Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
* Lehman searches for a suitor. A day after unveiling its turn-around plan, Lehman (LEH) has been actively shopping itself to potential buyers, including Bank of America (BAC) and Barclays (BCS). Korea Development Bank [KDB], once the main player in speculation about buying some or all of Lehman, said its talks with Lehman are on hold and gave no indication of when, if ever, talks would resume. Any buyer would likely want the government to agree to shield it from future losses related to the deal, as was done when JPMorgan Chase (JPM) took over Bear Sterns in March and the government agreed to absorb up to $29B in potential losses. The Fed and the Treasury Department have been involved with the search for a buyer, but are not expected to offer a bailout. If no single suitor is ready to make a deal, a sale ultimately could go to a consortium of banks with help from the Fed. Shares closed -41.79% to $4.22 on Thursday, and lost another 9.72% to $3.81 in after-hours trading.
* WaMu gets junked. Moody's downgraded Washington Mutual (WM) to below investment-grade status after it said it expected a Q3 increase of $4.5B in reserves for bad loans. Shares fell to an 18-year low of $1.75 before gaining back ground, and after-hours trading closed at $3.03. The largest U.S. savings and loan, mortgage losses could reach $19B through 2011, making investors nervous about the company's ability to raise capital. WaMu insists it is well-capitalized, but reports say the company may be forced to sell parts of its 2,300-branch national network.
* Ike keeps oil afloat. Oil futures fell to a five-month low on weak demand, but stayed north of the $100 mark on supply fears. Prices dropped to $100.10/barrel during intraday trading, off 31% from mid-July's record high, before settling at $100.87/barrel. Hurricane Ike, expected to make landfall near Texas over the weekend, has caused 25% of domestic production to be shut down, helping keep the price of oil above the psychological-barrier of $100/barrel. In other oil news, Venezuelan President Hugo Chavez, who has a "tendency to overreact," threatened to halt oil exports to the U.S. Venezuela is the fourth-largest supplier of foreign oil to the U.S.
* Banks seize more homes. U.S. home foreclosures in August rose to a new record as declining home prices made it harder for owners to sell their properties or refinance their mortgages. A staggering one in 416 U.S. households received a default notice or were foreclosed on. Filings were up 27% on the previous year, and bank seizures, the last step in the foreclosure process, more than doubled from last year. Says Jim Croft, of the Mortgage Asset Research Institute, "Real estate inflation bailed out an awful lot of bad loans."
* Live Nation ticks up on ticket sales. Live Nation (LYV), which is launching its own ticketing-service in January, announced a deal to begin selling venue-management firm SMG's tickets. This comes as a blow to Ticketmaster (TKTM), which currently handles the ticketing at Live Nation venues. Although Ticketmaster will retain 70% of SMG's selling rights through 2011, its shares fell 17.7% to $15.45. Live Nation, on the other hand, gained 6.5% to $16.90.
* Falling oil brings down import prices. Import prices fell 3.7% in August vs. an expected -1.7%, largely due to a 12.8% drop in petroleum prices. Excluding fuels, import prices fell 0.3%. Exports were down 1.7%.
* Trade deficit worse than expected. July's trade deficit reached $62.2B, a 16-month high, up from a revised $58.8B in June. Economists had expected the trade deficit to be -$58.0B. Exports climbed 3.3% to $168.15B; imports were up 3.9% to $230.35B.
* Unemployment continues to rise. Initial jobless claims were 445,000 vs. 440,000 consensus, down 6K from last week's 451,000 (revised from 444,000). The four-week average rose 250 to 440,000.
* Consumer sentiment rises. The RBC CASH Index climbed 35 points to 69.2, compared to 33.8 in August. Consumer sentiment improved on lower oil prices and the Fannie/Freddie rescue.
Today's Markets
* Asia markets closed mixed. Nikkei +0.9% to 12,215. Hang Seng -0.2% to 19,353. Shanghai +0.03% to 2,080. BSE -2.3% to 14,001.
* In Europe at midday, London +1.0%. Paris +0.8%. Frankfurt +0.5%.
* U.S. futures: Dow -0.2%. S&P +1.4%. Nasdaq +2.1%. Crude +1.3% to $102.18. Gold +1.6% to $757.60.
Friday's Economic Calendar
* 8:30 Producer Price Index
8:30 Retail Sales
10:00 Business Inventories
10:00 University of Michigan Consumer Sentiment
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