who hold $6.9B of secured debt. Lenders have softened their stance on partial debt forgiveness, but have yet to reach an agreement with Chrysler.
• GM readies new viability plan. General Motors (GM) will announce today its third business plan of the last four months, ahead of a June 1 bankruptcy deadline. Among its latest cost-cutting efforts, GM will likely discuss elimination of its Pontiac brand, plans to reduce employees, dealers and plants, and efforts to accelerate planned cuts by as much as four years. GM is also expected to provide an update on its debt-swap efforts with holders of $27.5B of unsecured debt. Shares +6.5% premarket (7:00 ET).
• Swine-flu in focus. With the panic following the SARS outbreak still lingering in people's minds, investors spent much of the weekend following the latest developments in the swine flu threat, and pondering how worldwide markets and stocks will be impacted. Overseas bourses were lower Monday, as are futures, with the deadly outbreak taking center stage after the U.S. declared a public health emergency on confirming 20 cases in five states, while 103 people have already died in Mexico. Airline, hotel, and cruise stocks are down in early premarket trading on fears the flu threat could be disastrous for international travel (AMR -16%. UAUA -6.5%. LUV -2%. CCL -8.5%. HOT -6%. MAR -6%). Some biotech stocks with swine-flu upside are higher (NVAX +123%. BCRX +73%. GSK +3%. AZN +3%). HedgedIn's superb Swine Flu Resources for Investors is a must-read.
• Thain fires back on Merrill bonuses. In an interview with the Wall Street Journal, John Thain, former CEO of Merrill Lynch, lashed out at Bank of America (BAC) for lying about the role it played in Merrill's bonus fiasco. "Getting fired is one thing," Thain said, "But nobody has the right to say things that they know aren't true." Thain claims he and BoA CEO Ken Lewis agreed in writing that the Merrill bonuses could be paid early, and BoA's assertion that the bonus decision was solely Thain's "is simply not true." The issue will likely come up at BoA's annual meeting on Wednesday, when shareholders will almost certainly question management about the controversial acquisition.
• Swiss want UBS case dropped. The Swiss government has asked the U.S. to drop its legal case against UBS (UBS) in exchange for the passage of a new tax accord between the two countries. A Swiss official said Geithner seemed 'understanding of the Swiss position' and promised to 'look into it,' but didn't give a definitive answer on the matter. The U.S. and Switzerland are set to begin talks on Tuesday on a bilateral tax treaty.
• Qualcomm reaches patent settlement. Qualcomm (QCOM) agreed to pay rival Broadcom (BRCM) $891M over four years to settle a series of long-standing legal disputes. Qualcomm will make its first payment of $200M in the current quarter, and the settlement will result in the dismissal of all litigation between the companies, as well as a pledge not to sue each other again. Despite the cost of the payout, the move can be seen as a win for both firms since they can finally move on from their multi-year multi-continent legal fight.
• AIG bids come in low. AIG (AIG) received second-round bids from three groups for its International Lease Finance Corp [ILFC], the insurer's aircraft leasing business. The bids reportedly value the unit at less than $5B, short of ILFC's book value of $7.6B at the end of last year. Negotiations over the price and terms of the deal will likely take place over the next several weeks.
• Fed research suggests -5% interest rate. According to an internal analysis prepared for the Federal Reserve's last policy meeting, the ideal interest for the U.S. economy right now would be -5.0%. The analysis is based on the Taylor-rule approach, which estimates appropriate interest rates based on unemployment and inflation. Though a central bank cannot cut interest rates below zero, the research suggests the Fed should use unconventional policies to create the equivalent of a minus 5 percent interest rate.
• More bank failures. Four more banks were shuttered on Friday, one each in California, Georgia, Idaho and Michigan. The closures will cost the FDIC almost $700M, and brings 2009 bank closures to date up to 29.

Earnings: Monday Before Open

• BE Aerospace (BEAV): Q1 EPS of $0.41 beats by $0.03. Revenue of $524M (-15.6%) vs. $500M. Issues downside guidance for FY '09: EPS of around $1.50 vs. $1.73 consensus, pro-forma revenues of $1.9B vs. $2.2B consensus. (PR)
• Check Point Software Technologies (CHKP): Q1 EPS of $0.45 beats by $0.01. Revenue of $195M (+1.8%) vs. $200M. (PR)
• Corning (GLW): Q1 EPS of $0.10 beats by $0.05. Revenue of $989M (-38.8%) vs. $963M. (PR)
• Enterprise Products Partners L.P. (EPD): Q1 EPS of $0.41 beats by $0.05. Revenue of $3.4B (-39.8%) vs. $5.1B. (PR)
• Humana (HUM): Q1 EPS of $1.22 beats by $0.04. Revenue of $7.7B (+10.8%) in-line. Issues FY '09 EPS guidance of $6.10-6.20 vs. $5.90 consensus, revenue of $30.0-$32.0B vs. $30.84B consensus. (PR)
• Lorillard (LO): Q1 EPS of $1.09 misses by $0.06. Revenue of $917M (-0.4%) vs. $865M. (PR)
• Omnicom Group (OMC): Q1 EPS of $0.53 beats by $0.09. Revenue of $2.7B (-14%) in-line. (PR)
• Qualcomm (QCOM): FQ2 EPS of $0.11 misses by $0.30. Revenue of $2.45B (-5.8%) vs. $2.35B. Shares -0.9% premarket (7:45 ET). (PR)
• Smith International (SII): Q1 EPS of $0.52 misses by $0.05. Revenue of $2.41B (+1.7%) vs. $2.56B. (PR)
• Timken Company (TKR): Q1 EPS of $0.07 beats by $0.09. Revenue of $960M (-33.1%) vs. $1.1B. (PR)
• Verizon (VZ): Q1 EPS of $0.63 beats by $0.04. Revenue of $26.6B (+11.6%) vs. $26.3B. Shares -3.2% premarket (7:45 ET). (PR)
• Whirlpool (WHR): Q1 EPS of $0.91 beats by $1.09. Revenue of $3.57B (-22.6%) vs. $3.95B. Reaffirms FY '09 guidance of $3.00-4.00 EPS. (PR)

Today's Markets

• Asian markets closed mixed. Nikkei +0.2% to 8,726. Hang Seng -2.7% to 14,840. Shanghai -1.8% to 2,405. BSE +0.4% to 11,372.
• In Europe at midday, markets are trending down. London -0.65%. Paris -1.3%. Frankfurt -1.1%.
• U.S. futures: Dow -1.7%. S&P -1.9%. Nasdaq -1.4%. Crude -5.5% to $48.73. Gold -0.03% to $913.80.

Monday's Economic Calendar

• 10:30 Dallas Fed's Manufacturing Outlook
  12:00 Chicago Fed's Manufacturing Index
  12:30 ECB chief Trichet delivers keynote at Global Financial Forum
• Notable earnings before Monday's open: BEAV, CHKP, EPD, GLW, HUM, IMA, LO, OMC, QCOM, SII, TKR, VZ, WHR
• Notable earnings after Monday's close: ALB, AXS, BIDU, CMP, DVA, ELX, FNF, HBI, HMA, HXL, JEC, MAS, MTH, OLN, PCL, SLG, SWN, WRB, WRE, WRI, XL

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[schlumpf:]

in spain I cannot get Tamiflu or other virus blocker. The pharmacies dont deliver.

Apr 27 08:11 AM

[david roper:]

Guess I will cancel my Acupulco Mexican vacation. Damned Pigs.

Apr 27 08:26 AM

[doubleguns:]

-5% interest rate. Does that mean we taxpayers will be paying the big banks 5% to borrow our money from the fed. Borrow 100 pay back 95. This would seem to be an improvement over borrow 100 pay back nothing.

Apr 27 08:31 AM

[nukldrager:]

"Though a central bank cannot cut interest rates below zero, the research suggests the Fed should use unconventional policies to create the equivalent of a minus 5 percent interest rate."

Unconventional policies.
The Taylor rule appraoch goes something like this; "In economics, dynamic inconsistency, or time inconsistency, describes a situation where a decision-maker's preferences change over time, such that what is preferred at one point in time is inconsistent with what is preferred at another point in time. It is often easiest to think about preferences over time in this context by thinking of decision-makers as being made up of many different "selves", with each self representing the decision-maker at a different point in time. So, for example, there is my today self, my tomorrow self, my next Tuesday self, my year from now self, etc. The inconsistency will occur when somehow the preferences of some of the selves are not aligned with each other."

Makes sense to me! If that's true of our decision makers then government is defiantly to big, but it explains a lot of things lol

Apr 27 08:31 AM

[prudentinve...:]

".....the research suggests the Fed should use unconventional policies to create the equivalent of a minus 5 percent interest rate."

I thought they already did.

Apr 27 08:53 AM

[JackDoitCra...:]

With only 20 cases of Swine flu in the US, I dislike the precedent of creating a so-called emergency. I think everything will be an emergency for BO and he will use any excuse to increase and expand the range of Federal Government powers.

Apr 27 09:09 AM

[inthemoney:]

> ".....the research suggests the Fed should use unconventional policies to create the equivalent of a minus 5 percent interest rate."

Basically, it means we have to pay people 5% to take a loan? So, is it really a credit crisis ( i.e. not enugh credit) or borrower crisis (not enough qualified / able borrowers)? If people are too much in debt, they don't need anymore credit/ free money. And the quantative easing is the wrong prescription. The cure is to somehow decrease debt levels. The only poltically expedient solution seems to be inflation. That is what the quantative easing is about, creating inflation, not easing the credit.

Apr 27 09:17 AM

[notsosmart:]

how much will we have to pay to get the swine flu? is there a health tax if you dont get it? not yet? whats the delay?

Apr 27 09:23 AM

[Drew Horn:]

The Taylor rule seems to be that we have to bribe people to borrow and spend money they don't have and are unlikely to be able to repay. This seems to have a familiar ring to it, a bit like the hedonistic attitude that brought us this "crisis".

I wonder if the Fed will be getting legislative powers. If so, they may try to repeal the "business cycle" and institute a new policy --- eliminate capitalism.

Apr 27 09:29 AM

[IA.countryBoy:]

It seems like you can come at it from 16 different ways and you always end up concluding, "The only poltically expedient solution seems to be inflation." Inflation can easily get you
-5% real return.

Apr 27 09:31 AM

[ksmithdc:]

Interesting read, thanks.

Apr 27 09:32 AM

[Allan Frain:]

"According to an internal analysis prepared for the Federal Reserve's last policy meeting, the ideal interest for the U.S. economy right now would be -5.0%."

Imagine that ! An internal memo that supports the views of the Fed Chairman / Helicopter Pilot.

There was once a man named John Maynard Keynes who espoused a theory which only value lie in the fact that it supported what FDR wanted to do anyway.

Apr 27 12:14 PM

[AndrewBaker:]

I concur with what's been said about "unconventional policies" = inflation. That's the only solution that turns any positive or zero return into a negative one. Interest rate 0.5%, less tax gives a + result, but inflation at, say, 5% and the real return though numerically positive, is negative in practice due to the inflationery effect.

In short, the whole smoke and mirrors game being played is designed to inflate the financial problems away. A fifth grader could work that one out.

Apr 27 12:52 PM

[bobbobwhite:]

First, drug wars, now swine flu. Mexico's tourist industry and economy is going to be badly hurt for an indefinite time as once again, it never seems to be able to solve any of its most pressing social problems, most of which it ships off to the good old USA.

At least swine flu is not the direct result of Mexican government corruption as is the drug industry. Is that progress?

Apr 27 01:00 PM

[LJR:]

Is anyone else getting tired of there always being another crisis? Terrorists, banks, Wall Street, GM, Chrysler on and on until now we get the swine flu. My solution is to try to blank it all out nd live as I normally would without another crisis coming every day.

Apr 27 02:16 PM

[a. palmer jr.:]

I really like the way GM and the government treat the bondholders, it's like we were the bad guys in all this and they're all too happy to swindle us out of our rightful investment. I guess we'll think twice before buying corporate bonds with anybody. We'll let em go under!
By the way, my wife, who has been a GM buyer all her life, says she's going to be a Ford person from now on!

Apr 27 09:44 PM

[a. palmer jr.:]

I saw on tv where our government is not going to try to stop anybody from coming to the US from Mexico. Nice!

Apr 27 10:06 PM

[Joseph Sherman:]

GM discuss elimination of its Pontiac - the only brands to survive will have a strong tribe behind them.

Apr 28 12:01 AM

[ArtfulDodger:]

As long as the Dums run the nation, everything is going to be a crisis. They use supposed and real crises to get their policies passed and to build bigger government, which in turn gives them more power to buy votes.

You can ignore most of them, but nevertheless, they cost us all freedoms in the end.


On Apr 27 02:16 PM LJR wrote:

> Is anyone else getting tired of there always being another crisis?
> Terrorists, banks, Wall Street, GM, Chrysler on and on until now
> we get the swine flu. My solution is to try to blank it all out nd
> live as I normally would without another crisis coming every day.

Apr 28 06:44 AM

[ArtfulDodger:]

Thank again RG for this run down of business info.

Apr 28 07:29 AM

[g adams:]

Any news on Mesa Air (MESA) - about 26.85% of its 146.7 mil shares sold last Thurs, Fri., and Mon. (yesterday). Thus far this AM another 2 mil have sold bring total in this timeframe to about 41.4 mil shares about 28.21%. Anything would be appreciated.
REBEL in Texas

Apr 28 10:24 AM

[billp37:]

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Apr 28 09:36 PM