Wall Street Breakfast: Must-Know News

• HSBC makes things sound rosy. HSBC (HBC) reported a rise in Q1 earnings, and said it has made a strong start in 2008. HSBC set aside a less-than-expected $3.2B against U.S. credit losses. Shares were up 2.7% in London after Chairman Stephen Green said he's seen a lull in U.S. delinquencies. Analysts had expected loan losses of $4.6B. HSBC also wrote down $2.6B on asset-backed securities, leveraged debt, exposure to bond insurers, and credit trading. But it booked a $2.7B gain on appreciation in the value of its own debt."It seems increasingly likely that the U.S. will enter a recession in 2008, the length and depth of which is uncertain. The timing of any recovery in the U.S. housing market, which is likely to be the primary stimulus in restoring confidence to the U.S. economy, is also unclear," Green said.
• Plane-leasing unit may fly from AIG. AIG's (AIG) recent financial foibles have executives at its airplane leasing unit, International Lease Finance Corp., so worried they're considering splitting off from the parent. Sources say ILFC officials were surprised by the magnitude of AIG's $7.8B Q1 loss last Thursday, which saw ILFC's credit rating downgraded together with AIG's. ILFC's earnings have been exceptional despite the massive losses at AIG. Possibilities include a spinoff or sale, or that the two sides agree to continue to work together. Bear in mind that ILFC CEO Steven Udvar-Hazy is a major AIG shareholder, so he's unlikely to shoot himself in the foot. On Friday, former CEO Hank Greenberg filed a lawsuit that alleges AIG management concealed $4B in losses in its credit default swap portfolio.
• Bold new BlackBerry. Research In Motion (RIMM) unveiled the 3G BlackBerry Bold, which it hopes will defend its flagship product against a threat from Apple's (AAPL) iPhone. AT&T (T) has the U.S. exclusive on the Bold, although it is designed to work on all 3G networks. Features include added CPU power, easier web-browsing and video watching, and the ability to synch with iTunes software. Bold goes on sale in Europe this summer and in the U.S. later this year. RIM is also announcing a $150M JV venture capital fund with Royal Bank Of Canada (RY) and Thomson Reuters (RTRSY) to invest in BlackBerry apps and services and mobile platforms.
• Cablevision likely winner of Newsday. Cablevision (CVC) is closing in on signing a deal to acquire Newsday for $650M after News Corp. (NWS) revoked its informal agreement to acquire the newspaper for $580M. Despite previous speculation about the deal including Newsday's real estate, the current one does not. Newsday will allow Cablevision to cross-sell ads and promote its services in the NY area. Some analysts are skeptical about the deal; there has been speculation it is an attempt by the Dolan family to further devalue CVC shares after a previous takeover attempt was thwarted.
• Citi may sell Japan consumer finance business. Citigroup (C) is mulling paring down or selling its Japanese consumer-finance company, CFJ KK as part of its global restructuring plan.
• Infrastructure fund exceeds plans. Morgan Stanley (MS) raised more than $4B for a new infrastructure fund, surpassing an original target of $2.5B. "People want to diversify away from traditional equity markets and fixed income into alternative assets," said global head of Morgan Stanley Infrastructure Sadek Wahba, adding infrastructure investments are seen as "more stable, and more long-term."
• American Axle turns up heat on UAW. Negotiations between the UAW and American Axle (AXL) took a turn for the worse; Axle is now considering closing a third plant. UAW President Ron Gettlefinger called the move an insult. "If the company continues down this road, it's going to make the talks increasingly more difficult," he said. "I don't know how they can call themselves American Axle anymore. To me it's more like Axle Mexico."
• CW sells prime-time slot. The CW network, jointly owned by CBS (CBS) and Time Warner (TWX), is selling a three-hour Sunday night prime-time block to independent studio Media Rights Capital. MRC will create the programming in consultation with the CW, and both will sell ads for the slot. The move is highly unusual, and indicitive of network TV's struggle post the writers' strike. Nielsen says broadcast network viewership is down 9.6%. As networks enter their annual Upfront week, ad spending is likely to soften.
• Victory for tennis fans. ESPN (DIS) is signing the United States Tennis Association to a six-year deal to telecast live weekday U.S. Open coverage for 11 hours a day.
• HP looks to buy BT's UK datacenters for £1.5B. BT Group (BT) is in talks to sell its British data centers to Hewlett-Packard (HPQ) for £1.5B. Part of the deal will see BT assuming global management of HP's voice and data networks (it already runs them in Europe).

Today's Markets

• In Asia, markets closed to the upside Monday. The Nikkei gained 0.64% to 13,743. Shanghai +0.37% to 3,626. BSE Sensex +0.74% to 16,861. Hang Seng was closed.
• European markets are higher at midday. FTSE +0.44% to 6,231. CAC +0.71% to 4,996. DAX +0.55% to 7,041.
• U.S. futures are up at 7:20 AM. Dow +0.23% to 12,773. S&P +0.29% to 1,393. Nasdaq +0.22% to 1,967.50.
• Gold is down 0.2% to $884. Oil is down 0.58% to $125.22.

Earnings: Monday Before Open

• Cogent (COGT): Sees Q1 EPS of $0.09, better than consensus of $0.08. Sees revenue of $24.6M vs. consensus $23M. Raises full-year revenue view to $125M vs. consensus $118.8M.
• Emmis Broadcasting (EMMS): FQ4 EPS of -$0.28 misses consensus of -$0.17. Revenue of $85.8M vs. consensus $76.5M.
• Holly Corp. (HOC): Q1 EPS of $0.17 beats consensus of $0.15. Revenue of $1.48B vs. consensus of $1.35B.
• IMAX Corp (IMAX): Q1 EPS of -$0.25 misses consensus of -$0.14. Revenue of $23.5M vs. consensus of $25.4M.
• IndyMac (IMB): Q1 EPS of -$2.27 misses consensus of -$1.92.
• MBIA (MBI): Q1 EPS of -$3.01 misses consensus of -$0.19. Revenue of -$2.96B vs. consensus of $718.62M. MBIA said it has $3.58B of unrealized losses from derivatives.
• PMI Group (PMI): Q1 EPS of -$3.37 misses consensus of -$1.96. Revenue of $316M vs. consensus $289M.
• Sprint Nextel (S): Q1 EPS of $0.04 beats consensus of $0.02. Revenue of $9.33B vs. consensus of $9.41B. Sprint Sees improved post-paid customer churn rate in Q2, and sees net post-paid subscriber losses improving marginally vs. Q1.
• Stifel Financial (SF): Q1 EPS of $1.03 beats consensus of $0.89. Revenue of $211.5M vs. consensus of $197M.

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Comments

[Jersey]

Eli, I always enjoy reading your column as I do most of the columns here at SA. Yet the closer we get to this Presidential election the less weight these numbers seem to carry for the average individual investor.I say this, not in hopes of having your readers agree with me that things are bad right now,we all know they are, but in hopes that someone might be able to contradict me and show there may be a future in the market for investors such as myself with less than say 20 million dollars to invest. Actually, when I think about it the more accurate and realistic number may be those with incomes of 250K or more because as we are all aware, traditionally during strenuous economic times the Democrats have more often than not prevailed. Should this trend continue this election season it may have some serious and significant consequences for investors such as; the anticipation of personal income taxes increasing to nearly 50%, the more than doubling of capital gains, and this notion of establishing a Reasonable Profits Board to name but a few concerns. Eli, can you offer any comforting news, can anyone tell me I'm wrong, is this really the end for a large number of investors for who, if in fact these things do come to pass, there simply isn't going to be much incentive to invest under these circumstances. Maybe I'm over reacting, what do you think, anybody?

[Jersey]

Okay, maybe I'm completely misunderstanding the situation, maybe somebody can set me straight. The way I see it is, there is an intention to tax my income at nearly 50%. Then should there be anything left to invest with there is another intention to take nearly half of any profits I might make in the market. Now in my eyes and again unless I'm completely off base, that's a 75% profit ... for someone other than myself ... for me, it's a potential 75% loss... that can't be right... right? Someone, anyone, please, tell me I'm wrong.

[jlounsbury59]

I think Jersey has overstated the potential for disaster from the coming election. I think there is enough intelligence in the spheres of influence for all three candidates to prevent disaster. Just as I think campaign posturing by McCain which, if implemented would continue to trash the dollar, will not be significantly implemented if he is elected, I don't expect growth destroying tax changes and trade policies from either Obama or Clinton if one of them is elected.
Much of campaign rhetoric is simply "trash talk".

[WetWarrior]

Jersey (et al), I certainly can't contradict you...but maybe I can encourage you. I once knew a man who owned a very successful Ford dealership. He enjoyed the fruit of his gains for many years but when sales flagged he sold his stake to more energetic partners. His cut of the deal was over 250 "new" Fords that he kept in open storage from 1977 until he died a few years ago. Some of the cars became quite valuable but he stubbornly refused to sell any because he would then, "...have to pay taxes on the money I make." We couldn't convince him that, should he make profit of $100,000 and pay taxes of $50,000, he would still be $50,000 in the black. It seems to me, even in nearly impossible economic times, taxes are just fruit we don't get to keep. There's still fruit on the table.
Best regards and good luck with your portfolio.

[TBill]

Jersey, you are quite right. For the first time we have a huge political risk that outweighs even the usual earnings risks. Political risk used to be something we only worried about if we invested in 3rd world countries. Now it is right here at home. Go to the web sites of the candidates, see what they have in mind, and calculate the damage. The very best senario is McCain wins, doesn't cave to the Dems [very much out of character], and the Bush tax cuts expire. Even that will have a depressing effect on the market, tax revenues, and the ever ballooning budget deficite.

[Fairfield]

Jersey - we have lived the last 8 years being fed a steady diet of fear if we didn't go along with the current administration. Now we are faced with a recession, an enormous and growing deficit and a weak dollar - this from our prudent Republicans. There is no doubt that these issues have to be addressed and won't be by more of the same. The Republicans have not shown a deft hand when it comes to economics in spite of their rhetoric.
Don't be so afraid of change. It's more of the same of which you should be more afraid.

[HBADGER]

jersey....even if there were a 50% income tax, by the time you took your deductions et al you'd probably only pay 20-30% net. I never heard of anyone going broke paying taxes. How do you expect to pay for the present interest on our debt plus pay for the needed budget items?

[Jersey]

Yeah but ...yeah but ... yeah but ... Uh, what uh, what Country did you say this is again? Let's see, tell the companies, starting with the energy sector how much they can make, ie: Reasonable Profits Board, and then tell it's investors how much they can take, ie: doubling the capital gains, of course after they're done raping us for our personal income... Ohhhh... oookayyyy... ummm ... Duhhh, da bus, da short bus, where's dat short bus for all of us investors? I feel sooo much better now that I know who's driving this bus, yeah right! It's probably best that I don't comment again for a while... politely smiles.

[dectra]

Jersey, you are full of bull. NO, the Democrats are NOT suggesting a 50% tax rate. Rangel is suggesting a 4.6 percentage-point surtax on high incomes. Do some basic math BEFORE you start your GOP Fearmongering.

And, not for nothing, I'd also like to add: 6 1/2 years of GOP misrule have destroyed the value of the dollar and seen the price of Oil more than Quadruple.

The bush Administration, which, thanks to its massive deficits and tax give-aways to the rich and corporations, to its war spending, and to its failure to combat unprecedented and ever-larger trade deficits, has been causing the dollar to plunge in value.

And you're worried about paying taxes? I'm more outraged over the loss of purchasing power of the Dollar under this inept, incompetent administration.

[Jersey]

Dear Dectra, Whatever are you ranting about? Do you know something I don't know? If you'll look back, I never accused the Democrats specifically of anything, I merely mentioned that fact that when Presidential elections take place during times of particularly economic stressful times the Democrats more often than not end up in office, if that fact troubles you that's your prerogative. I am not endorsing either party, not by any means and I'm certainly not looking to scare anyone. If I scared you I apologize but I am just stating the facts, again, if you choose not to see them that's your choice, we all are entitled to our opinions, enjoy it. There are not so blind as those that will not see ... I'm not directing that to you now Dear Dectra, I'm simply stating there are none so blind as those that will not see, take it however you like but I know I'm not gonna bend over so easily for anybody, but that's me. You're welcome to bend over for whomever you choose, enjoy and have a lovely day.

[itsonlymoney]

Congratulation on a discussion that goes nowhere. Jersey, it will do us all a favor if you can back up your statements with some links to this "Reasonable Profits Board" for example. This is the first I've heard about it. I can name a number of companies that I have been expecting reasonable profits from for years and have only been disappointed.

[Doug Roberts]

The concern about "reasonable profits" probably comes from an errant story that has been floating around for more than a year. The story is about Nancy Pelosi and quotes her saying that she supports a 100% windfall profits tax on stock market trading profits - including that of retired persons. It has been labeled as fallacious by factcheck.org (try this link: www.factcheck.org/askf... ).

[Jersey]

Unfortunately other things are demanding my attention at this moment and I cannot give you the attention I would like to however it is urgent mthat either I educate you or you all educate your selfs about the Reasonable Profits Board. Incidentally, this is not to ensure profits larger profits for the company but to take away profits from oil companies because the uneducated public is screaming that their profit margins are too large. The issue has been on the news numerous times recently. I will try to find further information for all of you and post it b/c I feel it is an iportant issue for all investors to be aware of. I truly wish I had the luxury of more time right now but I do not. Be well.

[Jersey]

Running out the door...only to say if the oil industry has limits put on it regarding how much it can make in profits, it will only one, make oil more expensive and drive companies further from any possible exploration in or near the usa and two, it will only be a matter of time until it is deemed other companies and entire sectors are making too much profit...who is to decide how much money a company can make? what happened to free enterprise? This is a huge threat to investors and free enterprise and capitalists alike.I'll try to find more info to post if you like...gotta go

[Aimable]

Jersey, on your CNN link, Glenn Beck says "Do you want your profits to be reasonable? As long as it's legal, as long as it's ethical, I want the profits as big as I can get them." I don't know if you share his opinion verbatim. Because if you do, the question then becomes, is it ethical for oil companies to have record profits while food prices hit the roof, partly because of oil prices (transporting the food)?

[SA EditorEli Hoffmann]

Jersey's most recent comment (before Aimable) was accidentally deleted. We apologize.

Here's what it said:

<<A quick search using key words oil profits and reasonable profits board revealed these and many more hits. These should clarify my position and concerns which should concern all of you as well. wtjs.com/pages/2127250...? edition.cnn.com/TRANSC... www.taxfoundation.org/... www.kansascity.com/273...;>

[investorslive]

Wow - blackberry bold is beautiful, I think they will give AAPL a run for the money because business class is all about BlackBerry

www.investorslive.com/.../

[coffeehere]

Re: oil wells, rising costs, (bbw, why did it take so long for those prices to react to oil?), where does it come from? oh yeah, a hole in the ground. Ain't democracy great, let's support it too. everywhere, even in non democratic places, after all, it's the right thing to do. another btw: how long did mother nature take to make one cubic foot of oil, as received at the wellhead. Why don't we read about that? And remember an important use of those taxes: pay the poliricians, everyone, and cover their 'deductible' costs too.