Wall Street Breakfast: Must-Know News

• Wachovia ditches Citi, sells itself to Wells Fargo for $15B in stock. Wells Fargo (WFC) offered Wachovia (WB) $15B late Thursday in its shares to buy it as an intact company, without FDIC assistance. The offer is worth $7/share, based on WFC's Thursday close. Wachovia was in talks with Citigroup (C) about a FDIC-brokered deal that would have included government aid - which sent its shares plunging. WB closed Thursday at $3.91, after trading below $2 on Monday when news of the Citi deal broke.
• Rescue proponents grow. At least eight lawmakers who voted against the proposed $700B Wall Street bailout on Monday have seen the light, and another four naysayers are now straddling the fence. Some of the converted seem to have been swayed by signs the credit crisis is growing even more intense. "There is a broad feeling that the economy is at risk and that average Americans will be badly hurt if the economy continues to go downhill, and that action is necessary," House Majority Leader Steny Hoyer says. Monday's vote failed by a dozen. Today's is slated for 12:30 PM.
• ECB opens its doors wide. Bolstering its efforts to calm frazzled money markets, the European Central Bank Friday broadened the base of banks which can access its overnight lending facility (statement). Starting Monday, all banks eligible to participate in open-market operations will also be able to access the ECB's overnight fine-tuning operations until further notice; previously, about 140 banks had access quick-tender funds, while over 1,700 institutions were approved for open-market operations. Interbank overnight money market rates fell to 4.1%, from an intraday high of 4.55%, on the news.
• MUFG in talks with Morgan. Sources say Mitsubishi UFJ (MTU) has reached a basic agreement to merge its investment banking unit with Morgan Stanley's (MS) Japanese operations, creating one of Japan's biggest brokerage firms with a size equivalent to that of Nomura (NMR). MUFG denies the reports.
• Morgan: Not out of the woods yet. Still trying to right its slanting ship, Morgan Stanley (MS) is considering scaling back its prime-brokerage operation, selling assets or buying a faltering regional bank, sources say. Another possibility is to 'piggyback' on Mitsubishi UFJ Financial's (MTU) $1.3T deposit base. Earlier this week, MUFG Mitsubishi UFJ took a 21% stake in Morgan Stanley for $9B. The firm is also looking at trimming its balance sheet and exiting or scaling back from low-margin businesses like prime-brokerage, and trading of corporate bonds and high-yield debt.
• Sniffing around Sprint's Nextel. Sprint Nextel's (S) Nextel business is attracting interest - including NII (NIHD) and private-equity firm Cerberus, sources say. A second round of bids could come as soon as next week. Nextel's $5.4B in debt and a lack of available credit may complicate any deal. Sprint is prepared to continue running and investing in the Nextel network if no good deals emerge. Shares surged 4.5% in extended trading on the story.
• Jobless claims grow, again. Initial jobless claims climbed to 497,000 from last week's 496,000 (revised from 493K) - worse than economists' 475K consensus. The 4-week moving average was 474,000, an increase of 11,500. 497K is the highest claims number since Sept. 2001. Continuing claims rose by 48K to 3.591M - the highest since Sept. 2003 - suggesting unemployed are finding it increasingly harder to find work.
• Factory orders dive. Factory Orders fell by 4% in August, far more than the -2.5% consensus - followed a downwardly revised 0.7% increase in July. The decline follows five consecutive monthly increases, and is the largest percentage decrease in new orders since Oct. 2006. "The factory sector appears to be entering another down leg, deepening the industry's recession," Steven Wood of Insight Economics says. Futures traders raised the perceived chance of a 50 BP cut in the fed funds target to 1.5% by late October to 84%, from 64% on Wednesday.
• ECB holds interest rates steady, for now. The ECB left its benchmark rate unchanged yesterday at a seven-year high of 4.25%, but discussed cutting rates immediately and signaled its next move is indeed likely to be a rate cut. A rate cut in the near future would come despite above-target inflation and would be the first cut in five years, showing the depth of concern about the Euro-zone economy as it teeters near recession.

Earnings: Friday Before Open

• Corel (CREL): Q3 EPS of $0.39 beats by $0.05. Revenue of $66.2M (+9.6%) vs. $64M. [PR]
• Family Dollar Stores (FDO): FQ4 EPS of $0.38 beats by $0.04. Revenue of $1.77B (+8.2%) in-line. [PR]

Today's Markets

• In Asia, Nikkei closed down 1.94% to 10,938. Hang Seng -2.9% to 17,682. BSE -3.46% to 12,602. Shanghai closed.
• In Europe, London is down 0.03%. Paris +0.15%. Frankfurt +0.49%.
• U.S. futures are higher. Dow +0.56%. S&P +0.82%. Nasdaq +0.73%. Trading is light ahead of the payroll number.
• Crude +0.47% to $94.41. Gold -0.13% to $843.20.

Friday's Economic Calendar

• 8:30 Non-farm payrolls
  10:00 ISM Non-Manufacturing Survey
• Notable earnings before Friday's open: FDO

Seeking Alpha editor Rachael Granby contributed to this post.

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Comments

[axelrod608:]

Jobless claims keep rising, adding to the pain on Main Street. I know that "trickle down" theory is still popular in some circles, but cannot see how relieving few Wall Street and foreign banks of a few bad debts will get any money freed up on Main Street.

In any battle, the point of attack is crucial.

2008 Oct 03 09:32 AM

[axelrod608:]

Back when I was in real estate, any buyer with less than 20% down had to get PMI - private mortgage insurance to protect against default and foreclosure. Is there anyone out there who can answer this:
1) did the RE biz stop requiring PMI at some point ?
2) If PMI is still around, where do all these ""nortgage backed securities losses" come from ?They should be covered by insurance.

If PMI is no longer required, I sure would like to know who is responsible for ending it.

2008 Oct 03 09:43 AM

[User 59050:]

call your bank and ask for the mortgage department and simply ask them. ask them when it changed and then go to the internet with that year, PMI, mortgages, congress and you will find it.

2008 Oct 03 10:40 AM

[axelrod608:]

I called. PMI is still required for any loan with less than a 20% down payment. Always has been. So for all these "liars loans" there should be NO loss in foreclosure - it should be paid by the PMI insurance company.

So, as Aretha put it, "Who's zoomin' who ?" Yes, there are losses on properties where the borrower put 20% or more down not requiring PMI and the property is sold for less than the mortgage amount, but there should be NO losses on loans with PMI.

Something here - actually a lot here - doesn't smell right.

2008 Oct 03 11:19 AM

[notsosmart:]

maybe aig was pmi.

2008 Oct 03 12:17 PM

[leh:]

Nice job by Sprint in running a formerly good business (NXTL) into the ground! Tools. Let's hope a more competent company buys it and turns it around.

2008 Oct 03 12:29 PM

[Dumb-founded:]

I am not a broker but in California, the way around the PMI is a "piggy back" loan. For example, you would get one loan for 80% to avoid PMI and another for 20% at a much higher rate. Which means that a borrower could technically get into a house with 0 down which was the case for the past few years.

2008 Oct 03 12:50 PM

[xmichaelx:]

Dumb-founded is correct. I used a piggy-back loan to buy my Las Vegas house in 2003 with no $$ down, but because I wasn't an idiot, I purchased a fixer-upper in an area where real estate values have gone up since then, and refinanced last year at 5.875%.

2008 Oct 03 01:41 PM

[Nextel Acce...:]

I am ok with Sprint selling Nextel, just seems to me it would be a real fire sale now with the current market conditions, maybe better to wait.

2008 Oct 03 01:46 PM

[JasonR:]

Borrow 80% @ 5.0% and 20% @ 18%, then walk into "your" home for $0 down @ 7.6% interest. Not bad, eh?

2008 Oct 03 01:46 PM

[Lynn:]

Axelrod,
MBIA and Ambac are (were) the two big mortgage insurers. They were hemoraging so much cash from the mortgage crisis that there credit ratings were downgraded. I haven't kept up with them lately.

2008 Oct 03 03:30 PM