Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM EST
S&P 500: +1.30; 1,446.30
NASDAQ 100: +0.25; 1,819.00
Dow: +5.00; 12,550.00
NIKKEI 225: +0.35%; 17,480.61 (+61.41)
HANG SENG: +0.01%; 19,692.64 (+2.39)
S&P/ASX 200: -0.06%; 5,952.30 (-3.40)
BSE SENSEX 30: -0.17%; 13,285.93 (-22.10)
FTSE 100: +0.31%; 6,337.40 (+19.40)
CAC 40: +0.18%; 5,608.50 (+10.13)
XETRA-DAX: +0.02%; 6,858.01 (+1.05)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.42%; $61.95 (+$0.26)
Gold: -0.03%; $664.00 (-$0.20)
Natural Gas: -0.14%; $7.31 (-$0.01)
Silver: -0.30%; $13.44 (-$0.04)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Freddie Mac Reports Q4 Net Loss on Credit Guarantee Losses
Freddie Mac, #2 mortgage company in the U.S., reported a $480 million Q4 2006 net loss Friday morning, narrower than the $500 million loss it reported in Q3, and compared with net income of $684 million in Q4 2005. The results are preliminary; the company is in the midst of a three-year accounting overhaul. Freddie Mac pinned the losses on low bond yields and poor investment returns, saying losses "on the company's credit guarantee portfolio, derivatives and administrative expenses more than offset net interest income and management and guarantee income." Share prices have dropped over 8% in 2007 amid concerns over the subprime mortgage market. The company said last month it would stop buying subprime and high-risk mortgages. It said it would repurchase up to another $1 billion in its common stock, and issue up to $1 billion in preferred stock. On the year, FRE earned $2.2 billion ($2.84/share), up from last year's $2.1 billion ($2.75/share). Its mortgage credit risk remains low (LTV ratio of 57% vs. 56% for 2005); $238 billion of its $704 billion portfolio are non-agency mortgage-related securities, of which 96% are AAA or equivalent. Shares were down 0.75% Thursday to $62.24.
Sources: Press Release, Reuters, Bloomberg, TheStreet.com
Commentary: Subprime Fallout: Stocks to Eschew, Stocks to Pursue - Barron's • A Low-Risk Long/Short Financial Institution Arbitrage Strategy • Freddie Mac's Accounting Maze (FRE)
Stocks/ETFs to watch: Freddie Mac (FRE). Competitors: Fannie Mae (FNM)
CBOT Members Believe CME Partnership is Right, Price is Wrong
A meeting between proposed merger partners Chicago Board of Trade [CBOT] and and the Chicago Mercantile Exchange [CME] executives yesterday produced some differences that may stand in the way of CME's proposed merger. Rival IntercontinentalExchange's [ICE] unsolicited, all-stock offer is currently valued at about 10% more than CME's offer and has led some at CBOT to believe they can get a better offer than the one they currently have in place with CME. Though CBOT's large shareholders seem to be in general agreement that CME is a better merger partner than ICE, several indicated they would vote against the CME offer, believe the company can afford to up its bid. According to CBOT shareholder Allen Mitzenmacher, a member of the exchange who owns 27,000 shares, most CBOT members "want to go with the Merc, but there's not enough on the table." CME CEO Craig Donohue has stubbornly refused to raise CME's offer, reiterating ICE's proposal is "fraught with execution risk and overstated synergies."
Commentary: War of Words Erupts Between CME and ICE Management: Is a CBOT Bidding War Next? • IntercontinentalExchange Makes Unsolicited Takeover Bid for CBOT; Shares Jump • A Look At Stock Exchange Stocks
Stocks/ETFs to watch: CBOT Holdings (BOT), Chicago Mercantile Exchange Holdings (CME), International Securities Exchange (ISE). Competitors: Nasdaq Stock Market Inc. (NDAQ), NYSE Group (NYX), NYMEX Holdings (NMX). ETFs: iShares Dow Jones US Broker-Dealer Index (IAI)
Blackstone Files For $4 Billion IPO, Reveals Untold Secrets
In a revealing S-1 filing Thursday, secretive private-equity firm Blackstone Group disclosed it earned over $6 billion in the past five years during which its investment portfolio bulged to about $79 billion. In 2006 assets under management went from $54 to $69 billion; thus far in 2007, the company has added another $9 billion in assets. The company's private-equity business, which accounts for $31 billion of its funds, has made an average 22.8% over the last 20 years, during which the S&P 500 made 11.1%; other private-equity firms averaged 13.2% over the last decade. But it's not up for grabs. Blackstone plans to raise $4 billion in exchange for a 10% stake in its management company, while its investment funds will remain private; the management company made $2.3 billion in 2006. The IPO's underwriting, which could generate $150 million in fees, is being managed principally by Morgan Stanley and Citigroup, along with Merrill Lynch, Lehman Brothers and Deutsche Bank. To many's surprise, Goldman Sachs was not included in the deal, understood by some as a rebuff for its high-handed presence in private-equity deals. Wall Street is now speculating which private-equity firm will be next to tap the public's coffers; names being tossed around include Carlyle, KKR, and Oaktree Capital. On February 9, Fortress Invesment Group became the first private-equity firm to list itself publicly in a wildly successful IPO; from an initial price of $18.50, shares jumped to $35, and closed that day at $31. It closed Thursday at $27.90.
Sources: S-1 Filing, Wall Street Journal, MarketWatch
Commentary: Blackstone S-1 Filing: That's a Lot of Money • Private Equity Leaders: Seeing the Big Picture • Implications of the Blackstone IPO
Stocks/ETFs to watch: Fortress Investment Group LLC (FIG), Morgan Stanley (MS), Citigroup Inc. (C), Merrill Lynch & Co. Inc. (MER), Lehman Brothers Holdings Inc. (LEH), Deutsche Bank AG (DB), Goldman Sachs Group Inc. (GS)
GE Makes an Offer for Sanyo Electric Credit, Goldman to Cash Out
The consumer finance arm of General Electric will make a $1.14 billion cash tender offer for Sanyo Electric Credit -- starting Monday and ending May 9. At ¥3,250 a share, it represents a 62% premium over today's close of ¥2,010. GE is aiming to buy at least a two-thirds stake valued at approx. ¥90.14b ($767m). Sanyo Credit said it has agreed to the offer. Goldman Sachs is its largest shareholder, with a 33.2% stake. It originally owned 42% following its investment to help bail out Sanyo Electric last year, the latter which still owns a 17% stake and has not decided whether to accept GE's offer. Bloomberg reports Goldman is set to make ¥43b ($366m) from its ¥24b investment. A GE Japan executive commented, "We have been looking for the right opportunity to expand our finance business in Japan. Sanyo Credit is involved in small-lot leasing for smaller companies and this will allow us to expand our customer base."
Sources: Bloomberg, Reuters
Commentary: General Electric: A Winner in the Mid-Cycle Slowdown • Goldman on GE: Now is Prime Buying Opportunity • GE, Blackstone to Acquire PHH Corp for $1.8B in Cash
Stocks/ETFs to watch: General Electric (GE), Sanyo Electric Credit (JP:8565), Goldman Sachs (GS), Sanyo (OTC:SANYY). Competitor: NIS Group (NIS). ETFs: streetTRACKS Dow Jones Global Titans Index Fund (DGT), iShares Dow Jones US Industrial (IYJ), S&P 500 Index SPDRs (SPY)
H-P Acquires Tabblo in Bid to Simplify Web-Based Printing
In-line with CEO Mark Hurd's statement that Hewlett-Packard will make small, targeted acquisitions to fill in its businesses rather than multi-billion dollar acquisitions, the company announced yesterday it had purchased Tabblo Inc. for undisclosed terms. According to Vyomesh Joshi, head of H-P's imaging and printing group, Tabblo's web-based imaging technology is an excellent fit for his company's stated goal of to making printing content from the Web as easy as possible. Tabblo software assists consumers in arranging and printing text, graphics and photos using so-called AJAX technology, allowing for simple drag-and-drop, desktop-type functions within a Web page.
Sources: Press Release, Reuters, CNet, TheStreet.com
Commentary: Hewlett-Packard Posts 26% Profit Gain • Hewlett-Packard: Back in the Game
Stocks/ETFs to watch: Hewlett-Packard (HPQ). Competitors: Dell Inc. (DELL), Canon Inc. (CAJ), Xerox (XRX). ETFs: Internet Architecture HOLDRs (IAH), iShares Dow Jones US Technology (IYW), PowerShares Dynamic Hardware & Consumer Electronics (PHW)
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Asian Headlines (via Bloomberg.com)
• Asian Stocks Rise to Three-Week High, Led by Mitsubishi UFJ; Benq Slides Asian stocks rose to the highest in more than three weeks. Mitsubishi UFJ Financial Group Inc. (MTU) led gains among Japanese banks after the country's land prices rose for the first time in 16 years.
• Macquarie's Bid for Qantas Rejected by Balanced Equity; Shares, Swaps Fall The Macquarie Bank Ltd.-led A$11.1 billion ($9 billion) buyout of Qantas Airways Ltd. was rejected by Balanced Equity Management, threatening the world's biggest airline takeover.
• Citigroup Denies Breaching Client Duty in Australia Insider-Trading Case Citigroup Inc. (C) said it will fight claims the firm breached its duty to a client when Australia's first insider-trading case against a company starts next week.
• Japan's Bonds Fall the Most in Three Months as Land Prices, Stocks Rebound Japan's 10-year government bonds fell the most in three months on concern yields are too low as prices of property and equities rebound.
European Headlines (via Bloomberg.com)
• European Auto Stocks Rally to 15-Year High, Led by DaimlerChrysler, Valeo European auto stocks rallied to the highest in at least 15 years on speculation DaimlerChrysler AG (DCX) is moving closer to selling its Chrysler unit and after Valeo SA said it received a takeover approach.
• Enel, Acciona Weigh Endesa Bid Seeking to Trump E.ON's $55 Billion Offer Enel SpA (EN), Italy's biggest utility, and Acciona SA said they may bid for Endesa SA (ELE) to trump E.ON AG's (EON) 41 billion-euro ($54.6 billion) offer, extending an 18- month battle for Spain's largest power company.
• DaimlerChrysler Shares Jump on Speculation Chrysler Sale May Be Imminent DaimlerChrysler AG (DCX) shares rose as much as 6 percent on speculation the German carmaker may have moved closer to selling its Chrysler unit, according to traders and analysts.
• Axa to Buy 50 Percent Stake in Italy's Montepaschi Vita for $1.5 Billion Axa SA (AXA), Europe's second-biggest insurer, agreed to buy half of Monte dei Paschi di Siena SpA's insurance unit for 1.15 billion euros ($1.53 billion) to more than double its clients in Italy.
• Gaspari Says Inflation `Under Control,' Talk of Rate Increase `Premature' Outgoing European Central Bank council member Mitja Gaspari said inflation in the 13 euro nations is ``under control'' and it's too soon to talk about further interest-rate increases.