Wall Street Breakfast: Must-Know News 18 comments
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- Bernanke beseeches. Despite our best efforts, Fed Chairman Ben Bernanke told Congress Tuesday, global financial markets remain under extraordinary stress. "Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy.... Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions... Removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth."
- Inching closer to shore. The Bush administration and Congress bridged some of the gap surrounding a proposed $700B financial market rescue. Most of the concessions were from the Treasury, including more stringent oversight of the plan's implementation, assistance to homeowners facing foreclosure, and giving the government equity stakes in rescue participants. Contentious points include executive compensation at rescued companies (Paulson thinks they'll discourage companies from joining) and proposed changes to bankruptcy law. One of the plan's most influential critics, Sen. Richard C. Shelby - the ranking Republican on the Senate Banking Committee - called it "neither workable nor comprehensive, despite its enormous price tag." Paulson is slated to testify today and tomorrow before House and Senate committees.
- Group of Seven rejects global bailout. G-7 officials spurned Washington's petition that they enact large-scale financial bailouts - similar to the Treasury's proposed $700B safety net - insisting their banks are not exposed to the same level of reckless lending that put U.S. banks in the red and America at risk of a deep recession. Some European central banks did offer increased liquidity for stressed financial markets, as did Japan, but officials showed no appetite for mimicking the U.S. proposal.
- Fed frees private-equity. The Fed's most recent attempt to inject more cash into the nation's ailing banks: loosening rules that limit the stakes buyout firms and private investors can take in banks - as well as allowing certain investors to hold board seats and to communicate with bank management. Previously, owning a controlling stake in a bank would classify the investor as a bank holding company, subjecting it to restrictions on outside investments.
- Zentiva consents to Sanofi sweetener. Czech generic-drug maker Zentiva agreed to sanofi-aventis' (SNY) increased bid of $69.50/share ($2.6B) - a 26% premium to Zentiva's share price before takeover talks took off. PPF Group, which owns 19.2% of Zentiva, will not counterbid. "Like many pharmaceutical companies, sanofi-aventis has been seeking to boost its pipeline as its patents expire, and the acquisition of the Czech generics maker allows it to boost its presence in Central and Eastern Europe."
- Bristol boosts bid. Bristol-Myers Squibb (BMY) raised its offer for ImClone Systems (IMCL) to $62/share ($4.7B); said it will take the offer directly to shareholders; and that it will launch a proxy fight for control of IMCL's board. BMY currently owns 16.6% of ImClone's outstanding shares. Earlier this month, ImClone rejected BMY's $60/share bid, and said it was eyeing a higher bid from an unnamed buyer. Cowen analyst Eric Schmidt thinks IMCL chairman Carl Icahn is unlikely to agree to $62, and says Bristol's persistence will only bolster his obstinance: "Clearly Bristol is very interested in acquiring ImClone and won't be walking away any time soon."
- Lennar looks ahead - with fear. Lennar (LEN) reported a smaller Q3 loss as writedowns narrowed (see below). Still, CEO Stuart Miller sounded an alarming note: "While we expected the housing market to remain constrained throughout the third quarter, the weakness in the market actually accelerated as a result of increased foreclosures, weakened consumer confidence and tightened mortgage lending standards." The government, he said, has "yet to act meaningfully to help stabilize home prices" and "additional government actions will be necessary to help facilitate housing market stabilization, which in turn will help stabilize the financial markets as well."
- Can new chief spark Circuit City turnaround? Shares of Circuit City Stores (CC) jumped 8.2% in extended trading after CEO Philip Schoonover bowed to pressure from activist shareholders and resigned. James Marcum, a nominee of activist investor Mark Wattles elected to the board in June, becomes acting president and CEO. "We believe that by fine-tuning our focus and strategies we will be able to leverage this history and build a stronger future for the company," Marcum, who has some experience in retail turnarounds, said. Wattles has called for the company to sell itself. Either way, Marcum's work is cut out for him: "There's deceleration in all key consumer electronic products," Pacific Crest analyst Andy Hargreaves says. "With all these headwinds, Marcum doesn't have an easy job."
- Walgreen threatens hostility. Drugstore chain Walgreen (WAG) said Monday its $75/share, $2.8B bid for Longs Drug Stores (LDG) is superior to a $71.50/share, $2.7B offer from CVS Caremark (CVS), and it is prepared to take it directly to shareholders if Longs refuses to negotiate a deal. Longs has rebuffed all requests to allow Walgreen to complete a due-diligence review of its financials.
- Retailers await cheerless holidays. The National Retail Federation expects just a 2.2% increase in holiday sales - the weakest holiday season since 2002, and half of last year's 4.4% growth. "Current financial pressures and a lack of confidence in the economy will force shoppers to be very conservative with their holiday spending," NRF Chief Economist Rosalind Wells says. "We expect consumers to be frugal this season and less willing to splurge on discretionary items."
- TD joins WaMu courters. Toronto Dominion Bank (TD) is among the companies weighing a bid for WaMu (WM), sources say. WaMu's options include a full sale, a capital raise, or a government-assisted takeover.
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Earnings: Tuesday Before Open
- Lennar (LEN): FQ3 EPS of -$0.56 misses by $0.04. Revenue of $1.11B (-52.7%) vs. $1.07B. Home deliveries fell 49%, while prices dropped 9%. [PR]
Earnings: Monday After Close
- 3Com (COMS): FQ1 EPS of $0.11 beats by $0.05. Revenue of $343M (+7.3%) vs. $337M. Shares +7.2%. [PR]
- Cache (CACH): Sees Q3 EPS of -$0.14 to -$0.12 vs. $0.01 consensus, and full-year EPS of $0.24-0.31 vs $0.57. [PR]
- Union Pacific (UNP): Sees Q3 EPS of $1.28-1.33 vs. $1.21 consensus due to lower diesel costs and strong operating efficiency. [PR]
Today's Markets
- Asia closes deep in the red: Hang Seng -3.9% to 18,873. Shanghai -1.6% to 2,202. BSE -3% to 13,570. Nikkei - closed.
- Europe at midday. London -2.8%. Paris -2%. Frankfurt -0.9%.
- U.S. futures at 7:20 AM. Dow -0.15%. S&P -0.16%. Nasdaq +0.01%. Crude -2.22% to $106.94. Gold -1.14% to $898.40.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
- 8:55 Redbook Chain Store Sales
9:30 Fed's Bernanke testifies in the Senate about U.S. financial markets
10:00 State Street Investor Confidence Index
10:00 Ofheo House Price Index
10:00 Richmond Fed's Manufacturing Index
10:00 Mass Layoffs
5:00 PM ABC Consumer Confidence Index - Notable earnings before Tuesday's open: LEN
- Notable earnings after Tuesday's close: WOR
Seeking Alpha editor Rachael Granby contributed to this post.
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This article has 18 comments:
are non-reviewable and committed to agency discretion, and
may not be reviewed by any court of law or any administrative agency."
This language must be opposed in the proposed bailout legislation.
Cramer's help for buy and sell
From John Mauldin (9/19/08):
Want to get really mad? Up until 2003, all investment banks were allowed only 12 to 1 leverage. Then in 2004, the SEC basically gave five banks (and only five banks) the ability to lever up 30 or even 40 to 1. Bet you can guess the five banks. Bear, Lehman, Merrill, Morgan and Goldman. Three down.
As Barry Ritholtz wrote: "So while the SEC runs around reinstating short selling rules, and clueless pension fund managers mindlessly point to the wrong issue, we learn that it was the SEC who was in large part responsible for the reckless leverage that led to the current crisis."
My suspicion is that this tells us more about these institutions' balance sheets than they want us to know. Based on the amount of derivatives in world markets - 1,000 trillion dollars - and the likihood they are concentrated in the American market, the probable reason for banks to still be reluctant to grant loans to one another is that they either know or suspect the others have far more bad paper under their kimonos than they care to admit or want others to know. .
What Paulson is proposing is a blind bailout - first we shovel a ton of money into these institutions, then they show us what they're hiding in their level 3 portfolio. If Paulson were still running Sachs and another bank came to Sachs wanting to be bailed out, would he agree to give the other bank a ton of money on these terms ? No way.
Granted, the Federal government hasn't made a single decision based on sound business principles in a very long time, but isn't it about time to start ?
As for Paulson's "for my eyes only" pitch, if my government wants to dump a few trillion dollars into some poorly run, failing businesses, I want to know who's getting how much and what they are doing with it. 700B is just the beginning. They created this mess with a lack of transparency. Public policy should demand a thorough examination of all assets and liabilities, not just the ones they are willing to show us.
The more reluctant they are, the more it makes one wonder if these firms have really flat out illegal transactions buried in their unreported assets. Who says they have no "Enron" accounts ?
Finally, good public policy would also require different management. It makes no sense whatsoever to pour the greatest amount of public money in history into failing businesses and leave the management in place that created the situation. Let them flip burgers, not CDO's
As for the SEC being responsible, if you hand me a loaded gun, I'm I required to shoot myself with it?
www.independent.co.uk/...
www.truthout.org/artic...
Why does the market have so much faith in a bailout that will necessitate unprecedented spending and more taxation/borrowing from our new friends and former bitter enemies, the Chinese, and others?
I think the answer can only be that advertising, which is corporate propaganda, has become so much a part of business that markets "think" they are obliged to believe in it themselves.
Hence, as long as the market believes that something will work, it WILL work. It will work, it will work, it will work ....
And anyone who says it wont work is unAmerican.
"Just as they do today at the National Archives' Declaration of Independence exhibit, tourists in the future-perhaps in Beijing, perhaps somewhere else-will line up to see a framed draft of this week's White House legislation demanding Congress surrender its power of the purse, and give an unelected appointee-in this case, Treasury Secretary Henry Paulson-the power to hand over $700 billion of taxpayer money to "any financial institution," "without limitation...on such terms and conditions as determined by [him]."
and...
"Using the same playbook that succeeded in passing the Patriot Act and the Iraq War authorization with almost no questions, politicians will inevitably invoke love of country, fear, loathing and red-alert emergency-all designed to ram this bill into law as fast as possible, with as little scrutiny as possible."