Wall Street Breakfast: Must-Know News

• Backstopping the GSEs. Both the Fed and the Treasury stepped in over the weekend to restore confidence in giant mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE). The Treasury said it will seek congressional consent to increase the companies' $2.25B credit lines, and to invest in either if needed - to insure they have sufficient capital. The Fed voted to extend its already extended discount window lending to include the two in addition to broker-dealers. The moves are aimed in part to head off fears over a $3B Monday auction of Freddie's notes, which if shunned could drive yields up and trigger a selloff of the companies' debt. Regulators hope the moves - which stop short of direct intervention - will instill enough confidence to make intervention unnecessary.
• InBev imbibes BUD. Capping a month-long courtship that many thought would turn into an extended custody battle, Anheuser-Busch (BUD) agreed to be acquired by InBev for $70/share ($52B), creating the world's largest brewer - Anheuser-Busch InBev. The companies say they expect €1.5B in annual synergies. Grupo Modelo, about 50% owned by Anheuser-Busch (BUD), says it's evaluating the proposed buyout; it claims to have 'consent rights' on the transaction.
• Yahoo fouls off Microsoft/Icahn pitch. Yahoo (YHOO) said it rejected an 'odd and opportunistic' 24-hour take-it-or-leave-it offer to sell its search business to Microsoft (MSFT) and hand over what's left to Carl Icahn. Sources say Microsoft's bid included a 10-year/$20B search ad revenue guarantee. Presumably Icahn would merge the rest of Yahoo with MySpace (NWS) or AOL (TWX). Yahoo said its search-ad deal with Google (GOOG) is superior, and that Icahn's slate of directors has no working knowledge of the company. "Clearly, Microsoft, having failed to advance in search, is aligning with the short-term objectives of Mr. Icahn to coerce Yahoo! into selling its core strategic search assets on terms that are highly advantageous to Microsoft, but disadvantageous to Yahoo! stockholders."
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• Gentlemen, start your engines. "Once every 20 years or so, the companies that make jet engines battle it out for a chance to power the next generation of single-aisle airplanes." On Sunday, the great engine war between GE (GE) and United Technologies' (UTX) Pratt & Whitney began. P&W has a two-year head start on an engine it says burns 12% less than today's best. GE says its product will have fewer moving parts than its rival's - and deliver equal or better performance.
• Santander takes out A&L. Banco Santander (STD) is buying U.K. lender Alliance & Leicester for £1.26B ($2.4B) in shares. Including an interim dividend, the deal represents a 45% premium to Friday's close.
• IndyMac reveals industry cracks. IndyMac Bank (IMB) will open this morning as IndyMac Federal Bank - under FDIC supervision - a move that could cost the deposit-insurance fund between $4B and $8B. WSJ reports the government's seizure of the firm is further proof of a deepening crisis in the U.S. banking industry, from which at least some lenders will not emerge. Bankers say some customers are pulling their accounts from banks whose troubles are well publicized.
• SEC gets tough. The SEC says it will clamping down on "the intentional spread of false information intended to manipulate securities prices" - over and above its current watch over rumor-mongering and abusive short-selling. Its new effort will focus on determining whether broker-dealer compliance controls "are reasonably designed to prevent the intentional creation or spreading of false information intended to affect securities prices, or other potentially manipulative conduct" - also known as mending the holes in the fishnet.
• Ratings firm remake, take II. Two congressmen are proposing a bill that would require new bonds backed by riskier assets such as mortgages and consumer debt to receive SEC approval before rating agencies could rate the debt. The bill is somewhat different from a rule proposed last month that aimed to play down ratings agencies and place the burden of onus on the debt buyer. Opponents say the plan is regulatory, and could stifle innovation.
• Xbox gets cheaper, better. Microsoft (MSFT) confirmed widespread rumors, dropping the price of the 20 GB Xbox 360 by $50 to $299. It also unveiled a 60 GB model that will cost $349.
• Oil rich get richer. Iran says it has discovered a new oil field holding 1.1B barrels of sweet crude - 233M of which is recoverable.
• Companies mentioned positively in Barron's magazine: DD [summary], DEO, NCX, NDAQ, QCOM, real estate [summary].

Today's Markets

• Markets were mainly lower in Asia Monday. Nikkei -0.2% to 13,010. Hang Seng -0.8% to 22,014. Shanghai +0.8% to 2,876. BSE -1% to 13,330.
• In Europe, markets are higher at midday. London +1.8%. Paris +1.9%. Frankfurt +1.3%.
• At 7:15, U.S. futures are well above Friday's close. Dow +1.3%. S&P +1.6%. Nasdaq +1.6%.
• Crude -0.8% to $143.90. Gold -0.1% to $959.50.
• Monday's economic calendar:
  11:00 4-Week Bill Announcement
  1:00 PM 3-Month Bill Auction
  1:00 PM 6-Month Bill Auction

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Comments

[Leser]

Quote from your text above: "On Sunday, the great engine war between GE (GE) and United Technologies' (UTX) Pratt & Whitney begun." (Mr. Hoffmann, sorry, I don't know how to email you personally. "Begun" should be "began."
Thanks for your information. Very valuable. You're always most informative.

[SA EditorEli Hoffmann]

Thank you Leser - fixed that.

[wsigler]

....or "has begun".....:-) Such changes would mightily contribute to substance :-)

[RightinSanFrancisco]

When the obituaries of this period are written, it would seem as if Bernanke and Paulsen will be seen as masters of their toolchest, operating with creativity and moderation. Add Barney Frank. We are fortunate, and will most likely emerge with a better banking system. Unfortunately, the falling knives are not yet clattering on the floor.