Wall Street Breakfast: Must-Know News

Today's Markets

• Asia: Markets were mixed on Tuesday: Nikkei +0.04%, Hang Seng +1.35%. Shanghai is still closed.
• Europe: Shares are higher mid-morning: FTSE +0.98%, DAX +0.68%, CAC +0.97%.
• U.S. futures: DJIA -0.05%, S&P 500 -0.13%, Nasdaq -0.18%.

Must-Know News

• AIG forced to write down mortgage-linked instruments; shares hit five-year low. After auditors found "material weakness" in AIG's (AIG) accounting systems, the insurer was forced to write down the value of insurance contracts tied to subprime mortgages by approximately $4.88 billion. AIG had estimated its subprime-related losses would be in the area of $1B. The news sent AIG shares down 11.72% to $44.74, below their lowest point during the accounting scandal of 2005 and their worst one-day percentage drop since the crash of 1987. Fitch said it is putting AIG's issuer default rating on negative watch.
• Moody's sees sharp rise in corporate defaults on junk. Moody's Investors Service (MCO) forecasts that the global corporate default rate on speculative-grade debt will hit 4.6% by the end of 2008. The junk default rate was 0.91% at year-end 2007.
• Poole sees U.S. economy stable. St. Louis Fed President William Poole says he's betting the U.S. will not enter recession, and that the Fed's interest rate policy "is at a good place for both the long-run concern and for cushioning the impact of financial disturbances." Poole acknowledged a soft economy, but noted companies are in a survival mode. "They're worried about profitability. They're not worried about survival. There is a big difference."
• New measures to forestall foreclosures. Six banks will announce Tuesday steps to help homeowners elude foreclosure, including a 30-day foreclosure freeze in which to examine loan modifications. The lenders -- Bank of America (BAC), Citigroup (C), JPMorgan & Chase (JPM), Wells Fargo & Company (WFC), Washington Mutual (WM) and Countrywide Financial (CFC) -- are being encouraged by Treasury Secretary Henry Paulson, who until recently opposed a foreclosure moratorium.
• Student-loan market goes dry. Auctions of securities backed by student loans issued by SLM (SLM) and others are failing to generate interest, seemingly the latest victim of the credit market crisis. Since Thursday, $3 billion in such securities have failed to sell; the banks who auction them -- which would usually intercede in such cases -- prefer to let the auctions fail rather than to take the debt onto their already-bloated balance sheets.
• White House upbeat on economy. The White House Council of Economic Advisers acknowledged Monday that growth has slowed dramatically, but said it expects the country to avoid recession and unemployment levels to stay low.
• Credit Suisse net tumbles on $1.2 billion writeoff. Q4 profits at Credit Suisse (CS) fell 72% to 1.33 billion francs, missing analysts' 1.43 billion franc estimate, on the heels of a $1.2B debt-related writeoff. Rival UBS (UBS) wrote down $14B during the quarter, while Deutsche Bank (DB) wrote down just $64 million. CS expects credit market turmoil to continue. Shares fell 1% in Zurich.
• Sanofi rises on strong outlook. Sanofi-Aventis (SNY) reported Q4 profits of €1.46 billion (+6.2%), slightly ahead of the €1.41B analysts expected. Sanofi sees 2008 earnings growth of 7%, compared with forecasts of no growth from rival GlaxoSmithKline (GSK), while Novartis (NVS) said growth may pick up in the second half. "They do not seem to be suffering from the pessimism that has struck the rest of the industry," an analyst remarked. Shares were up 2.2% in Paris.
• Teva beats, upbeat on 2008. Generic drug maker Teva Pharmaceutical (TEVA) did better than expected, reporting Q4 EPS of $0.69 vs. analyst consensus of $0.66 and revenue of $2.58B vs. consensus of $2.48B. CEO Shlomo Yanai says he expects the "significant momentum" of 2007 to continue throughout 2008.
• BlackBerry goes black - again. For the second time in 12 months, Research In Motion (RIMM) was hit with an extended outage to its BlackBerry email service, a development which threatens to undermine its high-profile reputation. The incident was caused by an improperly tested software upgrade, and aggravated a failure of the company's backup system.
• Google's ad share slips. IDC reported that online ad spending in Q4 was up 28% over last year to $7.3 billion, but Google's (GOOG) market share was down 0.5% to 23.7% -- its first decline in two years. IDC noted that a combined Yahoo-Microsoft (MSFT) entity would have an advertising market share of 17%.
• AOL senior ad exec jumps ship. Dave Morgan, the head of AOL's ad strategy, has departed the company "to "pursue start-up opportunities." Time Warner (TWX) said recently it will separate AOL's Internet-access business and is thought to be considering a sale or spinoff of all of AOL.
• Peltz presses Wendy's to expand board. The Trian Fund, the firm run by activist investor Nelson Peltz, is seeking to expand the board of Wendy's International (WEN) from 13 people to 15 and then to take five more seats, bringing its total to eight. The WSJ suggests that this is a "backup strategy" for Peltz in case Triarc Cos. (TRY.B), of which he is chairman, does not succeed in its attempt to buy Wendy's.
• Starbucks to provide free Internet access -- for some. Starbucks (SBUX) and AT&T (T) have inked a deal to offer wireless Internet at most Starbucks locations in the U.S., but access will be free only to holders of the Starbucks loyalty card, and then only for two hours. Non-cardholders will have to pay $3.99 for two hours online or $19.99 for a monthly pass.
• Baxter halts heparin production. Baxter International (BAX) has temporarily halted production of the blood-thinner heparin because it may have caused allergic reactions in about 350 people, mostly patients undergoing dialysis or heart surgery. Four of the patients died. The company, which makes half the heparin used in the U.S., and the FDA decided not to suspend sales of heparin already produced in order to avert a shortage.
• Icahn takes stake in Alliance Data. Carl Icahn reported Monday he has taken a 2.73% stake in Alliance Data Systems (ADS) and reserves the right to talk to management about the company's prospective sale to the Blackstone Group (BX). On Friday, Alliance dropped a suit it had brought against Blackstone to force it to complete the $6.4 billion sale.
• WebMD buyout in doubt; 2008 view lowered; shares fall. The online health information provider (WBMD) is 84%-owned by HLTH Corp. (HLTH), which said in November that it would buy the remaining stake. The sides have hit a "negotiation stalemate," however, that has thrown the purchase into doubt. WebMD also lowered its 2008 earnings guidance, in part because of the effect an acquisition of Yahoo (YHOO) could have on WebMD's display ad deal with the company. WebMD shares fell 10.19%.
• Newmont's Indonesia contract at risk. The government of Indonesia says it will terminate Newmont Mining's (NEM) 30-year contract to run a massive copper and gold mine unless Newmont keeps its apparent promise to sell a 10% stake in the venture to local authorities.
• TI, others show off Google operating system in prototype devices
• Handset makers dive into low-end market
• Xstrata spurns Vale approach

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Comments

[Tom B]

"BlackBerry goes black - again. For the second time in 12 months, Research In Motion (RIMM) was hit with an extended outage to its BlackBerry email service, a development which threatens to undermine its high-profile reputation."

This is actually GOOD news, because it will favor less proprietary systems, like the iPhone.

[Pesel]

That's the problem, companies are still in the GREEDY mode, looking for profitability any way they can---while they should be looking at the fundamentals of survival...or at the very least looking at how they became a successful company to begin with---quality product or service, efficiency, good management AND NO COOKING THE BOOKS!