Friday, August 24, 2012

Wall Street Breakfast: Must-Know News

  • Obama attacks banking structure. Obama rolled out his plans for financial reforms, warning that the financial system is "still operating under the same rules that led to its near collapse." His proposals, which include limits on the size of banks and severely restrict proprietary trading, represent a tough crackdown on the banking industry, even though Treasury's Geithner and National Economic Council director Lawrence Summers had advocated a less aggressive approach. The news sent financial shares sliding, with Goldman Sachs (GS), JPMorgan (JPM), Citigroup (C) and Bank of America (BAC) each losing more than 4% in trading yesterday afternoon, but left some skeptical as to why the reforms weren't proposed months ago and whether the eventual legislation will have any teeth.
  • Gov't debates status of Fannie/Freddie losses. Lawmakers are debating whether the business operations of Fannie Mae (FNM) and Freddie Mac (FRE) should be brought onto the government's books. The Bush White House had originally decided not to, citing the "temporary nature of the arrangement," but the increasingly close ties between the government and Fannie/Freddie no longer look so temporary. If the mortgage giants are brought onto the federal budget, as the Congressional Budget Office recommends, the federal deficit could grow by tens of billions of dollars. According to the CBO, Fannie and Freddie's bailout has cost the government $291B to date and could cost another $99B over the next decade. The White House, using a different calculation, says the current tab is $112B.
  • Coke is thirsty for Russian growth. Coca-Cola (KO) is reportedly in talks to buy a controlling stake in Russian juice maker Nidan Soki from private equity group Lion Capital. If a deal goes through, it will allow Coca-Cola to overtake rival PepsiCo (PEP), which is the leader in the Russian juice market.
  • Wells Fargo faces tax shelter suit. Shareholders are suing Wells Fargo (WFC) executives, accusing them of getting the bank involved with dubious tax shelters that ultimately led to the payout of millions of dollars in penalties and legal fees when back taxes came due. The suit alleges that Wells Fargo managers tried to take advantage of certain tax shelters in 2002 even though they knew such shelters were about to be outlawed, and then refused to settle with the IRS during a 2008 amnesty period.
  • Tighter vote seen on Bernanke confirmation. Bernanke's term as chairman of the Federal Reserve expires at the end of the month, but a Senate vote on the matter has been pushed off until next week at the earliest and Bernanke's confirmation now looks like it will be a much tighter vote than previously expected. If the full Senate votes in similar proportion to the way the Senate Banking Committee did last month, Bernanke will receive 69 votes, cutting it close to the minimum of 60 votes he needs to serve another term.
  • Targeting grocery sales. Target (TGT) is shifting tactics, with plans to spend $1B remodeling existing stores and significantly slowing down new expansion. Target will open less than 10 new stores in 2010, down from an average of 100 per year over the past several years. The remodeling of existing stores is part of Target's push into the sale of groceries, as a means of enticing customers into the store.
  • Abbott suspends drug sale. Abbott Laboratories (ABT) is suspending European sales of a weight-loss drug, after European regulators said heart-related risks made the drug too dangerous. U.S. regulators also found that the drug raises heart risks for some people, though Abbott will continue to sell the pill in the U.S.
  • Toyota expands recall. Toyota (TM) recalled 2.3M cars in the U.S. because of "sticking accelerator pedals," following last year's recall of 4.2M vehicles over sudden acceleration. Though 1.7M of the vehicles recalled yesterday were also part of the initial action, the move puts major pressure on Toyota, whose reputation for safety and quality has been damaged by a string of U.S. recalls.
  • Morgan launches capital-raising service. Morgan Stanley (MS) announced that it's launching a new global initiative to raise money for hedge fund clients in return for a fee. Other banks with growing prime brokerage businesses, such as Credit Suisse (CS), are also starting to offer similar services.
  • Google's earnings beat. Google (GOOG) posted better-than-expected quarterly results (see details below), mostly because of an improvement in internet advertising as the economy recovers and as advertisers shift from print media to the internet. The improved outlook has prompted Google to start spending more money, and CEO Eric Schmidt said that the company will likely make at least one acquisition per month, "some big, more small." Google also indicated it would stay in China even if it has to close its local search engine.
  • Talk of Aussie miner tax. Australia may replace a uniform federal tax with individual state levies on miners, a move that could raise billions more for the Australian government but which could affect both miners and commodity prices. News of the possible tax change sent miners' shares down, with Rio Tinto (RTP) -1.6% and BHP Billiton (BHP) -1.3% premarket (7:00 ET).
  • Cablevision, Scripps reach deal on fees. Cablevision (CVC) and Scripps (SNI) settled a fee dispute, restoring access for 3.1M customers to popular channels that were dropped January 1. Terms of the settlement were not disclosed.
  • Looking to nab Axa Asia Pacific. National Australia Bank moved another step closer to buying Axa Asia Pacific (AAP) in a A$12B deal after completing its due diligence. Now NAB must secure support for its bid from AAP parent AXA (AXA), which is currently in a bidding consortium with AMP. NAB's offer trumps AMP's, and Australian law is preventing AMP from raising its bid.
  • VCs still nervous about the economy. Venture capitalists are still proceeding with caution, spending less money and spreading it among more companies. Total start-up investments fell to $5.02B in Q4, down 2% from the previous quarter and down 14% from the previous year. Biotechnology start-ups continued to get the most funding, with a 7% drop in funding year-on-year, while investments in clean tech firms fell 58%.
  • Jobless claims rise. Initial Jobless Claims rose more than expected, climbing 36K to 482K vs. 440K consensus. Continuing claims fell 18K to 4,599,000.
  • Some improvements in Philly Fed. The Philly Fed Business Outlook registered 15.2 in January vs. 18 expected and a revised 22.5 in December. New orders slipped five points to +3.2. Current shipments fell four points to +11. Current inventory was still negative, but rose four points to -1.6, a 26-month high. "Overall, expectations improved in January, and firms remain generally optimistic about growth over the next six months."
Earnings: Friday Before Open
  • Air Products (APD): FQ1 EPS of $1.16 beats by $0.02. Revenue of $2.2B (-1%) in-line. (PR)
  • BB&T Corp (BBT): FQ4 EPS of $0.27 beats by $0.06. (PR)
  • GE (GE): Q4 EPS of $0.28 beats by $0.02. Revenue of $41.4B vs. $40B. “GE’s environment has improved and we saw some encouraging signs at year-end... Capital Finance is executing well in a difficult environment, earning $0.3B in the quarter and $2.3B. Every segment at GE Capital was profitable with the exception of Commercial Real Estate, which continues to operate in a difficult environment." (PR)
  • Johnson Controls (JCI): FQ1 EPS of $0.43 beats by $0.14. Revenue of $8.4B (+15%) vs. $7.5B. (PR)
  • Schlumberger (SLB): FQ4 EPS of $0.67 beats by $0.03. Revenue of $5.7B (-16%) vs. $5.4B. (PR)
  • SunTrust Banks (STI): Q4 EPS of -$0.64 beats by $0.11. Revenue of $1.9B (+1%) vs. $2.1B. (PR)
Earnings: Thursday After Close
  • Advanced Micro Devices (AMD): Q4 EPS of -$0.05 beats by $0.13. Revenue of $1.64B (+42%) vs. $1.5B. (PR)
  • American Express (AXP): Q4 EPS of $0.59 beats by $0.02. Revenue of $6.5B (+0%) vs. $6.14B. Provisions for losses of $748M, down 47%. (PR)
  • Affiliated Computer Services (ACS): FQ2 EPS of $1.07 beats by $0.08. Revenue of $1.7B (+3%) in-line. (PR)
  • BancorpSouth (BXS): Q4 EPS of $0.23 misses by $0.06. Net interest revenue of $113M (+2%). (PR)
  • Burlington Northern Santa Fe (BNI): Q4 EPS of $1.55 beats by $0.33. Revenue of $3.7B (-16%) vs. $3.6B. Earnings include a tax benefit of $0.25/share related to donation of a portion of a line segment located in Washington State. "We have seen some improvement in volumes during the second half of 2009 and expect this gradual improvement to continue." (PR)
  • Capital One (COF): Q4 EPS of $0.83 beats by $0.38. Total managed revenue of $4.4B vs. $4.3B. Tier 1 ratio increased to 13.8%. TCE ratio increased to 6.3%. (PR)
  • Consolidated Edison (ED): Q4 EPS of $0.67 misses by $0.09. Revenue of $3.3B (+9%) vs. $3B. Sees 2010 EPS of $3.10-3.30 vs. $3.36. (PR)
  • Emulex (ELX): FQ2 EPS of $0.18 beats by $0.02. Revenue of $108M (flat) vs. $104M. Sees Q3 EPS of $0.16-0.18 vs. $0.14, on revenue of $100M-103M vs. $100M. (PR)
  • International Game Technology (IGT): FQ1 EPS of $0.25 beats by $0.05. Revenue of $516M (-14%) vs. $530M. (PR)
  • Intuitive Surgical (ISRG): Q4 EPS of $1.95 beats by $0.24. Revenue of $323M (+40%) vs. $293M. (PR)
  • Google (GOOG): Q4 EPS of $6.79 beats by $0.29. Revenue ex-tax of $4.95B (+17%) vs. $4.9B. Revenue from sites up 16%; network revenues up 21%. Paid clicks increased 13%; average cost-per-click increased 5%. Traffic acquisition costs (portion of revenues shared with partners) increased to $1.72B from year-prior $1.48B. "As we enter 2010, we remain hugely optimistic about the internet and are continuing to invest heavily in technological innovation."(PR)
  • People's United Financial (PBCT): Q4 EPS of $0.08 in-line. Net interest income of $147.5M (-3%). (PR)
  • Synaptics (SYNA): FQ2 EPS of $0.62 beats by $0.06. Revenue of $133M (-6%) vs. $131M. Expects Q3 revenue of $110M-115M vs. $120M. (PR)
  • Western Digital (WDC): FQ2 EPS of $1.85 beats by $0.49. Revenue of $2.6B (+44%) vs. $2.4B. (PR)
Today's Markets
  • In Asia, Nikkei -2.6% to 10,591. Hang Seng -0.65% to 20,726. Shanghai -1% to 3,129. BSE -1.1% to 16,860.
  • In Europe at midday, London -0.8%. Paris -1.4%. Frankfurt -0.8%.
  • Futures: Dow -0.2%. S&P -0.1%. Nasdaq flat. Crude flat at $76.05. Gold flat at $1,102.70.
Friday's Economic Calendar
  • 10:00 Hearing: Compensation in the Financial Industry
  • Notable earnings before Friday's open: APD, BBT, EXC, GE, HBAN, HOG, JCI, KMB, MCD, SLB, STI

Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.


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