Wall Street Breakfast: Must-Know News

• Bear Gets Butchered. Bear Stearns (BSC) shocked Wall Street by selling itself Sunday for just $2/share to J.P. Morgan & Chase (JPM), the bank that stepped up Friday to bail it out in tandem with the New York Federal Reserve. In order to make the deal palatable, the Fed will assume risk on up to $30B of Bear Stearns' riskiest assets, including $20B of mortgage-backed securities. "Despite recent events, the health of franchise and the prime brokerage and clearing business is in good shape," a JPM executive said Sunday. JPM does, however, assume some of Bear's large positions. It's unlikely other bidders will emerge, due to the degree of uncertainty surrounding Bear's positions.
• Fed expands lending, drops discount rate. At the same time it was backstopping J.P. Morgan's buyout of Bear Stearns, the Fed also stepped in to prop up the broader credit crunch. The Fed dropped its discount window rate -- at which intstitutions borrow directly from the Fed -- by 25 BP to 3.25%, and extended the maximum loan term to 90 days from 30. In an unprecedented move, it also opened up the window to securities dealers for at least the next six months. The move to waive the usual restriction on Fed lending to banks was approved unanimously by the five FOMC governors.
• Asia drops hard. Markets in Asia plunged Monday, as did the dollar, on the heels of the growing U.S. credit market crisis. "There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Shinko Securities strategist Atsuji Ohara. "Just buying an investment bank does not solve the problem." Japan's Nikkei 225 index sank 3.7% to 11,787.51, its lowest in more than 2.5 years. Hong Kong's Hang Seng fell 5.2% to close at 21,084.61. The Shanghai Composite lost 3.6% to 142.62, and the BSE Sensex sank 6.36% to 14,761.
• Europe slumps. Stocks in Europe were hit hard in Monday morning trading as rattled investors sold of financial stocks, fearing widespread banking sector turmoil. The euro hit new all-time highs, while crude and Gold surged. At 6:45 AM EST, the FTSE was down 2.5%, the CAC fell 2.68% and the DAX dived 3.5%.
• U.S. index futures are down sharply in overnight trading. S&P 500 futures are down 24 points to 1,269, the Dow is down 192 points to 11,792, and Nasdaq futures are off 32 points to 1,692.50 at 7:10 AM EST.
• Greenspan: "The crisis will leave many casualties. Particularly hard hit will be much of today's financial risk-valuation system, significant parts of which failed under stress. Those of us who look to the self-interest of lending institutions to protect shareholder equity have to be in a state of shocked disbelief. But I hope that one of the casualties will not be reliance on counterparty surveillance, and more generally financial self-regulation, as the fundamental balance mechanism for global finance."
• Moody's backs Lehman. While many worry Lehman Brothers (LEH) might be the next shoe to drop after Bear Stearns' failure, Moody's Investor Service Monday affirmed its A1 rating on LEH senior long-term debt, but cut its outlook to Stable from Positive. "Lehman has navigated quite well to date through persistently volatile and challenging financial markets, the sharp market-wide decline in valuations across numerous asset classes, tight global liquidity conditions, and the strong head winds facing Lehman's (and other securities firms') core-earnings drivers. However, these conditions have decreased the upward pressure on Lehman's rating, and therefore a positive outlook is no longer warranted," it said. Lehman shares are bid down more than 30% to $27 after DBS Holdings, Southeast Asia's biggest bank, told some traders in an email not to deal with Lehman, although it later reversed its decision.
• Siemens slows. Siemens (SI) issued a profit warning early Monday. Weaker-than-expected performance in major business projects will hit its FQ2 earnings by about €900M ($1.4B). In January, Siemens said its revenue would grow at least twice as fast as the global economy, and that its operating profit would expand at least twice as fast as its revenue growth. A review of its operations now indicate a "substantial impact" on earnings, due to struggling turnkey projects, delays in the awarding of major contracts and risks to IT projects in the United Kingdom, including the cancellation of a major order. Siemens expects the €900M reduction will address the bulk of its 2008 writedowns. Shares, which closed Friday at $124.54, are bid $110 in the pre-market.
• Bristol Myers shops baby food business. Bristol-Myers Squibb (BMY) is quietly seeking out bidders for a potential sale of its baby food unit, Mead Johnson, for somewhere between $7B and $9B. Companies approached include PepsiCo (PEP), Danone (GDNNY.PK), Nestle (NSRGY.PK), Kraft (KFT) and Heinz (HNZ). Sources say BMY also put out feelers to pharma companies with nutritional divisions, including Johnson & Johnson (JNJ), GlaxoSmithKline (GSK) and Novartis (NVS).
• UBS dives on layoff rumors. UBS (UBS) may cut as many as 8,000 jobs, or 5-10% of its workforce, to save costs. It is also considering a possible split of its wealth management and investment banking business. Among banks worldwide, UBS has been one of the worst hit by the financial markets crisis that started with turmoil in the U.S. subprime lending sector. UBS has already written down more than $18B on such securities; analysts expect more to come. CEO Marcel Rohner also told bankers UBS holds about $29.2B of now-distressed muni bonds. Shares plunged 11% in Zurich.
• CME/Nymex deal to go today. Group (CME) is expected to announce today a $9.5B buyout of the New York Mercantile Exchange (NMX). The CME will give Nymex shareholders cash/stock combo worth about $100 per Nymex share based on Friday's close. CME shares are down over 18% since a preliminary deal was announced in late January. The price is less than 5% higher than Nymex's Friday close of $95.34. In order to placate Nymex seat-holders, CME may increase by as much as $100M the amount it will pay to buyout memberships.
• International Paper buys Weyerhauser packaging unit. International Paper (IP) agreed to buy Weyerhaeuser's (WY) containerboard, packaging and recycling businesses for $6B in cash. The acquisition doubles the size of IP's containerboard-and-packaging business, and gives it a strong foothold in areas it had little presence previously, such as the Western U.S. and Mexico. Weyerhauser officials say they hope the deal with help it focus on its remaining businesses, including wood products, real-estate development and timberlands ownership. Much of the cash will be used to pay down debt.
• Deutsche Telekom to Buy Stake in OTE
• Southwest Rethinks Plane Retirement

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Comments

[notsosmart:]

can anyone believe anything anymore. starting with the "lying loans" & ending with the lying ceo's.

2008 Mar 17 12:54 PM

[john1:]

Re: "believe anything anymore"?

Until people look in the mirror and understand that those running things are the same slimy, greedy, self-serving, scamming, liars as the guy staring back at you (and his father, and all his relatives, too) - except those running things are MUCH smarter - people will continue to "believe" everything they are told.

Oh, look, the Weapons of Mass Delusion... Right here under my desk, wud-a-ya-know...

2008 Mar 17 02:40 PM

[User 49100:]

ARE THESE THE SAME FINANCIAL INSTITUTIONS THAT HAVE BEEN GIVING US FINANCIAL ADVICE? OH WHAT FOOLS WE MORTALS BE.

2008 Mar 17 05:52 PM

[Hebes:]

The darkest hour, it is said, is just before the dawn. Not sure if we've seen the worst of this -- probably not -- but the news and worldwide market reactions don't get much worse than Mr. Hoffmann describes. Then waht a difference a day makes. The severity of the drop, coupled with a Fed rate reduction serves to send markets around the world soaring.

2008 Mar 19 02:48 AM