Wall Street Breakfast: Must-Know News

• New borrowers step up to the plate, sort of. Demand for the Fed's first round of loans on which investment banks can bid (a.k.a. Term Securities Lending Facility or TSLF) was strong, but not overwhelmingly so. The Fed received $86.1B in bids on $75B of Treasurys. The Fed committed at least $200B to the program; the next auction is slated for Apr. 3. Borrowing from its overnight-loan program was $32.9B, up slightly from $31.3B last week. Overseas, the BoE injected another $27B and the ECB pumped another $80B into the system, but noted "tensions in short-term rates as the end of quarter approaches, notwithstanding the ample liquidity conditions."
• GDP and other bad news. GDP grew an anemic 0.6%/year in Q4, and many economists say Q1 will be worse. Consumer spending was up 2.3%, but inventory cutbacks shaved off 1.79%. Overall inflation was 3.9%, and core inflation was 2.5%, above the so-called Fed comfort level. Jobless claims fell by 9,000 to 360K. Builders investments in housing projects fell 25.2%/year in Q4, the biggest drop in 26 years. "The recovery in growth I had expected in the second half of this year may be delayed," Atlanta Fed's Lockhart said.
• Busy day for Fed governors. Today's U.S. economy resembles previous recessions, Atlanta Fed president Dennis Lockhart says. The Fed's job is to cushion the blow, and make sure the downturn is "short and shallow." Cleveland Fed president Sandra Pianalto said the mortgage crisis, which has pressured housing prices, is affecting consumer spending and is "very detrimental to our economy." Meanwhile, Minneapolis Fed president Gary Stern warned further deterioration may be inevitable despite timely Fed moves. "Some of this (weakness) is now baked in the cake."
• Fannie, Freddie on lookout for up to $20B. Fannie Mae (FNM) and Freddie Mac (FRE) may raise up to $20B as part of the agreement that increases their ability to lend by reducing their reserve requirements, regulator James Lockhart says. The government-sponsored lenders need to increase their capital before Ofheo, their regulator, further lifts its reserve threshold -- which it recently cut to 20% from 30%. Lockhart says the firms need to raise the capital "sooner rather than later."
• Leadership changes underfoot at Citi. Citigroup (C) CEO Vikram Pandit hired Terri Dial away from Lloyds TSB to head Citi's troubled U.S. consumer business. He also fired co-heads of Citi's global equities and investment banking units. This is expected to be just the beginning, with broader changes beginning next weak, including the creation of separate Euro and Asia divisions. Insiders say the real issue is not how Citi reshuffles its deck, but how committed it is to investing in change and seeing it through.
• Clear Channel banks want lawsuit moved. The six lenders who were yesterday ordered by a Texas judge to fund Thomas H. Lee and Bain's $19B-plus-debt buyout of Clear Channel Communications (CCU) are attempting (.pdf) to have the case transferred to federal courts, where they think having it tried under New York law will give them a better chance than Texas. The banks: Citigroup (C), Morgan Stanley (MS), Credit Suisse (CS), Royal Bank of Scotland (RBS), Deutsche Bank (DB) and Wachovia (WB).
• Cayne cedes Bear stake. Bear Stearns (BSC) ex-CEO and current Chairman Jimmy Cayne (and his wife) sold his 5.66M stake (3.9%, or 2.4% after JPMorgan's (JPM) new 39.5% stake) in the company for $10.84/share. Of note: JPMorgan said all of the current members of Bear's board would vote their shares for the merger -- did that not include Cayne's stake? Who did he sell it to (it appears to have been a pre-negotiated block sale), and how do they intend to vote? Why is the buyer paying more than JPM's $10/share offer? Is this a vote of non-confidence for JPMorgan management?
• Auction-rate crisis goes high-tech. The roster of tech companies that are suffering writedowns on auction-rate securities is growing quickly. The tech sector was previously thought immune to a debt crisis, because they typically shun debt due to the tech's super-fast growth. But apparently many companies were convinced by banks to invest some of their spare cash into now-frozen auction-rate paper to capitalize on its high-yield. Implicated so far: MetroPCS (PCS) wrote down $83M; Palm (PALM) disclosed it would take a hit on its $74.7M portfolio. EarthLink (ELNK) said it "may" take a charge on its $60M. Monster Worldwide (MNST) and Intuit (INTU) have yet to disclose writedowns on their $357M and $328M portfolios.
• Fidelity: Mortgage lending probe could impact us. Fidelity National Information Services (FIS) disclosed that current probes of mortgage-lending practices could lead to regulations that "have adverse consequences." FIS has asked for approval to spin off its lender-processing unit, which processes more than half of all U.S. mortgage loans. Fidelity singled out a new code agreed to by Fannie Mae (FNM) and Freddie Mac (FRE) that forbids lenders to use their own appraisers, and bars mortgage brokers and real-estate agents from ordering appraisals. Which is a bit strange, considering its position as a non-lending appraiser. Separately, a lawsuit in Houston accuses it of conspiring with mortgage lenders to impose illegal, hidden fees on home borrowers.
• Xerox hopes $795M will put accounting issues to rest. Xerox (XRX) agreed to pay $670M and put another $125M in reserve against shareholder lawsuits that it inflated earnings with accounting manipulation. It will take a $491M Q1 charge. Analysts said the settlements were in line with expectations. Moody's reiterated its Baa2 senior unsecured debt rating and positive outlook, and said the cash outlays should not affect Xerox materially. S&P said the settlement removes a "material financial uncertainty."
• FDA probes safety of three asthma drugs. Asthma drugs made by Merck (MRK), Mylan (MYL) and Critical Therapeutics (CRTX), and AstraZeneca (AZN) are being investigated for possible links to suicidal behavior.
• FAA wraps up spot inspections. After hundreds of flight-groundings (AMR, DAL) this week, the FAA says the current wave of spot checks will be over today. More detailed but less disruptive probes will continue through June.
• WSJ Op Ed: Sen. Charles Schumer. "The sudden collapse of Bear Stearns was a shock to our financial system, and a wake-up call to anyone who believed our financial house was in good order... we are by no means out of the woods." Schumer suggests the same consolidation that has dominated the private sector should be used to revamp the U.S. regulatory system, bringing the Fed, SEC and CFTC under one umbrella. "The Bush administration's hostility to regulation has to end."

Today's Markets

• Markets closed up strongly in Asia Friday. Nikkei +1.71% to 12,820. Hang Seng +2.74% to 23,286. Shanghai +4.94% to 3,580. BSE Sensex +2.22% to 16,371.
• In Europe, bourses were essentially flat at midday. FTSE +0.17%. CAC flat. Dax +0.2%.
• U.S. futures have recovered some of yesterday's losses as of 6:30 AM. Dow +0.46% to 12,376. S&P +0.56% to 1,337. Nasdaq +0.59% to 1,802.50.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

Comments

[Mazel Tov:]

Mozel Tov Eli!!!

2008 Mar 28 09:09 AM

[pepe:]

Shalom User 168657!!!

2008 Mar 28 10:51 AM

[wsigler:]

If you're an American, SPEAK ENGLISH!

2008 Mar 28 11:48 AM

[Rick S.:]

And if I'm not an American? Am I allowed to throw a word or two of another language into my remarks? You can't be much of an English speaker either, Sigler, if you are thrown by the expressions "Mazel tov" and "Shalom." One final point: Check the Bio of Eli Hoffman. You will discover he's Israeli.

2008 Mar 28 12:30 PM

[afreshup:]

GregoryY - That's funny... since we are throwing cultural words around ... "jeetyet" translation :
"Did you eat yet" in Southern circles...

2008 Mar 28 03:22 PM

[cardiomyopathy:]

Afreshup - Here's another - 'Swogeet' - from the midwest: means, 'Lets go eat!'

2008 Mar 28 05:18 PM

[investmaui:]

Aloha!

2008 Mar 28 10:47 PM

[nukldrager:]

eudaimonia

2008 Mar 31 10:44 PM