Washington Mutual (WM) - rumor of JPMorgan (JPM) looking at buying WaMu. No price. WaMu is beginning to move higher.
Friday, September 12, 2008
Midday Market Comments
U.S.
At midday, U.S. equities are flat for the day having recovered from earlier losses with strength found in Energy (up 2.2%) and Materials (up 2.0%) subsectors of the S&P 500 in-line with higher energy and metals prices. The Financial subsector (down 0.7%) continues to weigh down on the S&P 500 for another day.
It's a relatively quiet day in the U.S. as investors speculate and await news (likely to come over the weekend) regarding the possibility of a buyout of Lehman Brothers (LEH US) by any of the possible suitors: Bank of America, JC Flowers & Co., or China Investment Co. (a SWF). There are indications that similar to the Bear Stearns situation, a large bank will be the buyer, with some assistance from the US central banking system.
Auto manufacturers rallied with General Motors (GM US) and Ford (F US) both advancing 7.2% and 5.1% respectively after reports indicated that GM is looking for low-cost loans from U.S. Congress. General Electric (GE US) declined 4.9% on concerns about the company's commercial real estate portfolio, which is part of their commercial finance portfolio. Real estate represented about 8% of the company's operating income in 2007.
Canada
At midday, equities in Canada are higher with strength in Materials and Energy subsectors of the S&P/TSX in sympathy with higher energy prices and a weaker U.S. dollar that is making commodity prices higher.
The Materials subsector advanced 5% on higher prices of gold and base metals. Shares of top gold companies are up with Barrick Gold (ABX) and Goldcorp (G) advancing 4.2% and 6% respectively.
In the Energy sector, Husky Energy (HSE) rose 1.6%. Husky recently won development rights to explore for gas off the coat of Labrador. Suncor Energy (SU) also rallied, adding 3.5%.
The Financial subsector slipped 1.5% as worries persisted over Lehman Brothers and the health of the U.S. financial system after Lehman reported a big quarterly loss and failed to attract investors to shoe up its capital position. All major Canadian banks declined, led by Toronto Dominion Bank (TD), lower by 2.1%.
The Technology subsector is the biggest drag on the S&P/TSX, down 1.3% with index-heavyweight Research in Motion (RIM) down 3.8% on no specific news as investors took profits and sold the stock on strength.
Automation Tooling Systems Inc (ATA), maker of automated manufacturing and assembly systems -- surged over 10% after signing a deal to sell its precision components group in Q3.
Motorists across Canada were hit by sharply higher gasoline prices at the pump this morning, with the price of gas rising by an average of 13 cents a litre to more than $1.36 a litre.
International
In Asia, equities rallied led by commodity producers and financials in sympathy with higher metals prices and the possibility of a buyout of Lehman Brothers. Worthy of note are BHP Billiton Ltd, which advanced 4.4% in-line with higher prices of copper and zinc. Mitsubishi UFJ Financial Group. rallied 4.3% after Bank of America and other possible buyers expressed interest in Lehman Brothers. The Nikkei closed higher by 0.9% while the Hang Seng declined 0.2%.
Currencies & Commodities
Gold advanced 1.7 % after a nine day decline, as the U.S. dollar fell against the euro increasing demand for gold as an alternative investment.
Oil and gasoline prices rose 0.5% and 3.3% respectively after oil drilling and refining facilities were forced to shut down in the Texas Gulf Coasts as Hurricane Ike approached. The hurricane is expected to make landfall late tonight or early Saturday morning. The market seems to be completely focusing on the hurricane and anticipates supply disruptions.
Possible joint bid for Lehman Brothers
Financial Times is reporting Bank of America, JC Flowers & Co., and China Investment Co. (a SWF) are considering a possible joint bid for Lehman Brothers. Details not available, but proposal could involve losses for equity and debtholders.
Morning Market Comments
1. CHC Helicopter Corporation (FLY.A) today announced that it expects the acquisition of CHC by 6922767 Canada Inc., an affiliate of a fund managed by First Reserve Corporation, to close on September 16, 2008. The parties have acknowledged that all conditions to close for the transaction (other than those that can only be satisfied at the time of closing) have now been satisfied.
2. China's industrial production grew at the slowest pace in six years. Industrial output rose 12.8% in August from a year earlier, below the Bloomberg consensus estimate of 14.5% and July's 14.7% increase. China's economic expansion slowed for a fourth quarter to 10.1% in the period April - June 2008. Its growth remained the fastest of the world's 20 biggest economies. Retail sales grew 23.2% in August, close to the fastest pace in nine years.
3. According to the Globe and Mail, former Bank of Canada Governor David Dodge said policy makers were aware of the dangers of a credit crisis five years ago, but that central bankers and regulators avoided taking more action because they didn't realize the scale of the damage that mortgage backed securities could cause. Nice to know in hindsight eh?
4. Potash Corporation of Saskatchewan (POT) has approved buying back an additional 5% of the company's outstanding common shares. The expansion of the buyback program allows the repurchase of a total of 10% of shares outstanding or 31.5 million shares.
5. U.S. advanced retail sales for the month of August unexpectedly declined as Americans reduced spending in the face of mounting job losses and falling home prices. Sales declined 0.3%, or 0.7% excluding automobiles. Consumers are also feeling the pinch from weaker wage growth which has failed to keep pace with inflation over the past year.
6. At 7:00 am this morning, Hurricane Ike is was located about 230 miles southeast of Galveston, Texas and is expected to make landfall early Saturday morning. While not a major hurricane at this time, it could strengthen to a category 3 storm before hitting landfall. Ike is a very large tropical storm with hurricane force winds extending outward up to 120 miles from the center and tropical storm force winds extending out 275 miles from the center. Coastal storm surge could reach 20 feet above normal tide levels. Floodwaters surged into Galveston Island neighbourhoods this morning with the center of the hurricane still 200+ miles offshore.
7. Prime Minister Stephen Harper has pledged to loosen restrictions on foreign investment if he's re-elected next month in a bid to bolster Canada's competitiveness. The Conservatives would raise the threshold at which a foreign acquisition triggers a government review to $1 billion and allow non-Canadians to own bigger stakes in airlines and uranium miners.
It appears Lehman Brothers (LEH) 148 year history is nearing an end. A takeover of Lehman Brothers (LEH) appears to be increasingly likely after investors gave a thumbs down to the company's restructuring plans earlier this week. Among the list of potential suitors are Goldman Sachs (GS), Bank of America (BAC), Barclays (BCS) or Nomura. The press is also suggesting a consortium of financial institutions could be a potential buyer.
Washington Mutual (WM) said it remains "well capitalized" with U$50 B in liquidity, and forecast loan loss provision of U$4.5 B in Q3. Goldman Sachs upgraded WaMu this morning to "Neutral" from "Sell" saying Q3 results are likely to be worse than expected but not as bad as the decline in the share prices would suggest. The analyst went on to say the company may not have to raise additional capital. The shares are trading down in the pre-market.
Shares of Merrill Lynch (MER) fell 17% yesterday as worries about Lehman Brothers future also raised questions about Merrill's commercial mortgage exposure. The shares are trading at their lowest level in 10 years.
There are 3.9 million unsold existing single-family homes in the U.S. according to the National Association of Realtors. That translates into 11.1 months of supply at the current sale pace. Bloomberg reported that Alt-A loans or so called "liar loans" could be the next risk for the housing market as 16% of securitized Alt-A loans issued since January 2006 are at least 60 days late. Defaults of these loans are expected to accelerate next year as they hit their reset periods according to RealtyTrac Inc.
2. China's industrial production grew at the slowest pace in six years. Industrial output rose 12.8% in August from a year earlier, below the Bloomberg consensus estimate of 14.5% and July's 14.7% increase. China's economic expansion slowed for a fourth quarter to 10.1% in the period April - June 2008. Its growth remained the fastest of the world's 20 biggest economies. Retail sales grew 23.2% in August, close to the fastest pace in nine years.
3. According to the Globe and Mail, former Bank of Canada Governor David Dodge said policy makers were aware of the dangers of a credit crisis five years ago, but that central bankers and regulators avoided taking more action because they didn't realize the scale of the damage that mortgage backed securities could cause. Nice to know in hindsight eh?
4. Potash Corporation of Saskatchewan (POT) has approved buying back an additional 5% of the company's outstanding common shares. The expansion of the buyback program allows the repurchase of a total of 10% of shares outstanding or 31.5 million shares.
5. U.S. advanced retail sales for the month of August unexpectedly declined as Americans reduced spending in the face of mounting job losses and falling home prices. Sales declined 0.3%, or 0.7% excluding automobiles. Consumers are also feeling the pinch from weaker wage growth which has failed to keep pace with inflation over the past year.
6. At 7:00 am this morning, Hurricane Ike is was located about 230 miles southeast of Galveston, Texas and is expected to make landfall early Saturday morning. While not a major hurricane at this time, it could strengthen to a category 3 storm before hitting landfall. Ike is a very large tropical storm with hurricane force winds extending outward up to 120 miles from the center and tropical storm force winds extending out 275 miles from the center. Coastal storm surge could reach 20 feet above normal tide levels. Floodwaters surged into Galveston Island neighbourhoods this morning with the center of the hurricane still 200+ miles offshore.
7. Prime Minister Stephen Harper has pledged to loosen restrictions on foreign investment if he's re-elected next month in a bid to bolster Canada's competitiveness. The Conservatives would raise the threshold at which a foreign acquisition triggers a government review to $1 billion and allow non-Canadians to own bigger stakes in airlines and uranium miners.
It appears Lehman Brothers (LEH) 148 year history is nearing an end. A takeover of Lehman Brothers (LEH) appears to be increasingly likely after investors gave a thumbs down to the company's restructuring plans earlier this week. Among the list of potential suitors are Goldman Sachs (GS), Bank of America (BAC), Barclays (BCS) or Nomura. The press is also suggesting a consortium of financial institutions could be a potential buyer.
Washington Mutual (WM) said it remains "well capitalized" with U$50 B in liquidity, and forecast loan loss provision of U$4.5 B in Q3. Goldman Sachs upgraded WaMu this morning to "Neutral" from "Sell" saying Q3 results are likely to be worse than expected but not as bad as the decline in the share prices would suggest. The analyst went on to say the company may not have to raise additional capital. The shares are trading down in the pre-market.
Shares of Merrill Lynch (MER) fell 17% yesterday as worries about Lehman Brothers future also raised questions about Merrill's commercial mortgage exposure. The shares are trading at their lowest level in 10 years.
There are 3.9 million unsold existing single-family homes in the U.S. according to the National Association of Realtors. That translates into 11.1 months of supply at the current sale pace. Bloomberg reported that Alt-A loans or so called "liar loans" could be the next risk for the housing market as 16% of securitized Alt-A loans issued since January 2006 are at least 60 days late. Defaults of these loans are expected to accelerate next year as they hit their reset periods according to RealtyTrac Inc.
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