Wall Street Breakfast: Must-Know News

• UBS tax talks stall. Talks to settle a tax dispute with UBS (UBS) have stalled once again as the U.S. and Swiss governments try to find a legal middle ground allowing the transfer of some client data to U.S. authorities. The two countries, which have until August 12 to reach a deal, have agreed in principle on the major issues but the technical details, and in particular the data transfer timeline, are still not finalized. The Swiss government is holding a special session today in light of the stalled negotiations.
• Publicis catches a fish. Publicis (PUBGY.PK) will buy Microsoft's (MSFT) ad agency Razorfish in a cash-stock deal worth $530M, roughly 1.5 times Razorfish's 2008 sale of $380M. Publicis is already the leader in digital advertising, which is one of the few ad sectors that has continued to grow during the recession, and Razorfish is number two in the sector. The purchase is part of a broader deal in which Publicis will buy display and search ads from Microsoft at attractive terms in exchange for minimum guaranteed purchases.
• Resolution raises bid for Friends. Buyout group Resolution improved its offer for life insurer Friends Provident (FRDPY.PK) for the second time, prompting Friends to enter into discussions with Resolution "with a view to recommending its proposal." The revised offer values Friends at £1.86B ($3.1B), a 12% premium to Friends' Friday close.
• China alleges Rio deceit. Rio Tinto (RTP) shares were down 3.2% premarket (7:00 ET) after allegations from China that Rio spied on its steel industry for six years, costing China $102B in excess iron ore costs. However, the author of the document linking Rio to the excess steel charges said the article is his own opinion, not the government's, and that it's based on previously published data. Confusion over the source and severity of the Rio allegations further weakens China’s shaky credibility on issues like this.
• Geithner wants debt leeway. On Friday, Geithner formally requested that Congress raise the $12.1T statutory debt limit, warning it must be increased so that "citizens and investors here and around the world can remain confident that the United States will always meet its obligations." Geithner said the existing limit could be breached as soon as mid-October if no action is taken, as the Treasury is expected to issue up to $2T of debt in FY '09 and up to $1.6T of debt in FY' 10.
• No synergy for Dynegy. Along with quarterly earnings (see details below), Dynegy (DYN) announced it will sell nine power plants to one-time partner LS Power Associates, a closely-held power generation company. LS Power will pay over $1B for the assets and return nearly $500M in shares to Dynegy, effectively unwinding a 2006 joint venture meant to create the largest U.S. developer of coal-fired power plants. LS Power will also give up its three seats on Dynegy's board and agree not to increase its Dynegy holdings beyond the 15% stake it will be left with after the transaction.
• Friday's failures. Three more banks were closed on Friday, bringing this year's failures to 72. The failures, including two in Florida and one in Oregon, are estimated to cost the FDIC $185M. (Read the FDIC's press releases I, II, III)

Earnings: Monday Before Open

• DISH Network Corp. (DISH): Q2 EPS of $0.14 vs. consensus of $0.67 (may not be comparable). Revenue of $2.9B (-0.4%) in-line. Added ~26K net subscribers in Q2 for a total of 13.61M. (PR)
• Dynegy (DYN): Q2 EPS of -$0.41 vs. consensus of -$0.04 (may not be comparable). Revenue of $493M (+53%) vs. $612M. (PR)
• Holly (HOC): Q2 EPS of $0.29 beats by $0.02. Revenue of $1B (-40.5%) vs. $1.1B. (PR)
• Northgate Minerals (NXG): Q2 EPS of $0.02 misses by $0.03. Revenue of $130M vs. $139M in the same quarter last year because of a large drop in realized copper prices. (PR)
• Perfect World (PWRD): Q2 EPS of $0.72 beats by $0.08. Revenue of $76M (+56.5%) vs. $73M. (PR)
• Quicksilver Resources (KWK): Q2 EPS of $0.24 beats by $0.06. Revenue of $206M (+4%) vs. $194M. (PR)

Earnings: Friday After Close

• Berkshire Hathaway (BRK.A): Q2 EPS of $1,147 misses by $91.38. Operating earnings of $1.78B (-22%). (PR)
• Freddie Mac (FRE): Q2 EPS of -$0.11. Loss due to dividend payment on $1.1B of senior preferred stock to Treasury. Positive net worth of $8.2B; no additional funding required from Treasury purchase agreement. Net income of $768M vs. one analyst's estimate of $771M. (PR)
• NATCO Group (NTG): Q2 EPS of $0.32 misses by $0.10. Revenue of $156M (-3%) vs. $159M. (PR)

Today's Markets

• In Asia, Nikkei +1.1% to 10,524. Hang Seng +2.7% to 20,930. Shanghai -0.3% to 3,250. BSE -1% to 15,010.
• In Europe at midday, London -0.6%. Paris -0.6%. Frankfurt -0.8%.
• Futures: Dow -0.2%. S&P -0.2%. Nasdaq -0.4%. Crude -0.4% to $70.67. Gold -0.3% to $956.50.

Monday's Economic Calendar

• 10:00 Conference Board's Employment Trends
• Notable earnings before Monday's open: ALD, DISH, DYN, HOC, KWK, NXG, PCLN, PWRD, SYY
• Notable earnings after Monday's close: FLR, FRPT, HRP, MDR, MTXX, NUAN, QSFT, TWTC

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[ScroogeMcduck:]

Here's a thought instead of increasing the $12.1T statutory debt limit.
Maybe we can figure out how to decrease it?

Aug 10 08:10 AM

[AndrewBaker:]

So three more banks fail. What happens to their customers? I guess they will go to another bank, which may well be one of the big guys who can't fail because they'll always get bailed out.

What with extra profits due to the difference between the cost of money and the charge out rate of loans, profits from buying back their own bonds under par, profits from selling dubious loans at less than what they are held at on the books, and now extra customers from failed banks, it's no wonder the banks' stock prices are heading north at a fast rate.

Poor me has been looking too far ahead, and slamming the banks for the bad stuff, and also been worried about their future profits sliding when the brown stuff hits the fan in the future: but for now, they are raking it in, and I am one bank bear turned bull just for the moment. Just don't put me on the stockholders Christmas party list yet: I'm may not be one then.

Aug 10 08:33 AM

[robert.b.fe...:]

Terrible Tim wants to borrow more. Maybe he can get it from one of the banks that just failed. China seems to be intent on getting on the black list with Russia and Venezuela as abusive to foriegn investors. Who could have seen that comming?

Aug 10 08:49 AM

[bbowen7:]

Why do we let Swiss banks that insist on protecting tax cheats do business in the United States? Is there some legitimate niche that only they can fill?

Aug 10 08:53 AM

[Old Trader:]

AndrewBaker,

The branches/accounts will go to another instituion, which will, in all likelihood, will be another small(er) bank. They don't use the Too Big To Fail banks for "minnows", saving 'em for "whales" like WaMu, should the need arise.


On Aug 10 08:33 AM AndrewBaker wrote:

> So three more banks fail. What happens to their customers? I guess
> they will go to another bank, which may well be one of the big guys
> who can't fail because they'll always get bailed out.
>
> What with extra profits due to the difference between the cost of
> money and the charge out rate of loans, profits from buying back
> their own bonds under par, profits from selling dubious loans at
> less than what they are held at on the books, and now extra customers
> from failed banks, it's no wonder the banks' stock prices are heading
> north at a fast rate.
>
> Poor me has been looking too far ahead, and slamming the banks for
> the bad stuff, and also been worried about their future profits sliding
> when the brown stuff hits the fan in the future: but for now, they
> are raking it in, and I am one bank bear turned bull just for the
> moment. Just don't put me on the stockholders Christmas party list
> yet: I'm may not be one then.

Aug 10 08:54 AM

[spald_fr:]

[Geithner wants debt leeway. On Friday, Geithner formally requested that Congress raise the $12.1T statutory debt limit, warning it must be increased so that "citizens and investors here and around the world can remain confident that the United States will always meet its obligations." Geithner said the existing limit could be breached as soon as mid-October if no action is taken, as the Treasury is expected to issue up to $2T of debt in FY '09 and up to $1.6T of debt in FY' 10.]

Fractional-reserve banking. All money is created as a debt. That should soothe the nerves of investors world-wide. Thanks Tim.

Aug 10 09:07 AM

[RE Broker:]

God forbid the Feds not spend so much. Congress will throw the taxpayers under the bus and give the tax cheat what he wants.

Aug 10 09:35 AM

[axelrod608:]

The failure of three more banks is just one more snapshot of the effect of public policy, namely the federal policy of backing consolidation. The customers will now be serviced by a bigger bank which will benefit in two ways - it will grow in a no growth environment and it will buy assets at fire sale prices.

Unfortunately, this has long term repercussions. Megabanks operate at levels of efficiency that minimize employees per unit of business. Small businesses are the only major job growth drivers. Consolidation results in permanent loss of jobs.

With tax receipts falling, one wonders how the folks pushing for raising the national debt limit think we're going to repay it, or even afford the interest on it. I suspect none of them has ever worked in any capacity where they saw the signs of the impending problems at the threshold of debt service limits. Do they really think they can enforce ZIRP forever ? The thought for today is, "What does the interest on the national debt look like at 10% interest ?" Our policymakers are playing a very dangerous game of chicken.

Aug 10 10:06 AM

[PainfullyAware:]

Raise The Debt Ceiling Again ???

With "Governmental Revenues" Plummeting - At What Point Will We Not Be Able To Service The Interest?

Hey Congress - How About Keeping Your Old Jets - You Lackeys !!! I am sure you could find many ways "Not To Spend Other People Money" on "Upgrades" as we continue to slide over the cliff.

I guess they would rather push "Health Care" in order to control "Life And Death Decisions" for the members of "The Collective". If you are "Not A Contributing Member" we do not need you to stay alive - Way too close to if you are not down with the "Program" you are not "Eligible To Continue".

The more I learn about "The Unread Legislation That Is Now Law" the scarier the "Possible" future becomes.

Death Camps Did Not Manifest Over Night - From Democracy To Tyranny Is A Slow Process. The German/Hitler Example Is Still Fresh In The History Books - Guard Against The "Similarities".

Safety Is A Function Of Awareness.

To Assume Benevolence Is Foolish.

Aug 10 02:24 PM

[robert.b.fe...:]

Ask Tim. I understand he has vast personal knowledge in this area.


On Aug 10 08:53 AM bbowen7 wrote:

> Why do we let Swiss banks that insist on protecting tax cheats do
> business in the United States? Is there some legitimate niche that
> only they can fill?

Aug 10 02:52 PM

[doubleguns:]

Wait till we start rolling over the short term treasuries (3, 6,12 month and 2 and 5yr) for rates that could approach 10%. God I hope not worse (like the 80's).

Debt servicing will consume us. We will be done.

Tilt, game over.

Aug 10 03:25 PM