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Wall Street Breakfast: Must-Know News

November 2, 2009 by: SA Editor Eli Hoffmann  |  includes: BAC, BK, CIT, CMCSA, CTB, DF, DIA, DNR, EAC, F, FMCC.OB, FNMA.OB, GE, GLD, GS, HGSI, HUM, JPM, L, PFE, QQQ, SNY, SPY, USO

  • CIT makes it official. CIT Group (CIT) filed for bankruptcy protection Sunday with broad support from its debtholders, but taxpayers will lose the $2.3B invested in CIT, marking the first definitive loss in the government's rescue of the financial system. Nearly 90% of CIT's bondholders voted in favor of the prepackaged bankruptcy, which CIT says will enable it to reduce total debt by $10B, significantly reduce its liquidity needs over the next three years, enhance its capital ratios and accelerate its return to profitability. Bondholders will receive about $0.70 on the dollar, a number that could have fallen as low as $0.06 had CIT entered a freefall bankruptcy. With $71B in assets and $65B in liabilities, CIT's bankruptcy ranks among the largest in corporate history. (CIT's bankruptcy filing)
  • Goldman wants Fannie's credits. Goldman Sachs (GS) is in talks to buy up to $1B in tax credits from Fannie Mae (FNM) for an undisclosed amount. But the government - which controls Fannie - is reluctant to approve a deal that would allow Goldman to reduce its tax bill "given the animus held by many lawmakers toward big Wall Street firms in general, and Goldman in particular." Fannie and its rival Freddie Mac (FRE) loaded up with billions of dollars in the credits - which were created to spur investment in low-income housing - during the boom years, but now have no use for them.
  • Comcast/GE near deal. Sources say a deal giving Comcast (CMCSA) control of GE's (GE) NBC Universal could be announced as soon as next week after a tentative agreement was reportedly reached Friday. GE would contribute $12B in debt to the new entity, and retain 49% ownership, while Comcast would kick in "several billion dollars" and its stable of cable networks for its 51%. Talks with Vivendi, which owns 20% of NBCU, continue to center on how to arrive at a mutually acceptable valuation - and are currently the main roadblock to a deal.
  • Denbury picks up Encore of $4.5B. Denbury Resources (DNR) agreed to acquire Encore Acquisition Co. (EAC) in a transaction worth $4.5B including the assumption of $1.25B in debt. Denbury will pay $50 for each share of EAC - $15 in cash and $35 in stock - a 35% premium to Friday's close. "All of our operations are in the Gulf Coast. It is good to expand to another area, to get a footprint in another location like the Rockies," Denbury CEO Phil Rykhoek said, noting the combo will have one of the largest reserves of crude among independents. Denbury plans to sell off some non-core oil and gas assets next year to pay down its debt. JPMorgan (JPM) will provide Denbury with a new $1.6B line of credit and another $1.25B in bridge financing.
  • Lupus drug passes critical 2nd trial. Human Genome Sciences's (HGSI) experimental lupus drug Benlysta was successful in a second large clinical trial, paving the way for approval of the first new treatment for the disease in 50 years. While not as strong as the results from an initial study, the results released Monday should be enough to secure FDA's go-ahead. Hopes for Benlysta have been growing since initial results were released in July, surprising many experts who had been sceptical given the previously poor track record of new lupus treatments. HGSI +41% premarket.
  • Pfizer eyes Protalix. Pfizer (PFE), is reportedly considering a JV with Israel's Protalix, and may even buy the company. Protalix developed the ProCellEx system for producing medical proteins through genetically engineering carrot cells; the method is up to 90% cheaper than other methods. Last month Protalix said its experimental drug to treat Gaucher's disease, Uplyso, was successful in a late-stage clinical trial. If approved, it would compete with Genzyme (GENZ) blockbuster Cerezyme.
  • The cost of doing better. UAW rank-and-file dealt Ford (F) a fatal blow, overwhelmingly rejecting proposed contract concessions that would bring its costs in line with GM and Chrysler. "This was a tough sell from the beginning," a professor who specializes in labor issues said. "Ford was caught in between doing better and advertising that, and the UAW already giving Ford concessions." Sources say Ford will continue talks with the union to find ways to cut costs, but may look to move some production to lower-cost locations if it can't remain competitive in the U.S.
  • Goldman secretly bet on the housing crash. In 2006 and 2007, Goldman Sachs (GS) sold more than $40B in mortgage-backed securities to pension funds, insurance companies, labor unions and foreign financial institutions, while failing to disclose it was betting heavily on a sharp drop in U.S. housing prices. While some say the omission may be a violation of securities laws, Goldman says it had no obligation to disclose its internal hedges.
  • Kelly tells BofA 'no thanks.' Bank of New York Mellon (BK) CEO Robert Kelly was reportedly asked to become Bank of America's (BAC) next CEO, but said he's not interested in the position. While BofA's search committee hasn't ruled out hiring an insider - with Gregory Curl and Brian Moynihan the current favorites - the Kelly feelers reflect the board's growing interest in outside candidates.
  • Nest egg keeps growing. U.S. companies are holding on to more cash than in any time during the last 40 years, according to a study by the WSJ. In Q2, the 500 largest nonfinancial companies held 9.8% of their assets ($994B) in cash and short-term investments, up from 7.9% ($846B) a year earlier. Firms are hoarding cash to ensure they can cover day-to-day costs after credit markets froze up last year, catching many off guard; their unwillingness to spend during the downturn is another factor increasing the bulge. In the short-term, large cash balances are a curse for the economy, but analysts say a strong cash position will enable companies to transition more quickly into growth mode when reinvestment begins.
  • Full speed ahead in Asia. Asian factory activity grew again in October, with China hitting an 18-month high, suggesting the region is on an economically solid footing and will likely lead the global recovery. In comments released along with the official version of China's PMI, a government researcher said China's economy could grow 9.5% in Q4.

Earnings: Mon. Before Open

  • Cooper Tire & Rubber (CTB): Q3 EPS of $0.77 beats by $0.11. Revenue of $794M (-1.1%) vs. $715M. (PR)
  • Dean Foods (DF): Q3 EPS of $0.34 beats by $0.01. Revenue of $2.77B (-13.2%) vs. $2.94B. (PR)
  • Ford (F): Q3 EPS of $0.26 beats by $0.38. Revenue of $30.9B (-2.5%) vs. $28.3B. U.S. market share +2.2% Y/Y. Expects full-year 2009 U.S. industry sales of 10.6M, consistent with previous guidance. Shares +4.3% premarket. (PR)
  • Humana (HUM): Q3 EPS of $1.78 beats by $0.01. Revenue of $7.72B (+8%) in-line. (PR)
  • Loews (L): Q3 EPS of $1.08 beats by $0.19. Revenue of $3.74B (+25.9%) vs. $3.35B. (PR)

Today's Markets

Asian markets were mostly lower Monday. Europe shares are trading higher at midday, and U.S. futures have moved higher overnight.

  • Asia: Nikkei -2.3% to 9803. Hang Seng -0.6% to 21620. Shanghai +2.7% to 3077. BSE -1% to 15896.
  • Europe at midday: FTSE +0.6% to 5073. CAC +0.5% to 3626. DAX +0.1% to 5422.
  • Futures at 7:00: Dow +0.5% at 9715. S&P +0.6% to 1039. Nasdaq +0.3%. Crude +1.4% to $78.06. Gold +1.4% to $1,054. 30-year Tsy -0.21% to 119-29. 10-year -0.1%. Euro +0.3 vs. dollar. Yen flat. Pound -0.5%.

Monday's Economic Calendar

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This article is tagged with: Macro View, Economy, Market Outlook, Earnings, Wall St. Breakfast