February 26, 2009: Morning Call

February 26, 2009: Morning Call

Fair Value: SP500 – 764.34; NDX: 1161.42; DOW: 7263.61

Technical Levels:


SPX: 685, 741-755 support/ 778, 800, 848-852, 899-908 resistance

Events:

Pre-market EPS: AMT (.14/407.5M); BYD (.14/426.2M); CKP (.40/241.0M); CVC(.31/2.07B); DYN (-.02/809.4M); EP (.21/1.17B); ESV (2.07/615.1M); FTO(.41/1.61B); NDAQ (.51/1.02B); RDC (1.10/580.4M); SWY (.81/14.44B); SHLD(2.68/13.99B)
05:00: Euro-zone Consumer Confidence (Feb): -31 (weaker at –33)
08:00: NDAQ earnings call
08:30: Durable Goods Orders (Jan): -2.3%: Ex-Transportation: -2.0%
08:30: Initial Jobless Claims (w/e Feb 21)
08:30: JPM Investor Day
10:00: New Home Sales (Jan): 329,000; -0.3% MoM
10:30: EIA Natural Gas Storage Change
12:00: V presents at Goldman Sachs Tech and Internet Conference
16:15: MSFT presents at Goldman Sachs Tech and Internet Conference
Post-market EPS: ADSK (.21/485.4M); DELL (.28/14.5B); GPS (.32/4.28B); KSS(1.02/5.19B); PSA (1.27/440.6M); RSG (.42/1.06B); SNDA (.67/146.0M); SGMS(.23/277.0M)

****Potential Events: INTC may revise quarterly guidance given that the company’s quiet period begins after the close of business tomorrow until their Q1 earning’s release on April 13.

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 12 points above fair value while the NASDAQ futures are trading 10 points above fair value. The EuroStoxx 50 index is up 2.5% snapping an 8-day losing streak. Financial stocks are surging 7% following the UK asset protection plan. The most distressed financial stocks in Europe are up 10%-25%. Asian markets closed mixed (Japan unchanged, Hong Kong down 0.80%, Shanghai down 4.95% -three day decline of almost 10%, India up 0.60%, Australia up 0.54%, South Korea down 1.08%). A weaker yen continued to support exporters in Japan, but the overall market ended the day lower. China Mobile (CHL) was weak in Hong Kong. China was the region’s biggest loser, declining after a rumor surfaced that regulators will restrict financial companies’ investments in equities.


Impact Research Calls/Market Moving News:

UK Government presents its Asset Protection Plan: Under the plan, in return for a fee, the Treasury will provide to each participating institution protection against credit losses incurred on one or more portfolios of defined assets to the extent that credit losses exceed a "first loss" amount to be borne by the institution. The plan aims to target those assets where there is the greatest amount of uncertainty about their future performance. The Treasury protection will cover 90%. of the credit losses, which exceed this "first loss" amount, with each participating institution retaining a further residual exposure of 10%. of any credit losses exceeding this amount. Both the "first loss" amount and the residual exposure provide an appropriate incentive for participating institutions to endeavour to keep losses to a minimum on those assets included in the Scheme. Protection under the plan is offered, in the first instance, to those UK incorporated authorized deposit-takers (including UK subsidiaries of foreign institutions) with more than £ 25B of eligible assets. Affiliated entities of those deposit-takers will also be considered by the Treasury for participation under the plan. The Treasury will consider extending the plan more widely to other UK incorporated authorized deposit-takers (including UK subsidiaries of foreign institutions). Eligible institutions are entitled to request to participate in the Scheme until 31 March 2009. European banks, particularly UK banks, are surging higher on the plan.

RBS (6.59); LLOY LN (57.40): Reports a full year loss of 24.1 billion pounds versus expectations of a 25.9 billion pound loss. RBS shares are surging 25% after the UK announced an asset insurance plan for RBS that will backstop 300 billion of RBS assets. LLOY is also up 25% on speculation the company is set to announce an asset insurance plan with the UK Treasury. The government stake in RBS now approximately 84% according to the UK Finance minister.

JPM (21.73): Ahead of their investor day, JPM says Q1 forecast “roughly in line with analyst estimates.” JPM also said “Wamu home lending hasn’t had losses beyond view” and that credit card defaults have been in-line with expectation. Recall that on Monday, Jamie Dimon said the first two months of the quarter were “solidly profitable” and that Q1 outlook “roughly in line with analyst estimates.”

UBS (8.76): UBS shares are up 13% after the CEO was replaced with the former head of Credit Suisse, Oswald Gruebel.

C (2.52): Citi deal with government may come as soon as Thursday – WSJ: Recall that it has been widely reported that Citi is on the verge of a deal that would boost the government's stake in the bank to as much as 40%. Citing people familiar with the situation, the Journal says that a deal could be announced as soon as Thursday. The article goes on to discuss some of the complications that are likely to arise from the government owning such a large stake, particularly when it comes to Citi's prized Mexican operations. The Journal points out that Mexican law bars any institution that is more than 10%-owned by a foreign government from running a bank in that country. According to the paper, some Citi executives are worried that the bank may be forced to unload Banamex, which is loathe to do. However, sources say that the issue is likely to be resolved through diplomatic channels between the US and Mexico.

BAC (5.16): Bank of America looking to sell First Republic – WSJ: The Journal cites people familiar with the situation. First Republic, a private bank, was purchased by Merrill Lynch for $1.8B in September of 2007. Potential buyers include Goldman Sachs (GS) and Morgan Stanley (MS). The article goes on to note that BofA executives are considering other non-core assets and businesses for divestment.

White House sees US deficit to reach $1.75T in f09 -- Dow Jones, citing an administration official: The figure includes a $250B placeholder for possible bank rescue, which could fund $750B in assets. The White House leaves Fannie (FNM) and Freddie Mac (FRE) operations off the budget. The deficit is expected to be 12% of GDP this year. The budget will also propose raising taxes on investment managers' "carried interest." The budget is officially to be released at 11 ET.

CRM (28.10): Salesforce.com reports Q4 GAAP EPS $0.11 vs First Call $0.07: Company reports revenues of $289.6M vs Reuters $285.3M. Guides Q1 GAAP EPS to $0.10-0.11 vs First Call $0.10; guides revenues to $304-305M vs Reuters $306.9M. Guides f10 EPS to $0.54-0.55 vs First Call $0.51; guides revenues to $1.30-1.33B vs prior $1.35-1.36B and Reuters $1.33B.

AVB (44.47): Bank of America upgrades AVB to buy from neutral.

Government offers details of bank stress test – NYTimes: The NYTimes reports the Obama administration ordered the nation's 19 biggest banks on Wednesday to undergo stress tests to check whether they could hold up if the economy deteriorated further. But analysts say the administration's worst projections, which it describes as unlikely, are not much more dire than what many private forecasters already expect. According to the new Treasury Department guidelines, the banks would have to assume that the economy contracts by 3.3% this year and remains almost flat in 2010. They would also have to assume that housing prices fall another 22% this year and that unemployment would shoot to 8.9% this year and hit 10.3% in 2010. "I don't think they are harsh enough," said David Hendler, an analyst at CreditSights, who said the dire projection was too optimistic about the growth that would be generated from President Obama's stimulus program. "That would be a pleasant outcome, but you have to plan for the worst." The average outlook of private-sector forecasters envisions the economy shrinking by 2% this year and unemployment peaking just below 9% in 2010. The average forecast for housing prices is a decline of 14% this year and an additional 4% next year

GM (2.55): General Motors reports Q4 adjusted EPS ($9.65) vs Reuters ($7.40): Company reports revenues of $30.80B. End of year cash equivalents were $14B. General Motors says cash flow burn in Q1 is "significant" but is consistent with its internal plans.

AGU (36.57): Agrium downgraded to neutral from buy at UBS: Target cut to $40.00 from $43.00. The firm cites valuation and the implications from the bid for CF Industries (CF).