Wall Street Breakfast: Must-Know News

• BoA sells CCB stake. Bank of America (BAC) reportedly sold a 5.8% stake in China Construction Bank for around $7.3B. The 13.5B shares were sold for HK$4.20 each, 14% below yesterday's closing price, with another 25.6B shares in a lock-up period until August 2011. The sale brings Bank of America one step closer to plugging its $33.9B capital shortfall. Shares +1.2% premarket (7:00 ET).
• Trying to leave the TARP trap. Capital One (COF), U.S. Bancorp (USB), BB&T (BBT) Principal Financial Group (PFG) and Bank of New York Mellon (BK) announced plans to raise capital with an eye towards paying back TARP loans. Capital One will sell 56M shares, while U.S. Bancorp will offer $2.5B in common stock. BB&T will sell $1.5B in shares. Principal Financial Group will raise $1B in stock sales. Bank of New York Mellon will offer $1B in common shares. KeyCorp (KEY) will sell up to $750M of stock to help close a $1.8B capital hole.
• Ford's new share issue. Trying to capitalize on recent stock strength and avoid government aid, Ford (F) will issue 300M common stock shares and use at least some of the money for a union-run medical trust. The new stock, which will price today, will increase shares outstanding by 11% and raise more than $1.8B at yesterday’s closing price. This will be the first time Ford has offered common shares directly to the public. Shares -6.1% premarket (7:00 ET).
• Microsoft sells its first corporate bonds. Cash-rich Microsoft (MSFT) made its first foray into the corporate bond market yesterday, selling a $3.75B debt issue. The bond sale attracted over $10B in demand. The company said it doesn't need financing and will use the money for general corporate purposes, including working capital and buying back stock. Some analysts think the debt issue was in preparation for a major acquisition to revive growth, though sources close to the company say there is no specific target in mind.
• NYT stake rumors. Media mogul David Geffen reportedly tried to buy a stake in the New York Times Co. (NYT) from hedge fund Harbinger Capital Partners, but was rejected because Geffen wanted to buy the stake at market price, while Harbinger wanted a premium. Separately, media reports claim Times board member Scott Galloway approached Google (GOOG) co-founder Larry Page to try to get Google to buy a stake in the Times.
• Bernanke calls for internal stress tests. Speaking at a Federal Reserve conference, Bernanke called efforts by U.S. banks to raise capital 'encouraging.' However, he also noted that the "stress tests used in the assessment program should be part of a broader palette of internal stress tests conducted by firms. Indeed, we do not intend that the capital assessments should be taken as all that those firms need to do." The comments suggest the Federal Reserve and other regulators will continue to keep a close eye on banks.
• Fannie/Freddie's murky, pricey future. The Office of Management and Budget laid out overhaul options for Fannie Mae (FNM) and Freddie Mac (FRE) in a report yesterday, including the possibility of an eventual liquidation of their assets. Other options included nationalization, dissolution into several smaller companies, a return to their previous status as government-sponsored enterprises or being restructured as public utilities with the full faith and credit of the government. The OMB also projected that the mortgage giants, which have thus far received $78.8B in federal aid, will need at least $92.2B more.
• Citi lends out TARP funds. Citigroup (C) is using most of its $45B in TARP funds to make new loans. The bank approved $44.75B in lending initiatives as of March 31, up from $36.5B in February. In its report, scheduled to be released this morning, Citigroup said the loans include an additional $2B to suppliers, $1B for residential mortgages and $250M in auto loans, and that many of the loans would not have been offered if TARP funds were not available. Shares +2.6% premarket (7:00 ET).
• GM bankruptcy 'more probable.' With three weeks left to reduce its debt and costs, General Motors (GM) CEO Fritz Henderson told investors "today it’s more probable that we would need to resort to a bankruptcy process. But there’s still a possibility and an opportunity for it to be done outside of a bankruptcy." He also said bondholders were offered 10% of the firm in return for their $27B, but they refused, saying the stake was too small. With bankruptcy looking increasingly likely, chances are high that GM will lose its place in the blue-chip Dow Jones industrial average. Shares -9.7% premarket (7:00 ET).
• Sony plans debt refinancing. Sony (SNE) hired four banks to help it sell ¥100B ($1B) of bonds to refinance maturing debt. The company has ¥144.9B in bonds coming due next year and is heading for its second consecutive annual loss.
• Google cuts its radio effort. Google (GOOG) is giving up on its efforts to automate radio-ad sales. The foray into radio was meant to show how Google's online-ad strength could revolutionize an old-fashioned business, but instead has underscored Google's limited progress in making major profits from the sale of off-line advertisements.
• Another guilty plea in pension scheme. In his widening pension probe, New York Attorney General Andrew Cuomo is expected to announce that another key player has pleaded guilty to securities fraud and is cooperating with the investigation. Julio Ramirez, who will likely face both criminal and civil charges, was an associate of Hank Morris, the indicted political adviser at the center of the 'pay to play' pension probe.
• Goldman's subprime settlement. Goldman Sachs (GS) reached a subprime settlement with Massachusetts, and will pay $50M in relief to Massachusetts subprime-mortgage holders and $10M to the state. The state attorney general's office said it is the first time a subprime-mortgage securitizer has settled a state investigation with a payment.
• Dreier pleads guilty. New York lawyer Marc Dreier pleaded guilty to securities fraud, conspiracy, wire fraud and money laundering in running a $400M investment fraud involving fake promissory notes. Dreier will be under house arrest until his sentencing.

Earnings: Tuesday Before Open

• Warnaco Group (WRC): Q1 EPS of $1.00 beats by $0.27. Revenue of $538M (-5.2%) vs. $481M. Sees FY '09 EPS of $2.50-$2.66 vs. $2.49 consensus, sees revenue decline of 9-12% vs. prior guidance of a 9-14% decline. (PR)

Earnings: Monday After Close

• CDC Corp. (CHINA): Q1 EPS of $0.02 beats by $0.01. Revenue of $79M (-19.5%) vs. $91.3M. Shares +4.1% AH. (PR)
• Ctrip.com (CTRP): Q1 EPS of $0.26 beats by $0.05. Revenue of $59M (+18%) vs. $53.9M. Sees Q2 revenue growth of 10-15%. Shares +14.5% AH. (PR)
• Fluor (FLR): Q1 EPS of $1.12 beats by $0.19. Revenue of $5.8B (+20.6%) in-line. Lowers full-year EPS guidance by $0.01 to $3.80-4.10. Shares +3.7% AH. (PR)
• Great Plains Energy (GXP): Q1 EPS of $0.05 beats by $0.07. Revenue of $419M (+40.9%) vs. $464M. Shares -2.8% AH. (PR)
• MBIA (MBI): Q1 EPS of $3.34 beats by $3.67. Revenue of $195M. Beat was primarily the result of a $1.6B gain, mark-to-market, on insured derivatives. Shares +19.2% premarket. (PR)
• McDermott International (MDR): Q1 EPS of $0.33 beats by $0.04. Revenue of $1.49B (+3%) vs. $1.54B. Shares +1.1% AH. (PR)
• Nuance Communications (NUAN): FQ2 EPS of $0.24 beats by $0.02. Revenue of $239M (+17.5%) vs. $244M. Shares +3.5% AH. (PR)
• TW Telecom (TWTC): Q1 EPS of $0.02 beats by $0.04. Revenue of $298M (+5.3%) vs. $295M. (PR)
• Winn-Dixie (WINN): FQ3 EPS of $0.30 beats by $0.18. Revenue of $1.73B (+0.2%) in-line. Shares +13.3% AH. (PR)

Today's Markets

Futures are flat this morning after a mixed bag overseas.

• Asia: Nikkei -1.62% to 9,299. Hang Seng +0.38% to 17,154. Shanghai +1.49% to 2,618. BSE +4.07% to 12,158.
• Europe at midday: London -0.46%. Paris -0.5%. Frankfurt +0.3%.
• Futures at 7:00: Dow +0.1% to 8414. S&P flat at 909. Nasdaq flat. Crude +1.4% to $59.30. Gold +0.6% to $918.70. 30-year Tsy -0.09%. Euro +0.4% vs. dollar. Yen flat. Pound +1.1%.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:20 Fed's Lockhart speaks at the Atlanta Fed's Financial Markets Conference
  8:30 International Trade
  8:55 Redbook
  2:00 PM Treasury Budget
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: WRC
• Notable earnings after Tuesday's close: AMAT, BMC, PAAS, SOLR

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns:]

Why would anyone want to buy Freddie or Fannie? It has been nothing but a corrupt program to reward political friends of congress with cushy, well paid jobs and a source of campaign contributions for congressional leaders.

Broken into 5 smaller units and there are 5 times the cushy jobs and potential campaign contribution streams.

Would not touch that with a 10 foot dollar.

May 12 07:52 AM

[doubleguns:]

Citis loans, Lets see 1.25 billion divided by 45 billion is 2.78%

Can anyone see that small. I need my glasses here. Seems a mighty small amount loaned out to consumers for mortgages and auto loans. Does this mean we are in a recovery?

Who....... got the rest of that money?

May 12 08:04 AM

[altaman:]

It seems that the US taxpayer has been made to shallow many bitter pills, without being consulted, that have only made the economy's bleeding ulsers worse with no end in sight.

May 12 08:07 AM

[Allan Frain:]

$60M seems a tiny price for secrecy for Goldman regarding their role in engineering the subprime mess--particularly alongside their AIG-laundered taxpayer handout.

May 12 08:33 AM

[Jersey:]

I'll tell you, this whole.... I don't even know what to call it anymore, but I really can't see myself buying ANY financial and especially not Freddie and Fannie after seeing what this pack of thugs is capable of. This administration has created a whole new industry I believe, for treating shell shocked investors!

May 12 08:42 AM

[mac123449:]

Get back DOW get back DOW back to where you once belonged DOW 6500.

May 12 09:20 AM

[AndrewBaker:]

Well, slowly but surely we'll see the real condition of the banks and financials, and it is not pretty. Investors have been lied to, bullied and otherwise convinced to buy into these stocks, only now to start finding out their equity is going to be massively diluted in order to keep the CEOs happy, repay tax dollars - that came originally from the taxes of, and belongs to, those same investors - and watch the value of their savings for the future not-so-gradually fall away.

May 12 10:41 AM

[Econ 101:]

How right you are. Why cant the person on the street see this?/ Oh, Joe the Plumber saw it and the MSM tore his life apart. But they cant investigate BHOs birth certificate nor his college transcripts???

Lets start fighting the corruption because it isnt just the democrats, it is the republicans too. The congress and the Fed are corrupt. Support an audit of the Federal Reserve, write your congress person to support HR1207. I know you are tired of hearing it, but the MSM wont push it, the oloigarchy of bankers wont push it, the politicians wont push it only you can stop the looting of your grandchildrens future.


On May 12 08:33 AM Allan Frain wrote:

> $60M seems a tiny price for secrecy for Goldman regarding their role
> in engineering the subprime mess--particularly alongside their AIG-laundered
> taxpayer handout.

May 12 11:29 AM

[bbowen7:]

It is good to see the work that Cuomo is leading to clean out (a little bit of) the corruption of Wall Street. Now that we are sloshing a trillion dollars of federal money at anything that the politicians want to stimulate, one can only hope that there will be another Cuomo in Washington.

May 12 01:08 PM

[eieinli:]

.....the rest was used to cover Citi's losses!!!
On May 12 08:04 AM doubleguns wrote:

> Citis loans, Lets see 1.25 billion divided by 45 billion is 2.78%
>
>
> Can anyone see that small. I need my glasses here. Seems a mighty
> small amount loaned out to consumers for mortgages and auto loans.
> Does this mean we are in a recovery?
>
> Who....... got the rest of that money?

May 12 02:32 PM

[Joseph Sherman:]

Google cuts its radio effort. - They know when to stop and focus on what counts.

May 12 10:48 PM

[billp37:]

Adam Riesz Regional Director at Goldman Sachs
Phoenix, Arizona Area Tuesday May 12, 2009

The Outlook for the U.S. Economy

held in Albuquerque, NM sponsored by Morgan Stanley.

home.comcast.net/~bpayne37/goldmansach...

May 13 09:53 AM