Stocks in the news: Pulte, Centex, oil prices fall

Is creating the largest homebuilder amidst the worst real estate market in decades such a hot idea? Wall Street seems to say "yes."

Pulte Holmes Inc. (PHM) agreed to buy Centex Corp. (CTX) for $1.38 billion in an all-stock deal. As the Associated Press notes, "the transaction, which also includes $1.8 billion of debt, will give the combined business a strong liquidity position with more than $3.4 billion in cash as of March 31."

Will one plus one will equal two? During the December quarter, Centex lost $664 million, while Pulte reported a $338.2 million loss. Over the past year, shares of the companies plunged 32 percent and 71 percent respectively. The S&P/Case-Shiller Composite-20 Home Price Index tumbled 29 percent from a 2006 peak during the fourth quarter. Mortgage applications, though, are up, spurred by record-low interest rates.

Centex shares are soaring in pre-market trading while Pulte has dropped, which is to be expected. Other homebuilders who have been beaten up, such as Toll Brothers Inc. (TOL), also rose in sympathy. The head of Pulte sees more consolidation in the industry.

Well-known banking analyst Meredith Whitney told CNBC that she expects bank profits to improve in the first quarter though she stressed that the sector has a long way to go to recover from the credit crisis. "The fundamentals are not getting any better but capital ratios should get better," she said.

Her old firm, Oppenheimer & Co,. said today that it expects Morgan Stanley (MS) to post a loss and that Bank of America Corp. (BAC) will need to raise an additional $38.6 billion by the end of the year.

Meanwhile, oil prices fell to $48 per barrel as OPEC production cuts have failed to outweigh the drop-off in demand caused by the slowing economy. Chrysler L.L.C. is set to unveil a new sport utility vehicle even though the White House has criticized the struggling company for relying too much on gas guzzlers.

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