- Last gasps from CIT. Stating the obvious, Fitch Ratings said a "default of some kind appears imminent or inevitable" for CIT Group (CIT), and cut CIT's credit rating seven notches to C. CIT continues to 'evaluate alternatives' and look for $2-3B of private financing, while bondholders were discussing a plan last night to swap $5B in debt for equity. The lender's retail and manufacturing customers were less than reassured, and some companies stopped shipments ahead of an expected bankruptcy-related cash shortage. Sources reiterated a bankruptcy filing could come as soon as this morning.
- GE's profits shrink. Q2 profits at GE (GE) plunged 47%, exceeding analysts’ estimates (see below); GE's finance and media units dragged down aggregate performance. GE shares are down 56% over the past 12 months as investors fret its exposure to credit market losses, complicated by the loss of its coveted AAA rating, and after it cut its dividend for the first time in 60 years. CEO Jeff Immelt called the results "solid," and said GE is working to control costs and maintain its backlog, and is focusing on higher-margin services.
- Google beats but sales slow. Google (GOOG) posted better-than-expected earnings (see details below) but also reported slowing sales, suggesting a tech sector bounceback may take longer than some investors anticipated. Sales were up 2.9% for the quarter vs. a 6.2% gain in Q1. Google also received lower prices for its ads.
- Little learned in Paulson testimony. Former Treasury Secretary Henry Paulson testified in Congress yesterday on the government's role in the Bank of America (BAC) merger with Merrill Lynch, and said he acted appropriately in warning CEO Ken Lewis he could lose his job if he backed out of the deal. The hearing produced plenty of grandstanding as lawmakers angrily attacked Paulson but shed little light on what actually happened. (Read Paulson's testimony (.pdf))
- The Roubini rally. "Dr. Doom" Nouriel Roubini was surprised by media reports that he had improved his economic outlook and expected the recession to end this year, positive comments that helped lift stock markets. Roubini said his views haven't changed and that his comments were likely taken out of context. He does not expect any economic growth before the end of the year and forecasts "a shallow, below-par and below-trend recovery where growth will average about 1% in the next couple of years."
- RHJ bids $388M for Opel. In an attempt to beat out Magna International (MGA), RHJ International has submitted a formal bid for General Motor's Opel unit. RHJ wants to buy a 50.1% stake for €275M ($387.6M) and plans to initiate production cutbacks and pay cuts. The offer requires €3.8B in government guarantees, vs. the €4.5B Magna requested.
- House fights for auto dealerships. The House of Representatives approved a plan to force General Motors and Chrysler to restore agreements with dealerships that were cut loose during bankruptcy proceedings. The measure, which Obama opposes, passed with a fairly split vote of 219-208 and next goes to the Senate where its fate is unclear. Senate Majority Leader Harry Reid said plainly "when you have a bankruptcy, there are winners and losers,” which is "unfortunate, but that’s the way bankruptcy courts operate.”
- Berkshire is the mysterious 'Party M.' Berkshire Hathaway (BRK.A) is reportedly the secret 'Party M' mentioned in regulatory filings that offered $1.7B in cash to buy reinsurer IPC Holdings (IPCR) earlier this month. IPC ultimately rejected that bid in favor of a lower stock-and-cash offer from Validus Holdings (VR).
- IBM raises outlook. IBM (IBM) beat analysts' forecasts with its Q2 earnings (see details below) and sharply raised its full-year outlook. The company now expects 2009 earnings of at least $9.70 per share, up from $9.20 per share, as it benefits from its focus on higher-margin businesses in software and services. Despite a pullback in corporate spending, the company says it's well ahead of its plan to reach earnings of $10-11 per share in 2010.
- Jobless claims fall. Initial jobless claims came in at 522K, down 47K from a week ago (revised), better than the 535K consensus and the lowest since January. Continuing claims fell 642K to 6.27M.
- NAHB index pulls up. NAHB's homebuilder sentiment index rose to 17, the highest since last September and not far from the readings seen in late 2007. Though it's a marked improvement over January's all-time low of 8, anything below 50 is considered negative.
- Treasury International Capital. In May, net foreign purchases of long-term securities were -$19.8B, with foreigners picking up $7.9B in U.S. securities, and Americans buying $27.7B in foreign securities. Foreign holdings of T-bills were up by $53.1B.
- Philly business outlook. The Philadelphia Fed's Business Outlook registered -7.5, down from -2.2. The index has been negative for 19 of the past 20 months. The six-month activity index also fell, from 60.1 to 51.9.
Earnings: Friday Before Open
- Bank of America (BAC): Q2 EPS of $0.33 beats by $0.05. Revenue of $32.77B vs. $33.10B. Tier 1 ratio 11.93%. (PR)
- GE (GE): Q2 EPS of $0.26 beats by $0.03. Revenue of $39.08B (-16.6%) vs. $42.16B. 13% growth at Energy Infrastructure was more than offset by an 80% decline at Capital Finance and a 41% decrease at NBC Universal. Tier 1 ratio was 7.4%. Believes its share in stimulus-based projects, which has been limited, will increase in H2. (PR)
- First Horizon (FHN): Q2 EPS of -$0.58 misses by $0.25. Revenue of $491M (-18.7%) vs. $566M. Tier 1 ratio 9.5%. Provision for loan losses decreased to $260M from $300M in Q1. Net chargeoff ratio increased to 4.77% from 3.97% in Q1. (PR)
- Mattel (MAT): Q2 EPS of $0.06 beats by $0.06. Revenue of $898M (-19.3%) vs. $970M. (PR)
Earnings: Thursday After Close
- Cytec Industries (CYT): Q2 EPS of -$0.01 misses by $0.02. Revenue of $685M (-32%) vs. $660M. Sees FY09 EPS of $0.60-0.90 vs. $0.69. (PR)
- Google (GOOG): Q2 EPS of $5.36 beats by $0.27. Revenue of $4.1B ex-traffic acquisition costs (+3%) in-line. Y/Y: Site revenues up 3%; network revenues up 2%; paid clicks up 15%. (PR)
- IBM (IBM): Q2 EPS of $2.32 beats by $0.30. Revenue of $23.3B (-13%) vs. $23.6B. Sees FY09 EPS of at least $9.70 (had seen $9.20) vs. $9.15. (PR)
- People's United Financial (PBCT): Q2 EPS of $0.08 beats by $0.02. Net interest income of $142M. (PR)
- Tempur-Pedic International (TPX): Q2 EPS of $0.22 beats by $0.04. Revenue of $185M (-22%) vs. $173M. Reaffirms FY09 EPS of $0.70-0.90 vs. $0.79 and FY09 revenues of $700M-740M vs. $719M. (PR)
Strong gains in Asia and Europe overnight, but futures are hugging breakeven.
- Asia: Nikkei +0.55% to 9,395. Hang Seng +2.42% to 18,806. Shanghai +0.19% to 3,190. BSE +3.47% to 14,745.
- Europe at midday: London +0.9%. Paris +0.9%. Frankfurt +0.8%.
- Futures at 7:00: Dow -0.1% to 8663. S&P -0.1% to 935. Nasdaq +0.1%.
30-year Tsy +0.11%. Euro -0.4% vs. dollar. Yen flat. Pound -1%.
Crude -0.1% to $61.92. Gold -0.1% to $934.
Friday's Economic Calendar
Seeking Alpha editor Eli Hoffmann contributed to this post.
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