Wall Street Breakfast: Must-Know News

• Fed raises capital calls. The Federal Reserve has surprised banks by demanding they raise a specific amount of capital before repaying TARP, applying more stringent requirements than last month's stress tests. JPMorgan Chase (JPM) and American Express (AXP), neither of which needed additional capital after the stress tests, were told to boost common equity. Morgan Stanley (MS) needed another $1.8B after the stress tests and proceeded to raise $4.6B, only to be told this week it needs $2.2B more to repay TARP. A notable exception is Goldman Sachs (GS), which hasn't been asked to raise more money since pulling in $5.75B in a stock offering.
• Successful Morgan offering follows banking trend. Morgan Stanley (MS) had a successful $2.3B common stock offering to help it repay TARP funds. Sovereign wealth fund China Investment Corp. bought 44.7M shares for $1.2B, raising its stake back to around 9.9%. Mitsubishi UFJ Financial Group (MTU) agreed to purchase 16M shares, bringing its Morgan stake to around 20%. Stress-tested banks have sold at least $65B worth of shares since test results were announced May 7.
• Chrysler's Ch. 11 exit delayed. A federal court agreed to hear an appeal related to Chrysler's bankruptcy, potentially postponing the automaker's exit from Chapter 11 protection by at least several days. The appeal comes from a group of Indiana pension funds who oppose the sale of most of Chrysler's assets to Fiat.
• TALF gains some momentum. The Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF, picked up pace in June as investors grew more comfortable with the government initiative and risk appetite rose. Investor demand for Fed loans increased to around $11.5B in June, an 8% bump from May and a 145% rise from the first round in March.
• SEC eyes pay disclosures. The SEC is planning to propose that companies expand their pay disclosures to include compensation practices for lower-ranking employees, expanding disclosures beyond the executive suite for the first time. The proposal is part of a review of executive-pay practices the SEC believes may have encouraged financial firms to take on too much risk.
• Hummer bought by Chinese firm. The mystery buyer for GM's (GM) Hummer brand is Sichuan Tengzhong Heavy Industrial Machinery, an obscure Chinese construction-equipment maker. The price of the deal wasn't disclosed, but is likely less than $500M. GM estimates the sale will preserve 3,000 U.S. factory and dealership jobs.
• DoJ probes tech firms on antitrust breaches. The Justice Department launched an inquiry into whether several large technology companies violated antitrust laws by agreeing not to actively recruit employees from each other. Among the companies being investigated are Google (GOOG), Yahoo (YHOO) and Apple (AAPL). Sources say the Justice Department has already issued formal requests for documents and information to several of the companies involved.
• Car sales fall. U.S. car sales fell again in May, dropping 34% to 925,824 vehicles, but showed some signs of stabilization as Ford, General Motors and Toyota reported their highest monthly totals this year. Here's the breakdown:
  -General Motors (GM): Sales fell 29.6% from a year ago to 191,875 (vs. consensus of -37%), but gained 11% vs. April.
  -Ford (F): Sales fell 24.2% (vs. -29% consensus), but were up 20% from April to 155,954 - the highest since July 2008. Inventories fell by 41,000 to 350,000. Says it's boosting Q2 production by 10,000 vehicles to 445K.
  -Chrysler: Sales fell 47% to 79,010 vehicles. The drop was steeper than other carmakers' but in-line with Chrysler's performance in the last several months as it headed towards bankruptcy.
  -Toyota (TM): Sales fell 40.7% to 152,583. Lexus sales fell 46% but were up 17.9% from April.
  -Honda (HMC): Sales fell 39.2% to 98,344. YTD sales are down 33.3% compared to last year. Hybrid sales were up 7.5%.
  -Nissan (NSANY): Sales fell 33% to 68,489 (vs. consensus of -37%).
• Google gets aggressive. In a direct challenge to Microsoft (MSFT), Google (GOOG) is offering its free Android operating system for use on computers. Acer, the world's second-largest laptop maker, will release an Android-run netbook by next quarter. Asustek Computer has also developed a model based on Android. Earlier this week, Google said it plans to launch a program to let publishers sell digital versions of their books directly to consumers, a move that would put Google in competition with Amazon (AMZN) and its e-reader Kindle.
• Oracle sees netbooks in its future. Oracle (ORCL) CEO Larry Ellison said the software company may enter the market for netbooks after its planned acquisition of Sun Microsystems (JAVA). A spokesman declined to elaborate, but Oracle would likely focus on producing software for netbooks rather than the hardware.
• Changes ahead for credit card firms. Visa (V) CEO Joseph Saunders warned the credit card industry will be forced to restructure as new U.S. legislation changes the industry's revenue expectations. In particular, he expects the new rules to "result in less credit being offered to less people." The legislation, which curbs the ability of credit card firms to raise interest rates or impose certain fees, will go into effect in February 2010.
• Retail sales dip down. Chain store sales fell 0.3% in the first four weeks of May vs. last month, Redbook reported, worse than the -0.1% expected. According to ICSC, weekly sales were down 0.6% vs. last week, but "the year-over-year pace remains positive which may indicate some rebounding of sales."
• MBA apps fall. Mortgage applications fell 16.2% last week, MBA reported, as mortgage rates rose sharply. The average interest rate on 30-year fixed-rate mortgages rose to 5.25% from 4.81%.
• Home sales jump. Pending home sales rose for the third consecutive month, jumping 6.7% in April M/M and rising 3.2% Y/Y. The National Association of Realtors said buyers are responding to very favorable market conditions, and expects "greater activity in the months ahead."

Earnings: Wednesday Before Open

• Joy Global (JOYG): FQ2 EPS of $1.17 beats by $0.28. Revenue of $924M (+9.6%) vs. $872M. Issues upside EPS guidance for FY '09 of $3.80-$4.00, the upper half of its previous guidance. Sees FY '09 revenue of $3.5-$3.6B, the lower half of its previous guidance. (PR)
• Toll Brothers (TOL): Q2 EPS of -$0.52 misses by $0.02. Revenue of $398M (-51.3%) vs. $395M. (PR)
• Williams-Sonoma (WSM): Q1 EPS of -$0.14 beats by $0.07. Revenue of $612M (-21.7%) vs. $610M. Issues in-line guidance for FY '09; sees revenue of $2.81-$2.93B vs. $2.87B consensus. (PR)

Earnings: Tuesday After Close

• Hovnanian (HOV): FQ2 EPS of -$1.50 misses by $0.24. Revenue of $398M (-48.7%) vs. $348M. Says cancellation rate of 24% is "more normalized." Warns expiry of $8K tax credit and other factors could drive future weakness. (PR)
• Shanda Interactive Entertainment (SNDA): Q1 EPS of $0.78 beats by $0.04. Revenue of $162M (+42%) vs. $156M. (PR)
• Veriphone (PAY): FQ2 EPS of $0.17 beats by $0.02. Revenue of $202M (-13.5%) vs. $208M. (PR)

Today's Markets

Asia markets were mixed Wednesday but stocks in Europe have moved lower and futures are down in sympathy.

• Asia: Nikkei +0.38% to 9,472. Hang Seng +1.02% to 18,576. Shanghai +1.99% to 2,779. BSE -0.03% to 14,871.
• Europe at midday: London -1.8%. Paris -1.2%. Frankfurt -0.6%.
• Futures at 7:00: Dow -0.4% at 8675. S&P -0.6% to 937. Nasdaq -0.4%.
• Crude -0.4% at $68.26. Gold flat at $983.
  30-year Tsy +0.4%. 10-year +0.33%. 5-year +0.21%. 2-year +0.04%.
  Euro -0.4% vs. dollar. Yen -0.25%.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  7:30 Challenger Job-Cut Report
  8:15 ADP Jobs Report
  10:00 Bernanke testifies on challenges to the economy
  10:00 Factory Orders
  10:00 ISM Non-Manufacturing Survey
  10:30 EIA Petroleum Status
• Notable earnings before Wednesday's open: JOYG, TOL, WSM
• Notable earnings after Wednesday's close: ADCT, PSS, SAI

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Night_Rider:]

When $400,000 homes get down to $50,000 I'm a buyer.

Jun 03 08:14 AM

[Joseph Sherman:]

Hummer bought by Chinese firm. - Is this the automobile industry version of Lenovo buying IBM's PC business? Hummer started to lose when it became too much like a regular SUV. The smaller versions looked something like the original and somewhat like their competitors. Rather than try to mass market the Humvee and make cheaper, smaller editions, GM would have been better off selling limited versions of the original HMMWV.

Jun 03 11:39 AM

[Prudent Man...:]

Little talk about the Chinese students laughing at Geithner on his strong dollar statements. Wish our students were that perceptive.

I don't think we will have stability in this economy until the Administration understands that the more they continue to change the rules of the game the more animosity they will get from what has been a passive business response to Socialism.

Jun 03 11:48 AM

[backtoreality:]

joe..the humvee was a disaster because the army wanted a replacement for the jeep as a recon vehicle...fubar because they chose a big lumbering gas hog...less mobility than the jeep, no more fire power than the jeep, no more protection than the jeep...totally vulnerable to the roadside bomb.

it lacks all three of the requirements for a military vehicle....eg...mobility, firepower, protection

result..gm got a taxbreak for rich people to buy the hummer and make themselves conspicuous like driving a tank down the highway....failure as a military vehicle and failure as a civilian suv.

you will never see a hummer on the streets or roads of china...they will sell them to rich people in the middle east, africa..and maybe the u.s.


On Jun 03 11:39 AM Joseph Sherman wrote:

> Hummer bought by Chinese firm. - Is this the automobile industry
> version of Lenovo buying IBM's PC business? Hummer started to lose
> when it became too much like a regular SUV. The smaller versions
> looked something like the original and somewhat like their competitors.
> Rather than try to mass market the Humvee and make cheaper, smaller
> editions, GM would have been better off selling limited versions
> of the original HMMWV.

Jun 03 02:16 PM

[AndrewBaker:]

So, now Obama is getting tougher on the banks, is he? They've managed to sell loads of new stock at ridiculously high prices, and what is happening now? Their stock prices are falling. Surprised anyone? Not me. A little sabre rattling from Washington will make a good excuse for the drop, and the money wanted was got on the cheap. I wonder how long it will be before nice things are being said again about how well the banks are managing: this is just another version of the "good cop, bad cop" routine, being played out in the politico-financial realm. After a decent interval, one day someone will write a soap about it. At least it may keep Jimmy Smits in work for a longer time.

Jun 03 02:22 PM

[sticktoitiv...:]

"Mortgage applications fell 16.2% last week"
"Pending home sales rose for the third consecutive month, jumping 6.7%"
2+2=5? People are buying without a mortgage, or seller financing (inactive of sophisticated investors),or rich people with below average leverage.

Jun 03 02:23 PM

[sticktoitiv...:]

Inactive? Indicative, I apologize.

Jun 03 02:26 PM

[TBill:]

So the banks are told to raise capital before they will be allowed to give their taxpayer money back. OK, so they do, then they are told "Sorry, that's not enough. [hee hee]" When will it dawn on them that they will never be allowed to pay the money back and get free of government controls.... unless they are Goldman with a lot of political pull.... or they pay off the right people/entities?

Jun 03 05:19 PM

[Sovestor:]

Global markets will likely move sideways in the next few months as financial companies globally are in the midst of capital raising activities to strengthen their balance sheets (but this activities will dilute existing shareholders).

Jun 03 06:12 PM

[Eddielu16:]

Amazon will pop over the next 2 weeks as the Kindle DX will debut. It is not going to save the newspaper industry as some have suggested, but will for sure revolutionize the education industry just like how Apple's iPod turned the portable MP3 market around.

www.wealthalchemist.co.../

Recommendation? BUY BUY BUY! Amazon is going to $100.

Jun 04 06:37 PM

[jing:]

Hummer sale is not finalized yet, and may not get the regulatory approval from the Chinese government. The company who is in negotaition with GM is NOT state-owned, and is a subsidiary of a complex and confusing regional financial investment company in Sichuan. There was some speculation from the Chinese blogging site that this regional investment company is in the process of raising capital (public listing, etc), and need some big events (like this) to galvanize its image A lot of the details are still in gray. More to come.

Jun 06 02:11 PM