Wall Street Breakfast

Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby

Rio, Chinalco reach iron-ore deal. Chinalco (ACH) signed a deal this morning to develop Rio Tinto's (RTP) massive iron ore project in Guinea as a joint venture. Under the terms of a non-binding memorandum of understanding, Rio, which currently owns 95% of the project, will transfer its holdings to a new JV, and Chinalco will take a 47% interest in return for $1.35B. Analysts said the deal, though priced fairly, appeared to be designed to mend relations between the two companies. RTP -0.4% premarket (7:00 ET).

Lloyds surprises with 2010 profit forecast. Lloyds (LYG) surprised investors this morning by saying it expects to return to profit this year as its trading performance improves, impairments ease and costs remain tightly controlled. The news sent Lloyds' shares up premarket, and lifted other U.K. banks as well: LYG +9.1%, RBS +4.7%, BCS +0.7% (7:00 ET).

Accounting gaffe hurts SunPower earnings. SunPower (SPWRA) said it will restate its earnings for 2008-2010 after concluding an internal investigation into accounting issues, resulting in $33.2M in additional expenses and a $16.9M reduction in income. SunPower also released Q4 results yesterday (see details below), reporting a 70% drop in profit on sagging margins. Shares fell nearly 10% in after hours trading.

Jobs bill becomes law. Obama signed a $17.6B jobs bill into law but said the measure "is by no means enough" and more must be done to "bring about a full economic recovery." The new law aims to spur employment by providing tax breaks to businesses that hire new workers.

Regulators point to driver error in Prius crash. Officials from the National Highway Traffic Safety Administration said yesterday that investigation of a Prius (TM) crash in New York shows the driver didn't apply the brakes at the time of the accident and the throttle was open. The NHTSA did not elaborate. A Toyota spokesman declined to comment. Separately, Toyota is demanding a public retraction and formal apology from ABC News (DIS) for an "irresponsible broadcast" last month on purported Toyota defects.

SEC, Fed were warned of Lehman's liquidity problems. Former Merrill Lynch officials reportedly contacted the Federal Reserve and SEC about Lehman Brothers' (LEHMQ.PK) financial health months before it collapsed in 2008. The Merrill officials suggested Lehman was incorrectly calculating a key measure of its liquidity. They had looked into the matter following concerns from trading partners and investors that Merrill may have been less liquid than Lehman.

UBS wants to clean the exec slate. UBS (UBS) said it will seek a formal discharge of board members and senior executives who were in charge during the credit crisis. A formal vote of confidence on management had been pushed off for two years as UBS argued it was inappropriate to hold a vote while internal and external investigations were underway. Shareholders will now be able to express their feelings on the matter at next month's annual meeting. UBS +2.2% premarket (7:00 ET).

China tries to ease yuan tensions. China said this morning that it would send an envoy to the U.S. to discuss "Sino-U.S. trade balance and trade frictions" and to ease tensions caused by disagreement on the yuan's valuation. However, Chinese officials warned pressure from U.S. legislators would only complicate matters and said a further appreciation of the yuan risks driving exporters out of business.

MGM auction doesn't look good. Today is the deadline to bid for debt-laden film studio Metro-Goldwyn-Mayer, but the results are likely to disappoint MGM management. Of the six companies that had been considering bids, it appears only three (including TWX and LGF) are likely to make offers, and the bid range of $1.2B-1.5B is far short of the nearly $4B that MGM owes its bank lenders. In the event of a "busted auction" where bids are too low, the studio may pursue a standalone restructuring plan.

FDIC may extend guarantee program. The FDIC may extend the Transaction Account Guarantee program set up during the peak of the financial crisis. The program is set to expire on June 30 but regulators are worried that doing so could cause liquidity failures at small banks.

Doubts cast on U.S. oil data. Internal Department of Energy documents raise some serious questions as to the accuracy of the U.S.'s oil-inventory data. The figures in the Energy Information Agency's [EIA] weekly oil report affect the production and prices of the world's most important industrial commodity, but the Energy Department documents expose several errors in the report, one of which was large enough to make oil prices jump in September. There are also several problems with the EIA's data collection, including the use of outdated technologies and methodologies, which make errors difficult to detect.

Lehman levies more windfall allegations against Barclays. Lehman Brothers (LEHMQ.PK) filed documents in bankruptcy court yesterday with new allegations against Barclays (BCS), saying the bank received a $13B windfall profit from its deal to buy Lehman's U.S. operations in 2008. Lehman claims new evidence shows the deal presented to the court at the time wasn't the one actually executed, that Barclays unfairly got a $5B discount on Lehman's $70B book of securities and that Barclays paid less than the promised $2B in bonuses to former Lehman employees.

NY AG probes pension spiking. New York Attorney General Andrew Cuomo is investigating the practice of pension "spiking," in which big increases to a government worker's salary are made shortly before retirement to raise the lifelong pension payout. Though spiking is legal in most places, it has come under increased scrutiny in recent years. Cuomo calls it a "manipulation" that adds to the taxpayer burden.

More foreclosed homes to sell. The number of foreclosed homes that banks are trying to sell is on the rise again, suggesting certain U.S. markets will experience further downward pressure on home prices. Mortgage analysts at Barclays Capital estimate banks and mortgage investors held 645,800 foreclosed homes in January, a 4.6% increase from the 617,286 held in December. The supply peaked at around 845,000 in November 2008.