Wall Street Breakfast: Must-Know News

by: SA Eli Hoffmann
SA Eli Hoffmann
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

Today's Markets

  • In Asia, markets posted gains Tuesday. Nikkei +0.9%. Hang Seng +1.53%. Shanghai +2.1%.
  • European markets are mildly higher midday. FTSE +0.68%. CAC +0.43%. DAX +0.58%. The markets shook off early losses after Credit Suisse's surprise writedown (see below).
  • U.S. futures are higher at 2:30. Dow +0.92%. S&P +0.89%. Nasdaq +1.15%.

Must-Know News

  • Credit Suisse shock hits financials. Credit Suisse (NYSE:CS) sent European financial stocks diving Tuesday after unexpectedly writing down asset-backed securities by $2.85 billion amid "significant adverse first-quarter 2008 market developments." Credit Suisse (CS), which many assumed had escaped financial market woes, said it expects a $1B reduction in Q1 earnings. Analysts were stunned: "This is a disaster. This could be the tip of the iceberg," Helvea analyst Peter Thorne said. Shares were down more than 7% in early Zurich trading.
  • Wal-Mart beats, outlook is weak. Wal-Mart (NYSE:WMT) said net income climbed 3.8%, but noted customers were more cautious in their spending. Q4 adjusted EPS of $1.04 was better than analysts' expectation of $1.02. Revenue climbed 8.3% to $107.4B, also beating estimates of $106.9B. For 2009, WMT sees EPS of $3.30-3.43, short of consensus estimates of $3.44. Q1 guidance of $0.70-0.74/share is just short of estimates of $0.74.
  • Ambac looks to raise $2B, considers splitting itself. Bond insurer Ambac (ABK) is considering raising at least $2 billion through discounted share sales to ensure it keeps its AAA credit rating. The move is likely a precursor to a plan to split its operations between its municipal-bond and riskier structured-finance businesses. FGIC (owned in part by Blackstone Group (NYSE:BX) and PMI Group (PMI)) is considering a similar move; the two are likely to be hit with lawsuits from banks who hold the riskier debt insured by the companies.
  • Barclays boosts writedown, dividend. Barclays (NYSE:BCS) said 2007 profits slipped 3.4%. 2007 net profit was £4.42 billion ($8.64B), in line with market expectations. Barclays "appears to have weathered a very difficult year well," an analyst said. Writedown to debt-based assets rose to £1.64B from a previously announced £1.3B. BCS increased its dividend 9.7% to 34 pence. Shares fell 4.5% in London trading, largely on the heels of Credit Suisse's surprise writedown.
  • Lehman may take bigger-than-expected hit. Sources say Lehman Brothers' (LEH) is sitting on a large portfolio of deteriorating commercial real-estate loans, which may lead the firm to write down $1.3B in Q4, more than recent estimates of $800M-$1B. While the size of the writedown is relatively small compared to those of Merrill Lynch (MER), Citigroup (NYSE:C) and UBS (NYSE:UBS), it may indicate that even firms that apparently avoided major missteps are finding it increasingly difficult to emerge unscathed from the debt market crisis.
  • Delta, Northwest close to deal. Delta (NYSE:DAL) and Northwest Airlines (NWA) are in the final stages of a deal that seeks to create the world's largest airline by traffic. Both boards are expected to meet Wednesday to vote on the transaction, which sources now say might not be a mark-to-market share swap, but rather will contain a premium for Northwest shareholders. The companies still need to reach an understanding with their pilots' unions, without which it is unlikely they will finalize.
  • Toshiba concedes DVD war. Toshiba announced it is dropping its HD DVD format, leaving Sony's (NYSE:SNE) Blu-ray as the winner of the format war. The move comes after key studios (NYSE:TWX) and retailers (NYSE:BBY) (WMT) (NASDAQ:NFLX) abandoned HD DVD. Sony believes the victory will result in early HD DVD adopters moving to Blu-ray, while potential buyers who have withheld until a clear victor emerged will now commit. Microsoft (NASDAQ:MSFT), whose Xbox 360 supported an HD DVD plug-in accessory, said Monday the move would not impact Xbox sales materially. Meanwhile, Toshiba CEO Atsutoshi Nishida says that while it remains committed to standard DVD, it has "no plan at all at this moment" to support Blu-ray.
  • Banks line up to borrow from TAF. U.S. banks quietly snapped up almost $50 billion in one-month loans from the Fed's new Term Auction Facility [TAF] last month, a sign the December move to make the funds available is gaining traction. Not everyone thinks the situation is ideal: The TAF "allows the banks to borrow money against all sort of dodgy collateral," CLSA analyst Christopher Wood said. "The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [which] suggests a perilous condition for America’s banking system."
  • Microsoft: No plans to boost Yahoo offer. Microsoft (MSFT) chairman Bill gates said Monday the company is not in private discussions with Yahoo! (NASDAQ:YHOO) about an increase to its $31/share buyout offer. Gates also said the company plans to invest heavily in web search in an attempt to compete with Google (NASDAQ:GOOG), even if it fails to acquire Yahoo.
  • Boeing leaves further Dreamliner delays up in air. Boeing (NYSE:BA) said Tuesday it still backs its new 787 Dreamliner delivery schedule announced in January, but stopped short of ruling out further delays which the company admits could expose it to hefty penalties. Boeing will give guidance at the end of Q1, once it understands more clearly the delivery situation.
  • Sun goes with TSM. Sun Microsystems (JAVA) is leaving longtime partner Texas Instruments (NYSE:TXN) and going with Taiwan Semiconductor (NYSE:TSM) to build the chips it designs, a move necessitated after TXN decided to stop developing new fab processes.
  • Medco beats and raises. Medco Health Solutions (NYSE:MHS) reported Q4 EPS of $0.43, better than consensus estimates of $0.41. Revenue was in line at $11.4B. The company gave full-year 2008 guidance of $2.27-$2.31/share, better than consensus estimates of $2.20.
  • Baxter's heparin woes are APP's gains. Some major hospitals and medical centers are moving from Baxter's (NYSE:BAX) heparin blood thinner to that of APP (APPX) after a rash of allergic reactions has patients and doctors worried. Baxter says heparin accounts for less than 1% of its sales.
  • Iron ore price soars, implications for steelmakers. Brazil's Vale (NYSE:RIO) won a 65% price increase for iron ore from Japanese and South Korean producers, a move that creates uncertainty for steelmakers who depend on the product, and could lead to still higher steel costs.
  • Chavez: no plans to cut U.S. oil exports
  • Intel excites with new motherboard
  • Intel to write massive check for Sprint-Clearwire WiMAX deal

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