Wall Street Breakfast: Must-Know News

• Credit crunch: Preventing an encore. The Working Group on Financial Markets, led by Treasury Secretary Henry Paulson, will today release its recommendations to avoid a repetition of the liquidity freeze now threatening the U.S. economy. Highlights include "strong nationwide licensing standards" for mortgage brokers; a clearer differentiation in credit ratings between bonds and complex, riskier structures coupled with greater disclosure by rating agencies; and increased regulation of the dealings of issuers of mortgage-backed securities.
• Auction-rate rescue in the making. The SEC is working on guidelines to allow issuers of auction-rate bonds to bid on their own debt without triggering concerns of market manipulation. The move would allow issuers to retire or sideline their auction-rate debt, for which interest rates have soared in recent weeks.
• Dollar dives. The dollar fell to 12-year lows against the yen, dropping to less than 100 yen, and hit record lows against the euro, as Asian/European markets and U.S. equity futures dived in overnight trading [see below], raising concerns of more turmoil in the financial markets. "Investors are getting out of dollar assets and this is going to lead to a dollar crash," a Tokyo currency manager said. On four previous occasions since 1995, Japanese authorities have sold the yen when it approached the 100 mark to support its country's exports.
• Foreclosures fall. Foreclosure filings dropped 4% in February vs. January, while gaining almost 60% from a year ago. "We have still not reached the peak of foreclosure activity in this cycle," RealtyTrac CEO James J. Saccacio says.
• EA to take offer to Take-Two shareholders. Electronic Arts (ERTS) is preparing to launch a $26/share tender offer for all outstanding shares of Take-Two Interactive Software (TTWO) after the latter rebuffed its friendly all-cash bid. Earlier this week Take-Two's number-one and number-two shareholders significantly reduced their stakes, effectively undermining management's contention that EA's bid lowballs the company.
• Google to release free ad server. Having concluded its $3.1B acquisition of DoubleClick earlier this week, Google (GOOG) plans to announce a free ad server service ("Ad Manager") that will serve web ads for free, in the hopes publishers will let Google fill unsold inventories with its own ads. Ad Manager will handle text, video and graphical display ads.
• Grounded. Southwest Airlines (LUV) grounded 38 of its older planes amid government and internal probes over "ambiguity" in its inspection protocols. The groundings reduce its scheduled flights by 4%; the company said the aircraft would be reinspected Wednesday and return to service by this morning. Last week the FAA confronted Southwest with a $10.2M fine for missing deadlines to inspect planes for fuselage cracks and continuing to fly them after acknowledging the oversight. Shares fell 7.3%.
• Street shuns Bear. Despite Bear Stearns' (BSC) insistence that it has adequate resources, traders have been treading carefully since rumors surfaced this week questioning its liquidity. Some traders feel they now have to get oks from "higher-ups" before entering deals on credit swaps and other securities when Bear is the counterparty, while some BSC clients are asking rivals like Goldman (GS), Morgan Stanley (MS), Credit Suisse (CS) and Deutsche Bank (DB) to be counterparties to already completed transactions involving Bear. Credit swaps insuring $10M of Bear debt soared to $655,000/year from $300,000 two weeks ago; for Lehman Brothers (LEH) the same coverage costs $365,000.
• Carlyle Capital on verge of collapse. Carlyle Capital, managed by private-equity firm Carlyle Group LLC, says it expects its lenders will soon seize "substantially all" of its remaining assets after banks including Deutsche Bank (DB) and J.P. Morgan (JPM) refused to extend it new financing terms. The firms leveraged $22B portfolio consists entirely of securities issued by government-sponsored lenders Fannie Mae (FNM) and Freddie Mac (FRE), the value of which has plummeted in recent weeks.
• Radio merger ruling imminent. Sirius Satellite Radio (SIRI) CEO Mel Karmazin says it and proposed merger partner XM Satellite Radio (XMSR) are in active discussions with FCC regulators, and that talks have recently accelerated. Karmazin says FCC chairman Kevin Martin indicated the agency plans to rule on the $4.2B deal by the end of the month. Meanwhile, Congress has requested all the FCC's written communications relating to 12 decisions made since 2005, as it investigates allegations of practices that may have affected the watchdog's impartiality.
• Activision and Gibson Guitar wrangle in court. Gibson wants Activision (ATVI) to pay royalties to Gibson on ATVI's Guitar Hero software and guitar-shaped controller, which it alleges are covered by a Gibson patent. Activision yesterday sued Gibson, asking the courts dismiss Gibson's requested and asserting its patent for a "system and method for generating and controlling a simulated musical concert experience" is invalid.
• CME nears deal with Nymex. CME Group (CME) may announce a definitive plan to acquire Nymex (NMX) as early as next week based on talks initiated in late January, which would give NMX shareholders a package worth about $102/share. Negotiations have dealt with how Nymex members will fare in the deal, and the sale of Nymex's headquarters.
• Credit card receivables could net Target $4B. Target (TGT) is in talks to sell half of its credit card receivables for $4B. Target said late Wednesday that the sale will "forge a new, long-term relationship" with an unnamed investment partner that will benefit the company strategically and financially. Analysts expected the sale to bring in a more modest $2B. Activist investor William Ackman, who owns about 10% of TGT, likes the deal. "The fact that Target is close to consummating a transaction for even half of their receivables is an indication of the quality of the Target business and customer."
• IAC, Liberty trial focuses on intent
• DirecTV to start On-Demand
• U.S. Crude oil supply increases more than 6M barrels
• Dendreon to pick up pace on Provenge

Today's Markets

• Markets were pummeled in Asia Thursday. Nikkei -3.33% to 12,433. Hang Seng -4.79% to 22,302. Shanghai -2.43% to 3,971. BSE Sensex -4.85% to 15,346.
• In Europe, markets are ugly at midday. FTSE -2.07% to 5,657.50. CAC -2.21% to 4,593. DAX -2.49% to 6,435.
• U.S. futures are down sharply from yesterday's close at 6:50 AM. Dow -1.35% to 11,960. S&P -1.51% to 1,289.75. Nasdaq -1.4% to 1,711.50.

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Comments

[Short seller]

Your articles are terrible!

[fjd10595]

I'm glad the working committee figured this out, some of us saw it 3 years ago without a working committee. Lax oversight by George Bush regulators. Paulson to the rescue now when it's too late. What a joke. It was all fine when they were making money.

[KostyaTszyu'sright hand]

Thanks for your morning summaries:
coffee, turn on CNBC, then Eli.....I know, I know, I need to get a life!

[CoolcatReport.com]

Excellent commentary.

[REBEL]

Hey Short Seller,
Yes, I guess any OBJECTIVE NEWS is terrible to yoy. Your SUBJECTIVE MINDSET perfectly symbolizes the pie-in-the-sky, airheaded way of thinking that brought the US economy to the crisis point it has reached.