Wall Street Breakfast: Must-Know News

• AIG swaps probed. The SEC is investigating whether AIG (AIG) overstated the value of credit default swaps it sold to CDO investors, thereby overcharging them for insurance in the event of a default on the underlying debt. A criminal investigation could follow. Not so long ago, AIG paid $1.6B to settle an accounting case.
• National City watched by regulators. National City (NCC) is functioning under a confidential (well at least until now) "memorandum of understanding" with federal regulators. MOUs normally mean the bank is working under federal probation as it sorts out issues. NCC was thought to be on solid ground after receiving a $7B cash infusion on Apr. 20, at which time it said it wasn't subject to any MOUs.
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• Lacker speaks his mind. Richmond Fed President Jeffrey Lacker unleashed a striking insider's critique of the Fed's recent moves to expand its lending to dealer-brokers and back JPMorgan's (JPM) rescue of Bear Stearns. He worries the moves could encourage further risk-taking, leading to more frequent crises, and creating a direct path leading to the Fed's door. To convince the markets it won't continue to support troubled firms, the Fed will have to let some institutions fail, he says.
• Verizon spends $28.1B for Alltel. Verizon Wireless (VZ) (VOD) agreed to acquire Alltel for $28.2B ($5.9B +$22.1B in debt), $1.1B more than TPG and Goldman Capital Partners (GS) took it private for last year. The deal creates the number-one U.S. mobile provider (followed by T, S and DT). It was in part driven by Goldman and several of the original financing banks (C, BCS, RBS), who were unable to sell their debt. The deal will face intense regulator scrutiny. Analysts said it would likely prompt MetroPCS (PCS) and Leap Wireless (LEAP) to reopen their stalled merger talks. Insurance on LBO debt fell 12 BP -- the most in three weeks -- as the $22B of debt assumed by Verizon reduced the total LBO debt backlog to $77B from $99B.
• Construction loans could saddle banks with $100B+ in losses. Large-scale bank loans to homebuilders are looking increasingly shaky, and banks have begun selling them off at steep discounts, which should result in a fresh round of writedowns. Banks with high exposure to residential construction are at the greatest risk. A recent $540M debt sale by IndyMac (IMB) brought just $0.60 on the dollar, with some winning bids as low as $0.20. Collective charge-offs could be from $65-165B. While it seems unlikely a large bank will fail, smaller savings-and-loan are becoming increasingly risky.
• What's $45T between friends. The world needs to invest $45T in energy over the coming decades, the IEA says, in order to reduce its dependence on fossil fuels while maintaining economic growth. Greenhouse emissions must be halved by 2050 in order to avoid unsustainable temperature gains.
• NBC first to check out at upfronts. Sources say NBC (GE) secured $1.9B in prime-time ad commitments for the coming season, making it the first network to essentially sell out its inventory. NBC received price increases of 5-7% over last year. Fox (NWS) ads are selling at the high-end of a 6-10% premium, while CBS (CBS) ads are going at the lower end of the range. Advertisers appear to be buying more ads now ("up front") than they have in previous years.
• Take Two beats, raises. Take Two Interactive (TTWO) posted FQ2 EPS of $1.52, beating consensus estimates of $1.13. Revenue of $540M was stronger than the $499M consensus. TTWO sees Q3 EPS of $0.45-0.55, better than the consensus of $0.33, and full-year EPS of $1.65-1.85 vs. a $1.53 consensus. Shares gained 0.2% in extended trading.
• National Semiconductor (NSM) posted FQ4 EPS of $0.34, well ahead of the $0.26 consensus. Revenue of $462M also exceeded expectations ($449M). Looking ahead, NSM sees FQ1 revenue of $460-475M, better than the $451M analysts were predicting. Shares rose 8.6% in extended trading.
• Bond insurers rally after downgrade. S&P finally put Ambac (ABK) and MBIA (MBI) out of their misery and downgraded them to AA from AAA. Shares of the two rose on the news as investors took the stance the bond insurers would now be free to address their businesses without the constant scepter of a ratings downgrade dictating their actions. Ambac and MBIA both took issue with the move.
• Steel stocks jump. Steel stocks enjoyed another strong day after Nucor (NUE) raised its Q2 EPS guidance to $1.75-1.80 from $1.55-1.60 (vs. $1.69 consensus). NUE +8.6%, X +5.7%. AKS +5.7%. MT +7.1%.
• Big traders gaming oil. Rep. Bart Stupak says oil markets were being manipulated by the biggest trading houses, including Goldman Sachs (GS) and Morgan Stanley (MS). "They are taking advantage where no one has ever looked before and when someone does take a look, there may be something illegal."
• Fed loans untapped. The N.Y. Fed received bids for only $26.9B of its $50B offer. Apparently there's enough money to go around, for now.
• Cutbacks at Ford. Ford (F) told U.S. white-collar workers in an email it will trim salary expenses by 15% through layoffs, attrition and a partial hiring freeze.
• May retail sales come in strong. Retailers same-store sales outdid expectations, although estimates were for a combined 1.2% increase, vs. 2.9% a year ago. Rebate checks likely helped consumers spend more freely than anticipated. Costco (COST) SSS jumped 9% (vs. +6.9% consensus), and Wal-Mart (WMT) more than doubled forecasts of 1.6% with a 3.9% gain. Target (TGT) (-0.7% vs. -0.2%) and Saks (SKS) (-8.7% vs -7.5%) posted notable misses.
• Net worth down, borrowing too. U.S. households lost $1.7T in Q1, with personal net worth falling at a striking annual rate of 11.3%. New debt growth was 3.5%, the slowest in 15 years.
• Jobless claims fall unexpectedly. Initial jobless claims fell 18K to 357,000. Economists were expecting 375K. "Jobless claims have yet to move decisively into recession territory," Bear Stearns economists said.

Today's Markets

• Asia Friday: Nikkei +1.03% to 14,489. Hang Seng +0.61% to 24,402. Shanghai -0.66% to 3,330. BSE Sensex -1.25% to 15,572.
• Europe at midday: London +0.44%. Paris +0.1%. Frankfurt +0.28%.
• U.S. equity futures are flat ahead of the payroll number (8:30 EDT), as are Treasurys. Crude +1.49% to $129.69. Gold +1.49% $885.

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Comments

[RightinSanFrancisco]

Another great summary of factoids in the battle between fear and greed. Fear wins today - the $1.7 T Q1 loss in household assets, a new view of construction loan exposure, and a 5.5% unemployment rate (reported elsewhere). Oil surging. oy vey!!!
RightinSanFrancisco.co...

[jjason]

Dear Eli, Rep. Bart Stupak is right when he says "Goldman Sachs and Morgan Stanley are manipulating oil markets...and they may be doing something illegal". I read the report that the economist, Jeffrey Harris, of the Commodities Futures Trading Commission, gave to a Congressional Committee and his report was terrible. The CFTC has either not been doing their job or the CFTC has been lying to Congress and the American people.

In another report ( which can be accessed through an article written by Anthony Schneider titled "Greenberger's Testimony-I Banks Control The Energy Market", on SeekingAlpha published June 4, 2008) you can learn how this is being done and what Congress needs to do to stop it.

"WE ARE PAYING TOO MUCH FOR OIL" Greenberger says...and I agree with him.

If enough people read Greenberger's report and complain to their Senators and Congressman then the investigations will start and the result will be similar to what happened in the Enron scandal...people will go to jail and oil prices and commodity prices will come down.

This trouble started with the Enron loophole, around 1999, and has cheated us just like Enron was caught cheating us.

Please help to stop it Eli. Thanks.