Wall Street Breakfast: Must-Know News

• Breaking down the stress tests results. At long last, the Federal Reserve released the results of its bank stress tests. After a series of leaks, the report contained few surprises, with 10 out of 19 banks ordered to raise a combined total of $74.6B and projected total losses under an adverse testing scenario coming in at around $600B. Officials hope the private sector will step up to help banks close capital gaps. Optimists viewed the findings as a sign that the worst of the banking crisis is over, but questions remain about the tests' rigor, especially considering the Fed scaled back some loss projections after being pressured by banks. Analysts also wonder about the health of the rest of the roughly 8,000 banks in the country and the possibility of writedowns at small-cap banks.
  Here's the breakdown of capital shortfall, or lack thereof:
  -American Express (AXP): $0 (+2.8% after hours)
  -Bank of America (BAC): $33.9B (+9.0% AH)
  -BB&T (BBT): $0 (+4.7% AH)
  -Bank of New York Mellon (BK): $0 (+4.4% AH)
  -Capital One (COF): $0 (+3.4% AH)
  -Citigroup (C): $5.5B (+6.8% AH)
  -Fifth Third Bancorp (FITB): $1.1B (+21.8% AH)
  -GMAC: $11.5B
  -Goldman Sachs (GS): $0 (+2.1% AH)
  -JPMorgan (JPM): $0 (+1.8% AH)
  -KeyCorp (KEY): $1.8B (+9.1% AH)
  -MetLife (MET): $0 (+3.0% AH)
  -Morgan Stanley (MS): $1.8B (-0.5% AH)
  -PNC Financial (PNC): $0.6B (+3.4% AH)
  -Regions Financial (RF): $2.5B (+8.4% AH)
  -State Street (STT): $0 (+8.6% AH)
  -SunTrust Banks (STI): $2.2B (+2.9% AH)
  -U.S. Bancorp (USB): $0 (+7.2% AH)
  -Wells Fargo (WFC): $13.7B (-2.4% AH)
  (Read the Fed's press release, Bernanke's statement the Fed's overview of results (.pdf), and highlights of banks' responses.)
• BoA weighs capital options. With the largest capital shortfall of the 19 stress-tested banks, Bank of America (BAC) will pursue several options to avoid additional government investment or ownership. Asset sales are expected to raise around $10B, and could include private bank First Republic, asset manager Columbia Management and a partial stake in China Construction Bank. The bank plans to raise another $17B through a new common stock offering and conversion of private preferred shares into common stock, and hopes to save $7B by outperforming the U.S.'s earning expectations. The shortfall puts added pressure on CEO Ken Lewis, who was ousted as chairman last month, and the bank is reportedly searching for new directors as well.
• AmEx TARP repayment. After passing the stress test with flying colors (though still dealing with growing delinquencies and defaults on credit cards), American Express (AXP) filed a request with the Federal Reserve and Treasury to repay its $3.4B of TARP funds. The company doesn't plan to raise common equity in order to pay back the funds. Since accepting TARP funds, "financial markets have become more stable, and American Express has made substantial progress in adapting to a very difficult economic environment."
• Fed chairman quits after Goldman ties questioned. Stephen Friedman, chairman of the New York Federal Reserve Bank's board of directors, resigned effective immediately to avoid the appearance of a conflict of interest over his Goldman Sachs (GS) ties. Friedman, who is a former chairman of Goldman Sachs, was scheduled to leave his position at the end of 2009, but has come under recent criticism for his continued connections to the investment bank.
• Oracles holds on to Sun's hardware. Oracle (ORCL) CEO Larry Ellison said he won't sell off Sun Microsystem's (JAVA) hardware business, putting an end to speculation that he only wanted Sun for its software units. Oracle agreed to pay over $7B last month to buy Sun.
• AIG reports smaller loss. AIG (AIG) posted its smallest loss in six quarters (see details below), with a $4.4B deficit that reflected continued investment losses and challenges facing its insurance units. Executives said negative publicity since the insurer's bailout had hurt its brand and sales, as has the economic downturn, but that its businesses are still doing okay.
• Taleb: Worse than the Big Depression. Black Swan author Nassim Taleb says today's crisis is "vastly worse" than the 1930s, because global economies have become uncontrollably intertwined. The NYU professor of risk engineering says gold, copper, and other assets "that China will like" are the best investment bets.
• Discounter strength in April sales. Shares of several major discounters got a boost yesterday from better-than-expected April same-store sales, though some said they were hurt by the Easter holiday which cut out a shopping day. Wal-Mart (WMT) was one of the top performers with growth of 5% vs. 2.9% consensus, with grocery, health and wellness, hardlines, entertainment and home contributing to the increase. However, the company plans to drop its monthly report in favor of forecasts roughly in-line with its quarterly reporting periods, a move that will deprive investors of a valuable consumer indicator. Wal-Mart said the switch is a better fit for the company's long-term approach to business and minimizes volatility caused by holiday shifts.
• Google sees more scrutiny. Google (GOOG) CEO Eric Schmidt expects more regulatory scrutiny of his company, but has no plans to step down from Apple's (AAPL) board despite an anti-trust probe into the matter. Schmidt said he doesn't consider Google and Apple to be primary competitors, and that he recuses himself when competitive issues come up.
• Jobless claims fall. Initial Jobless Claims were 601,000 this week, down from last week's 635,000 (revised) and from consensus of 635K. Continuing claims rose to 6,351,000 from 6,295,000 (revised). While it's true the recent moderation in weekly jobless claims is happening from a breathtaking peak, the extent of the drop is impressive. Going back to 1987, such declines have usually happened at the tail end of a recession.
• Productivity rises. Productivity was up 1.1% in Q1 (preliminary), or 0.8% in the nonfarm business sector, vs. consensus of 0.6% and last quarter's -0.6% (revised). Unit labor costs grew by 3.3% vs. 2.7% consensus. Manufacturing sector productivity fell 3.4%, its fourth straight drop.
• ECB opts for QE. The European Central Bank cut its benchmark rate by 0.25% to 1%, and rolled out its first quantitative easing step, announcing it will buy €60B ($80B) in euro-area bonds. Economists said they were pleasantly surprised by the scope of the QE move, but wished the ECB wouldn't have dragged its feet for so long.
• BoE holds steady. The Bank of England kept it key lending rate unchanged at 0.5%, and raised its bond purchase target by £50B to £125B. "The global banking and financial system remains fragile despite further significant intervention by the authorities... But surveys at home and abroad show promising signs that the pace of decline has begun to moderate."

Earnings: Friday Before Open

• AES (AES): Q1 EPS of $0.34 beats by $0.13. Revenue of $3.4B in-line. Sees full-year EPS of $.103-1.13 vs. $1. (PR)
• Beazer (BZH): FQ2 EPS of -$2.97 misses by $1.37. Revenue of $188M vs. $213M. (PR)
• Calpine (CPN): Q1 EPS of $0.07 beats by $0.18. Revenue of $1.68B (+14%) vs. $1.34B. (PR)
• El Paso (EP): Q1 EPS of $0.47 beats by $0.20. Revenue of $1.48B (+16.9%) vs. $1.26B. Shares +4.3% premarket. (PR)
• Huntsman (HUN): Q1 EPS of -$0.55 misses by $0.33. Revenue of $1.69B (-33.3%) vs. $2.2B. (PR)
• M.D.C. (MDC): Q1 EPS of -$0.88 misses by $0.05. Revenue of $176M (-55.6%) vs. $130M. (PR)
• Mirant (MIR): Q1 EPS of $0.79 beats by $0.22. Shares +7.6% premarket. (PR)
• Sonic Automotive (SAH): Q1 EPS of $0.16 beats by $0.20. Revenue of $1.19B (-25.1%) vs. $1.26B. Shares +11.8% premarket. (PR)
• Windstream (WIN): Q1 EPS of $0.20 misses by $0.03. Revenue of $755M vs. $776M. (PR)

Earnings: Thursday After Close

• Activision (ATVI): FQ4 EPS of $0.08 beats by $0.03. Revenue of $724M vs. $593M. Sees FQ1 EPS of $0.06 vs. $0.09 consensus. Shares +2.4% AH. (PR)
• AIG (AIG): Q1 EPS of -$0.97 misses by $0.91. Shares +5.1% AH. (PR)
• Allstate (ALL): Q1 EPS of $0.84 misses by $0.39. Revenue of $7.88B (-2.5%) vs. $8.16B. Says has statutory surplus of $13B at Allstate Insurance and $3.4B at Allstate Life. Unrealized net capital losses rose by $590M to $9.4B from Q4. Shares -6.9% AH. (PR)
• Assured Guaranty (AGO): Q1 EPS of $0.69 beats by $0.52. Revenue of $148M vs. $140M. Shares +15% AH. (PR)
• Bally Technologies (BYI): FQ3 EPS of $0.52 in-line. Revenue of $208M (-10.8%) vs. $224M. Full-year guidance in-line. (PR)
• CBS (CBS): Q1 EPS of -$0.08 misses by $0.15. Revenue of $3.16B (-13.5%) vs. $3.26B. "Softness in the advertising marketplace continued during Q1." Shares -7.3% AH. (PR)
• Crocs (CROX): Q1 EPS of -$0.24 beats by $0.03. Revenue of $135M (-32%) vs. $114M. Sees Q2 EPS of -$0.15 to -$0.31 (median -$0.23) vs. consensus of -$0.17. Shares -13.7% AH. (PR)
• Genworth Financial (GNW): Q1 EPS of $0.03 misses by $0.16. Revenue of $1.73B vs. $2.71B. Shares -14.4% AH. (PR)
• Hansen Natural (HANS): Q1 EPS of $0.44 beats by $0.07. Revenue of $244M vs. $228M. Shares +8.4% AH. (PR)
• Intrepid Potash (IPI): Q1 EPS of $0.33 beats by $0.07. Revenue of $88.9M vs. $72.2M. Shares flat AH. (PR)
• Leap Wireless International (LEAP): Q1 EPS of -$0.74 misses by $0.05. Revenue of $587M vs. $595M. Shares +0.3% AH. (PR)
• Live Nation (LYV): Q1 EPS of -$1.29 misses by $0.55. Revenue of $499M vs. $562M. Shares flat AH. (PR)
• Microchip Technology (MCHP): FQ4 EPS of $0.15 beats by $0.04. Revenue of $173M (-33.5%) in-line. Sees FQ1 EPS of $0.16 vs. $0.14. Shares -0.3% AH. (PR)
• Moneygram International (MGI): Q1 EPS of -$0.20 misses by $0.28. Revenue of $280M vs. $285M. Shares +4.8% AH. (PR)
• Nvidia (NVDA): Q1 EPS of -$0.09 beats by $0.02. Revenue of $664M vs. $515M. Gross margin 28.6% vs. consensus of 35.5%. Shares +0.2% AH. (PR)
• Public Storage (PSA): Q1 EPS of $1.16 misses by $0.04. Revenue of $347M (-0.8%) vs. $396M. Shares flat AH. (PR)
• SandRidge Energy (SD): Q1 EPS of $0.25 beats by $0.17. Revenue of $159M vs. $238M. Shares -0.4% AH. (PR)
• Standard Pacific (SPF): Q1 EPS of -$0.01 beats by $0.26. Revenue of $209M vs. $179M. "Although we saw improvement in new home orders as compared to the anemic levels experienced during the 2008 fourth quarter, we remain intently focused on preserving cash by controlling our expenses, carefully managing new home starts and reducing speculative inventory levels." Shares +18.8% AH. (PR)
• VeriSign (VRSN): Q1 EPS of $0.32 beats by $0.04. Revenue of $255M (+8.4%) vs. $249M. Shares +7.8% AH. (PR)

Today's Markets

Strong gains overseas following much-awaited and largely anticipated bank stress test results (I, II) in the U.S.

• Asia: Nikkei +0.5% to 9,433. Hang Seng +1% to 17,390. Shanghai +1.09% to 2,626. BSE -1.98% to 11,876.
• Europe at midday: London +1.45%. Paris +2%. Frankfurt +2.7%.
• Futures: Dow +1.1% to 8477. S&P +1.2% to 918. Nasdaq +0.7%.
  Crude +2% to $57.86. Gold +0.2% to $917.
  30-year Tsy -0.4%. 10-year -0.31%. 5-year -0.26%. 2-year -0.04%.

Friday's Economic Calendar

• 8:30 Non-farm payrolls
  10:00 Wholesale Inventories
  1:00 PM Fed's Lacker speaks on economic recovery
• Notable earnings before Friday's open: EIX, EP, HUN, MDC, MIR, NXG, SAH, WIN, WR
• Notable earnings after Friday's close: BZH, PCLN

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns]

I am sure if we could pull the curtain back Stephen Friedman would not be the only one we would find dancing back stage.

There's a whole troupe back there.

2009 May 08 07:36 AM

[mac123449]

539,000 + 66,000 govt. hiring for census=605,000 +40,00-expected revision-=645,000. census employees are temp workers.

2009 May 08 08:46 AM

[winindthedust]

Other people's pessimism is our positive (something Buffet said?)

Anyway, buying on the dips, and holding the horn- the bears are playing into our squeeze, covering their shorts, forcing the rally to continue! Thank you bears!

It's going to be a fruitful summer for a bull market.

2009 May 08 09:34 AM

[tginomorebush]

friedman..... avoid "appearance" of a conflict of interest .... lmao

2009 May 08 10:03 AM

[sticktoitiveness]

"American Express (AXP) filed a request with the Federal Reserve and Treasury to repay its $3.4B of TARP funds."

TARP, American Express leaves home without it.

2009 May 08 10:34 AM

[Joseph Sherman]

BoA weighs capital options. - Perhaps they should rethink their business model and scale down to a manageable level.

2009 May 08 11:59 AM

[AndrewBaker]

Well, now we'll have a financials rally, which I have enjoyed today with a buy and sell of FAS, thank you; but longer term there is still a lot of bad news yet to come. So enjoy short term trading of financials, but don't own for investment just yet, unless you don't mind losing money. You bulls mark me down for this: I can take it. Losing money, I can't.

2009 May 08 12:51 PM

[I am not a number..]

"
“This is the most difficult period of humanity that we’re going through today because governments have no control,” Taleb, 49, told a conference in Singapore today. “Navigating the world is much harder than in the 1930s.”..
This One article points out something those who indulge in mining stocks know already..
The Chinese sure do like Raw commodities,Copper,Bua... Iron Oil etc .
But their business practices leave Too much to desire.
The Dafur Oil pipe refinery is a case in point where they insist on supplying arms to Sudanese northerners to use against the Dafur desert dwellers( and Chad in the last two days) to create ferment and prevent real development of the Sudanese nation ( how can you build infrastructure etc when El Quaida is educating your sons and the money is spent on arms?) . So I believe ,personally, that buying shares in Chicom companies is supping with the Devil . In Much the same manner as Ford et al in the 1930's with the German National Socialists. In both Cases the 'governments' had Full control of the situation and played and are playing the economic markets like some many fish on a line.
Another case is closer to my home ( Australia ) where the Chinese government is using the stars in the eyes of our manadarin speaking Prime minister Kevin Rudd , to blind him to fact that Chicom companies are being allowed to buy into the basic mining stock of leases.
How will a country recover if the supplier is also your customer and is lending the money to mine the product they want?.
Right across the Glode this is happening on an epic scale. The Chinese version of a banana Company could be one way of seeing it I guess.
So Although our respective governments may seen to having a hard time controlling our econmies (do they want to?) the Chicom regime is having a lovely time of it.

2009 May 08 06:08 PM

[coloneldebugger]

How stupid is this whole thing that they have to "request" to pay back these loans?

Odd how I don't get to ask AmEx if I can pay my bill when I use my AmEx card.


On May 08 10:34 AM sticktoitiveness wrote:

> "American Express (seekingalpha.com/symbo...) filed a request
> with the Federal Reserve and Treasury to repay its $3.4B of TARP
> funds."
>
> TARP, American Express leaves home without it.

2009 May 08 07:44 PM

[capt Brian]

Duh h h h h h man what a perspective, not real helpful but have fun anyway and sell all your gold so you can buy more stocks.


On May 08 09:34 AM winindthedust wrote:

> Other people's pessimism is our positive (something Buffet said?)
>
>
> Anyway, buying on the dips, and holding the horn- the bears are playing
> into our squeeze, covering their shorts, forcing the rally to continue!
> Thank you bears!
>
> It's going to be a fruitful summer for a bull market.

2009 May 09 10:53 AM

[eieinli]

"A penny saved is a penny earned' Yeah! What about the $328,000 photoshoot of Air Force One?@###**
$75B more in capital for some banks! What's bullish about that?
$600B+ in anticipated losses; what's bullish about that?
550,000 more joined the ranks of the unemployed bringing the total to more than 6 million Americans looking for work and an unemployment rate of 8.9%; what's bullish about that?
Chrysler in bankruptcy, GM is next! What's bullish about that?
Need I go on?

2009 May 09 12:22 PM

[consumeronstrike]

HAHAHA Sorry to intrude on all the pessimism. MY economy's just fine. I live in an area of SW Missouri where it seems like no one wants to work. Place I work at needs help and doesn't even have any applicants for the jobs. Oh well guess I'll just keep getting all the hours; I worked 68 hours last week. Too many people here drawing pensions or living off the government. That's OK, lazy bums are making me rich. I've sunk $2500 into dividend-paying utilities in the last month and a half. I'm just a restaurant cook and I'm happier than most of you.

2009 May 09 04:49 PM

[consumeronstrike]

Bull market, bear market - just silly terms for THE market. There's always something worth buying - and KEEPING. A dividend is another paycheck - one you didn't have to work for! Buy right and pick carefully, diversify, ignore CRAMER - buy more shares when they're down - increase the size of your extra "paychecks" and to heck with the know-it-alls who want to tell you it's stupid. I don't feel "stupid" 32 times a year when I cash my dividend checks! Wnat to "beat the market?" Why? How large a number makes up the multitude of people trying to do that? Think you're that smart? Maybe you're clairvoyant. I doubt it. Competing with the market is a fool's game. Have fun. Me, I'd rather make money.

2009 May 09 09:58 PM