Wall Street Breakfast: Must-Know News

• Foreclosures: Worse and worser. The rate of mortgages entering foreclosure hit its highest recorded level, and loans past-due hit 20-year highs. During Q4, 0.83% of all loans entered foreclosure, up from 0.78% and 0.54% in the previous quarter/year. 2.04% of all loans are in foreclosure, vs. 1.69% and 1.19%. With delinquency rates now at 5.82% (up from 5.59% and 4.95%) -- expect more of the same.
• Housing demand firms. Pending home sales [contracts signed but not completed] were flat in January; economists expected a 1% drop. Some economists were encouraged by the apparent stabilizing (the PHSI is down 19.6% since Jan. 2007). Others called it "deceptive," and said at best it shows a temporary firmness. Even if demand were to remain firm, J.P. Morgan economist Haseeb Ahmed says, a supply glut would continue to pressure home prices for the next several months.
• Fed wants banks to look for handouts. Sources say WaMu (WM) and other banks are approaching private-equity firms, hedge funds and institutional investors looking for capital injections at the prodding of federal regulators, who worry mounting losses could threaten the health of the U.S. banking system. Fed officials are publicly urging even healthy banks to boost their balance sheets in anticipation of a weakening economy. They also hope that by lumping all the banks together, they remove some of the stigma associated with banks looking for capital.
• Household worth drops, borrowing slows. U.S. household wealth fell by $532.9B in Q4, its first drop in five years, led by a $176.4B drop in housing-related net worth. Mortgage borrowing slowed to 5% growth, its smallest gain in more than 10 years. "Consumers are being squeezed from several directions," the Fed's Mishkin said this week. Reduced household wealth, a weakening job market, and soaring fuel prices, "are likely to restrain spending growth in the period ahead."
• iPhone SDK wows. Apple's iPhone SDK impressed developers, who said the tool addresses all three core groups: Developers, IT departments, and end-users. Developers liked the functionality of iPhone APIs, and the ability to store data using popular SQL Lite. Apple is licensing technology from Microsoft (MSFT) that will enable it to interact with Microsoft Exchange, and will enable "wipe and lock" and "on-device data encryption" along with other IT tools. Consumers get push email that turns the iPhone into an instant BlackBerry (RIMM) rival. What's still missing? Multiple carriers, and corporate management tools.
• Sony, Microsoft talk Blu-ray. Sony (SNE) is in talks with Microsoft (MSFT) about a Xbox 360 Blu-ray drive. On the one hand, Sony has touted the now de-facto standard Blu-ray as one of its PS3's advantages over the Xbox; on the other, the revenue from a Microsoft deal might be irresistible. Sony also said it has had discussions with Apple (AAPL), which has yet to offer Blu-ray drives on its computers.
• Retail sales encourage. Retail sales in February largely beat expectations. Same-store sales were up 1.9%, led by a 2.6% increase at Wal-Mart (WMT). Still, stores continue to expect a rough spring, and a number of retailers have stopped reporting monthly comps in order to focus on long-term strategy. "These month-to-month blips don't change the trend," economist Frank Badillo said. "Shoppers are intent on slowing their spending, and that will continue in the months ahead." Analysts noted sales at discounters (WMT, FDO) were stronger than at middle-end retailers (TGT, JCP, KSS).
• Merrill scares Street. Merrill Lynch (MER) unnerved investors by increasing the conversion rate on more than $2B of its notes by 17%, in the hope of persuading investors to keep the notes rather than putting them back to Merrill on Tuesday. Shares fell 7% as investors worried the move means MER doesn't have the cash to redeem the notes. Bernstein analyst Brad Hintz notes the Street may be overreacting; he thinks Merrill altered the terms not because of a lack of liquidity, but because the notes offer MER capital at terms they could not get elsewhere.
• Citi scales back mortgage lending. Citigroup (C) is reducing its $200B mortgage portfolio by about $45B by not replacing loans paid off. After writing down more than $20B on debt-based assets and taking on more than $26B from investors in recent months, Citi hopes the shift out of lending will reduce stress on its balance sheet.
• National Semi soars on margin surprise. National Semiconductor (NSM) posted FQ3 EPS of $0.28, better than consensus estimates of $0.24. Revenue was just short at $453.4M. NSM sees Q4 revenue of $440M-$460M, short of consensus estimates of $470.3M. NSM said Q3 bookings declined sequentially by approximately 14%, due primarily to weak orders for wireless handsets and personal mobile devices. But gross margins "held up well," it said, at 64.3%, up from 59.8% Y/Y. Shares jumped 9.5% in AH trading.
• Marvell beats, conference call spooks. Marvell (MRVL) blasted past expectations with Q4 EPS of $0.20 vs. consensus of $0.11 and revenue of $845M vs. consensus of $783M. After gaining 6% in AH trading, things got ugly during the conference call after MRVL said 2008 costs would be higher than expected, and declined to offer a full-year forecast due to broad economic uncertainty. Shares ended up -5.4% in extended trading.
• Yahoo+Microsoft = Google killer? Internet search is online advertising's killer app., Microsoft (MSFT) CEO Steve Ballmer said yesterday. "We've got a long way to go. Yahoo (YHOO) seems to be a way to accelerate that because of the critical mass that's required to compete. Scale, which is a form of synergy, is really an advantage in the search game." So is "the Y-word is all about the G-word?" he was asked. "We've got an aspiration in online. And in online, yeah, it's Google, Google, Google."
• Cuomo pursues health insurers. New York AG Andrew M. Cuomo issued new subpoenas to health insurers Aetna (AET), Cigna (CI), UnitedHealth (UNH), WellPoint (WLP) and others. He alleges the companies used a company called Ingenix, owned by UNH, to reimburse clients for medical treatments at unjustifiably low rates.
• Carlyle Capital buckles. Amsterdam-listed Carlyle Capital, run by U.S. private-equity firm Carlyle Investment Management, said lenders have begun liquidating some of its $21.7B portfolio of mortgage securities after it failed to meet massive margin calls that started rolling in Wednesday. Carlyle manages about $670M in client money, using leverage of about 32x to control its debt assets. Its AAA-rated residential mortgage-backed securities backed by Fannie Mae (FNM) and Freddie Mac (FRE) were considered a safe-haven, until the market for such debt fell into rapid deterioration this week.
• Ambac raises $1.5B. Ambac (ABK) managed to raise the $1.5B it was looking for, by selling $1.25B in common shares at $6.75 (9% below Thursday's close) and $250M of convertible securities paying 9.5%. CEO Michael Callen said he now believes the troubled bond insurer will succeed in maintaining its AAA financial strength rating. Sources say a group of banks did in fact backstop Thursday's share sale, but elected not to publicize it. Goldman analysts said Thursday it believes Ambac needs to raise a total of $2.5B.
• Netflix likes its shares. Netflix (NFLX) gained 2.2% in AH trading after the company authorized a $150M share repurchase, in addition to the $100M authorization announced in January.
• NY Fed’s Geithner says inflation may prompt quick action by Fed officials
• Investors attack GM's role in Delphi rescue
• Hedge funds squeezed by lenders
• Margin calls, defaults ravage mortgage REITs

Today's Markets

• Markets in Asia took a beating Friday. Nikkei -3.27% to 12783. Hang Seng -3.6% to 22,501. Shanghai -1.39% to 4,300. BSE Sensex -3.42% to 15,976.
• In Europe, markets were lower at midday, to a lesser degree. FTSE -1.17% to 5,699. CAC -1.3% to 4,617. DAX -1.13% to 6,517.
• U.S. futures are off slightly at 6:40 AM. Dow -0.34% to 12,029. S&P -0.36% to 1,303.25. Nasdaq -0.19% to 1,711.

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Comments

[PK deC'ville]

Eli,

"What's still missing? Multiple carriers, and corporate management tools."

Apple promised Corporate Mgt tools at the SDK event. Multiple carriers? Still missing.

[Tom B]

"Multiple carriers? Still missing."

Prediction: ATT will sweeten the deal for Corporates. Big Biz always bends over for the Enterprise market.

[Oh Blah DeeBlah Dah]

RE: "What's still missing? Multiple carriers, and corporate management tools."

Yeah, and people also like multiple sewer lines, multiple cable service, and multiple water supplies to their homes and businesses.

Get real. AT&T is a WORLD network. In some ways I've found AT&T service to be superior to Verizon, and I was a Verizon mobile subscriber for five years, until one month ago.

Oh, in case you didn't know this, U.S. companies with foreign office can get iPhone network service on O2 in U.K., France Telecom in France, and T-Mobile in Germany. What company would want an administrative and and operational nightmare dealing with multiple carriers WITHIN each country.

Corporations sign multi-million dollar contracts for WORLDWIDE computer services (IT). This gives them ONE outside agent responsible and accountable for their IT. This is also a good model for mobile services.