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Wall Street Breakfast: Must-Know News

by: SA Editor Rachael Granby November 24, 2008 | about stocks: C / CPB / DIA / GKM / GLD / GM / QQQQ / SPY / USO

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Citi gets saved. The federal government agreed to rescue Citigroup (C) late Sunday night, after Friday's trading saw the beleaguered bank close at a paltry $3.77/share. Together with federal officials, Citigroup identified $306B in troubled assets. Citigroup will absorb the first $29B in losses from that portfolio, while the Federal Reserve, Treasury Department and FDIC will take on the majority of any further losses. Citigroup will also receive a $20B capital injection from the Treasury in addition to the $25B it has already received as part of the broader banking bailout. In exchange, the government will receive $7B of preferred stock with an 8% dividend, will restrict the payment of common stock dividends, and will have the right to approve or deny executive compensation packages in the company. Despite the unprecedented size of the rescue, some worry the $306B portfolio may not be enough as Citi holds over $3T in assets. (Joint statement from the Fed, FDIC and Treasury, and terms of the deal (.pdf))
Paulson flip-flops on TARP reserve. As recently as last week, Treasury's Henry Paulson said he wouldn't use the $410B of remaining TARP funds, preferring to save the money for unforeseen emergencies and to allow the new administration flexibility. Apparently, things have changed since then, as Paulson is now considering a more active role for his final weeks in office and may use the second half of the TARP funds to roll out new programs after all. Sources say that as market conditions deteriorate, Paulson is looking for ways to stem foreclosures and to make it easier for households to borrow money. A Treasury spokesman confirmed "we're looking at a variety of programs to support the market and we'll implement them as soon as they're ready," and said Paulson had never ruled out tapping the remaining funds. The Treasury is also considering another capital-injection program aimed at financial institutions beyond banks.
Obama's oh-so-big stimulus plan. President-elect Obama is crafting an aggressive economic stimulus plan that could see $500B-$700B in federal spending and tax cuts over the next two years, according to several of his senior aides. Lawrence Summers, a recent addition to Obama's economic team, indicated a stimulus of that magnitude was indeed possible, adding any stimulus will need to be "speedy, substantial, and sustained." He also warned that "we're going to need impetus for the economy for two to three years." Democrats are hoping to rush a stimulus bill through Congress after New Year's so Obama can sign the bill immediately after his January 20 inauguration. Obama is expected to release more details of his plan during a press conference later today to introduce Tim Geithner as his choice for Treasury Secretary.
Builders ask for billions. Automakers struck out, but that hasn't deterred home builders from trying to get government rescue money. The builders' lobby is pushing for a $250B stimulus package it calls "Fix Housing First," arguing financial markets won't recover until housing markets stabilize. The package includes tax credits for home purchases and a federal subsidy on mortgage rates. Critics say the proposal is too expensive and overemphasizes home purchases vs. loan modifications, and warn that any government intervention will have to find a way to stimulate housing demand without artificially propping up property values.
GM tries to shape up. Sources say troubled carmaker General Motors (GM) will negotiate a cut in its debt levels and seek new union work rules to boost its chances at a federal loan. GM will also try to delay a $7B payment to a union retiree health fund, drop additional brands and rework a deal with GMAC (GKM). The moves come as CEO Rick Wagoner prepares for a Dec. 2 deadline to show Congress how he will change operations at the company to be eligible for a possible industry rescue. Even if GM does receive government help, it will still have to significantly reduce its $43B in debt. To save money, GM is finding that no cost cutting is too trifling. Recent cost saving efforts include: shutting down escalators at 7pm, allowing office clocks to slowly stop working (to save maintenance fees), buying cheaper pencils and using cleaning towels with a lower 'cost per wipe.'
Beer giant plans share offering. Anheuser-Busch InBev plans to sell €6.36B ($8.05B) of stock to fund the transaction that formed the company. The sales was originally planned for last month but was postponed because of falling share prices. Anheuser-Busch InBev, now the world's largest brewer, will offer the shares at €6.45 each, 69% less than Friday's closing price of €20.60.
U.K. stimulus expected. The U.K. will likely announce today a cut in its sales tax and full details of an economic stimulus package. Media reports estimate the tax cuts could cost the government between £15-£20B. Prime Minister Gordon Brown refused to comment on the size of the stimulus plan, but said additional spending will be "temporary, timely and targeted" and that "to do nothing would be irresponsible." Opposition leader David Cameron criticized Brown for trying to "borrow your way out of a borrowing crisis."
APEC's high hopes for Doha. Leaders from 21 Pacific Rim countries warned against protectionism, and said the global financial crisis might be able to force a breakthrough on global trade talks that have been stalled for seven years. The Asia-Pacific Economic Cooperation (APEC) members met over the weekend and held out hope that the "crisis may turn into an opportunity for world leaders to resolve the Doha Round," with the World Trade Organization's talks scheduled to resume next month. Though pledging to take "all necessary economic and financial measures to resolve this crisis," the annual APEC summit failed to produce any new initiative to address the weakening global economy.

Earnings: Monday Before Open

Campbell Soup (CPB): FQ1 EPS of $0.77 beats by $0.01. Revenue of $2.25B (+3.0%) vs. $2.32B. (PR)

Today's Markets

Asia markets closed in the red. Hang Seng -1.6% to 12,458. Shanghai -3.7% to 1,897. BSE -0.1% to 8,903. Nikkei closed for a public holiday
In Europe at midday, markets are broadly up. London +4.9%. Paris +4.4%. Frankfurt +3.9%.
U.S. futures: Dow +1.8%. S&P +2.9%. Nasdaq +2.1%. Crude -8.1% to $49.62. Gold +3.4% to $818.50.

Monday's Economic Calendar

10:00 Existing Home Sales
Notable earnings before Monday's open: CPB
Notable earnings after Monday's close: ADI, ATW, HPQ, NUAN

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Will December Non-Farm Payrolls Rebound? Jan 08, 2009

Related Stocks:

C, CPB, DIA, GKM, GLD, GM, QQQQ, SPY, USO

This article has 22 comments:

Nov 24 08:45 AM
How about FART = Fix All Retirements TARP.
Reply | Link to Comment
Nov 24 09:35 AM
TARP -- Does anyone know WHO THE BAILOUTS are actually being used to save? Where is the money going? A simple question, yet the mushroom theory continues to prevail...........

GM -- Does anyone know the ACTUAL COST TO MAKE A CAR? MSRP is simply the dealers BLUE SMOKE & MIRRORS starting point. The TRUE COST TO MFG a CHEVROLET --VS-- a HONDA/TOYOTA would be very revealing, and would begin to show the real challenge, and possibility of viability, of DETROIT'S BIG THREE................

FWIW
Reply | Link to Comment
Nov 24 09:40 AM
It is clear that globally "leaders" are acting based on beliefs rather than objective analysis. The amount of "money" being thrown at this problem cannot possibly be repaid. The productive economy that is left simply cannot support this kind of spending.

The economy created by Greenspin's decades of unlimited cheap credit was and is unsustainable and portions of it - like the auto, housing and finance sectors - are similarly unsustainable. They will become the Terry Schiavos of the future, on permanent life support.

"Change" ? No, we can't.
Reply | Link to Comment
Nov 24 09:58 AM
I agree with your comment. However, I would have a different bottom line: "Change"? We must.

On Nov 24 09:40 AM axelrod608 wrote:

> It is clear that globally "leaders" are acting based on beliefs rather
> than objective analysis. The amount of "money" being thrown at this
> problem cannot possibly be repaid. The productive economy that is
> left simply cannot support this kind of spending.
>
> The economy created by Greenspin's decades of unlimited cheap credit
> was and is unsustainable and portions of it - like the auto, housing
> and finance sectors - are similarly unsustainable. They will become
> the Terry Schiavos of the future, on permanent life support.
>
> "Change" ? No, we can't.
Reply | Link to Comment
Nov 24 10:00 AM
1. Institutions that make loans must retain responsibility for the loans. The loans and the associated risks/rewards can't be bundled and passed on to other agencies for investment purposes.
2. Pass laws that make individuals responsible for their actions. For instance, people who borrow money should be aware they have to pay it back or there will be unpleasant consequences. Of course, people who borrow should be made to realize how the loans are structured.
3. NEVER allow solutions that are constructed at the expense of the people who are not responsible for the problem. People who faithfully make their loan payments should not be penalized for those who do not, just as people who exercise, watch their diet and weight, and take care of themselves should not be penalized for those who do not take care of themselves. Never reward the people responsible for the problem at the expense of those who were not.
4. Be grateful for high achievers in our society. Respect them. Appreciate them. They are the ones who invested extraordinary amounts of time, energy, treasure, and sweat that has resulted in our having so much, and they pay most of our country’s taxes.
5. Read ATLAS SHRUGGED.
Peter Bennett

Reply | Link to Comment
Nov 24 10:19 AM
"Change"? We must. ??????

Nope, "Change, We won't " The Republicrats are still in power.

If you vote for a Republicrat, YOU are the problem. They all went to the same law schools, the same business schools and they all listen to the same corporate lobbyists. They all ( with only a rare exception - Ron Paul for instance) have the same underlying assumptions.

99% of the dolts in DC want to throw massive amounts of money at the problem, and keep throwing no matter what happens. Some things never change.
Reply | Link to Comment
Nov 24 11:27 AM
The best of the best it seems have lost their way as far as where we go from here in this economy or what to do. I personally have an idea where we will go from here although if the past is any indicator of future performance it is merely a question of the rate of decent. As far as Citi it's really beyond me to understand the hows and whys. It does however seem a bit odd for lack of a better word that Citi gets a bailout, the Government gets a ton of preferred stock with a yield of 8% yet, the shareholders have the dividend slashed to one single red cent and the employees of Citi, literally tens of thousands of them are let go. I'm not exactly sure of just what happened here and I may be way off base but in these mysterious weekend deals really seems to stink - bad, real bad. While I'm thinking of it and I wish I could stop but to consider limiting the auto exec's compensation along with the Wall St. exec's compensation I can't help wondering who or what will be next, who will decide? I know I didn't have allot to say about this bailout, at least it wasn't given any weight but maybe I was away that weekend. We are willing to tax the oil companies to death as well. Maybe it's just possible there is a warped sense of priorities somewhere? It seems to me that the auto industry, Wall St., the oil companies and many others are and will be evaluated and reorganized yet some of the people that scream the loudest aren't even looked at such as those last minute weekend deals behind closed doors, maybe people ought to reevaluate the compensation of Hollywood and the compensation of many ball players and other athletes. Maybe I'm rambling a bit, maybe I'm a little dizzy from all these developments day in and day out. I just can't and don't feel comfortable our priorities are as they should be. Priorities, maybe that's an old fashioned term as well given the way this election came down. Whatever, I have a headache, again.
Reply | Link to Comment
Nov 24 11:28 AM
The most important reform is prevention of " too big to fail". AIG, Citi, GM, Ford, Lehman, etc. etc. were allowed to increase in size. The only (superficial) control was an weak attempt to prevent monopoies.

There is an assumption that large size leads to efficiency but there is no evidence that this is true.The current crisis is evidence that large size is too risky. Aside from making it a bit less work to make an investment, the large size of companies no public benefit.

In the new investment paradigm, size should be limited so risk is dipersed.
Reply | Link to Comment
Nov 24 11:36 AM
This is all too ridiculous for real life. The gov't gets bailout approval and then changes by the second what is to be done with the bailout funds. Our gov't in "action", which is inaction. The solution is no better than the initial problem in its strategy and tactics, and it will work about as well.

Also, if Detroit is ever going to survive by cutting costs, it will have to do drastically better than suggesting a change in bathroom toilet paper from Charmin to a budget brand. "Ouch, I can't use this!" I couldn't have thought up a more ridiculous cost cutting "solution" than that joke in a thousand years. No wonder these guys are in such trouble and we should allow them to fail on their own stupidity, not ours too.
Reply | Link to Comment
Nov 24 11:49 AM
Don't be an idiot axelrod. The Democrats are just as much to blame. As is all of our Hannah Montana society. However, if you are the Axelrod of Obama's campaign, your musings make sense; partisan. This when you tell everyone else not to be partisan like you are some kind of great Maximilian Robespierre.

Do agree with your Greenspan argument.
Reply | Link to Comment
Nov 24 11:58 AM
Don't miss the 300 plus billion in toxic waste assets of Citibank the US government is going to suck up. This is on top of the trillions in Fannie an Freddie toxic waste and the vast amount of such paper that has been put up as collateral for loans from the Fed. The US government has become the debt holder's waste bin of last resort. How long can the dollar remain as the reserve currency of the world with such abuse?

Reply | Link to Comment
Nov 24 01:01 PM
Hanson - reread my comments. You clearly did not "grok" what I said. I call them "Republicrats&quo... because they have NO SIGNIFICANT differences. I'm about as non-partisan as one can get. I consider BOTH of our ruling parties to be unAmerican and unpatriotic because they put their personal welfare and corporate welfare before the best interests of the people.

The Constitution has a remedy for this entire mess. It's called BANKRUPTCY. What the Republicrats are doing is an end run around the Constitution they all swore to protect and uphold. They are all comitting TREASON by bailing out these incompetent businesses that should be in bankruptcy.

Is that a tad more clear ??
Reply | Link to Comment
Nov 24 01:35 PM
Sorry Axelrod I was reading really fast.

Reply | Link to Comment
Nov 24 01:47 PM
Grok? You have dated yourself Axelrod.

Spare the rod, spoil the child. This can be applied to the present situation as well.

The Rod has been hidden. Without it, the present situation will spiral on. IMHO
Reply | Link to Comment
Nov 24 02:03 PM
Precisely! I re-read Atlas Shrugged over the week-end. It couldn't be more timely.

On Nov 24 10:00 AM outofchips wrote:

>
> 1. Institutions that make loans must retain responsibility for the
> loans. The loans and the associated risks/rewards can't be bundled
> and passed on to other agencies for investment purposes.
> 2. Pass laws that make individuals responsible for their actions.
> For instance, people who borrow money should be aware they have to
> pay it back or there will be unpleasant consequences. Of course,
> people who borrow should be made to realize how the loans are structured.
>
> 3. NEVER allow solutions that are constructed at the expense of the
> people who are not responsible for the problem. People who faithfully
> make their loan payments should not be penalized for those who do
> not, just as people who exercise, watch their diet and weight, and
> take care of themselves should not be penalized for those who do
> not take care of themselves. Never reward the people responsible
> for the problem at the expense of those who were not.
> 4. Be grateful for high achievers in our society. Respect them. Appreciate
> them. They are the ones who invested extraordinary amounts of time,
> energy, treasure, and sweat that has resulted in our having so much,
> and they pay most of our country’s taxes.
> 5. Read ATLAS SHRUGGED.
> Peter Bennett
Reply | Link to Comment
Nov 24 02:23 PM
Greenspan read Atlas Shrugged and put it into action.[His first published work was a response in the NYT Book Review to a less than worshipful review. He spent years as as paid speaker for Ayn Rand's Nathaniel Brandon Institute.] The current mess is a result of ATLAS SHRUGGED idiots at the helm.

On Nov 24 10:00 AM outofchips wrote:

>
> 1. Institutions that make loans must retain responsibility for the
> loans. The loans and the associated risks/rewards can't be bundled
> and passed on to other agencies for investment purposes.
> 2. Pass laws that make individuals responsible for their actions.
> For instance, people who borrow money should be aware they have to
> pay it back or there will be unpleasant consequences. Of course,
> people who borrow should be made to realize how the loans are structured.
>
> 3. NEVER allow solutions that are constructed at the expense of the
> people who are not responsible for the problem. People who faithfully
> make their loan payments should not be penalized for those who do
> not, just as people who exercise, watch their diet and weight, and
> take care of themselves should not be penalized for those who do
> not take care of themselves. Never reward the people responsible
> for the problem at the expense of those who were not.
> 4. Be grateful for high achievers in our society. Respect them. Appreciate
> them. They are the ones who invested extraordinary amounts of time,
> energy, treasure, and sweat that has resulted in our having so much,
> and they pay most of our country’s taxes.
> 5. Read ATLAS SHRUGGED.
> Peter Bennett
Reply | Link to Comment
Nov 24 04:21 PM
Roger is exactly right. I read Atlas Shrugged - it's a great book, but with CLEAR FLAWS. Those who blindly follow Rand's thesis close their eyes to the obvious truths all around us.

The current disaster is a direct result of letting the Atlas's run the system unchecked.

On Nov 24 02:23 PM Roger G McCorkle wrote:
The current mess is a result of ATLAS SHRUGGED
> idiots at the helm.
Reply | Link to Comment
Nov 24 04:50 PM
Axlerod, We need a third party. More in tune with the people. Ron Paul comes to mind but there could be others better suited.
Reply | Link to Comment
Nov 24 05:17 PM
Why are there so few automakers in this country? versus the number of boat manufactures.......... Is it because of lack of a level playing field or regulations so involved asto discourage entry or participation?
Reply | Link to Comment
Nov 25 01:32 AM
GM closed a few plants over the weekend, Toyota opened one in Kentucky.

GM is a car manufacturer in name only, their principal role is to provide funds for the benefits contracted during good times, decades of Good Times.

To make matters worse, they entered the Mortgage arena as part of their Business Model. What better way to sell a car than to provide a Mortgage loan on a house whose Equity can then be used to buy a GM car?

"Lost another loan to DiTech" commercials? DiTech is a GMAC unit. They need the loan as part of an even bigger package, GMAC Bank. BTW, I've already seen GMAC Bank commercials. They appear to be taking it for granted that this aspect is a Gimme and advertising as if it has already occurred.

As part of their Union Agreement, they have to have $30 Billion in cash to pump into the Pension Fund in 2010. At that point, the Government will be asked for another Loan bigger than the current one.

GM wants us to fund the Pensions of thousands of others just because they were fortunate enough to work for GM which made promises it could not keep.

There are many Auto manufacturers in this Country. Unfortunately, this country had only a few for decades without real competition. As monopolies, they charged as much as they wanted, recalls were an annual norm and the consumer paid more and more for shoddy cars.

The Japanese entered the markets and took years to get established but finally, for less the Public got more, the Resale value of their cars was much higher and the Public shifted gears. There were alternatives. With Japan's successful entry, other foreign manufacturers opened plants here as well.

There are a lot of auto makers in the USA, but few pure plays.
Reply | Link to Comment
Nov 25 08:41 AM
QUESTIONS:
[1] If taxpayers have already given CITI $25B and now $20B this weekend [total $45B], please explain how CITI will pay for the "first $29B" in losses?
[2] WHY hasn't Mark-to-Market been rescinded?
[3] WHY hasn't Sarbanes/Oxley been re-written?
[4] WHY hasn't UPTICK RULE been reinstituted by SEC?
[5] WHY does Congress act like THEY HAVE MONEY TO SPEND?

WHY???????????

Reply | Link to Comment
Nov 26 07:32 AM
because they can.
Reply | Link to Comment