Wall Street Breakfast: Must-Know News

• GM bankruptcy within days. Bondholders rejected General Motors' (GM) debt-for-equity swap offer, a critical disappointment for the automaker which now faces the largest-ever U.S. corporate bankruptcy within days. GM did, however, reach an agreement with the United Auto Workers union, with the UAW agreeing to a 17.5% stake in a restructured GM along with $6.5B in preferred stock and a $2.5B note. The new restructuring plan will leave the government holding as much as a 70% stake in the automaker, and calls for paying off GM's secured lenders in full to expedite bankruptcy reorganization. Shares -2.8% premarket (7:00 ET).
• New Chrysler nearly here. Chrysler could leave bankruptcy protection as early as next week, with the restructuring process completed closer to 30 days from its April 30 filing rather than the previously estimated upper limit of 60 days. Chrysler's May sales were similar to those in April, signaling consumers believe the retooled company will survive. The speedy turnaround should give consumers confidence about General Motors' (GM) ability to emerge from bankruptcy protection.
• Banks want to be on both sides of PPIP. Some bank are pushing the FDIC for permission to bid on the toxic assets banks will put up for sale as part of the Public Private Investment Program. PPIP is aimed at private investors and the program will be funded with $100-500B in taxpayer money. Officials haven't yet specified whether banks will be allowed to both buy and sell troubled assets, but banks argue it would give them an added incentive to sell assets at low prices, or even at a loss, and would free up capital to spur more lending. Critics are unconvinced, and see the proposal as just one more example of banks trying to profit at taxpayers' expense.
• Capped bonuses = higher base pay. Citigroup (C) and Bank of America (BAC) are expected to raise base salaries for investment bankers to compensate for restrictions on annual bonuses. Morgan Stanley (MS) announced a similar plan last week. The three firms, which are hoping higher salaries will help them retain key employees, could spark a new pay battle on Wall Street as higher base salaries become the norm. UBS (UBS), which was criticized for raising salaries at its investment bank by an average of 50%, said it's sticking by its decision and will continue "to pay our employees in line with the market."
• Shell shake-up. Royal Dutch Shell (RDS.A) unveiled a management shake-up as part of a wide-ranging restructuring. Incoming CEO Peter Voser said the move will reduce the firm's complexity and cut costs. Among the changes: the sudden departure of Linda Cook, head of the gas and power division; the combination of exploration and production, gas and power and oil-sands businesses into two new units; and a major culling of senior executives. Shares -1.2% premarket (7:00 ET).
• OPEC cuts unnecessary. Saudi Arabian Oil Minister Ali al-Naimi sees no reason to further cut oil production because there are signs of a demand recovery in Asia (though not in the U.S. or Europe). OPEC members will meet tomorrow to decide whether to adjust output quotas, but al-Naimi recommends they 'stay the course' and predicts $75/barrel oil by the end of the year.
• Santander pays Madoff settlement. Banco Santander (STD), one of Bernie Madoff's largest feeder funds, agreed to pay $235M to settle potential legal claims by Madoff trustee Irving Picard. It makes the first time a feeder fund has agreed to make payments in the Madoff case, and raises the assets recovered for Madoff investors to more than $1.2B.
• Home prices fall (.pdf). S&P/Case Shiller's 20-city home price index fell 19.1% in Q1, the index's steepest quarterly decline on record and worse than the 18.7% drop expected. Still, March was only the second month in the last year-and-a-half not to post a record annual decline.
• Consumer confidence rises. Conference Board's Consumer Confidence Index posted another strong gain in May, rising to 54.9 from 40.8. Expectations rose to 72.3 from 51.0. Conference Board's Lynn Franco noted "while confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us."
• Richmond Fed bounces back. Richmond Fed's Manufacturing Index rebounded sharply in May, rising to 4 from -9 as overall activity expanded for the first time in 12 months. Shipments rose twelve points to 9, new orders rose twelve points to 10, and the jobs index rose fourteen points to -12.
• Mortgage apps fall. Mortgage applications fell 14.2% last week, MBA reported. The average interest rate on 30-year fixed-rate mortgages rose to 4.81% from 4.69%.

Earnings: Wednesday Before Open

• AutoZone (AZO): FQ3 EPS of $3.13 beats by $0.24. Revenue of $1.7B (+9.3%) vs. $1.6B. (PR)
• American Eagle Outfitters (AEO): Q1 EPS of $0.08 beats by $0.01. Revenue of $612M (-4.4%) in-line. (PR)
• Chico's FAS (CHS): Q1 EPS of $0.11 beats by $0.03. Revenue of $411M (+0.2%) in-line. Comps -3.2% vs. -17.5% last year. (PR)
• Dollar Tree (DLTR): Q1 EPS of $0.66 beats by $0.06. Revenue of $1.2B (+14.2%) in-line. (PR)
• Staples (SPLS): Q1 EPS of $0.22 beats by $0.01. Revenue of $5.8B (+19.1%) in-line. (PR)

Earnings: Tuesday After Close

• Take-Two Interactive Software (TTWO): FQ2 EPS of -$0.04 beats by $0.09. Revenue of $230M (-57.4%) vs. $218M. Sees Q3 EPS of -$0.55 to -$0.65 vs. consensus of -$0.05 and revenue of $145-165M vs. $239M. (PR)

Today's Markets

• Asian markets surged forward, closing well into positive territory. Nikkei +1.4% to 9,439. Hang Seng +5.3% to 17,885. Shanghai +1.7% to 2,633. BSE +3.8% to 14,110.
• In Europe at midday, London flat. Paris +0.6%. Frankfurt +0.3%.
• U.S. futures: Dow +0.2%. S&P +0.2%. Nasdaq -0.1%. Crude +1.1% to $63.13. Gold -0.5% to $948.30.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  7:45 ICSC Retail Store Sales
  8:55 Redbook
  10:00 FHFA House Price Index
  10:00 Existing Home Sales
  10:30 EIA Petroleum Status
• Notable earnings before Wednesday's open: AEO, AZO, CHS, DLTR, RL, SPLS
• Notable earnings after Wednesday's close: TIVO

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns:]

Looks like the bond holders at GM do not intend to get robbed like Chrysler bond holders, maybe the rule of law will not go down with the stock this time.

May 27 08:49 AM

[AndrewBaker:]

I said it on here some while ago that the banks would sell their toxic assets between themselves at prices which would do well for them but not so well for the tax-payer who funded the TARP funds they seem to be using for their own ends. In addition, they carry on about paying much higher salaries to retain their staff: who wants 'em and who's hiring right now? Seems to me that if they had less of the staff they keep on overpaying, maybe we wouldn't have such a big financial crisis right now.

May 27 08:58 AM

[btex:]

The employees of GM should save GM, If it requires a pay cut of 20% to 30%, they would still make more than the average US worker. That is what companies all over the county are doing to save their jobs. This would cost taxpayers nothing.

May 27 10:48 AM

[notsosmart:]

this salary stuff is just more bs. let them quit & see if they can find a job.we are in a way on the hook now.let congress & the pres.know that its just more ponzi & getting around the rules & that seems to be the most compelling thing for these crooks & scoundrels.steal from the middle class as much as you can.

May 27 10:50 AM

[Joseph Sherman:]

Santander pays Madoff settlement. - Smart move. It tells clients that the Santander is behind them, that even if they the bank is not at full fault, they will still back up the client. This will do much more for the bank's reputation than the actual cost of the payments.

May 27 12:43 PM

[PainfullyAware:]

The TARP Rip-Off Is About To Be Supplanted By The PPIP Rip-Off As The Biggest Swindle In History.

Very "Interesting" Times.

May 27 12:46 PM

[bbowen7:]

The UAW says that Obama's commitment to GM is $50 billion. The Ayn Rand-esque question for the next decade is whether the private enterprise Ford can beat the nationalized/union controlled GM and Chrysler. I'm betting on John Galt.

May 27 02:32 PM

[axelrod608:]

>>..."paying off GM's secured lenders in full to expedite..." >> The feds every move is designed to pump taxpayer dollars into financials, this time the ones dumb enough to lend to GM. I've been shorting them for YEARS.

In what masquerades for "capitalism" in America, lenders no longer have any risk. Big nanny government just keeps shoveling federal monies to one and all, regardless of how stupid their lending standards are. "Interesting times", indeed.

May 27 02:50 PM

[notsosmart:]

not on topic-but anita hill should have been nominated to the supreme court.sorry.

May 27 02:50 PM

[Stocks007:]

*sigh* yet another round of sketchy economic reports. why don't the talking heads ever question the fact that there hasn't been a single upward revision of economic numbers in a long long time? take today's "better than expected" durable goods orders: wow, up 0.8% ex autos vs. the -0.3% estimate. yay! wait, last month was actually revised to -2.7% from -0.6%. hmm... so you're saying that over the last two months we're -1.9% (-2.7% Mar revised + 0.8% April actual) instead of the "worse" estimate of -0.9% (-0.6% unrevised March -0.3% Apr estimate). but hey, April looks better, feels better, must be better. cue the rally monkey.

May 28 08:40 AM