Monday, September 10, 2012

Wall Street Breakfast: Must-Know News

  • Rajaratnam guilty verdict adds to momentum in crackdown. A jury yesterday convicted Raj Rajaratnam, the billionaire founder of the Galleon hedge fund, of all the 14 counts of securities fraud and conspiracy that he was charged with. The success of using wiretaps in what was the biggest ever insider-trading trial is expected to accelerate the government's crackdown in this area. The verdict comes as authorities pursue an unprecedented number of large and unrelated insider-trading cases. In the past 18 months, the U.S. has charged 47 hedge-fund managers and others with the crime; Rajaratnam is the 35th to be convicted. And just a few hours after his verdict, a defendant pleaded guilty in the "expert-network" probe, another sprawling insider-trading investigation.
  • AIG's $9B offering could be nixed. The Treasury may pull the $9B offering of AIG (AIG) shares if it can't be done profitably, sources said. The stock has fallen from $50 in January to $30.65 yesterday, close to the government's break-even point of $28.72. This makes selling the shares that much more challenging, as it prevents offering them at an attractive enough discount. However, AIG received support from an S&P analyst. While "a high degree of execution risk remains," she said, "we think the shares are undervalued." In the offering, the Treasury plans to sell 200M shares and AIG 100M, and the government has an option to sell an additional 45M shares to cover excess demand.
  • Takeda in talks to buy Nycomed. Takeda Pharmaceutical (TKPHF.PK), Asia's top drug maker, is reportedly in talks to buy closely-held Swiss rival Nycomed. Sources said Takeda and Nycomed have discussed an offer above €8B ($11.4B) but that Nycomed may hold out for more than €10B.
  • Finland approves Portugal aid plan. Finland's caretaker government has won support from the opposition Social Democratic Party that enables it to approve the €78B ($112.4B) EU-IMF bailout for Portugal. The success of the anti-bailout True Finns party at the recent election had put Finland's support in doubt. However, with Finnish approval now assured, EU finance ministers will be able to sign off on the rescue next week.
  • Mario Draghi set for ECB's top job. Italy has submitted Mario Draghi as its candidate for the presidency of the ECB after Angela Merkel, who had held back her approval, gave her endorsement. With France also supporting Draghi to replace Jean-Claude Trichet, the governor of the Bank of Italy is now a shoo-in for the post. Draghi is said to be a hawk and economists expect him to take a tough line on inflation. Last month, he forcefully advocated the ECB's first interest-rate increase in nearly three years. However, he is also seen as flexible and has embraced extraordinary measures in the past.
  • Yahoo falls on Alibaba maneuvre. Yahoo (YHOO) shares dropped 7.3% after it disclosed that China's Alibaba Group has transferred control of its Alipay online payment unit to Alibaba CEO Jack Ma for an as yet undetermined amount. Investors are concerned that the move, made for regulatory reasons, will diminish the value of Yahoo's 43% holdings in Alibaba, which constitute a major element of the search company's own market worth. One analyst, noting that Alipay is the largest online payment platform in the world, said: “The impact is benign at best, and very negative at worst." However, another said the sell-off was overdone.
  • Cisco falls as profit stalls. Cisco (CSCO) shares fell 3.3% in post-market trading after the company reported that although FQ3 revenue increased 5% to $10.9B, net profit slumped nearly 18% to $0.33 a share. Cisco also gave an FQ4 outlook below analyst forecasts, while CEO John Chambers, who recently acknowledged that the company had lost its way, said he was abandoning its long-term goal of 12%-17% revenue growth. FQ3 earnings were hit by a 9% fall in sales from network switches, Cisco's largest single product segment, where competition is driving down prices. To enable a turnaround, Cisco is set to eliminate thousands of jobs as part of a plan to cut annual expenses by $1B, and it may sell or close underperforming units. (Earnings call transcript)
  • Google takes battle into Microsoft and Apple territory. Laptops that use Google's (GOOG) Chrome operating system will go on sale in June as the search giant looks to challenge Apple (AAPL) and Microsoft (MSFT) in their backyards, and change the way people use computers. The Chrome OS is a essentially a web browser that steers consumers to use applications like email and spreadsheets on the Internet rather than storing Outlook and other software on PCs. Chrome will be free, although Google will offer businesses its "Chromebooks", along with technical support, for $28 a month. The laptops will be made by Acer and Samsung (SSNLF.PK).
  • Senators wary of AT&T, T-Mobile deal. Senators have expressed concern that AT&T's (T) $39B purchase of T-Mobile (DTEGY.PK) will harm competition and lead to price rises. At a hearing entitled “The AT&T/T-Mobile Merger: Is Humpty Dumpty Being Put Back Together Again?” Democrat Al Franken said he feared "the merger would take us one more step, just one step away, from the monopoly market that we had under Ma Bell.” AT&T and T-Mobile executives said the tie-up would lead to fewer dropped calls and faster Internet services, which are necessary as video downloads and handheld tablet computers increase wireless traffic.
  • Deficit on course to exceed $1T again. A 45% year-on-year increase in tax revenues in April couldn't prevent a deficit of $40.5B for the month, putting annual net spending on track to pass $1T for the third year in a row. The deficit is set to reach $1.4T this year, up from $1.29T in 2010. The figures come as House Republicans propose $46B of cuts in 'discretionary' expenses for fiscal 2012, starting in October. The reductions, which would add to $38B of cuts agreed for this fiscal year, would affect healthcare, education, housing, transportation and scores of other programs.
  • House to propose bill to replace Fannie and Freddie. A bipartisan-sponsored bill set to debut in the House today would replace Fannie Mae and Freddie Mac with at least five private companies that would issue mortgage-backed securities with explicit federal guarantees. Analysts think the compromise bill might actually get some traction on the Hill.
Earnings: Thursday Before Open
  • Kohl's (KSS): FQ1 EPS of $0.73 in-line. Revenue of $4.2B (+3% Y/Y) in-line. (PR)
Earnings: Wednesday After Close
  • Cisco Systems (CSCO): FQ3 EPS of $0.42 beats by $0.05. Revenue of $10.9B (+5% Y/Y) in-line. Shares +3.7% AH. (PR, earnings call transcript)
  • IAMGOLD Corp (IAG): Q1 EPS of $0.36 beats by $0.05. Revenue of $433M (+80% Y/Y) beats by $38M. Shares -0.1% AH. (PR)
  • Sina (SINA): Q1 EPS of $0.25 misses by $0.02. Revenue of $100M (+18% Y/Y) beats by $5M. Shares -0.9% AH. (PR)
  • Symantec (SYMC): FQ4 EPS of $0.38 beats by $0.02. Revenue of $1.7B (+9% Y/Y) beats by $0.1B. Shares -0.4% AH. (PR, earnings call transcript)
Today's Markets
  • In Asia, Japan -1.5% to 9717. Hong Kong -0.9% to 23074. China -1.3% to 2845. India -1.3% to 18336.
  • In Europe, at midday,London -1.3%. Paris -1.4%. Frankfurt -1.6%.
  • Futures at 7:00: Dow -0.4%. S&P -0.5%. Nasdaq -0.7%. Crude -2.2% to $96.08. Gold -1.3% to $1482.50.
Thursday's Economic Calendar
  • 8:30 Producer Price Index
    8:30 Retail Sales
    8:30 Initial Jobless Claims
    8:30 Fed's Plosser: Economic Outlook
    10:00 Hearing: Dodd-Frank Implementation (Bernanke, Bair,...)
    10:00 Business Inventories
    10:30 EIA Natural Gas Inventory
    1:00 PM Results of $16B, 30-Year Note Auction
    4:30 PM Money Supply
    4:30 PM Fed Balance Sheet
  • Notable earnings before Thursday's open: BCE, KSS
  • Notable earnings after Thursday's close: CA, JWN, LDK, NVDA, SPWRA

The SA Currents team contributed to this post.


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