Wall Street Breakfast: Must-Know News

• CIT warns of failure ripple effect. Lender CIT Group (CIT), which has been unable to get the FDIC to guarantee its debt, has warned its collapse would jeopardize the future of 760 manufacturing clients and 'precipitate a crisis' for as many as 30,000 retailers. The comments came from internal documents making the case for CIT's importance to the U.S. economy and followed the company's decision to hire a law firm to prepare for a possible bankruptcy filing, though CIT is also working on a plan to ease its liquidity crunch. CIT's bonds and stock have fallen in recent days (shares -17.7% on Friday) over concerns about its financial position, and Fitch Ratings thinks the company could default as soon as April 2010 when a $2.1B credit line matures.
• U.S., UBS ask for more time. The U.S. government and UBS (UBS) jointly asked the court for a stay in their closely-watched trial over tax evasion. The two sides had been set to meet in court at 9am this morning, but asked that the trial be postponed until August 3 to allow the Swiss and U.S. governments to continue negotiations. In a separate court filing yesterday, the Justice Department said it's prepared to step up its legal fight against UBS, but didn't detail what penalties it might impose aside from unspecified 'monetary sanctions.'
• MSFT raises stakes in Google battle. The battle between Microsoft (MSFT) and Google (GOOG) is heating up, with Microsoft set to move forward this week with online versions of some of its key software, including plans for a 'cloud' operating system. Google, which last week announced plans to launch its own PC operating system, has been pushing to bring its internet platform to PCs, while Microsoft is pushing its PC platform onto the internet.
• No friends for Resolution, for now. Buyout group Resolution made an initial £1.7B ($2.7B) takeover approach for life insurance firm Friends Provident (FRDPY.PK) but was turned down by Friends' board. Despite the rejection, Resolution said it received 'constructive feedback' from the board and will consider whether to make a bid. Resolution plans to buy three or four life insurers over the next 18 months. Friends Provident +7.7% in London (7:00 ET).
• BoA tries to duck $4B gov't fee. Bank of America (BAC) is trying to avoid paying a hefty fee to the U.S. government for guarantees against losses at Merrill Lynch. Bank executives argue the rescue agreement was never signed and the funding never used, but regulators contend the company benefited from implied U.S. backing on $118B of Merrill Lynch assets and are trying to collect at least part of the $4B fee.
• RHJ attempts to outbid Magna. Magna International (MGA) is losing its lead position in talks to buy General Motors' Opel unit, prompting RHJ International to prepare an improved bid that it will submit today or tomorrow following 'advanced stage' talks. RHJ's improved plan includes guarantees to keep plants open, and the company will likely ask for €3.8B in guarantees from the German government vs. Magna's request for €4.5B. However, German states with Opel plants are worried about RHJ's bid, calling Magna the 'best solution,' followed by Fiat.
• VW sweetens Porsche bid. German magazine Der Spiegel reported over the weekend that Volkswagen (VLKAY.PK) raised its bid for 49.9% of Porsche and is ready to offer substantially more than €4B ($5.6B). According to the report, Porsche still views the new bid as inadequate and prefers a €7B investment plan presented by Qatar.
• Airlines face credit crunch, bankruptcies. The U.S. airline industry could see a wave of bankruptcy filings by the winter if conditions don't improve. Facing a steep drop in travel demand and a difficult lending environment, all five of the largest hub-and-spoke carriers (American Airlines (AMR), Delta (DAL), United Airlines (UAUA), Continental (CAL) and US Airways (LCC)) are expected to report Q2 losses when they report earnings this week and next. Discount carriers like Southwest Airlines (LUV) and JetBlue (JBLU) are doing moderately better than their larger peers, but Southwest is the only U.S. airline left with an investment-grade credit rating and Moody's has negative outlooks on eight of the nine largest carriers. Premarket: UAUA -6.1% (7:00 ET).
• Kirin, Suntory mull mega-beverage merger. Japan's Kirin Holdings (KNBWY.PK) and Suntory Holdings are in merger talks to create a food-and-beverage giant with combined 2008 sales of ¥3.8T ($41.1B), including ¥1.2T worth of beer sales. A combined entity would pose serious competition to Anheuser-Busch InBev, the world's leading brewer.
• Friday failure. Regulators closed Bank of Wyoming, Thermopolis, Wyoming on Friday, marking the 53rd bank failure of the year. The closure is expected to cost the FDIC $27M.

Earnings: Monday Before Open

• Fastenal Company (FAST): Q2 EPS of $0.29 misses by $0.04. Revenue of $475M (-21.4%) vs. $487M. Shares -5.8% premarket (7:00 ET). (PR)

Today's Markets

Asian markets closed broadly lower, while European markets edge into positive territory and U.S. futures are mostly flat.

• In Asia, Nikkei -2.55% to 9,050. Hang Seng -2.6% to 17,255. Shanghai -1.1% to 3,081. BSE -0.8% to 13,400.
• In Europe at midday, London +0.2%. Paris +0.3%. Frankfurt +0.2%.
• Futures: Dow flat. S&P flat. Nasdaq -0.2%. Crude +0.1% to $59.94. Gold +0.1% to $913.40.

Monday's Economic Calendar

• 2:00 PM Treasury Budget
• Notable earnings before Monday's open: FAST
• Notable earnings after Monday's close: CSX, NVLS

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[Old Trader:]

If CIT goes under, it'll be the largest bank failure since WaMu....green shoots, indeed...

Jul 13 08:26 AM

[Paul Zimbardo:]

Another test for the Federal government and the FDIC: Is CIT too big/important/connected to fail? Or in the words of the Mark Calabria a director of financial regulation at the Cato Institute in Washington, is CIT "systemically important"? Based upon the early news, it appears as if CIT will just miss out on that "elite" classification.

Nothing like the potential failure of an institution with over $75B in assets to kick of a trading week!

Jul 13 08:31 AM

[robert.b.fe...:]

Which airlines will be owned by the union and uncle sugar by this time next year? Are any of them on the friends of Barak list? Apearently CIT isn't. They must have supported republicans.

Jul 13 08:48 AM

[Joseph Sherman:]

VW sweetens bid for half of Porsche - The key for Porsche is to serve the tribe, to keep the aura of the 911 alive.

Jul 13 10:26 AM

[David White:]

GS is looking like a shoe in to do well this earnings season. If it also issues good guidance, it may help to lift the market. If a few other big companies manage to do the same, the market may start upward again.

If we get an upward move, the rain situation in India may help you make some profits. There has generally been a lack of rain in India this rain season (monsoon season). Recently it has begun to rain in southern and central India. However, the northern India states of Punjab and Haryana are still without significant rain. These are crucial for agriculture production.

India is one of the biggest population centers in the world. If they have a food shortage, it will be felt worldwide. If the markets start upward again, look for the Agriculture stocks to benefit from this situation: MON, POT, MOS, TRA, BG, CF, AGU, IPI, etc.

Jul 13 10:39 AM

[bbowen7:]

One would hope that the parties in the UBS /Swiss/US confrontation could find a good answer. How about an agreed third party to review the Swiss accounts periodically, using an agreed set of criteria to identify customers who should be turned over to the IRS. If they can't get to something like this, and Obama concedes without significant penalties against the Swiss bank, the improvements made in several other tax havens will go for naught.

Before getting into how much to increase the taxes of the rich to fund Obama's expensive agenda, it would seem politically necessary to do everything possible to make sure that the tax evaders are stopped.

Jul 13 10:43 AM

[jackooo:]

CIT will get the money from the government. It's just a government game folks. How long have you been in the market?

Jul 13 12:02 PM

[AndrewBaker:]

Well they're really going for it today: banks and financials are rising once again on hot air. I guess this is in advance of results coming out which won't be good but will be accompnaied by rousing comments of how good the future is looking, given without any evidence to support this, of course.

Maybe they hope that the people they've pushed into buying at these higher prices will be scared to sell and take a loss even though they will soon see that the ramping was just that, and that will hold up the prices.

Fake figures - such as booking the drop in your bond values as profit because you could buy them back for less - will abound in these forthcoming results: caveat emptor, and take advantage of current ramping to get out at these prices before the big fall that awaits.

Jul 13 01:21 PM

[AndrewBaker:]

Microsoft and Google are both well aware that cloud computing is the future. Microsoft now knows that it can't rely on the PC anymore, hence it's current moves. Google has been moving along in this arena for some time and looks like it could be stealing a march on Microsoft.

There are other companies out there working in this field, and as I've said before, those who like to go long with a buy and hold (for as long as profitable) strategy could do well to look into these companies.

I like - and own - VM Ware (VMW), but there are several other tech stocks that will profit as cloud computing becomes more mainstream. If you're uncertain as to your usual trading, spend some time looking into this: it could prove very profitable.

Jul 13 01:28 PM

[Buckoux:]

I agree. It is a natural evolution of the PC to become a private terminal of a public/private mainframe.

On Jul 13 01:28 PM AndrewBaker wrote:

> Microsoft and Google are both well aware that cloud computing is
> the future. Microsoft now knows that it can't rely on the PC anymore,...

Jul 13 02:06 PM

[robert.b.fe...:]

I have had F Five (FFIV) Networks for awhile and it's still up substantially I'll take profit at $38 or on an 8% pull back which ever occurs first.


On Jul 13 01:28 PM AndrewBaker wrote:

> Microsoft and Google are both well aware that cloud computing is
> the future. Microsoft now knows that it can't rely on the PC anymore,
> hence it's current moves. Google has been moving along in this arena
> for some time and looks like it could be stealing a march on Microsoft.
>
>
> There are other companies out there working in this field, and as
> I've said before, those who like to go long with a buy and hold (for
> as long as profitable) strategy could do well to look into these
> companies.
>
> I like - and own - VM Ware (seekingalpha.com/symbo...),
> but there are several other tech stocks that will profit as cloud
> computing becomes more mainstream. If you're uncertain as to your
> usual trading, spend some time looking into this: it could prove
> very profitable.

Jul 13 04:58 PM