Wall Street Breakfast: Must-Know News

• GM in bankruptcy court. Bankrupt General Motors (GM) won court approval to auction its assets, with the lead bid coming from the Treasury and the goal of closing a sale in July. GM was also approved to borrow $15B of a planned $33.3B bankruptcy loan, and asked for permission to void seven corporate jet leases. The bankruptcy filing showed GM has more than 100,000 creditors and has debt of $172.8B, more than twice its assets. The automaker plans to launch a new company in 60-90 days, while the court supervises the sale or liquidation of unprofitable brands. GM said it reached a tentative deal with an undisclosed buyer to sell its Hummer brand at an undisclosed price. (Read Obama's remarks on the GM filing)
• Citi, GM booted from Dow. Citigroup (C) and General Motors (GM) were dropped from the Dow Jones Industrial Average, replaced by The Travelers Companies (TRV) and Cisco Systems (CSCO), respectively. Citi was dropped because the size of the government's intervention may prevent the stock from accurately reflecting industry trends. GM will be removed from the S&P 500 as well following the end of trading today, and will be replaced by DeVry (DV). Premarket: C -3.2%, CSCO +1.0% (7:00 ET).
• Prudential snubs bailout funds. Prudential Financial (PRU) became the latest life insurer to say it wasn't going to accept TARP funds, following the lead of Ameriprise Financial (AMP) and Allstate (ALL). The company plans to raise $1.25B through a common stock offering.
• JPMorgan, AmEx to repay TARP. JPMorgan Chase (JPM) and American Express (AXP) will sell $5B and $500M of common stock, respectively, in order to repay TARP. Both companies were stress-tested last month and told they don't need new capital, but the Fed said yesterday any firm seeking to repay bailout funds must first tap equity markets. Though still waiting for formal repayment approval, JPMorgan CEO Jamie Dimon said he would be 'very surprised' if they weren't able to refund the government in full by the end of the month. AmEx will make a partial repayment, and may increase its planned sale by $75M if demand is strong. Premarket: JPM -0.4%, AXP -1.5% (7:00 ET).
• Fed sets repayment rules. As some banks clamor to repay TARP funds, the Federal Reserve has promised to announce an 'initial set' of banks that were approved for repayment by next week. In addition to the Fed's new requirement that big banks must first sell common stock to private investors, firms will also have to maintain an extra capital cushion against market shocks and prove they can raise money without relying on FDIC loss-guarantees. (Read the Fed's repayment criteria)
• SunTrust plans stock offering. SunTrust Banks (STI) announced plans to sell $1.4B of common stock and buy back $1B of preferred shares and hybrid securities. Proceeds will be used to boost SunTrust's Tier 1 capital and help close the $2.2B capital hole identified in last month's stress tests. Shares -2.2% premarket (7:00 ET).
• EMC unexpectedly outbids NetApp. EMC Corp. (EMC) made an unsolicited bid to acquire Data Domain (DDUP) for $1.8B in cash, topping a bid by NetApp (NTAP) which agreed to buy the company two weeks ago for $1.5B. EMC, the largest maker of storage computers, wants Data Domain to expand in the market for systems that reduce the amount of disk space needed for data storage. EMC says it can pay for the deal in cash, while NetApp would have to offer more stock to meet EMC's offer. Premarket: DDUP +12.0% (7:00 ET).
• Citigroup freezes severance payments. Citigroup (C) is reportedly halting tens of millions of dollars in promised severance payments to five former top executives. Citigroup has already paid out more than half of the roughly $100M it promised the former executives, but has decided not to pay the balance in order to avoid even the possibility of a public backlash over the money. Although Citi is contractually obligated to pay the money, sources say the bank is betting the former execs will choose to avoid the public embarrassment of filing a lawsuit against the struggling, taxpayer-backed bank.
• Abu Dhabi sells Barclays stake. International Petroleum Investment Co., an investment vehicle of the Abu Dhabi royal family, plans to offload 1.3B shares in Barclays (BCS), pocketing a large profit in the process. IPIC made its £3.5B ($5.2B) investment in Barclays less than seven months ago, and gave the impression at the time of being a strategic long-term investor in the bank. IPIC will retain warrants that can be exercised for over 700M shares, and £1.5B in securities resembling preference shares. Barclays -12.2% premarket (7:00 ET).
• Personal income rises. Personal income rose 0.5% ($58.2B) in April vs. -0.2% consensus. Personal consumption expenditures fell 0.1% ($5.4B) vs. -0.2% consensus. Personal saving as a percentage of disposable personal income rose to 5.7% in April vs. 4.5% in March. However, it's "a seriously flawed metric when you can jam up the cost of necessities that people have to buy and then point to the increased spending on necessities as signs of a recovery."
• Manufacturing contracts. The ISM Manufacturing Index came in at 42.8 in May vs. 42 consensus, its 16th consecutive month of contraction. The overall economy grew after seven months of decline. Nonmetallic Minerals and Plastics & Rubbers reported growth. Textile Mills and Furniture led the laggards.
• Construction spending increases (.pdf). Construction spending rose 0.8% in April M/M vs. -0.8% consensus and -10.7% Y/Y. For the first four months of the year, construction spending fell 11.3% vs. the year earlier period.

Today's Markets

Asian markets closed slightly up, while European markets take a breather from yesterday's gains.
• In Asia, Nikkei closed +0.3% to 9,704. Hang Seng -2.6% to 18,389. Shanghai +0.1% to 2,724. BSE +0.2% to 14,875.
• In Europe at midday, London -0.6%. Paris -0.05%. Frankfurt +0.1%.
• U.S. futures: Dow +0.1%. S&P +0.2%. Nasdaq +0.3%. Crude -0.5% to $68.20. Gold -0.01% to $978.50.

Tuesday's Economic Calendar

• Motor Vehicle Sales
  7:45 ICSC Retail Store Sales
  8:55 Redbook
  10:00 Pending Home Sales
  5:00 PM ABC Consumer Confidence Index
• Notable earnings after Tuesday's close: HOV, SNDA, PAY

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[AndrewBaker:]

Well, well! So the banks are raising equity to pay back TARP. How predictable: their stock prices were in tatters not so long ago, and the government with our tax dollars bailed them out. Now we've had a couple of months stock price ramping, especially the banks and financials, so they can sell new shares at a much higher price to raise cash to pay back the government on the cheap. And the new overpriced stock will be sold to ...? You've guessed it, tax-payers. We get a double whammy. I won't be buying any of this new stock until the price has fallen to what may be considered a realistic level, which is nowhere where it is now. Trouble is, many mutual funds and 401k will be buying with our money, whether we like it or not. So, a triple whammy for some!

Jun 02 09:23 AM

[notsosmart:]

what else is new.the fleecing of the dumb sheeples continues.there is a way around everything & the scoundrels either find it or create it.there is no free market,never was or will be.soon the chinese will learn our ways if they havent already.so you now have international ways of getting screwed.here or overseas its all ponzi.

Jun 02 09:59 AM

[Drew Horn:]

You must admit, the whole thing gets to be more complex and interesting daily. It reminds me of the fellow on a street corner with a pea and walnut shells. He shows you exactly what he is doing, you understand it because what you see reinforces his claims, but ----- do you really see? Do you think you know? Do his actions move faster than your mind can comprehend?

Banks "too big to fail" take billions one day and give them back the next. Insurance companies (too big to fail) sell policies but have little or no reserves to pay claims but continue to sell "insurance". Mortgage borrowers & lenders commit fraud and tip the worlds economy into panic, and are then encouraged to use a future unearned tax credit for a down payment on the next house and mortgage.

The most interesting thing about this street corner game is that the fellow with the shells and pea is the president of the United States. And the people continue to watch and play his game!

Jun 02 10:40 AM

[Drew Horn:]

You must admit, the whole thing gets to be more complex and interesting daily. It reminds me of the fellow on a street corner with a pea and walnut shells. He shows you exactly what he is doing, you understand it because what you see reinforces his claims, but ----- do you really see? Do you think you know? Do his actions move faster than your mind can comprehend?

Banks "too big to fail" take billions one day and give them back the next. Insurance companies (too big to fail) sell policies but have little or no reserves to pay claims but continue to sell "insurance". Mortgage borrowers & lenders commit fraud and tip the worlds economy into panic, and are then encouraged to use a future unearned tax credit for a down payment on the next house and mortgage.

The most interesting thing about this street corner game is that the fellow with the shells and pea is the president of the United States. And the people continue to watch and play his game!

Jun 02 10:41 AM

[Drew Horn:]

You must admit, the whole thing gets to be more complex and interesting daily. It reminds me of the fellow on a street corner with a pea and walnut shells. He shows you exactly what he is doing, you understand it because what you see reinforces his claims, but ----- do you really see? Do you think you know? Do his actions move faster than your mind can comprehend?

Banks "too big to fail" take billions one day and give them back the next. Insurance companies (too big to fail) sell policies but have little or no reserves to pay claims but continue to sell "insurance". Mortgage borrowers & lenders commit fraud and tip the worlds economy into panic, and are then encouraged to use a future unearned tax credit for a down payment on the next house and mortgage.

The most interesting thing about this street corner game is that the fellow with the shells and pea is the president of the United States. And the people continue to watch and play his game!

Jun 02 10:41 AM

[spald_fr:]

Autos from Government Motors — “The cars so nice, you’ll pay for them twice”

Jun 02 11:39 AM

[TBill:]

So why the rush to pay back the TARP money? Not often a company turns away from free $$$. How does this benefit the stockholders? ANS: it doesn't. It's all about getting rid of the government strings that come with it, specificly the limits on CEO pay. Hits them where they live, right in the name of the game.

Jun 02 12:46 PM

[long_on_oil:]

GM sells Hummer to Chinese...lol None of the GM companies out of the United States are included in the bankruptcy. If that is true what is the name of the company holding all the overseas stuff? Is it the 75c GM. Is GM using the money we are giving them to shore up the overseas stuff not included in the bankruptcy? Nixon and Watergate and Bill Clinton and his problems were nothing compared to this gang currently in control of our government.
Chrylser and parts of GM being forced to be sold to Fiat...what a joke...time to see who is benefiting within Fiat.
The American people are so politically blinded they can't even feel the pickpocket robbing them blind.

Jun 02 01:15 PM

[Victhom:]

NOW CRAMER SEE JPM at $60

with P/E of 32

Sorry but i will buy UK Bank Barclays (BCS) with P/E of 4.83 at $18.30 and dividend is coming in Q3

Cramer/theStreet.Com raised its outlook for JPM today, 2Jun09:

JPMorgan (JPM Quote) estimates raised at Morgan Stanley through 2011. Overweight rating and $60 price target.

Jun 02 01:46 PM

[bobbobwhite:]

China is buying Hummer.........the only way that vehicle could ever be built worse and be more unreliable than it was before.

Detroit just keeps outdoing itself with junk decisions.

Jun 02 02:53 PM

[Just Say Whoa!:]

>The most interesting thing about this street corner game is that the fellow with the shells and pea is the president of the United States. And the people continue to watch and play his game

Oh yeah!

Most people done left the Republican party almost 30 years ago when the St. Reagan Administration initiative Garn-St. Germain Depository Institutions Act of 1982 made ARM loans legal and loosened down payment requirements paving the way to NO MONEY DOWN loans.

Yeah, that's the day when keen observers like you left the Republican party shellgame...

en.wikipedia.org/wiki/...

Jun 02 04:19 PM

[Justice Kinky:]

Great comment! Fascinating isn't it? What's really exciting is watching the whole thing play out. If there was ever a time where it was possible to do the impossible, this is it!
Hope you're playing and not just watching from the sidelines. Good luck.


On Jun 02 10:41 AM Drew Horn wrote:

> You must admit, the whole thing gets to be more complex and interesting
> daily. It reminds me of the fellow on a street corner with a pea
> and walnut shells. He shows you exactly what he is doing, you understand
> it because what you see reinforces his claims, but ----- do you really
> see? Do you think you know? Do his actions move faster than your
> mind can comprehend?
>
> Banks "too big to fail" take billions one day and give them back
> the next. Insurance companies (too big to fail) sell policies but
> have little or no reserves to pay claims but continue to sell "insurance".
> Mortgage borrowers & lenders commit fraud and tip the worlds
> economy into panic, and are then encouraged to use a future unearned
> tax credit for a down payment on the next house and mortgage.
>
> The most interesting thing about this street corner game is that
> the fellow with the shells and pea is the president of the United
> States. And the people continue to watch and play his game!

Jun 03 07:59 AM

[Sovestor:]

GM is bankrupt. Question is: Will Ford follow the same path? Ford is not as safe at its CEO wants to tell the world. Check the debt level....enormous. How about the operating cash flow, capex, debt interest payment,....very discouraging data.

Jun 03 06:25 PM

[Nelsanity:]

Mulally secretly wants to go into bankruptcy. Ford is now operating at a competitive disadvantage with respect to Chrylser and GM. Those two companies are getting massive amounts of debt chopped off. As you mentioned Ford has an enormous amount of debt which they recently refi'd and roll'd over.


On Jun 03 06:25 PM Sovestor wrote:

> GM is bankrupt. Question is: Will Ford follow the same path? Ford
> is not as safe at its CEO wants to tell the world. Check the debt
> level....enormous. How about the operating cash flow, capex, debt
> interest payment,....very discouraging data.

Jun 03 10:37 PM