June 2, 2009: Morning Call

June 2, 2009: Morning Call

Fair Value: SP500 – 942.06; NDX: 1477.36; DOW: 8710.99

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Events:
Pre-market EPS: DAKT (.10/126.2M); LAYN (.16/219.2M)
05:00: Euro-zone Unemployment Rate (April): 9.1% (actual at 9.2%).
10:00: Pending Home Sales (April): 0.3% MoM
10:00: RCII presents at Stephen’s Investment Conference
10:50: APC presents at RBC Global Energy Conference
11:00: AAN presents at Stephen’s Investment Conference
13:20: Fed’s Fisher speaks on the economy
14:00: GM May Vehicle Sales Conference Call
16:30: API Crude Oil and Gasoline Inventories
17:00: ABC Consumer Confidence
Post-market EPS: HOV (-1.81/334.9M); BOBE (.38/430.8M); SNDA (.73/155.2M)

Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 2 points below fair value while the NASDAQ futures are trading 3 points below fair value. Markets are digesting news of additional equity issuance by a wide range of companies. Commodities are modestly lower in early trade, bonds are modestly higher, and the dollar has weakened 0.50% against the Euro in the last hour to 1.4225. Asian markets initially traded higher but markets reversed most of the opening gains (Japan up 0.27%, Hong Kong down 2.64%, Australia up 1.56%, India up 0.25%, South Korea down 0.21%). European markets are trading modestly lower (down 0.20%) but have been in a narrow range on either side of unchanged all morning. Decliners on the FTSE 100 lead advancers 3-2. Barclays (BARC.LN) fell after confirms plans by Abu Dhabi investors to sell 1.3B shares. Ryanair Holdings (RYA.ID) trades lower after reporting full year results, which include disappointing FY10 guidance. Volkswagen (VOW.GR) gained following comments by Porsche (PAH3.GR) yesterday that it desires to integrate with Volkswagen. Economic data came in mixed with Euro-zone unemployment weaker (9.2% vs. 9.1% consensus) while UK May Construction PMI came in at 45.9 vs. consensus at 39.5.

Research Calls/Market Moving News:

JPM (36.11): JPMorgan Chase to raise $5B in common equity to satisfy supervisory condition for TARP repayment: JPM intends to raise $5B in common equity to satisfy a supervisory condition that the largest bank holding companies redeeming TARP (Troubled Asset Relief Program) preferred capital demonstrate access to the equity capital markets. While approval has not been granted, the company believes that upon completion of this capital raise it will have satisfied the criteria for fully redeeming the TARP preferred capital and expects to do so before the end of June.

MS (29.89): Morgan Stanley plans $2.2B secondary offering: MS plans the offering to satisfy a supervisory condition to enable it to redeem TARP. MS says approval has not been granted, but that upon completion of this capital raise it will have satisfied the criteria for fully redeeming the TARP preferred capital and expects to redeem it before the end of June. The offering is expected to include China Investment Corporation and Mitsubishi UFJ Financial Group, Inc (MTU). Recall that MS raised 4 billion dollars in common equity on May 8 at 24 per share.

EMC (12.42); DDUP (26.35): EMC offers to purchase Data Domain for $30/shr, competing against NTAP bid; to host conf call: EMC has proposed to acquire all of the outstanding common stock of Data Domain for $30.00 per share in cash, in a transaction with a total enterprise value of approximately $1.8B, net of Data Domain's cash. EMC's all-cash offer represents a 20% premium to the cash and stock offer made by NetApp for Data Domain on May 20, 2009.

DDUP (26.35): RBC comments on EMC's offer for Data Domain: The firm says EMC's plan to commence a tender offer could allow the company to close the deal sooner than NTAP's timeline of 90-120 days. DDUP's support of NTAP's offer could complicate an acquisition by EMC. The $57M NTAP termination fee is seen as miniscule in regard to EMC's offering price. RBC notes that though NTAP currently has room for an all cash counter offer, it would weaken the company's balance sheet resulting in net debt on its books.

BCS (20.50): Barclays confirms plans by Abu Dhabi investors to sell 1.3B shares – Bloomberg: Bloomberg cites an emailed statement from Barclays.

Other Capital raises to note: AXP –3.0% (500 million secondary), DCT -5.9% (22.5M share secondary), BKD -5.5% ($150M secondary), IRET -5.5% (3M share secondary), ICON -4.8% (10M share secondary), IMAX -3.1% (secondary)

QSFT (13.24): Quest Software (QSFT) announces Dutch Auction to repurchase up to 10.715M shares, or 11.3% of its common shares outstanding

DV (44.37): DV to replace GM in the S&P 500.

Fed says banks must tap the equity market prior to repaying TARP funds : Redemption approvals for an initial set of the 19 bank holding companies that partcipated in the Supervisory Capital Assessment Program (SCAP) are expected to be announced during the week of 8-Jun and applications will be evaluated periodically thereafter. Any bank holding company seeking to redeem U.S. Treasury capital must demonstrate an ability to access the long-term debt markets without reliance on the FDIC's Temporary Liquidity Guarantee Program (TLGP), and must successfully demonstrate access to public equity markets