- Lawmakers set to draft bailout bill. Congress inched toward approving the Treasury's $700B plan to rescue the U.S. financial system. President Bush called an emergency meeting for Thursday to hammer out details, after addressing the public Wednesday night (text). Nervous investors continue to flock to cash and safe-haven assets, briefly sending short-term interest rates below zero. Senate Banking Committee Chairman Christopher Dodd is optimistic: "We're not there yet," he told reporters, but there's a "good possibility we'll get there in a day or so." Bush told the nation it faces a 'long and painful recession' if it fails to act. "Our entire economy is in danger."
- GE outlook dims. GE (GE) lowered its guidance for Q3, sending its shares down 5%. Index futures also gapped down. GE now sees Q3 EPS of $0.43-0.48 (vs. $0.52 consensus) due to "weakness and volatility in the financial services markets." For the full-year, it expects EPS of $1.95-2.10 (vs. $2.21 consensus). To strengthen its capital and liquidity position, GE said it will: 1) Inject capital into GE Capital to reduce leverage ratios by reducing the GE Capital dividend to GE to 10% from 40% of GE Capital's earnings and by suspending the current GE stock buyback. 2) Reduce GE Capital's commercial paper to 10-15% of GE Capital's total debt going forward. 3) Resize GE to deliver 60/40 industrial/financial services earnings split by end of 2009. It maintained its quarterly dividend of $0.31.
- WaMu talks with private-equity groups. Washington Mutual (WM) has approached private-equity firms - including Carlyle and Blackstone (BX) - to gauge their interest in a potential takeover, sources say. WaMu continues to explore other options, include a sale to another financial institution, though Santander (STD) has now dropped out, and TD Bank (TD) seems largely uninterested. JP Morgan (JPM), Citigroup (C) and Wells Fargo (WFC) have conducted some due diligence, but are reluctant to absorb WaMu's loans. This morning, Fitch noted there is an increased likelihood of a partial sale - leading to greater uncertainty for debt holders.
- Citigroup shops Primerica. Citigroup (C) may sell its Primerica life insurance unit to J.C. Flowers and Protective Life (PL), sources say. Analysts think it could go for $7.5B.
- GE wouldn't prop up Lehman. Sources say Lehman (LEH) CEO Richard Fuld reached out to Jeff Immelt, General Electric's (GE) CEO, about taking an investment in the investment bank before it collapsed. Fuld hoped Immelt would take a 20% stake in Lehman. Fuld also turned to then-AIG CEO Marty Sullivan. "The moves highlight the sense of desperation that overwhelmed Fuld as his firm hurtled toward a bitter end amid a credit crunch that also threatened to topple Merrill Lynch (MER) and caused Goldman Sachs (GS) and Morgan Stanley (MS) to recast themselves as bank holding companies." While many hold Fuld personally responsible for LEH's downfall, there's probably some truth to the words of a peer: "Unless you've been on the 31st floor, you'd never understand what he's been through."
- Dell outlines comeback. Dell (DELL), #2 global PC maker, will focus on capturing sales from H-P (HPQ), it says. CEO Michael Dell told reporters in Brussels today Dell will continue to grow faster than the industry this year, and remains "very competitive" in pricing - while conceding there will be some industry-wide fallout from the financial crisis. Dell wants to trim up to $3B in annual expenses over the next three years by eliminating jobs and outsourcing. The company will, however, continue to operate some independent factories.
- Foul future. Chicken producer Pilgrim's Pride (PPC) warned it expects a significant Q3 loss, and said it may go into default with its lends unless they waive or amend its current debt covenant. PPC has been hurt by surging grain and energy costs, weak pricing and demand for chicken, and by its debt load following a 2006 $1B purchase of Gold Kist. Shares fell 38% Wednesday.
- Yet another iTunes challenger. In an effort to challenge online rivals and loosen Apple's (AAPL) grip on the music industry, News Corp.'s (NWS) MySpace will today launch MySpace Music, a new online music service. MySpace Music users will be able to stream tracks for free from large music catalogues, with an option of buying through Amazon.com. Universal Music, Sony BMG (SNE) and Warner Music Group (WMG) own about 40% of the venture.
- CBRC promises lending as usual. CBRC, China's banking regulator, tried to calm market fears by strongly denying a report that domestic banks had been told to stop lending to or borrowing from U.S. financial institutions. However, unnamed traders acknowledged that some Chinese banks had indeed stopped lending to U.S. banks, at least temporarily. Undisputed is that Chinese banks, in an effort to limit exposures to troubled credit markets, have moved to curb approvals for interest-rate swap agreements with international financial firms.
- Mortgage activity backtracks. Mortgage applications fell by a whopping 10.6% from a week ago, MBA said. The average interest rate on 30-year fixed-rate mortgages increased to 6.08% from 5.82%. Refinancing and purchase activity both suffered as mortgage rates soared during one of the most tumultuous weeks in U.S. financial-market history; refinancing application volume fell 11.2%, while purchase application activity dropped 10%. Even FHA loan applications, one of the few remaining strengths in the current mortgage market, tumbled by 8.9%. [HW]
- Existing home sales highlight need for housing reform - NAR. Existing home sales fell 2.2% from July to 4.91M, NAR said, just below the 4.94M consensus. Sales are down 10.7% from a year ago. Interest rates have declined, but "there is a serious question as to whether a cash infusion by the U.S. Treasury into Wall Street would help consumers by improving mortgage funding," it said, urging Congress to address the housing market separately: "Congress needs to take care of Main Street and not just bail out Wall Street." NAR chief economist Lawrence Yun joined the dots: "Historically, housing has led the nation out of economic doldrums – there will not be an economic recovery without a housing recovery."
Earnings: Thursday Before Open
- McCormick & Company (MKC): FQ3 EPS of $0.50 beats by $0.02. Revenue of $782M (+9.1%) in-line. [PR]
- Rite Aid (RAD): Q2 EPS of -$0.27 misses by $0.12. Same-store sales +0.6%. Sees full-year EPS of -$0.56 to -$0.67 vs. -$0.51. [PR]
Earnings: Wednesday After Close
- Bed Bath & Beyond (BBBY): Q2 EPS of $0.46 in-line. Revenue of $1.85B (+4.9%) in-line. [PR, Earnings call transcript]
- Nike (NKE): Q2 EPS of $1.03 beats by $0.11. Revenue of $5.4B vs. $5.19B. [PR]
- Paychex (PAYX): FQ1 EPS of $0.41 in-line. Revenue of $534M (+5.3%) vs. $540M. [PR]
- Red Hat (RHT): Q2 EPS of $0.20 beats by $0.02. Revenue of $164M (+29.2%) in-line. Shares +5.1%. [PR]
- Shanghai was Asia's lone standout, +3.64% to 2,297. Nikkei -0.9% to 12,007. Hang Seng -0.15% to 18,934. BSE -1.11% to 13,541.
- In Europe, markets are mainly higher at midday. London -0.02%. Paris +0.9%. Frankfurt +0.8%.
- Futures have pared earlier gains following GE's weak outlook. Dow +0.36%. S&P +0.1%. Nasdaq +0.6%.
- Crude -1.04% to $104.63. Gold -0.54% to $890.20.
- 30-year bonds -0.37%. 10-year notes -0.26%. 5-year -0.24%. 2-year -0.15%.
Thursday's Economic Calendar
- 8:30 Durable Goods Orders
8:30 Jobless Claims
10:00 New Home Sales
10:35 EIA Natural Gas Report
11:00 Kansas City Fed Mfg Survey
12:00 PM Fed's Bernanke testifies in Congress
4:30 PM Money Supply
- Notable earnings before Thursday's open: DFS, MKC, RAD
- Notable earnings after Thursday's close: ACN, FINL, RIMM, TIBX
Seeking Alpha editor Rachael Granby contributed to this post.
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