Friday, February 27, 2009

February 27, 2009: Morning Call

February 27, 2009: Morning Call

Fair Value: SP500 – 752.24; NDX: 1127.63; DOW: 7174.49

Technical Levels:

SPX: 685 support/742-746, 778, 800, 848-852 resistance


Pre-market EPS: IPG (.29/1.92B); FRO (1.05/315.8M); DT (.23/20.18)
05:00: Euro-zone CPI (Jan): -0.9% MoM; 1.1% YoY
05:00: Euro-zone Core CPI (Jan): 1.8% YoY
05:00: Euro-zone Unemployment Rate (Jan): 8.1%
08:30: US GDP QoQ (Annualized): -5.4% (revised from preliminary –3.8%)
09:45: Chicago Purchasing Manager (Feb): 34.0
10:00: University of Michigan Confidence (Feb): 56.5
13:00: QCOM presents at Goldman Sachs Tech and Internet Conference
13:20: BRCM presents at Goldman Sachs Tech and Internet Conference

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 18 points below fair value while the NASDAQ futures are trading 20 points below fair value. The S&P futures are currently trading below the November 21 intra-day lows (741) following the official details of the Citibank rescue package. Although the media is widely reporting this transaction as another give-away for Citibank shareholders, the terms are punitive and private stakeholders in Citibank will be effectively required to participate. The Obama administration is clearly unwilling to rescue financial institutions without taking the appropriate pound of flesh from the stakeholders. Financial stocks are trading down 7% with Citibank down 40% and BAC down 22.0%. GDP was also revised sharply lower to –6.2% versus consensus of –5.4%, the steepest contraction since 1982. European markets are trading down 3.5% extending the losses 2% in reaction to the Citibank news and weak GDP.

Impact Research Calls/Market Moving News:

C (2.46): The US government agrees to convert 25 billion of preferred securities into common equity at 3.25 a share a share so long as private holders agree to convert 27.5 billion in preferred shares into common on the same terms. The press release is complicated but it looks like the “private holders” are going to be incentivized to convert because the dilution would be even worse if the current deal was voted down (If shareholders do not approve the transaction, warrants will be issued at 1 penny). Citibank will also suspend dividends on preferred shares. The US government will own approximately 36% of Citi’s outstanding common stock. Shares outstanding will move to 21 billion from 5 billion. Citibank shares are down 38% to 1.50.

FNM (0.49): FNM reports a Q4 loss of 25.2 billion or 4.47 per share. At December 31, 2008, the company's total liabilities exceeded its total assets by $15.2B. FNM's mortgage credit book of business increased to $3.1 trillion as of December 31, 2008 from $2.9 trillion as of December 31, 2007. The company expect that the current crisis in the U.S. and global financial markets will continue, which will continue to adversely affect financial results throughout 2009. Following a decline of approximately 9% in 2008, FNM expects that home prices will decline another 7% to 12% on a national basis in 2009. The company continues to expect its credit loss ratio in 2009 will exceed its credit loss ratio in 2008.

FDIC may more than double fees it charges banks – WSJ: The Journal cites people familiar with the matter. The move is intended to replenish the government's deposit-insurance fund. The article notes that the FDIC had $18.8B in its deposit-insurance fund at the end of Q4 to protect roughly $4.8T in insured deposits, the lowest level since the S&L crisis. According to the paper, the FDIC is required by law to develop a plan to restore the fund any time its falls below 1.15% of insured deposits. It was 0.4% at the end of Q4. While banks typically pay between 12 cents and 14 cents for every $100 of insured deposits, sources tell the Journal that the government is considering an additional 20 cent charge.

ADBE (16.70): Adobe Systems downgraded to market perform from outperform at Wachovia

Goldman Sachs downgrades European mining stocks: NHY.NO, RIO.LN, KAZ.LN (pre-European open): Norsk Hydro (NHY.NO) downgraded to sell from neutral. Rio Tinto (RIO.LN) downgraded to sell from neutral. Kazakmys (KAZ.LN) downgraded to neutral from buy

DELL (8.21): Dell reports Q4 EPS $0.29 ex-items vs Reuters $0.28: First Call $0.26. Company reports revenues of $13.43B vs Reuters $14.06B; First Call $14.25B.

SNDA (31.90): Shanda Interactive downgraded to underperform from neutral at Credit Suisse: Target increased however to $25.60 from $23.10. The firm cites concerns on growth sustainability, new product contribution, and unattractive valuation.

CHK (15.44): Chesapeake Energy upgraded to outperform from underperform at Calyon Securities: Target remains $19.00. Firm believes yesterday's selloff was an overreaction and thinks operations will not be materially impacted

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