Wall Street Breakfast: Must-Know News

by: SA Eli Hoffmann
SA Eli Hoffmann
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.
  • Dragged down by the banks. Bank shares dragged U.S. markets down Monday, and are doing more of the same Tuesday in Asia and Europe - prompted by Friday's regulatory seizure of IndyMac (IMB). "It's the cockroach theory. You don't just have one bank failure -- when you have a big bank go under, there's always more than one," a hedge fund manager said. WaMu (NYSE:WM) and National City (NCC) were the worst hit Monday, falling 35% and 15% respectively. Private-equity firm TPG, which injected $7B into WaMu in April at a discount, has seen two-thirds of its investment evaporate.
  • Lehman mulls going private. Lehman (LEH) CEO Richard Fuld is looking hard at taking the Wall Street I-bank private - and out of the public eye - sources say. "The idea is why sell to someone else at so cheap a price when they could buy themselves." On Monday, Fox-Pitt analyst David Trone suggested Lehman go private at a 25% premium in order to stem its bleeding.
  • GM pre-announces cutbacks. GM (NYSE:GM) said late yesterday it will announce this morning "actions to align business to current market conditions." Namely: firings, capacity reductions, cash raising and possibly dividend cuts.
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  • IndyMac halts foreclosures. The FDIC has temporarily halted foreclosures on IndyMac's (IMB) $15B bank-owned mortgage loan portfolio. FDIC Chairman Sheila Bair says the agency is "really focused" on keeping borrowers in their homes - a move that could be beneficial to both homeowners and IndyMac. Bair is looking to sell the bank and its assets within 90 days; still, the respite could help many homeowners rework their loan terms.
  • Mortgage reworks: postponing the inevitable? A full 42% of subprime borrowers whose mortgages were reworked in the first half of 2007 are defaulting anyway, new research from Moody's shows. Still, even with the high re-default rate, Moody's says the "increase in proactive efforts by servicers to modify subprime mortgage loans may modestly lower cumulative losses incurred by securitization pools."
  • Mortgage insurers twist noose. Mortgage insurers (RDN, MTG, AIG) are dramatically tightening their standards amid widespread fear of borrower default, making it even more difficult for homebuyers to obtain credit. "Clearly, the pendulum had swung a little too far in terms of flexibility in underwriting," AIG's Len Sweeney says. "Some of the movement we've made of late is back to a more prudent approach." Insurers are now often requiring 10% downpayments (vs. a previous 3-5%), and premiums are rising.
  • Credit crisis hits Hollywood. A $450M movie-financing deal between Viacom's (NYSE:VIA) Paramount Pictures and Deutsche Bank (NYSE:DB), that would have funded as many as 30 feature films, fell through.
  • Genentech (Private:DNA): EPS of $0.82 misses by $0.04. Revenue of $3.24B (+7.7%) in-line. Sees full-year EPS of $3.40-3.50 vs. consensus of $3.43. Sales of best-seller Rituxan were $651M vs. $629 consensus. [PR]
  • Kimberly-Clark (NYSE:KMB) -7.5%. Preliminary Q2 EPS of $1.03 is $0.06 short of consensus. Sees Q3 EPS of $0.98-1.03 vs. $1.16 consensus, and full-year EPS of $4.20-4.30 vs. $4.52. [PR]
  • E*Trade sells Canada unit for $450M. E*Trade (NASDAQ:ETFC) is selling E*Trade Canada to Scotiabank (NYSE:BNS) for $442M in cash. After capital returns, the deal will generate just over $500M for ETFC. "This transaction generates capital for E*Trade at a very low implied cost," CEO Donald Layton said. Shares +5% in pre-market.
  • Paulson should put Freddie, Fannie into receivership. The WSJ says that U.S. Treasury Secretary Henry Paulson could make more progress toward a safer financial system by putting Fannie (FNM) and Freddie (FRE) into federal receivership, instead of his current plan to give the government more power over the companies, including a possible capital injection. "This is progress, but it's not aggressive enough given the risks. He could make more progress more rapidly toward a safer financial system by putting the companies in federal receivership," and appoint a bipartisan financial figure as a receivership czar - whose main mission would be to protect taxpayer interests.
  • SEC looks at hedge fund advisers. The SEC subpoenaed over 50 hedge-fund advisers in its effort to determine if false rumors were spread to drive down share prices of now defunct Bear Stearns and Lehman (LEH).
  • UK inflation worse than expected. U.K. inflation was worse than expected in June: 3.8% vs. a consensus of 3.6%. Yesterday Bank of England Governor Mervyn King said that inflation will overshoot his target - staying well above 4% into next year - and there's very little he can do about it because an interest rate hike would devastate the economy. Still, even without rate hikes, King says financial market turmoil makes it likely inflation will fall below 2% over the medium-term - just as much a problem as the current situation.

Today's Markets

  • Asia markets fell hard Tuesday. Nikkei -2% to 12,755. Hang Seng -3.8% to 21,175. Shanghai -3.4% to 2,779. BSE -4.9% to 12,676.
  • In Europe, markets are down sharply at midday. London -2.65%. Paris -2.2%. Frankfurt -2.6%.
  • U.S. futures: Dow -1.2%. S&P -1.2%. Nasdaq -1.1%. Crude +0.5%. Gold +1.1%.

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