- Piecing together the Lehman puzzle. Shares of Lehman (LEH) plunged 45% Tuesday after reports Korea Development Bank was not pursuing a stake in the troubled broker - which it later denied. After the close, Lehman pushed forward its Q3 earnings report (.pdf) by one week, to this morning, saying it would also discuss 'key strategic alternatives.' Overnight, conflicting media reports say 1) KDB has ended talks with LEH, 2) KDB is seeking to take a controlling stake in LEH (more than the 25% mentioned in previous reports) for about $6B, 3) LEH is in talks with BlackRock (NYSE:BLK) to sell a package of residential real-estate assets, 4) LEH continues to talk with KKR and Carlyle about a possible purchase of its asset-management unit, 5) LEH will spin off some of its commercial real estate assets into a separate company, internally known as SpinCo, and 6) Nomura, Japan's biggest I-bank, may bid for a piece of the pie. At 6:50 AM, shares are up 27% to $9.90. Stay tuned.
- When it rains... Ratings agencies also played a part in Lehman's (LEH) Tuesday tumble. S&P placed Lehman on CreditWatch with negative implications, citing "heightened uncertainty about Lehman's ability to raise additional capital, based on the precipitous decline in its share price in recent days..." Fitch Ratings put Lehman on rating watch negative over difficulties in raising capital: "In the likely event that additional capital is required - due to more write-downs, valuation adjustments and/or trading losses - the cost could be prohibitively expensive given investors' decreasing appetite for financial institutions exposure."
- FedEx sees strong Q1, difficult year. FedEx (NYSE:FDX) jumped 4.8% in extended trading after it bumped its FQ1 EPS guidance to $1.23 (vs. $0.95 consensus). However, FedEx did not change its full-year outlook: "While sustained declines in fuel prices could improve our full-year outlook, the slowing economic growth trends in the U.S. are now extending to other areas of the global economy," CEO Alan Graf said.
- TI maintains outlook, calms investors. Shares of Texas Instruments (NYSE:TXN) gained 5.25% in extended trading, after falling 3% during regular hours, after it narrowed its Q3 earnings guidance - even though the mid-range stayed put. It now sees EPS of $0.42-0.46 (consensus $0.44) vs. a previous $0.41-0.47, and revenue of $3.33-3.47B (consensus $3.41B) vs. a previous $3.26-3.54B. Markets worried it would drop its outlook in its scheduled mid-quarter update amid a spate of warnings in the mobile industry - including its biggest client Nokia (NYSE:NOK). "After Nokia's negative numbers we and the majority of the Street had expected TI would be a bit more cautious," Stifel Nicolaus analyst Cody Acree said. "To be able to be stable here and not change the estimates is a positive surprise."
- Buffett firm stops insuring bank deposits. Warren Buffett's Berkshire Hathaway (NYSE:BRK.A) told a subsidiary, Kansas Bankers Surety Co., to stop selling insurance on bank deposits above the $100K FDIC guarantee. A significant indication of just how worried Buffett, and likely others, are about future bank failures.
- RIM opens clam, finds Pearl. Research In Motion (RIMM) finally unveiled a much-rumored clamshell (flip) version of its popular Blackberry Pearl smartphone, the Flip 8220, available in the U.S. exclusively through T-Mobile (DT). RIM is attempting to move beyond its core business-user focus and address the consumer market. Its Qwerty keyboard is unusual for a flip-phone.
- Nokia moves boldly into corporate email. Nokia (NOK) is embedding Microsoft Exchange ActiveSync (NASDAQ:MSFT) into its entire 43-strong smartphone lineup, a move it hopes will help it gain traction against incumbent Research In Motion (RIMM). Microsoft's ActivSync software becomes automatically available for 80M Nokia devices, making setting up corporate email a cinch.
- Let's Rock doesn't roll. Apple's (NASDAQ:AAPL) Let's Rock failed to inspire Wall Street. Shares closed off 4% after Steve Jobs rolled out a number of major product updates at Apple's annual September showcase. A sampling: 1) iTunes 8, including the Genius algorithm that figures out which songs work together well. 2) More bang for the buck (120GB vs. 80GB) for the iPod Classic. 3) The thinnest iPod nano ever, including a 'shake to shuffle' feature. Jobs addressed speculation about his health, telling CNBC he feels fine, but that he could stand to gain 10-15 pounds.
- S&P outs Frannie. S&P is removing Fannie Mae (FNM) and Freddie Mac (FRE) from the S&P 500 index. The pair, worth $1.04B and $614M respectively as of Tuesday's close, are no longer eligible due to the index's $5B minimum cap requirement. They're being replaced by Salesforce.com (NYSE:CRM) and Fastenal Company (NASDAQ:FAST) - which jumped 4.8% and 3.5% in extended trading.
- OPEC pleads: Stop overpumping. OPEC President Chakib Khelil called on members to stop exceeding the cartel's set quota - a move that would reduce supplies by 520K barrels a day. "It's definitely a defensive measure to keep prices above $100," an energy analyst said, calling the move a bit of a shock. OPEC kept its production quota unchanged at 28.8M barrels/day. Crude futures gained as much as 1.5% overnight, but are flat at 6:15 AM.
- Bubble blowers move on. Commodity funds sold $39B in crude futures between their July peak and Sept. 2, adding fuel to the theory speculation - not supply constraints - drove prices up. "The speculators that drove prices up basically deflated the bubble," Oppenheimer's Fadel Gheit says. After the CFTC ramped up its monitoring of oil trading, "They said, 'That's it, the game is over. We are going to bet on another horse.'" Some analysts insist energy traders have no more effect on oil prices than weather forecasters do on the weather; with oil at $95 in January, $150 in June and back to $100 in September, one wonders.
- Stunted shopping means difficult Q3. Consumer spending will take a decided turn for the worse in Q3, economists say. "The seemingly resilient U.S. consumer is finally buckling." The slump will slow GDP growth to 1.2% - less than half of the prior quarter's 3.3%. Factors: Eight months of falling employment; weakening consumer confidence; and falling property values.
- MBA Mortgage Applications increased 9.5% from a week ago, during which they rose 7.5%. Interest rates on the benchmark 30-year fixed plunged to 6.06% from 6.39% last week.
- Wholesale Inventories rose 1.4% in July, vs. +0.9% last month - better than the +0.7% consensus. Wholesale sales were down 0.3% M/M, but up 16.5% from a year ago. Inventory-to-sales, a measure of how long it would take to sell out current stocks, rose to 1.07 months from 1.06 months.
- Pending Home Sales fell 3.2% in July vs. June, and 6.8% vs. a year ago - worse than the -2.1% M/M consensus. The drop indicates that the U.S. housing market may continue to weaken over the coming months. "Pending home sales are oscillating month-to-month, with the long-term trend essentially flat," NAR's Lawrence Yun said. "Overly stringent lending criteria imposed by Fannie Mae and Freddie Mac in the past month no doubt held back contract signings," implying the recent Treasury move to free up mortgage funds may be a net positive for the industry. The homebuilders ETF (NYSEARCA:XHB) fell 5.7%. Prominent homebuilders also struggled: DHI -9.1%. PHM -9%. NVR -8.6%. CTX -7.8%.
- Euro-zone economies falter. The European Commission steeply cut its 2008 economic growth forecast for the EU, and said several of the major Euro-zone economies will move into recession. The commission cited high commodity prices, troubled financial markets and a weak global economy as causes of the economic downturn, and expects the European economy to grow 1.4% this year vs. the 2% growth predicted in April.
Earnings: After Close
- VeriFone (NYSE:PAY): Q3 EPS of $0.32 misses by $0.02. Revenue of $259M vs. consensus of $257M. Shares -5.3%. [PR]
- Asia on Wednesday: Nikkei -0.44% to 12,347. Hang Seng -2.4% to 20,000. Shanghai +0.23% to 2,151. BSE -1.6% to 14,663.
- Europe at midday: London -0.8%. Paris +0.1%. Frankfurt -0.3%.
- U.S. futures: Dow +0.59%. S&P +0.69%. Nasdaq +0.93%. Crude +0.25% to $103.52. Gold -0.89% to $777.70.
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
10:35 EIA Petroleum Status
- Notable earnings Wednesday before open: LEH, STEI
Seeking Alpha editor Rachael Granby contributed to this post.
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