Wall Street Breakfast: Must-Know News

Flawed, TARP saved the day. The Congressional Oversight Panel, charged with overseeing the government's financial bailout, concluded in a 134-page year-end review that despite its flaws, TARP "can be credited with stopping an economic panic." The panel again criticized Timothy Geithner for "failure to articulate clear goals or to provide specific measures of success for the program," which it noted has meandered from rescuing banks to propping up securitization markets and bailing out carmakers. It also described the program's foreclosure mitigation efforts as inadequate. Still, "there is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis," it concluded, adding, that "although the government's response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence."
CIT whistles through Chapter 11. Just weeks after filing for Chapter 11, CIT, the nation's largest small-business lender, could emerge from bankruptcy as soon as tomorrow after winning approval for its prepackaged restructuring, the company said in a statement. U.S. taxpayers will lose the $2.3B the government handed CIT in TARP money for preferred stock in CIT. Unsecured debt holders will receive $0.70 on the dollar in new notes and common stock. CIT filed one of the five largest bankruptcies in U.S. history on November 1, after a debt exchange offer failed. Under the revamp, CIT will cut $10.5B in debt and defer significant debt obligations for three years. It plans to list new common stock on the NYSE and trade under the symbol CIT.
Stretching TARP in more ways than one. As expected, President Obama vowed to help jump-start job creation by using some of the $200B in leftover TARP funds. Spending for the proposals could reach $150B, not including another $100B for a planned extension to unemployment benefits. Some of the money will also likely go toward easing the budget deficit. "Even though we have reduced the deluge of job losses to a relative trickle, we are not yet creating jobs at a pace to help all those families who have been swept up in the flood," the president said. He also promised to accelerate the pace of spending from the $787B stimulus scheme passed in January, with just one-third of the total having been spent so far. Meanwhile, sources say Treasury Secretary Geithner will tell Congress, perhaps as soon as today, that he's extending TARP until next October; Geithner has the power to extend TARP by notifying Congress.
RBS U.S. commodities unit for sale. Royal Bank of Scotland (RBS) and U.S.-based Sempra Energy (SRE) are looking to sell their commodities-trading business for more than $3B, sources say. RBS Sempra Commodities, a Connecticut-based trader of natural gas, petroleum, metals and other commodities, has hired Lazard (LAZ) to seek out bidders. RBS is exploring a sale after the European Commission ordered it to divest certain assets and businesses due to the financial life support it received from U.K. taxpayers. Previously, investors had expected RBS to sell its 51% stake, which it acquired in April 2008 for $1.7B.
Japan's GDP disappoints. Despite a government forecast last month for an annual 4.8% pace of growth, Japan's economy grew just 1.3%, also falling short of economist expectations for 2.8% GDP growth. Companies have been cutting investment in plants and equipment to protect earnings, fueling concern about a recovery that's already under threat from deflation and a rising yen. On Tuesday, Japan's government signed off on an $81B stimulus package, but economists said the ¥7.2T plan wouldn't be enough to significantly lift Japan's export-dependent economy, nor prevent another bout of deflation. (ETF: EWJ)
Home values fall a measly $500B. American homeowners will have lost nearly $500B in home value by year-end, according to a report by real-estate website Zillow. Still, that's a big improvement over 2008 when values fell by $3.6T. "Home values stabilized significantly during the second half of 2009, with the total dollar value of U.S. homes increasing since June," the report said. "Most housing markets across the country had a good summer, spurred largely by the government's tax credits for homebuyers combined with very low mortgage rates."
Two publishers delay e-books. Two major publishers say they will delay publishing e-book editions of leading titles to avoid undercutting the prices of their physical books. Simon & Schuster is delaying by four months the electronic-book editions of 35 leading titles due out early next year to avoid the cut-rate $9.99 pricing of e-book bestsellers. "The right place for the e-book is after the hardcover but before the paperback," said Carolyn Reidy, CEO of Simon & Schuster, which is owned by CBS (CBS). Lagardere's Hachette Book Group said it has similar plans underway.
GE sees flat 2010 earnings growth. GE Capital (GE) told investors it will likely hit its 2009 profit target of $2-2.5B, and that 2010 will look roughly similar. The firm, which slashed costs by 25% this year, has paid heavily for its foray into commercial lending and investing in commercial real estate. GE Capital reduced its exposure to the commercial paper market to $50B at the end of Q3 from $72B at the end of 2008. GE Capital CEO Mike Neal: "We believe we're being conservative and realistic on valuations."
JPM feels consumer pain. JPMorgan (JPM) warned that its large consumer loan portfolios still face rising losses as the recession lingers. In a presentation, the bank anticipated declines to its home lending portfolio could reduce 2010 net interest income by about $1B from this year's levels. JPMorgan said its home lending portfolio may shrink by 10-15% to about $240B in 2010, and to $200B in 2011 at current production and run-off levels. Losses on credit cards and home loans will likely continue next year, even as the pace of such losses eases; losses on its Chase portfolio of credit cards could reach 11% by Q1, while losses on the Washington Mutual card portfolio could hit 24% over the next several quarters.
Oracle under EU thumb. Microsoft (MSFT) and SAP will appear before a surly-minded group of EU regulators tomorrow to air their views on Oracle's (ORCL) plan to buy Sun Microsystems for $7B, sources say. The EC objected to the hook-up, saying the combination of Sun's MySQL database product and Oracle's products could squeeze competition in the database market. The Commission is set to rule on the merger by Jan. 27.
U.S. consumer gloom deepens. Even as the economy inches forward, Americans have sunk deeper in their gloom over the past three months because of worries about unemployment and the economy, according to a new Bloomberg survey. Almost half of those polled now feel less financially secure than when President Obama took office in January, a sentiment that could hurt holiday season retail sales. Fewer than 1 in 3 think the economy will improve in the next six months.
Report sees slow growth ahead. The U.S. will grow at just 2% for much of 2010, but should accelerate to 3% in 2011, as low interest rates prevail through next year and unemployment remains stuck in double digits, according to a report published by the UCLA Anderson Forecast group. "With such sluggish growth, the unemployment rate will likely peak at 10.5% in Q1 and remain at or above 10% for almost all of next year," the closely-watched report said. Last month, OECD forecast that the U.S. economy will grow a more robust 2.5% percent next year.
Volkswagen thinks small. Volkswagen (VLKAY.PK), interested in gaining more access to small-car technologies, has been talking with Japan's Suzuki Motor since June about a possible partnership, a source says, and a deal could be announced as early as this week. Suzuki, known for its minicar models, has been cutting ties with General Motors, which owned a 20% stake in the Japanese carmaker until 2006.
Broad compromise struck on healthcare. Ten Senate Democrats emerged from days of haggling over the health-care overhaul with a "broad proposal," overcoming two key hurdles that will see the public option stripped from the plan and a move to tighten abortion rights tossed out. Instead of a public option, the group cobbled a proposal to empower the government's Office of Personnel Management to run a new national plan that would be run by nonprofit entities established in the private sector. Other senators said the tentative agreement would sideline but not kill the public option.

Earnings: Wed. Before Open

Jackson Hewitt Tax Services (JTX): FQ2 EPS of -$0.66 beats by $0.08. Revenue of $4M (-21.6%) vs. $5M. (PR)

Earnings: Tue. After Close

CKE Restaurants (CKR): Q3 EPS of $0.15 beats by $0.01. Revenue of $324M (-4%) in-line. Same-store sales -5.2%. Shares -5.2% AH. (PR)
Cooper Companies (COO): FQ4 EPS of $0.67 in-line. Revenue of $284M (+6%) vs. $279M. Shares +0.4% AH. (PR)
Men's Wearhouse (MW): FQ3 EPS of $0.37 beats by $0.04. Revenue of $462M (+1%) vs. $455M. Expects Q4 EPS of -$0.19 to -$0.15 vs. $0.01. Shares -16.2% AH. (PR)
NCI Building Systems (NCS): FQ4 EPS of -$0.29. Revenue of $244M (-52%) vs. $331M. Shares -8.4% AH. (PR)
SAIC (SAI): Q3 EPS of $0.34 beats by $0.01. Revenue of $2.8B (+5%) in-line. Sees fiscal 2010 EPS growth of 11-18%. Shares -2.1% AH. (PR)

Today's Markets

Asian markets moved lower Wednesday. Europe stocks are flat at midday, and U.S. stock futures are higher after a quiet overnight session.

Asia: Nikkei -1.3% to 10005. Hang Seng -1.4% to 21742. Shanghai -1.7% to 3240. BSE -0.6% to 17125.
Europe at midday: FTSE -0.1% to 5220. CAC +0.1% to 3788. DAX -0.2% to 5675.
Futures: Dow +0.4% to 10313. S&P +0.5% to 1096. Nasdaq +0.5%.
30-year Tsy -0.21% to 119-13. 10-year -0.07%.
Crude +1.4% to $73.64. Gold flat at $1,142.70.
Euro +0.3% vs. dollar. Yen +0.9%. Pound +0.2%.