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  • Monoline downgrade trips up banks. Citigroup (NYSE:C), Merrill (MER) and UBS (NYSE:UBS) could be hit with writedowns of up to $10B due to last week's S&P and Moody's downgrade of bond insurers Ambac (ABK) and MBIA (NYSE:MBI), which the banks used extensively to insure complex debt securities. The banks were caught off guard by the sudden downgrade, which may have been prompted by a sense the ratings agencies need to shape up quickly. Oppenheimer analyst Meredith Whitney said this week UBS has the $6.3B exposure to the monoline insurers, Citigroup has $4.8B and Merrill has $3B.
  • Crude slips on slackening demand. Crude oil fell almost 2% Tuesday after the U.S. government's EIA (Energy Information Administration) said in its monthly Short-Term Energy Outlook world oil consumption growth fell to 630,000 B/D during Q1, short of an expected 1M. It expects U.S. petroleum consumption to shrink by 290,000 B/D in 2008 due to economic weakness and high prices. OPEC said Tuesday high oil prices have "nothing to do with the fundamentals," but are due to speculators, the weak U.S. dollar, and geopolitical unrest. In overnight trading, oil climbed as high as $134.60, and trades at $133.30, +1.52% at 7:15 AM.
  • After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.
  • Staples finally nails down Corporate Express. Staples (NASDAQ:SPLS) fourth bid of €9.25/share ($2.6B), up from €9.15, finally won the support of Dutch office supplies firm Corporate Express. CE rescinded its €1.6B bid for French peer Lyreco. The deal gives Staples a contract delivery business in Europe and Canada, helps its North American delivery business, and extends its reach into Australia and New Zealand.
  • TNK-BP talks tank. Sources say negotiations between BP (NYSE:BP) and its Russian partners in TNK-BP, who want changes to how the JV is run, have broken down. Last weekend BP said it was confident differences could be resolved.
  • Quick end to Russian rumor. Shares of Deutsche Bank (NYSE:DB) and peers CS and UBS rallied in Europe on reports Russian billionaire Suleiman Kerimov was adding to his 3% stake in DB and buying stakes in CS, UBS and Morgan Stanley (NYSE:MS). Shares retreated after DB said it was only aware of two shareholders with 3%+ stakes, Barclays (NYSE:BCS) and AXA (AXA).
  • Icahn plan could get costly. Yahoo (NASDAQ:YHOO) told its employees Tuesday replacing its board with Carl Icahn's dissonant slate would trigger its hotly-debated severance plan -- which it admits was structured to discourage outsiders from taking over the board. Icahn and other shareholders say the plan is discriminatory and reprehensible, and a shareholder group is suing to have it struck down. Icahn says the plan could cost Yahoo $2.4B; Yahoo says costs would be from $514M to $845M.
  • XTO bulks up. XTO Energy (XTO) agreed to buy privately-owned Hunt Petroleum for $4.2B in cash and stock. XTO is likely to sell some of Hunt's offshore assets eventually. Behind the scenes, the Hunt family is engaged in a bitter battle over the family jewels.
  • BofA's loss is BNP's gain. French BNP Paribas bought Bank of America's (NYSE:BAC) prime brokerage business for about $300M. The unit provides record-keeping and financing for more than 500 hedge funds. "Hedge funds are poised for another take off as the credit crisis eases, and prime brokers do well when hedge funds do well," finance professor Stephen Brown said. BofA CEO Kenneth Lewis put the unit up for sale in January. Banks that kept risk in check are now reaping the benefits of their discretion by buying up attractive businesses on the cheap.
  • Dread returns to mortgage debt. After rallying into mid-May, mortgage debt is now slipping to new lows, lead by a benchmark index that is down 16% since May 19. Fears are that rising unemployment and energy prices will fuel worse-than-expected homeowner defaults. "There's a tremendous amount of extraneous events going on away from the mortgage market that are making people scared," a trader commented.
  • Number-three Japan pharma buys number-one in India. Japanese drug maker Daiichi Sankyo is buying majority control of India's number-one pharma firm Ranbaxy in a friendly deal worth up to $4.6B, a 31.4% premium to Tuesday's close. Keep an eye on U.S.-traded Dr. Reddy's (NYSE:RDY). The move mimics those of Johnson & Johnson (NYSE:JNJ) and Novartis (NYSE:NVS) which have weathered difficulties in the branded-drug industry by diversifying into other markets.
  • Goldman in Germany. Goldman Sachs's (NYSE:GS) Whitehall housing unit is buying 93,000 apartments from the German state of North Rhine-Westphalia for €3.5B ($5.4B).
  • Precision courts Grey Wolf. Precision Drilling (PDS -3.8%) made an unsolicited $2B, $9/share offer for Grey Wolf (GW +8.9%), which it says will give the Canadian driller a "significant U.S. footprint." Grey Wolf said it will consider the offer, which is an 8.7% premium to its previous close. Remarking on GW's gas-drilling operations, Argus analyst David Rewcastle said, "With oil trading where it is, gas could become an alternative, and it's not going to go down."
  • Ford shareholders scramble for the doors. Ford (NYSE:F) fell 3.8% to $6.12 after Kirk Kerkorian's offer to buy 20M shares at $8.50 attracted 1.02B shares -- almost half the shares outstanding. "Obviously, the market is saying $8.50 is one hell of a price for the next few years" -- Auto analyst Sean McAlinden said of the massive over-subscription.
  • National City comes clean. After losing 9.7% on Monday, National City (NCC) bounced back to gain 3.8% after confirming its Memoranda of Understanding with federal regulators, and saying there have been no material developments since its April 22 $7B capital raise. The firm learned the hard way what happens when you try to hide things from investors.
  • China looks to steal steelmaker. China's state-owned steel makers are considering joining forces to take a big stake in BHP Billiton (NYSE:BHP).
  • Vale douses rumor chat, wants $15B for internal growth. Vale (NYSE:RIO) said its board approved a $15B share offering to finance organic growth, and that it is not in acquisition talks. Previous reports said it had approached banks looking for $30B to fund a major acquisition, and that it was studying Anglo American (AAUK), Alcoa (NYSE:AA) and Freeport-McMoRan (NYSE:FCX).
  • Hard day for Boeing. A $1B program to supply Australia with six Boeing (NYSE:BA) surveillance planes was pushed off to 2010 from 2009 due to integration delays. Also Tuesday, Merrill removed Boeing from its U.S. 1 list.
  • Hedge funds lose funds. Investors pulled $9.4B from individual hedge funds in April, the worst outflow in 6.5 years. Funds-of-hedge-fund funds were up $3.5B.
  • Rate-cuts cease around the globe. Canada became the latest country to put an end to interest rate cuts amid worrying inflation. The Bank of Canada surprised economists by leaving its benchmark rate at 3%, vs. an expected 0.25% cut. Monday Fed Chairman Bernanke said he will battle any surge in inflation. while the ECB's Trichet warned he may raise rates in the very-near future. Canadian dollar futures jumped about 1% vs. the U.S. dollar. In the U.S., investors sold off Treasurys for the second straight day. This morning, ECB Executive Board member Juergen Stark said the ECB is not considering a series of consecutive rate hikes.

Today's Markets

  • Asia markets were mixed Wednesday: Nikkei +1.16% to 14,183. Hang Seng -0.21% to 23,325. Shanghai -1.57% to 3,024. BSE Sensex +1.67% to 15,138.
  • European markets are up slightly at midday: FTSE +0.08%. CAC +0.07%. DAX +0.05%.
  • U.S. futures at 7:00 AM: Dow +0.25%. S&P +0.28%. Nasdaq +0.27%. Crude +1.71% to $133.50. Gold +0.64% to $877.

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Source: Wall Street Breakfast: Must-Know News