Wall Street Breakfast: Must-Know News

• Small banks face huge losses. Small and midsize U.S. banks could suffer $100B in losses on commercial real-estate loans by the end 2010 if economic woes deepen, according to research by the Wall Street Journal. Total losses over the same period could hit $200B using the worst-case scenario employed by the government's stress tests of large banks. The Journal's analysis follows an article in yesterday's Financial Times, which found small and medium banks needed a more sanguine $24B to meet the capital standards set by the government. Synovus Financial (SNV) could face losses of $3.4B, the Journal says. For more on the methodology and results of the analysis, see WSJ's interactive graphic.
• Goldman, JPMorgan, Morgan Stanley want out of TARP. Sources say Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS) have applied to repay a combined $45B in TARP loans, a move analysts say will not only remove them from the spotlight of regulators and taxpayers, but also demonstrate their relative health, helping them attract customers, staff, and capital. The government needs to sign off on the payback, and sources say Treasury chief Geithner will not do so before he's issued industry-wide compensation guidelines. The three were among nine banks that took TARP loans from then Treasury-head Henry Paulson under extreme pressure.
• BlackRock: Buyer, seller, adviser. Already chosen to help the government manage the portfolios once owned by Bear Stearns and AIG (AIG), and to analyze difficult-to-price assets of Freddie Mac (FRE), Morgan Stanley (MS) and others, BlackRock (BLK) has now been invited to a coveted "second-round interview" to become one of the few money managers to participate in the government's program (PPIP) to help private investors soak up toxic assets from U.S. banks using taxpayer money, sources say. Some worry being on both sides of the fence - setting the assets' prices and buying them - would be a massive conflict of interests.
• Giants duke it out over BGI. BlackRock (BLK) and Bank of New York Mellon (BK) are both in talks to buy Barclays' (BCS) asset-management unit, whose $1.5T in client assets makes it the industry's biggest. To the victor, title of the world's largest wealth manager, leaving rivals Pacific Investment Management and State Street (STT) to play catch up.
• Homebuilder confidence slowly on the rise. National Association of Home Builders' housing-market index rose for the second straight month, up two points to 16 after a five point jump in April. While the index remains at a very low level, the recent strength - amid falling prices and an $8,000 tax credit for first-time buyers - suggests a potential bottom for the U.S. housing market, analysts say. (see NAHB's release)
• Cautious shoppers pinch Home Depot's sales. Home Depot's (HD) Q1 earnings jumped 44%, exceeding Street expectations, but sales fell 9.7% and same-store sales were off 10% (see data below). Last year's Q1 was hurt by a larger charge related to the closing of its Expo home-design business. During the critical spring fix-up season, Home Depot said customers were focused on small purchases, with amount spent per transaction down a substantial 8.2%. "Our markets, and the consumer in general, remain under pressure," CEO Frank Blake said.
• U.S. to decree stricter fuel goals. President Obama will today announce the U.S.'s first attempt at official emissions limits for cars and trucks, as well as requiring a new mileage standard of 35.5 mpg. The move will cost consumers another $1,300 per vehicle by 2016, officials say. The plan would save 1.8B barrels of oil through 2016, and would be the environmental equivalent of taking 177M cars off the road.
• More, heavy layoffs at Amex. American Express (AXP) revealed its second phase of job cuts, eliminating 4,000 positions (6% of its workforce) with the goal of saving $175M this year. The cuts were deeper than expected by analysts. In October, Amex announced 7,000 layoffs. Combined with additional savings from cutbacks in marketing and business development, Amex says it hopes to save $800M this year.
• Derivatives market shrinks for first time on record. The derivatives market contracted for the first time ever in H2 2008, according to a report today from the Bank for International Settlements. The total notional amount of over-the-counter (OTC) derivatives contracts outstanding in H2 was $592T, down 13.4% from six months earlier. Credit market turmoil was largely responsible for a 26.9% contraction in outstanding credit-default swaps. However, movements of financial market prices in the second half of 2008 lifted the gross market value of all derivatives 66.5%, to $33.9T, which represents the cost of replacing all existing contracts, and may be a better measure of true market risk than notional value. (see BIS's press release and full report (.pdf))

Earnings: Tuesday Before Open

• Dick's Sporting Goods (DKS): Q1 EPS of $0.11 beats by $0.04. Revenue of $958M (+5.2%) vs. $913M. Q2 and full-year EPS guidance in-line. (PR)
• Home Depot (HD): Q1 EPS of $0.35 beats by $0.06. Revenue of $16.18B (-9.7%) vs. $15.86B. Affirms full-year guidance. (PR)
• JA Solar (JASO): Q1 EPS of -$0.18 vs. consensus of -$0.05. Revenue of $33.9M (-79.4%). Shares +5.25% premarket. (PR)
• Medtronic (MDT): FQ4 EPS of $0.82 in-line. Revenue of $3.83B (-0.8%) in-line. (PR)
• Saks (SKS): Q1 EPS of -$0.04 beats by $0.22. Revenue of $621M (-26.9%) in-line. Comps -27.6%. Reaffirms full-year outlook for sales, gross margin, and inventory, but says outlook remains foggy. Shares +8.8% premarket. (PR)
• Solarfun Power (SOLF): Q1 EPS of -$0.02 beats by $0.15. Revenue of $100.1M (-41.5%) in-line. "We continue to remain optimistic for the remainder of 2009 and beyond. With both module and raw material prices declining, we think volume growth is imminent. Incentives already in place, and new ones from the U.S. and China in particular, bode well for a resumption of healthy growth in the long term." Shares +3.5% premarket. (PR)
• Vodafone (VOD): Full-year Ebitda of £14.5B, in-line with consensus, up from £13.2B a year ago. Sales rose 16% to £41.02B. Vodafone added 7M new customers in Q4 to 303M. Shares -1.75% premarket. (Bloomberg)

Earnings: Monday After Close

• American Apparel (APP): Q1 EPS of -$0.13 misses by $0.08. Revenue of $114M vs. $117.5M. Issues downside guidance for FY '09: sees revenue of $550-575M, income from operations $40-50M. (PR)

Today's Markets

Overseas markets posted solid gains Tuesday, and the optimism has carried over into the futures. Treasurys are under pressure.

• Asia: Nikkei +2.78% to 9,290. Hang Seng +3.06% to 17,544. Shanghai +0.9% to 2,677. BSE +0.12% to 14,302 after climbing as high as 14,931 intraday.
• Europe at midday: London +1.4%. Paris +1.25%. Frankfurt +2.3%.
• Futures at 7:00: Dow +0.8% to 8536. S&P +0.8% to 914.50. Nasdaq +0.6%. Crude +1.7% to $60. Gold +0.1% to $922.60. 30-year Tsy -0.5% to 121-05. 10-year -0.36% to 120-12. 5-year -0.22%. 2-year -0.06%. Euro +0.6% vs. dollar. Yen +0.1%. Pound +1%.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:30 Housing Starts, April
  8:55 Redbook Chain Store Sales
  1:15 PM Fed's Gary Stern speaks on financial conditions
  5:00 PM ABC Weekly Consumer Confidence Index
• Notable earnings before Tuesday's open: DKS, HD, JASO, MDT, SKS, SOLF, TJX, VOD
• Notable earnings after Tuesday's close: ADI, HPQ, PRGN, PVH

Seeking Alpha editor Rachael Granby contributed to this post.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.

Comments

[robert.b.fe...:]

Since we will be the least polluting (and poorest) developed country after the new standards finish off the big three. We will be importing our poluttion too since no one else will be applying these standards. In fact I'm sure that India, China and the rest of the world will be powering thier recovery with cheap fossil fuels leaving us wringing our hands over global warming. Good job and kudos to all of the clowns involved.

May 19 08:43 AM

[jptao:]

Has anyone noticed global temperatures dropping since 1998? Once this global warming hoax is revealed for what it is I wonder what the power grabbers will come up with next? The 1970's saw the imminent "death misery" of an Ice Age. What'll it be now?

May 19 09:02 AM

[AndrewBaker:]

The losses the smaller banks will make on mortgages are not the only write-downs still to come: the big banks still haven't come clean, nor the insurers. There are other debts out there too that will not be paid off. The hope is that delaying tactics may allow prices to be kept artificially high long enough for a real recovery to begin. I'm still not buying this bull market yet.

May 19 09:12 AM

[canonicalman:]

Nice. Derivatives market was bailed out by the taxpayer so the big boys could keep their fake money while we pay, pay, pay...

May 19 09:41 AM

[sidestick:]

The article mentioned the increased cost of a car as $1300 by 2016. Will the savings in gas offset that $1300? Or will you pay even less for car and gas combined, thus making the more fuel efficient car less expensive over a lifetime than a car that only gets 20 mpg? How about some real comparisons, please?

May 19 09:42 AM

[mc2406:]

JPM and GS are almost forced to take TARP funds, and now Obama and the professional pols won't let them pay it back without interfering with their compensation programs?? What arrogance by the administration considering the government cannot run anything without bankrupting the American taxpayer. Just another example of pandering to the uninformed masses about the "evil, greedy " rich.

May 19 09:49 AM

[JCCIII:]

Climate change has been a cycling hysteria since at least the late-1800's; alternating between cooling (late-1800's, 1970's) and warming (1930's, early 2000's). The progressives will never be satisfied until they control everything, and they are well on their way with the current administration.

May 19 09:50 AM

[bobbobwhite:]

Re auto pollution standards: All the concern is with cars. What about unregulated pollution from other sources that is never calculated into the auto figures or as a defined, specified contributor to overall CO2 pollution? These are construction machines, mining machines, buses, all sizes of cargo trucks, NASCAR, drag racers, sprint racers, all modified competition vehicles such as demolition derby participants and monster trucks, motorcycles, lawn mowers, gas trimmers and blowers, ATV's, outboard and inboard boat engines, gas generators, gas compressors, and much more. Everywhere you look there are many of these working every day, obviously adding greatly to the problem but never directly included in gov't studies.

I have never read anything anywhere where the effects of the above machines were calculated into the overall air pollution figures. I truly would like to know the amount of CO2 they produce and add to the problem in comparison to that produced only by cars.

May 19 09:59 AM

[axelrod608:]

I don't understand the reason why higher gas mileage will add to the price of vehicles. The most effective ways to increase mpg are cut weight - less content, less cost - and reduce engine size - smaller engines are cheaper. It makes no sense.

What the world needs is a modern version of the deux cheveau (sp ?), the minimalist do-everything vehicle. Light weight, no frills and will carry a ton of bricks. When we end our need for motorized living rooms with surround sound and our motorized family rooms with dual home theatre we will be on our way to a sustainable future.

There, that ought to get a dozen or more thumbs down. That's the truth about an unsustainable reality - it's popular.

May 19 10:24 AM

[sickofthehype:]

The fact is most consumers aren't as rational as you when it comes to buying a car. Once gas is $4 again, which will happen quickly, they will flock to fuel efficient vehicles in droves.

Last summer you had people taking $10-20K losses on big SUV's so they could buy an Accord, not considering that their approach would not pay for itself within YEARS.



On May 19 09:42 AM sidestick wrote:

> The article mentioned the increased cost of a car as $1300 by 2016.
> Will the savings in gas offset that $1300? Or will you pay even less
> for car and gas combined, thus making the more fuel efficient car
> less expensive over a lifetime than a car that only gets 20 mpg?
> How about some real comparisons, please?

May 19 11:05 AM

[oldfolkdancer:]

All the cars on Planet Earth together cause the most pollution. Once someone has a car, they don't want to be without one. For that reason, the environmentalist keep fighting to have cars as non-polluting as possible.


On May 19 09:59 AM bobbobwhite wrote:

> Re auto pollution standards: All the concern is with cars. What about
> unregulated pollution from other sources that is never calculated
> into the auto figures or as a defined, specified contributor to overall
> CO2 pollution? These are construction machines, mining machines,
> buses, all sizes of cargo trucks, NASCAR, drag racers, sprint racers,
> all modified competition vehicles such as demolition derby participants
> and monster trucks, motorcycles, lawn mowers, gas trimmers and blowers,
> ATV's, outboard and inboard boat engines, gas generators, gas compressors,
> and much more. Everywhere you look there are many of these working
> every day, obviously adding greatly to the problem but never directly
> included in gov't studies.
>
> I have never read anything anywhere where the effects of the above
> machines were calculated into the overall air pollution figures.
> I truly would like to know the amount of CO2 they produce and add
> to the problem in comparison to that produced only by cars.

May 19 11:21 AM

[User 95831:]

If you take a few minutes researching: the pollution standards in Europe vs the US, the adherence to Kyoto protocol embraced by many other countries but not the US, and the percentage of US pollution in the world, you will want to review your comment. Good reading.

On May 19 08:43 AM robert.b.ferguson wrote:

> Since we will be the least polluting (and poorest) developed country
> after the new standards finish off the big three. We will be importing
> our poluttion too since no one else will be applying these standards.
> In fact I'm sure that India, China and the rest of the world will
> be powering thier recovery with cheap fossil fuels leaving us wringing
> our hands over global warming. Good job and kudos to all of the clowns
> involved.

May 19 12:56 PM

[agneaux:]

Love the Deux Chevaux! 54 mpg and fun to drive! Unfortunately, they (Citroen) stopped making the 2CV in 1990, but they may come out with something similar for a new age. Take a look at the Tata Nano, made in India. Supposedly $2,500 out the door, at least in India.


On May 19 10:24 AM axelrod608 wrote:

> I don't understand the reason why higher gas mileage will add to
> the price of vehicles. The most effective ways to increase mpg are
> cut weight - less content, less cost - and reduce engine size - smaller
> engines are cheaper. It makes no sense.
>
> What the world needs is a modern version of the deux cheveau (sp
> ?), the minimalist do-everything vehicle. Light weight, no frills
> and will carry a ton of bricks. When we end our need for motorized
> living rooms with surround sound and our motorized family rooms with
> dual home theatre we will be on our way to a sustainable future.
>
>
> There, that ought to get a dozen or more thumbs down. That's the
> truth about an unsustainable reality - it's popular.

May 19 01:45 PM

[agneaux:]

CO2 is not a "pollutant" - it is a naturally-occurring gas necessary for all plant life on earth to grow. CO2 makes up a tiny fraction of 1% of the atmosphere. All CO2 given off by animals, burning of fossil fuels, etc. eventually gets taken up by plants. More CO2 means more plants - more food for us! Where's the problem?

May 19 01:50 PM

[xmichaelx:]

On May 19 09:42 AM sidestick wrote:
> The article mentioned the increased cost of a car as $1300 by 2016.
> Will the savings in gas offset that $1300?

Surely your computer has a calculator built in.

May 19 02:02 PM

[bbowen7:]

Such a wide diversity of informed opinion on the risk in commercial real estate. And so little public attention. The populist politicians throw money at the (voters) homeowners, and the media reports what is easy. But we are not out of this thing until commercial real estate stabilizes, and the information system just doesn't give us what we need to undestand that. (At least the free information system; the investmet banks undoubtedly have a handle on it.) This is the remaining blind spot in a diversified portfolio.

May 19 02:45 PM

[dcb:]

Note, the trustees of AIG are picked by NY fed whcih has the ability to fire and over rule them. expect aig to behavie in way best for bankers not taxpayers. the AIG sham continues.

AIG Names Six for Board as Trustees Assert Control (Update2)
Share | Email | Print | A A A

By Hugh Son

May 19 (Bloomberg) -- American International Group Inc., the insurer bailed out by the U.S., named six new director candidates in the first nominations since the trustees managing the government stake vowed to overhaul the board.

The candidates are Harvey Golub, Laurette Koellner, Christopher Lynch, Arthur Martinez, Steve Miller and Douglas Steenland, New York-based AIG said today in a statement.

The trustees, named in January, are under pressure to turn around the money-losing insurer after the bailout was expanded to as much as $182.5 billion. The trustees told Congress last week that they’d selected five executives to join the board and that AIG will nominate one new member.

“The board needs to move very quickly to re-establish the credibility of AIG’s management team,” said Phillip Phan, professor of management at the Johns Hopkins Carey Business School in Baltimore, in an interview before the announcement.

The insurer’s current board worked with the trustees in picking the candidates, Chief Executive Officer and Chairman Edward Liddy said today in the statement. AIG’s annual meeting will be held on June 30, the insurer said today. It was previously scheduled for May 13.

The names of all the candidates excluding Koellner, 54, a former president at Boeing Co., were reported last week.

Miller, 67, is chairman of Delphi Corp. and a former chief financial officer of Chrysler Corp. Steenland, 57, is the ex- Northwest Airlines CEO. Lynch, 51, is a retired partner at consulting firm KPMG International.

Golub, Martinez

Golub, 70, was CEO of American Express Co. from 1993 to 2001. Martinez, 69, was CEO of Sears Roebuck & Co. from 1995 until 2000.

“The new candidates have extensive experience with large complex organizations and in the areas of financial services, accounting and restructuring,” Liddy said in the statement.

The trustees, appointed by the Federal Reserve Bank of New York, are Jill Considine, former chairman of the Depository Trust & Clearing Corp.; Chester Feldberg, former chairman of Barclays Americas, and Douglas Foshee, chief executive officer of natural gas producer El Paso Corp.

The director candidates will be listed in an AIG proxy to be issued this month, Foshee told lawmakers last week in prepared testimony. The board will have nine new directors including Liddy, Suzanne Nora Johnson and Dennis Dammerman, each appointed in the past year, he said.

Fresh Start

“If AIG is to succeed, it needs a fresh start -- a reset, if you will,” Foshee said at the May 13 hearing.

The trustees wield the government’s 77.9 percent stake in AIG and control votes on board members, asset sales, mergers and selection of top executives, according to a regulatory filing.

The overseers will vote in a way that “maximizes shareholder value” said Peter Bakstansky, a spokesman for the panel, in an April 6 interview.

AIG directors Virginia Rometty, Michael Sutton and Edmund Tse have said they are stepping down from the board. Stephen Bollenbach, appointed last year as lead independent director, won’t stand for re-election at the annual meeting, said a person familiar with the situation. The person asked not to be identified because AIG hadn’t announced Bollenbach’s plans.

A voice mail left for Bollenbach wasn’t immediately returned.

AIG was first rescued in September with an $85 billion credit line after a liquidity squeeze caused by credit-default swaps the insurer sold to banks. The company agreed in September to hand over a controlling stake to the U.S. and to replace Robert Willumstad as chairman and CEO. Liddy was picked by then- Treasury Secretary Henry Paulson.

The insurer’s bailout expanded to $122.8 billion, $152.5 billion and then $182.5 billion as the government sought to prevent losses at banks that did business with AIG. The company said it owes about $46 billion of a $60 billion Federal Reserve credit line as of last week.

To contact the reporter on this story: Hugh Son in New York at [e-mail]

May 19 04:05 PM

[Joseph Sherman:]

U.S. to decree stricter fuel goals. - Can Detroit go green? It may become the only way.

May 19 04:12 PM

[notsosmart:]

for gods sake dont take the ass warmer & hand warmer out of the cars.how can we exist without these?LOL

May 19 05:05 PM

[robert.b.fe...:]

Why is it unsustainable?


On May 19 10:24 AM axelrod608 wrote:

> I don't understand the reason why higher gas mileage will add to
> the price of vehicles. The most effective ways to increase mpg are
> cut weight - less content, less cost - and reduce engine size - smaller
> engines are cheaper. It makes no sense.
>
> What the world needs is a modern version of the deux cheveau (sp
> ?), the minimalist do-everything vehicle. Light weight, no frills
> and will carry a ton of bricks. When we end our need for motorized
> living rooms with surround sound and our motorized family rooms with
> dual home theatre we will be on our way to a sustainable future.
>
>
> There, that ought to get a dozen or more thumbs down. That's the
> truth about an unsustainable reality - it's popular.

May 19 05:43 PM

[robert.b.fe...:]

No it can only go brown as it continues to rust away.


On May 19 04:12 PM Joseph Sherman wrote:

> U.S. to decree stricter fuel goals. - Can Detroit go green? It may
> become the only way.

May 19 05:44 PM

[robert.b.fe...:]

Sequestered carbon IE... fossil fuel is trapped under ground. Free carbon is contained in plants animal flatulence and other sources. The problem with releasing sequestered carbon isn't global warming it's acidification of the oceans. That is why moving to free carbon fuel like bio-diesel and celulosic ethanol (I own stock in Gulf alternative energy corp. GAEC.). makes sense, it's also renewable.


On May 19 01:50 PM agneaux wrote:

> CO2 is not a "pollutant" - it is a naturally-occurring gas necessary
> for all plant life on earth to grow. CO2 makes up a tiny fraction
> of 1% of the atmosphere. All CO2 given off by animals, burning of
> fossil fuels, etc. eventually gets taken up by plants. More CO2 means
> more plants - more food for us! Where's the problem?

May 19 05:53 PM

[billp37:]

I have a question.

What would happen if a nuke went off accidentially at full yield at KUMSEC?

Best
bill

www.prosefights.org/nm...

This could be bad for our investments?

May 19 10:48 PM