Wall Street Breakfast: Must-Know News

• Bear bid boost. JPMorgan (JPM) CEO Jamie Dimon is in talks for a $10/share deal that would quintuple its original $2/share offer for Bear Stearns (BSC). Dimon hopes the move will placate angry shareholders, who vowed to fight the original deal. The Fed is balking at the price, because it doesn't want the public to perceive the deal as a bailout. Bear's board also moved to authorize a 39.5% stake sale to JP Morgan, which would give it an upper hand in gaining majority shareholder approval. Dimon may also be motivated by a need to change the original agreement, which inadvertently left JPM on the hook for Bear losses even if the deal fails.
• Central banks deny chatter. The Fed and the Bank of England denied a Financial Times report that they were in talks to make mass purchases of mortgage-backed securities in an effort to relieve a global credit crisis. The BoE said it is looking at different ways to ease the strain, but insisted it is not considering any options "that would require the taxpayer, rather than the banks, to assume the credit risk."
• Analysts see even worse Q1. New analyst estimates forecast Wall Street Q1 earnings will fall 5.5% -- vs. just 2.7% a week ago. Earnings at financial services companies will fall 40%, while energy and tech stocks are expected to gain 29% and 12% respectively. Q2 earnings for the S&P 500 constituent companies will fall 0.9%, analysts say; last week they thought Q2 earnings would gain 0.2%.
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• Mortgages on the cheap. Former Countrywide (CFC) executives are launching PennyMac, which will raise more than $2B to buy distressed mortgage loans (not mortgage-backed securities) at a discount, restructure them, and resell them at a profit. BlackRock (BLK) is a partner in the JV.
• BofA looking at $6.5B writedown. Punk Ziegel analyst Dick Bove says Bank of America (BAC) will likely take a $6.5B writedown in Q1 (it reports Apr. 21) to cover potential losses on its mortgage and home-equity portfolios, but will still report a profit.
• Tiffany: A jewel of a quarter. Tiffany & Co. (TIF) reported FQ4 EPS of $1.27, $0.06 better than consensus estimates of $1.21. Revenue of $1.05B was in line. CEO Michael J. Kowalski says the company will continue its expansion plans despite economic uncertainties. Looking ahead, TIF sees 2008 net sales growth of 10%, net earnings growth of 5-9%, and net EPS growth of 11-15% to $2.75-2.85, better than the $2.49 the Street was looking for.
• CIT scrambles for cash. CIT is in talks with overseas banks to provide it with a line of credit after it drained a $7.3B backup credit facility last week when it lost access to normal funding channels following a debt downgrade. CIT says it has enough cash to get it through the year; some skeptics think its only hope of avoiding bankruptcy is to sell itself.
• Circuit City shareholders push for change. An increasingly large group of activist investors are likely to force management changes at Circuit City (CC).
• China Life puts $300M into Visa. China Life Insurance (LFC) took a $300M stake in Visa (V). Cash-rich Chinese financials continue to look for overseas investments that can bring them new profit streams.
• Tech looks at India. Dell (DELL) said India revenue jumped 60% in 2007 to $700M. VMware (VMW) said it will invest $100M in India and double its staff there.

Today's Markets

• In Asia, the Nikkei was flat, the volatile Shanghai Composite fell 4.49% to 3,629, and the BSE Sensex gained 1.96% to 15,289. Hang Seng was closed.
• Markets in Europe are closed Monday.
• U.S. Futures are up slightly from Thursday's close. Dow +0.32% to 12,367. S&P +0.38% to 1,330. Nasdaq +0.39% to 1,576.50.

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Comments

[DeaverB]

Always appreciated. Easy to not comment on such a helpful start to each day. Many thanks. Deaver

[Vicki]

Leave it to former CountryWide executives to find a way to profit further, while of course helping the public like they did previously when originating those nefarious loans to begin with. Yea, do us a favor guys.

[Rick S.]

Only in America can a group of "former executives" who drove their company into bankruptcy turn around a month later and borrow $2 billion to float a scheme patterned after the one that bankrupt their previous operation. And of course it won't be Black Rock itself that ponies up the $2 billion. They will borrow it from someone like Citi or Bank of America that will lend it to them no-questions-asked.

And five years from now the Federal Reserve will buy the toxic waste the new scheme generates, leaving the taxpayer to foot the bill. As I say, only in America.

[john the bear]

The Wall Street Journal reported that General Growth Properties and Simon Property Group are planning to sell shares to raise cash, which would dilute current share holders value. This is comparable to a recent experience in England. The press reported that cap rates in England were lower than mortgage rates and the REIT was forced to sell shares to raise cash for redemption's.

In looking at the balance sheet of Simon Properties, the long term debt was reported to be $19 billion in real estate which was financed with $17 billion in long term debt. I question the terms of the long term debt. It has been reported that 59% of the mortgage debt for commercial properties was interest only! Further raising doubt is the report by Mood's that the loan to value ratio was typically 110% or more.

So, the reason for the sale of shares may be that the interest only loans at substantially interest rates have caused a problem for Simon.