- TALF gets its debut. The Treasury and Federal Reserve launch TALF by offering up to $200B in cheap loans to fund the purchase of AAA-rated asset-backed securities backed by newly and recently originated auto loans, credit card loans, student loans, and small business loans. The scope of the program is larger than originally outlined in November, covering a wider variety of loans and offering sweeter deal terms to participants. The government hopes the program will help revive securitized lending and get credit flowing again, though some worry this is just another short-term solution for a long-term problem. The first TALF funds will be disbursed March 25. (Read the press release, term sheet and FAQs (.pdf))
- Bernanke defends AIG rescue. Bernanke testified yesterday before the Senate Budget Committee and had plenty to say. He suggested he sees a role for even larger federal outlays, telling Congress that "although progress has been made on the financial front since last fall, more needs to be done." He declined, however, to specify how much more help he envisions. Bernanke admitted that he too was angry but defended the AIG (NYSE:AIG) rescue by saying there was no other choice, warning the potential cost of an AIG failure to the international economy could be in the multiple trillions of dollars. When asked about the risk of becoming another Japan, Bernanke responded Japan's mistake was not acting quickly or aggressive enough and "I don't think we're making that mistake." (Read Bernanke's prepared remarks)
- Swiss banks in Senate spotlight. Senator Carl Levin, a long-term foe of offshore tax havens, will convene a hearing today to question top UBS (NYSE:UBS) exec Mark Branson about the Swiss bank's tax evasion case and to examine a U.S.-Swiss tax treaty Levin believes is of "very, very limited value." At the heart of the argument is Switzerland's long-standing role as a center of wealth and tax protection; nearly a third of wealth kept abroad globally is in Swiss banks, an amount estimated at $2.2T. This will be Branson's first appearance before the Senate panel since UBS admitted last month that it helped some U.S. clients conceal assets from the government. Meanwhile, UBS has nominated Kaspar Villiger to replace Peter Kurer as chairman of the board as the company tries to deal with additional tax evasion allegations.
- Blockbuster going bust? Shares of Blockbuster (BBI) plummeted 77% yesterday to $0.22 before being halted after rumors surfaced that the company had hired legal counsel to explore a possible bankruptcy filing. Blockbuster denied the rumors, saying it had hired law firm Kirkland & Ellis to explore capital raising initiatives and debt restructuring. However, sources maintain that bankruptcy remains an option if the company cannot quickly resolve its liquidity problems. Shares of rival Netflix (NASDAQ:NFLX) closed up 5.9%.
Auto sales crash. U.S. auto sales plunged again in February, falling 41% to 688,000 vehicles. This was the fifth straight month that sales fell 35% or more from a year earlier. Even worse, the size of the drop left many automakers worried the market hasn't bottomed yet and that sales will continue to fall heavily. Analysts say the worse-than-expected numbers will put pressure on the Treasury to either provide more money to GM and Chrysler or let them fail. Here's the breakdown:
General Motors (NYSE:GM): Feb. sales -52.9% to 127,296 including 75% decline in fleet sales. Car sales +23%. Retail sales -43%. Notes "encouraging" upticks in volume and showroom traffic compared with January. Ford (NYSE:F): Feb. sales -48.4% to 405,000 vs. -42% consensus. Inventories are 32% lower Y/Y vs. a 26% drop in sales. Toyota (NYSE:TM): Feb. sales -37.3% to 109,583, in-line with consensus. Honda (NYSE:HMC): Feb. sales -35.4% to 71,575. Car sales -33.1%. Acura sales -39%. TSX sales +4.1%. Nissan (OTCPK:NSANY): Feb. sales -37.1% to 54,249. Chrysler: Feb. sales -44% to 84,050 vehicles thanks to heavy sales incentives.
- Carmakers ask for Japanese aid. While General Motors (GM) and Chrysler wait to see if the U.S. government will give them more money, foreign automakers are turning to Japan. Toyota's (TM) financial service unit said it has asked the Japanese government for a loan to shore up its capital. Honda (HMC) is likely to ask the government for a loan, though a spokeswoman said the amount of the loans and the timing of the request have yet to be determined. Mazda (OTCPK:MZDAF) will likely follow suit. Finance Minister Kaoru Yosano said the government plans to lend $5B to the state-owned Japan Bank for International Cooperation so the bank can make dollar loans to cash-starved companies.
- BP expects dividend freeze. BP (NYSE:BP) CEO Tony Hayward said the company expects to freeze its dividend this year as it struggles to adapt to the rapid fall in oil prices. BP paid out more in dividends last year than any other British company, and a dividend freeze would be the company's first since 1999. Hayward warned the company doesn't 'expect a quick recovery' in the oil market and would be "wise to prepare for continued volatility, which could extend into 2010."
- China readies new stimulus. China will likely announce new stimulus measures tomorrow in addition to a 4T yuan ($585B) spending plan already in place. News of the possible stimulus pushed stocks up by the most in four months, netting the Shanghai Composite Index a 6.1% gain.
- Aussie economy contracts. Australia's economy contracted sharply in Q4, renewing expectations of additional rate cuts and putting the country on course to join other major economies in recession in early 2009. GDP fell 0.5% in Q4 from Q3, and rose 0.3% Y/Y. It's the country's first quarterly contraction since Q4 2000.
- Retail sales. Retail chain store sales fell 0.6% from a week ago, ICSC said, and declined 0.8% Y/Y. "February's fiscal month ended on a weaker note with a fall-off in customer traffic and sales this past week." National chain store sales rose 0.8% in the first four weeks of February, Redbook reported, and fell 1.6% Y/Y. "Retailers' earning reports for the fourth quarter, as well as for the year, were weak, causing many to close their stores."
- Canadian cut. Bank of Canada cut its benchmark lending rate by 50bps to a record low 0.5%, and said it's ready to go lower and use so-called quantitative easing if need be. Back in January, Governor Mark Carney said the use of quantitative easing was highly unlikely.
- Home sales fall. January's pending home sales -7.7% to 80.4, according to NAR, vs. -3.5% consensus. Dec. revised to +4.8% from +6.3%. "Job losses and weak consumer confidence were a natural drag on home sales... We expect similarly soft home sales in the near term."
- MBA apps fall. Mortgage applications fell 12.6% from a week ago, MBA said, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages increased to 5.14% from 5.07%.
Earnings: Wednesday Before Open
- Big Lots (NYSE:BIG): Q4 EPS of $1.00 beats by $0.07. Revenue of $1.4B (-3.2%) in-line. (PR)
- BJ's Wholesale Club (NYSE:BJ-OLD): Q4 EPS of $0.89 beats by $0.03. Revenue of $2.5B (+3.2%) vs. $2.6B. (PR)
- Costco (NASDAQ:COST): FQ2 EPS of $0.55 misses by $0.04. Revenue of $16.8B (-0.7%) in-line. (PR)
- Joy Global (JOYG): FQ1 EPS of $0.83 beats by $0.07. Revenue of $755M (+18%) vs. $782M. (PR)
- Toll Brothers (NYSE:TOL): FQ1 EPS of -$0.55 misses by $0.02. Revenue of $409M (-51.4%) vs. $425M. (PR)
Earnings: Tuesday After Close
- ADC Telecommunications (ADCT): FQ1 EPS of -$0.07 beats by $0.03. Revenue of $254M (-22.7%) vs. $252M. In-line guidance for Q2. (PR, earnings call transcript)
- Palm (PALM): Sees Q3 revenue of $85-90M vs. $158M consensus on reduced demand for legacy smartphone products, weak economy, and delayed shipment of Treo Pro. Expects to burn $95-100M in quarter, and will work to strengthen working capital position. Shares -7.3% AH. (PR)
- Veriphone (NYSE:PAY): FQ1 EPS of $0.17 beats by $0.02. Revenue of $214M (+15.4%) vs. $221M. Sees FQ2 EPS of $0.14-0.18 vs. $0.18 and revenue of $205-215M vs. $225M. Shares +3.9% AH. (PR, earnings call transcript)
- For the second time this week, Asia markets bucked the U.S. trend and moved higher, this time posting solid gains led by China on hopes of an increased stimulus plan. Nikkei +0.85% at 7,291. Hang Seng +2.47% to 12,331. Shanghai +6.12% to 2,198. BSE +0.23% to 8,446.
- In Europe, markets opened higher on the heels of Asia's strength and are holding on to gains at midday. London +1.6%. Paris +2%. Frankfurt +2.6%.
- U.S. futures, which got off to a weak start Tuesday evening, have moved higher. Dow +1.6% at 6773. S&P +1.8% to 702. Nasdaq +1.4%. Crude +3.9% to $43.30. Gold -0.2% to $911.
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Fed's Fisher speaks on the economic outlook
10:00 ISM Non-Manufacturing Survey
10:30 EIA Petroleum Status
12:00 PM Fed's Lockhart speaks on the economic outlook
2:00 PM Fed's Beige Book
- Notable earnings before Wednesday's open: BIG, BJ-OLD, COST, JOYG, LIZ, NXG, TOL
- Notable earnings after Wednesday's close: DAR, FL, PETM
Seeking Alpha editor Eli Hoffmann contributed to this post.
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.