Wall Street Breakfast: Must-Know News

by: Wall Street Breakfast
Wall Street Breakfast
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.

by Rachael Granby and the Market Currents team

Fitch cuts Greece. Fitch downgraded Greece to C from CCC this morning, saying the Greek bond swap would be a restricted default. "It's difficult to fathom what the market cares less about now," tweets economist Jeremy Cook, "Greece or ratings agencies." European shares and the euro hardly blink in response to the downgrade, with the Stoxx 50 -0.8% and the euro flat and buying $1.3228 (7:10 ET).

Dow touches 13K. The Dow briefly pushed past 13,000 yesterday, the highest point since May 2008, before losing some steam to close +0.1% at 12,965.69.

Moody's reviews muni debt. Moody's is looking at thousands of U.S. municipal sector obligations linked to 26 banks currently under review for downgrades. The results of Moody's evaluations could cause turmoil in the $3.7T muni bond market that has so far managed to chug along without too many problems.

Citi may face hefty writedown. Citigroup (NYSE:C) is facing a potential multibillion-dollar writedown as it begins unwinding its minority investment in the Morgan Stanley Smith Barney brokerage. Accounting complications and a reduced valuation could leave Citi facing an after-tax hit of up to $1.8B, more than it earned in Q4.

Dell disappoints on outlook. Dell (NASDAQ:DELL) reported Q4 EPS yesterday afternoon of $0.51, missing expectations by $0.01, and revenue of $16.03B, beating by $70M. The company expects FY13 EPS to exceed $2.13 (consensus is for $2.04) but it expects FQ1 revenue to fall 7% Q/Q (implied level of $14.9B, below $15.2B consensus). Sales were boosted by 12% Y/Y growth in services, and 60% Q/Q growth in proprietary storage. Server & networking sales rose 6% Y/Y, but that's down from FQ3's 13%. Business sales were healthy, but public and consumer revenue fell slightly. Asia-Pac and EMEA sales rose, while the Americas fell by 3%. Gross margin fell 150 bps Q/Q to 21.1% - that's likely to be a point of concern. Shares slid AH, and are currently -6.6% premarket (7:15 ET).

J&J chief to step down. Johnson & Johnson (NYSE:JNJ) CEO Bill Weldon announced his retirement, following an embarrassing stretch of product recalls and speculation in winter 2010 that he would step down within the year. Alex Gorsky, head of medical devices and diagnostics, will succeed him.

Shell to buy Cove Energy. Shell (NYSE:RDS.A) offered to buy African explorer Cove Energy (OTC:CNVGF) for £994.4M ($1.6B) to expand its footprint in Mozambique and Kenya. The 195 pence/share offer is a 26% premium to Cove's closing price in London yesterday. Cove's board expects to recommend the acquisition. Cove +24.6% in London trading (7:00 ET).

Peugeot, GM in alliance talks. PSA Peugeot Citroen (OTCPK:PEUGY) is in advanced alliance talks with GM (NYSE:GM), according to French online newspaper LaTribune.fr, with sources saying the two could join forces on development and production in Europe. The alliance wouldn't be a merger and probably wouldn't involve an exchange of shares. PSA confirms it's in alliance talks but didn't name its potential partners. Peugeot +15.2% in French trading (7:00 ET).

Tensions grow over Iran. The IAEA says it failed to win access to Iran’s suspected nuclear-related military base during two days of talks that ended yesterday. Meanwhile, Iran said it would consider preemptive action if it felt threatened, underscoring the real possibility of a military conflict in a region holding half the world's oil reserves.

Fannie, Freddie need to cut costs. With no end in sight to Fannie Mae (OTCQB:FNMA) and Freddie Mac's (OTCQB:FMCC) drain on taxpayers, the two mortgage giants need to rein in their rising legal costs, according to a watchdog report released today. At present, Fannie and Freddie are spending tens of millions of dollars defending former execs facing private lawsuits and government investigations. Separately, the FHFA released a new plan to unwind the GSEs and help strengthen the private mortgage market. One possibility: Each could hire an outside investment firm to manage their portfolios, but a BlackRock or Pimco would charge hefty fees that could exceed any savings from laying off staff.

Comcast takes aim at Netflix. Comcast (NASDAQ:CMCSA) announced Streampix, a subscription-based VOD service aimed at Netflix (NASDAQ:NFLX). News of the service took a bite out of Netflix's shares yesterday, which gave up gains to close -3.65%. Comcast's service will be offered free or for $4.99 depending on a subscriber's particular Comcast package, but a subscription to Comcast's TV and broadband services will be required. Credit Suisse suggests the impact on Netflix will be limited because Streampix will be limited to Comcast's existing subscribers.

Wells buys BNP loan portfolio. Wells Fargo (NYSE:WFC) agreed to buy an energy loan portfolio with a face value of $11B from BNP Paribas (OTCQX:BNPQY). Only $4B of the loans have thus far been drawn by borrowers. The deal is part of a broader effort by BNP to reduce its balance sheet by ~10% by year's end. Many other European banks are also conducting asset sales.

Ford bolsters pension plan. Ford (NYSE:F) is going to pump $3.8B into its global pension plan this year and invest the plan's assets more heavily in bonds as the automaker tries to minimize its pension risks in a shaky market. To put that figure in perspective, Ford contributed $1.5B last year.

BoE strongly favored easing. Bank of England minutes released this morning show members voted 9-0 to keep rates unchanged at the most recent policy meeting, and voted 7-2 to increase bond purchases by £50B. Two members had sought a £75B increase. Sterling -0.56% to $1.5692 (7:00 ET).

Consumers still fretting the economy. Despite recent signs of improvement in the U.S. economy, more consumers feel financially insecure than they did a year ago, largely because of their lack of savings to cushion a job loss or other problems, according to a Bankrate.com poll. Just 54% of consumers have more emergency savings than credit card debt, the survey finds.

Beer brewers eye StarBev. Anheuser-Busch (NYSE:BUD), on the lookout for assets in faster-growing markers, is eying up Czech brewer StarBev in a deal that could be valued as high as $3B. The brewer is owned by CVC Capital Partners, which took it private in late 2009. Others with interest: SABMiller (OTCPK:SBMRY), Heineken (HINKY.PK), and Molson Coors (NYSE:TAP).

Alibaba maneuvers for Alibaba.com. Alibaba (OTC:ALBCF) bid as much as HK$19.6B ($2.5B) to take Alibaba.com private, offering minority shareholders HK$13.50/share for the 27% of shares it doesn't already own. Gaining control of Alibaba.com would make it easier for Alibaba to reorganize its assets, a flexibility that could be useful in Alibaba's negotiations with Yahoo (YHOO).

Today's Markets:
In Asia, Japan +1.0% to 9554. Hong Kong +0.3% to 21549. China +0.9% to 2404. India flat at 18145.
In Europe, at midday, London -0.5%. Paris -0.6%. Frankfurt -1.1%.
Futures at 7:00: Dow -0.15%. S&P -0.2%. Nasdaq -0.2%. Crude -0.3% to $105.89. Gold -0.2% to $1755.60.

Wednesday's economic calendar:
7:00 MBA Mortgage Applications
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
10:00 Existing Home Sales
1:00 PM Results of $35B, 5-Year Note Auction

Earnings Results: Companies that beat EPS expectations last night and this morning include Range Resources (NYSE:RRC) and Brocade Communications (NASDAQ:BRCD).

Those that missed forecasts include Toll Brothers (NYSE:TOL) and Chesapeake Energy (NYSE:CHK).

Notable earnings before Wednesday's open: BRKR, CHS, CLH, CNK, DCI, DLTR, EV, GAS, GRMN, IDA, LAMR, MGM, PWR, TJX, TOL, TX, WIN, YNDX


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