Tuesday's Economic Calendar
FOMC Meeting, Day 1
7:45 ICSC Retail Store Sales
8:55 Redbook
9:00 S&P/Case-Shiller Home Price Index
10:00 Consumer Confidence
10:00 State Street Investor Confidence Index
10:00 Richmond Fed's Manufacturing Index
10:00 Bernanke: Achieving Fiscal Sustainability
10:00 Hearing: Wall Street and the Financial Crisis (Lloyd Blankfein, Fabrice Tourre)
12:00 PM Chicago Fed's Manufacturing Index
12:30 PM Geithner: Middle Class Task Force
5:00 PM ABC Consumer Confidence Index
Tuesday, April 27, 2010
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Citi falls on Treasury sale plan. Shares of Citigroup (C) closed down 5.1% yesterday following the Treasury's announcement that it plans to sell up to 1.5B of its Citigroup shares "in an orderly fashion under a pre-arranged written trading plan." The Treasury owns 7.7B Citigroup shares, and additional sales are expected to follow. At present, the Treasury's overall stake is valued at around $36B, giving taxpayers an $11B paper profit. Premarket: C -1.1% (7:00 ET).
Goldman hit by shareholder lawsuit. It was a question of when, not if, but Goldman Sachs (GS) has finally been hit with a shareholder lawsuit. A firm named Robbins Geller Rudman & Dowd filed suit against Goldman and three of its top executives for failing to disclose the SEC's investigation prior to the SEC's suit. The lawsuit asks for class-action status on behalf of shareholders. Separately, Goldman CEO Lloyd Blankfein and trader du jour Fabrice Tourre will testify before lawmakers this morning in a hearing that could have repercussions for the broader financial sector. Blankfein plans to say that the firm didn't consistently short the housing market and didn't bet against its own clients, while lawmakers allege the firm misled investors, made billions of dollars at their expense and did so in not one but a series of complex deals. Premarket: GS -0.35% (7:00 ET).
Setback for financial reform. All the Senate's Republicans (and one Democrat) voted against a key procedural motion which would have opened up the debate on financial reform legislation to the full Senate. Democrats will move to bring another procedural vote on the debate as soon as Wednesday, hoping to round up the extra three votes they need to get the motion approved. In the meantime, lawmakers are heading back to the negotiating table to try to reach a bipartisan deal. Those on Wall Street are following the bill's progress apprehensively, concerned it will hurt business, though many agree on the need for reform. Off of Wall Street, non-financial firms from confectioners to online retailers to manufacturers are concerned their businesses will be hurt too because the legislation is overly broad.
Chloride rejects Emerson bid. The U.K.-based Chloride Group rejected a $1.1B offer from Emerson Electric (EMR) as major shareholders urged Chloride to hold out for a higher bid. "It's a strategic asset, a major player in Europe and it's an important piece of the jigsaw in this growth industry," said one shareholder. "Any offer would have to be substantially higher than three pounds to have any chance of success." Emerson's current offer is equivalent to £2.75 per share.
Bias suit against Wal-Mart moves forward. A federal appeals court ruled yesterday that a class-action gender discrimination lawsuit against Wal-Mart (WMT) could go to trial, potentially exposing the company to billions of dollars in legal damages. The lawsuit alleges that Wal-Mart pays women less than men for the same jobs and that female employees receive fewer promotions. Wal-Mart plans to appeal to the Supreme Court.
Supreme Court to rule on videogames. The Supreme Court agreed to decide whether a California law that will ban the sale of violent videogames to minors is constitutional. California has argued that violent videogames are "a new, modern threat to children" that cause psychological harm and can predispose minors to be violent or behave aggressively. A ruling could affect videogame makers such as Activision Blizzard (ATVI) and Take-Two Interactive (TTWO), which produce "Call of Duty" and "Grand Theft Auto" respectively. It could also impact the broader entertainment industry and the production of violent movies and television shows.
Google scuttles Verizon, Nexus One tie. Google (GOOG) has decided not to make its Nexus One smartphone compatible with Verizon Wireless (VZ), telling customers waiting for the device that they should buy another Google-based smartphone instead. The company didn't explain the decision, which deals a major blow to its ambitions to reshape the cellphone market. Sources suggest lackluster sales of the compatible version prompted the reversal.
Greek pressure continues to rise. Market relief over Greece's aid request last Friday has been short-lived. The cost of insuring Greek debt against default jumped to a new record yesterday and rising yields neared double digits. Worries about a eurozone contagion are also growing, with some economists suggesting that Portugal could become the next Greece. The euro has continued to slide, and is -0.7% against the dollar (7:00 ET).
I-banking lifts Deutsche profit. Deutsche Bank (DB) reported a 48% increase in its Q1 profit, as gains at the investment bank outweighed a loss from asset and wealth management. Net income rose to €1.76B ($2.35B), beating estimates of €1.33B and the €1.19B from the year-earlier period. Shares -1.9% premarket (7:00 ET) as analysts suggest the strong result is unsustainable since it's almost entirely due to investment banking, and "the results of the other divisions leave something to be desired."
BP profits on higher oil prices. BP (BP) posted better-than-expected results this morning, with net profit more than doubling in Q1 to $6.08B. Revenue rose 55% to $74.41B. The results were helped by higher average oil prices and a strong operational performance. However, the earnings report was overshadowed by the continuing oil spill from a BP well in the Gulf of Mexico; the oil is expected to reach land by Saturday. Premarket: BP -1.3% (7:00 ET).
Mortgage fraud still alive and kicking. Mortgage fraud has continued to rise, increasing 7% last year according to a new report. Florida had the highest incidence of fraud by far, followed by New York, California, Arizona and Michigan. Though the 7% increase is an improvement from the 26% jump seen the year before, the slower growth rate isn't just because of better reporting and policing of fraud activity; the report warns that more scammers are using technology to access information and remain anonymous, and those in the industry must "ready themselves for more complex schemes in order to continue the fight against mortgage fraud."
Cities angry as investors bet on defaults. Financially struggling U.S. cities now have a new problem to grapple with: investors who are buying derivatives that bet on a municipal default. Credit default swaps on municipal debt became available a few years ago and are still thinly traded, but their proliferation is angering cities which claim the derivatives send a negative message and can potentially raise borrowing costs at a time when municipalities need all the help they can get.
by SA Editor Rachael Granby
Citi falls on Treasury sale plan. Shares of Citigroup (C) closed down 5.1% yesterday following the Treasury's announcement that it plans to sell up to 1.5B of its Citigroup shares "in an orderly fashion under a pre-arranged written trading plan." The Treasury owns 7.7B Citigroup shares, and additional sales are expected to follow. At present, the Treasury's overall stake is valued at around $36B, giving taxpayers an $11B paper profit. Premarket: C -1.1% (7:00 ET).
Goldman hit by shareholder lawsuit. It was a question of when, not if, but Goldman Sachs (GS) has finally been hit with a shareholder lawsuit. A firm named Robbins Geller Rudman & Dowd filed suit against Goldman and three of its top executives for failing to disclose the SEC's investigation prior to the SEC's suit. The lawsuit asks for class-action status on behalf of shareholders. Separately, Goldman CEO Lloyd Blankfein and trader du jour Fabrice Tourre will testify before lawmakers this morning in a hearing that could have repercussions for the broader financial sector. Blankfein plans to say that the firm didn't consistently short the housing market and didn't bet against its own clients, while lawmakers allege the firm misled investors, made billions of dollars at their expense and did so in not one but a series of complex deals. Premarket: GS -0.35% (7:00 ET).
Setback for financial reform. All the Senate's Republicans (and one Democrat) voted against a key procedural motion which would have opened up the debate on financial reform legislation to the full Senate. Democrats will move to bring another procedural vote on the debate as soon as Wednesday, hoping to round up the extra three votes they need to get the motion approved. In the meantime, lawmakers are heading back to the negotiating table to try to reach a bipartisan deal. Those on Wall Street are following the bill's progress apprehensively, concerned it will hurt business, though many agree on the need for reform. Off of Wall Street, non-financial firms from confectioners to online retailers to manufacturers are concerned their businesses will be hurt too because the legislation is overly broad.
Chloride rejects Emerson bid. The U.K.-based Chloride Group rejected a $1.1B offer from Emerson Electric (EMR) as major shareholders urged Chloride to hold out for a higher bid. "It's a strategic asset, a major player in Europe and it's an important piece of the jigsaw in this growth industry," said one shareholder. "Any offer would have to be substantially higher than three pounds to have any chance of success." Emerson's current offer is equivalent to £2.75 per share.
Bias suit against Wal-Mart moves forward. A federal appeals court ruled yesterday that a class-action gender discrimination lawsuit against Wal-Mart (WMT) could go to trial, potentially exposing the company to billions of dollars in legal damages. The lawsuit alleges that Wal-Mart pays women less than men for the same jobs and that female employees receive fewer promotions. Wal-Mart plans to appeal to the Supreme Court.
Supreme Court to rule on videogames. The Supreme Court agreed to decide whether a California law that will ban the sale of violent videogames to minors is constitutional. California has argued that violent videogames are "a new, modern threat to children" that cause psychological harm and can predispose minors to be violent or behave aggressively. A ruling could affect videogame makers such as Activision Blizzard (ATVI) and Take-Two Interactive (TTWO), which produce "Call of Duty" and "Grand Theft Auto" respectively. It could also impact the broader entertainment industry and the production of violent movies and television shows.
Google scuttles Verizon, Nexus One tie. Google (GOOG) has decided not to make its Nexus One smartphone compatible with Verizon Wireless (VZ), telling customers waiting for the device that they should buy another Google-based smartphone instead. The company didn't explain the decision, which deals a major blow to its ambitions to reshape the cellphone market. Sources suggest lackluster sales of the compatible version prompted the reversal.
Greek pressure continues to rise. Market relief over Greece's aid request last Friday has been short-lived. The cost of insuring Greek debt against default jumped to a new record yesterday and rising yields neared double digits. Worries about a eurozone contagion are also growing, with some economists suggesting that Portugal could become the next Greece. The euro has continued to slide, and is -0.7% against the dollar (7:00 ET).
I-banking lifts Deutsche profit. Deutsche Bank (DB) reported a 48% increase in its Q1 profit, as gains at the investment bank outweighed a loss from asset and wealth management. Net income rose to €1.76B ($2.35B), beating estimates of €1.33B and the €1.19B from the year-earlier period. Shares -1.9% premarket (7:00 ET) as analysts suggest the strong result is unsustainable since it's almost entirely due to investment banking, and "the results of the other divisions leave something to be desired."
BP profits on higher oil prices. BP (BP) posted better-than-expected results this morning, with net profit more than doubling in Q1 to $6.08B. Revenue rose 55% to $74.41B. The results were helped by higher average oil prices and a strong operational performance. However, the earnings report was overshadowed by the continuing oil spill from a BP well in the Gulf of Mexico; the oil is expected to reach land by Saturday. Premarket: BP -1.3% (7:00 ET).
Mortgage fraud still alive and kicking. Mortgage fraud has continued to rise, increasing 7% last year according to a new report. Florida had the highest incidence of fraud by far, followed by New York, California, Arizona and Michigan. Though the 7% increase is an improvement from the 26% jump seen the year before, the slower growth rate isn't just because of better reporting and policing of fraud activity; the report warns that more scammers are using technology to access information and remain anonymous, and those in the industry must "ready themselves for more complex schemes in order to continue the fight against mortgage fraud."
Cities angry as investors bet on defaults. Financially struggling U.S. cities now have a new problem to grapple with: investors who are buying derivatives that bet on a municipal default. Credit default swaps on municipal debt became available a few years ago and are still thinly traded, but their proliferation is angering cities which claim the derivatives send a negative message and can potentially raise borrowing costs at a time when municipalities need all the help they can get.
Thursday, April 22, 2010
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Qwest, CenturyTel agree to merger. Qwest Communications (Q) and CenturyTel (CTL) agreed to a merger that will bring together two of the country's largest landline phone companies. Qwest shareholders will receive 0.1664 CenturyTel shares for each share of Qwest common stock; based on CenturyTel's recent closing price, this is roughly a 15% premium to Qwest shareholders. The merger will likely face significant regulatory hurdles, but the move is a long-awaited one for Qwest, which has struggled to stay competitive against wireless operators like AT&T (T) and Verizon (VZ). Premarket: Q +10.7%, CTL -1.9% (7:00 ET).
Greek up a creek over new numbers. The EU's statistics office dealt Greece a blow today, saying the country's budget deficit last year was 13.6% of GDP, higher than the initial estimate of 12.9%. Eurostat also expressed reservations about the quality of the data reported by Greece, warning that "off-market swaps" and other uncertainties could potentially lead to a revised budget deficit of more than 14%. The yield on 10-year Greek bonds rose to 8.13% today, the highest in twelve years and more than twice the comparable German rate. The euro is -0.4% against the dollar (7:00 ET).
Obama heads to Wall Street. Obama is heading to Wall Street today to deliver a speech stressing the importance of financial reform, hoping to pressure Republicans in the process into supporting a financial reform bill. According to pre-released excerpts of his speech, Obama will say the financial crisis "was born of a failure of responsibility from Wall Street to Washington," and will urge big banks to line up behind the Democratic package of reforms that will likely face a Senate vote next week.
U.S., China take anti-dumping measures. The U.S. and China have taken new anti-dumping steps against one another, threatening to reignite trade tensions that had recently eased. The U.S. Commerce Department is launching an investigation into whether certain Chinese aluminum products are being sold at unfairly low prices because of government subsidies. China's Commerce Ministry said this morning that it's imposing anti-dumping duties of up to 96.5% on imports of polycaprolactam, or nylon 6, from the U.S., Europe, Russia and Taiwan.
Lions Gate gives Icahn a roaring rejection. Lions Gate Entertainment (LGF) rejected another bid from Carl Icahn, calling his sweetened offer "opportunistic and coercive" and still too low. The board urged shareholders not to tender their shares. Icahn, who is trying to buy the 81% of the studio he doesn't already own, had raised his offer last Thursday to $7 per share from $6 per share.
Simon presents revised offer to GGP. Simon Property Group (SPG) gave General Growth Properties (GGP) a revised recapitalization offer late yesterday, ahead of a presentation before GGP's board later today. The revised offer features a group of new investors contributing $1.1B in capital in addition to Simon's planned $2.5B investment (which includes an existing $1B commitment from hedge fund Paulson & Co.).
CyberSource soars on Visa deal. CyberSource (CYBS) closed up more than 32% yesterday after it agreed to be bought by Visa (V) for around $2B in cash. The deal will also allow Visa to improve its offering of online transaction services and help fight fraud. Visa closed down 1%.
Fed pushes banks to cut risk incentive. Federal Reserve officials are reportedly telling around two dozen of the largest U.S. banks that they need to do more to end compensation practices that encourage excessive risk and are instructing boards to increase their scrutiny of incentives. Citigroup (C), Goldman Sachs (GS), JPMorgan (JPM), Bank of America (BAC) and Morgan Stanley (MS) are said to be among the firms under Fed review. In addition, officials want the banks to run pay-risk tests using hypothetical economic scenarios.
Toyota feeling moody over ratings cut. Moody's lowered Toyota's (TM) credit rating this morning to AA2 from AA1, saying it expects Toyota's low profitability to continue and recall-related litigation costs could be significant. Toyota has estimated in February that its recalls would cost the company $2B in the fiscal year ending in March, but Toyota has recalled additional vehicles since then and most analysts believe the final cost will be much higher. Premarket: TM -0.8% (7:00 ET).
GM repays all its gov't loans. General Motors (GMGMQ.PK) announced yesterday that it had fully repaid $6.7B in loans from the U.S. government and $1.4B in loans from Canada, ahead of its already-accelerated June timetable. The Treasury still holds $2.1B in preferred stock and owns 61% of GM's common equity. The White House pointed to GM's early repayment, and to progress in the auto industry in general, as a positive reflection on the country's continuing economic recovery.
Banks protest IMF's 'punishment tax.' Banks hit back against the IMF's proposal to levy taxes on banks' balance sheets, profits and compensation, calling it a "punishment tax" and warning it would significantly hurt profits while failing to reduce the risk of future failures. The tax would harm the industry without improving it, with some analysts suggesting pre-tax profit could be cut by as much as 20% if the measure moves forward.
by SA Editor Rachael Granby
Qwest, CenturyTel agree to merger. Qwest Communications (Q) and CenturyTel (CTL) agreed to a merger that will bring together two of the country's largest landline phone companies. Qwest shareholders will receive 0.1664 CenturyTel shares for each share of Qwest common stock; based on CenturyTel's recent closing price, this is roughly a 15% premium to Qwest shareholders. The merger will likely face significant regulatory hurdles, but the move is a long-awaited one for Qwest, which has struggled to stay competitive against wireless operators like AT&T (T) and Verizon (VZ). Premarket: Q +10.7%, CTL -1.9% (7:00 ET).
Greek up a creek over new numbers. The EU's statistics office dealt Greece a blow today, saying the country's budget deficit last year was 13.6% of GDP, higher than the initial estimate of 12.9%. Eurostat also expressed reservations about the quality of the data reported by Greece, warning that "off-market swaps" and other uncertainties could potentially lead to a revised budget deficit of more than 14%. The yield on 10-year Greek bonds rose to 8.13% today, the highest in twelve years and more than twice the comparable German rate. The euro is -0.4% against the dollar (7:00 ET).
Obama heads to Wall Street. Obama is heading to Wall Street today to deliver a speech stressing the importance of financial reform, hoping to pressure Republicans in the process into supporting a financial reform bill. According to pre-released excerpts of his speech, Obama will say the financial crisis "was born of a failure of responsibility from Wall Street to Washington," and will urge big banks to line up behind the Democratic package of reforms that will likely face a Senate vote next week.
U.S., China take anti-dumping measures. The U.S. and China have taken new anti-dumping steps against one another, threatening to reignite trade tensions that had recently eased. The U.S. Commerce Department is launching an investigation into whether certain Chinese aluminum products are being sold at unfairly low prices because of government subsidies. China's Commerce Ministry said this morning that it's imposing anti-dumping duties of up to 96.5% on imports of polycaprolactam, or nylon 6, from the U.S., Europe, Russia and Taiwan.
Lions Gate gives Icahn a roaring rejection. Lions Gate Entertainment (LGF) rejected another bid from Carl Icahn, calling his sweetened offer "opportunistic and coercive" and still too low. The board urged shareholders not to tender their shares. Icahn, who is trying to buy the 81% of the studio he doesn't already own, had raised his offer last Thursday to $7 per share from $6 per share.
Simon presents revised offer to GGP. Simon Property Group (SPG) gave General Growth Properties (GGP) a revised recapitalization offer late yesterday, ahead of a presentation before GGP's board later today. The revised offer features a group of new investors contributing $1.1B in capital in addition to Simon's planned $2.5B investment (which includes an existing $1B commitment from hedge fund Paulson & Co.).
CyberSource soars on Visa deal. CyberSource (CYBS) closed up more than 32% yesterday after it agreed to be bought by Visa (V) for around $2B in cash. The deal will also allow Visa to improve its offering of online transaction services and help fight fraud. Visa closed down 1%.
Fed pushes banks to cut risk incentive. Federal Reserve officials are reportedly telling around two dozen of the largest U.S. banks that they need to do more to end compensation practices that encourage excessive risk and are instructing boards to increase their scrutiny of incentives. Citigroup (C), Goldman Sachs (GS), JPMorgan (JPM), Bank of America (BAC) and Morgan Stanley (MS) are said to be among the firms under Fed review. In addition, officials want the banks to run pay-risk tests using hypothetical economic scenarios.
Toyota feeling moody over ratings cut. Moody's lowered Toyota's (TM) credit rating this morning to AA2 from AA1, saying it expects Toyota's low profitability to continue and recall-related litigation costs could be significant. Toyota has estimated in February that its recalls would cost the company $2B in the fiscal year ending in March, but Toyota has recalled additional vehicles since then and most analysts believe the final cost will be much higher. Premarket: TM -0.8% (7:00 ET).
GM repays all its gov't loans. General Motors (GMGMQ.PK) announced yesterday that it had fully repaid $6.7B in loans from the U.S. government and $1.4B in loans from Canada, ahead of its already-accelerated June timetable. The Treasury still holds $2.1B in preferred stock and owns 61% of GM's common equity. The White House pointed to GM's early repayment, and to progress in the auto industry in general, as a positive reflection on the country's continuing economic recovery.
Banks protest IMF's 'punishment tax.' Banks hit back against the IMF's proposal to levy taxes on banks' balance sheets, profits and compensation, calling it a "punishment tax" and warning it would significantly hurt profits while failing to reduce the risk of future failures. The tax would harm the industry without improving it, with some analysts suggesting pre-tax profit could be cut by as much as 20% if the measure moves forward.
Wednesday, April 21, 2010
Today's Economic Calendar
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
10:30 EIA Petroleum Status
7:00 MBA Mortgage Applications
10:30 EIA Petroleum Status
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
BHP subject of corruption probe. BHP Billiton (BHP) said today that following an information request from the SEC the company has found "possible violations of applicable anti-corruption laws involving interactions with government officials." The company didn't disclose the location of the projects in question, but said it wasn't related to business in China and that the firm is cooperating fully with authorities. The SEC couldn’t “confirm or deny the existence or non-existence of any investigation,” but sources said an investigation began in August 2009. BHP -1.6% premarket (7:00 ET).
TARP watchdog probes Goldman role in AIG losses. Neil Barofsky, the special inspector general for TARP, plans to investigate whether securities sold by Goldman Sachs (GS) led to losses at AIG (AIG) and, by extension, if U.S. taxpayers were the victims of fraud. Barofsky is in touch with the SEC and may coordinate with the Justice Department as well. Separately, Barofsky said he may also launch a broader audit of BlackRock's (BLK) role in TARP. Premarket: GS -0.3%, AIG +0.2% (7:00 ET).
Regulators may rethink repo accounting. The Financial Accounting Standards Board, which is in charge of setting U.S. accounting rules, may change repo accounting methods after the SEC finishes its examination of the accounting practices at the 19 largest U.S. banks. In a letter to the House Financial Services Committee, FASB Chairman Robert Herz said the board will "work closely" with the SEC on determining whether any changes are necessary. Repo accounting has recently been in the spotlight after a bankruptcy examiner said the accounting trick led to the collapse of Lehman Brothers (LEHMQ.PK).
SEC could bring Lehman charges. Former SEC chairman Christopher Cox said the SEC could potentially file charges against Lehman Brothers (LEHMQ.PK) after a bankruptcy examiner's report showed the firm "filed misleading financial reports and failed to disclose material accounting information." Cox, who was chairman of the SEC when Lehman filed for bankruptcy in September 2008, also said that neither the SEC nor the Federal Reserve were aware of Lehman's use of Repo 105 transactions.
SEC may create new debt rules for banks. Testifying before lawmakers yesterday, the SEC's Mary Schapiro said the agency is considering new rules that would prevent financial firms from temporarily lowering their debt levels immediately before quarterly reporting deadlines as a way to mask their true risk exposure. If done intentionally, the practice violates existing guidelines, but the SEC may require stricter disclosures, and could extend the rules to all companies instead of just to banks. Recent media reports have shown that 18 large banks lowered a specific kind of debt at the end of each of the past five quarters by an average of 42% from quarterly peaks.
Banks boost lobbying ahead of reform legislation. Banks are spending more money on donations and lobbying as lawmakers prepare to vote on financial reform legislation as soon as this week. Six of the top ten U.S. banks, including Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS), increased their donations to lawmakers in the last month. Goldman, Bank of America (BAC) and U.S. Bancorp (USB) were among seven banks that increased their lobbying in the first three months of the year, and the U.S. Chamber of Commerce doubled its lobbying spending in the first quarter.
IMF calls for taxes on banks. The IMF advised G-20 nations to tax the balance sheets, profits and compensation of financial firms in order to reduce the likelihood of another financial crisis and to cover the costs should a crisis occur. The IMF recommended that the tax, called a "Financial Stability Contribution," seek to raise between 2-4% of GDP over time, or roughly $1T-2T if all G-20 nations adopt the tax. Additionally, the IMF revised its forecast for global bank losses from the financial crisis. It now expects losses to total $2.28T, a drop of $533B from the estimate it made in October.
Live Nation faces breach-of-contract claim. In an 8-K filing, Live Nation Entertainment (LYV) disclosed that it faces a breach-of-contract claim by German ticketing firm CTS Eventim. Live Nation said the claims are "without merit and inconsistent with the terms of the CTS agreement," but warned that if the matter is resolved in CTS' favor, it could prevent the recently merged company from realizing "the full operational efficiencies that the combined company might otherwise obtain." LYV shares closed -3.15% in after hours trading.
EADS takes on Boeing in tanker bid. Airbus parent EADS (EADSF.PK) plans to compete directly against Boeing (BA) for a $50B U.S. military refueling plane contract. Ralph Crosby, chairman of EADS North America, called it "a hell of an opportunity," but analysts warn it will likely be an uphill fight for EADS, as "Boeing has put significant political capital into securing this win."
Google may buy travel software firm. Google (GOOG) is said to be in talks to acquire airline IT and services provider ITA Software Inc. in a deal that could cost as much as $1B. Negotiations may still fall apart, but a successful purchase would allow Google to use ITA Software's tools to help users find online flight information, helping Google compete with travel-search features offered by Microsoft (MSFT).
Hedge fund assets back on top. Assets managed by the global hedge fund industry are just 2% below their previous all-time high reached in October 2007. Hedge funds collectively manage around $1.67T of assets, and the average hedge fund saw compounded gains of 24.55% last year, making 2009 the industry's best year in a decade.
Volcano flight ban draws to an end. London's Heathrow airport became the last major European terminal to re-open after a six-day flight ban following the eruption of a volcano in Iceland. The ash cloud that shut down air travel has cost airlines an estimated $1.7B in lost revenue, and more than 100,000 flights were canceled.
Confidence dips down. ABC's Consumer Comfort Index dropped 3 points to -50, matching a 2010 low and not far above its all-time low of -54. Positive ratings of the national economy held steady at 8%, but those who think it's a good time to buy things slipped to 24% and positive ratings of personal finances slipped to 43% from 47%.
by SA Editor Rachael Granby
BHP subject of corruption probe. BHP Billiton (BHP) said today that following an information request from the SEC the company has found "possible violations of applicable anti-corruption laws involving interactions with government officials." The company didn't disclose the location of the projects in question, but said it wasn't related to business in China and that the firm is cooperating fully with authorities. The SEC couldn’t “confirm or deny the existence or non-existence of any investigation,” but sources said an investigation began in August 2009. BHP -1.6% premarket (7:00 ET).
TARP watchdog probes Goldman role in AIG losses. Neil Barofsky, the special inspector general for TARP, plans to investigate whether securities sold by Goldman Sachs (GS) led to losses at AIG (AIG) and, by extension, if U.S. taxpayers were the victims of fraud. Barofsky is in touch with the SEC and may coordinate with the Justice Department as well. Separately, Barofsky said he may also launch a broader audit of BlackRock's (BLK) role in TARP. Premarket: GS -0.3%, AIG +0.2% (7:00 ET).
Regulators may rethink repo accounting. The Financial Accounting Standards Board, which is in charge of setting U.S. accounting rules, may change repo accounting methods after the SEC finishes its examination of the accounting practices at the 19 largest U.S. banks. In a letter to the House Financial Services Committee, FASB Chairman Robert Herz said the board will "work closely" with the SEC on determining whether any changes are necessary. Repo accounting has recently been in the spotlight after a bankruptcy examiner said the accounting trick led to the collapse of Lehman Brothers (LEHMQ.PK).
SEC could bring Lehman charges. Former SEC chairman Christopher Cox said the SEC could potentially file charges against Lehman Brothers (LEHMQ.PK) after a bankruptcy examiner's report showed the firm "filed misleading financial reports and failed to disclose material accounting information." Cox, who was chairman of the SEC when Lehman filed for bankruptcy in September 2008, also said that neither the SEC nor the Federal Reserve were aware of Lehman's use of Repo 105 transactions.
SEC may create new debt rules for banks. Testifying before lawmakers yesterday, the SEC's Mary Schapiro said the agency is considering new rules that would prevent financial firms from temporarily lowering their debt levels immediately before quarterly reporting deadlines as a way to mask their true risk exposure. If done intentionally, the practice violates existing guidelines, but the SEC may require stricter disclosures, and could extend the rules to all companies instead of just to banks. Recent media reports have shown that 18 large banks lowered a specific kind of debt at the end of each of the past five quarters by an average of 42% from quarterly peaks.
Banks boost lobbying ahead of reform legislation. Banks are spending more money on donations and lobbying as lawmakers prepare to vote on financial reform legislation as soon as this week. Six of the top ten U.S. banks, including Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS), increased their donations to lawmakers in the last month. Goldman, Bank of America (BAC) and U.S. Bancorp (USB) were among seven banks that increased their lobbying in the first three months of the year, and the U.S. Chamber of Commerce doubled its lobbying spending in the first quarter.
IMF calls for taxes on banks. The IMF advised G-20 nations to tax the balance sheets, profits and compensation of financial firms in order to reduce the likelihood of another financial crisis and to cover the costs should a crisis occur. The IMF recommended that the tax, called a "Financial Stability Contribution," seek to raise between 2-4% of GDP over time, or roughly $1T-2T if all G-20 nations adopt the tax. Additionally, the IMF revised its forecast for global bank losses from the financial crisis. It now expects losses to total $2.28T, a drop of $533B from the estimate it made in October.
Live Nation faces breach-of-contract claim. In an 8-K filing, Live Nation Entertainment (LYV) disclosed that it faces a breach-of-contract claim by German ticketing firm CTS Eventim. Live Nation said the claims are "without merit and inconsistent with the terms of the CTS agreement," but warned that if the matter is resolved in CTS' favor, it could prevent the recently merged company from realizing "the full operational efficiencies that the combined company might otherwise obtain." LYV shares closed -3.15% in after hours trading.
EADS takes on Boeing in tanker bid. Airbus parent EADS (EADSF.PK) plans to compete directly against Boeing (BA) for a $50B U.S. military refueling plane contract. Ralph Crosby, chairman of EADS North America, called it "a hell of an opportunity," but analysts warn it will likely be an uphill fight for EADS, as "Boeing has put significant political capital into securing this win."
Google may buy travel software firm. Google (GOOG) is said to be in talks to acquire airline IT and services provider ITA Software Inc. in a deal that could cost as much as $1B. Negotiations may still fall apart, but a successful purchase would allow Google to use ITA Software's tools to help users find online flight information, helping Google compete with travel-search features offered by Microsoft (MSFT).
Hedge fund assets back on top. Assets managed by the global hedge fund industry are just 2% below their previous all-time high reached in October 2007. Hedge funds collectively manage around $1.67T of assets, and the average hedge fund saw compounded gains of 24.55% last year, making 2009 the industry's best year in a decade.
Volcano flight ban draws to an end. London's Heathrow airport became the last major European terminal to re-open after a six-day flight ban following the eruption of a volcano in Iceland. The ash cloud that shut down air travel has cost airlines an estimated $1.7B in lost revenue, and more than 100,000 flights were canceled.
Confidence dips down. ABC's Consumer Comfort Index dropped 3 points to -50, matching a 2010 low and not far above its all-time low of -54. Positive ratings of the national economy held steady at 8%, but those who think it's a good time to buy things slipped to 24% and positive ratings of personal finances slipped to 43% from 47%.
Tuesday, April 20, 2010
Today's Economic Calendar
Tuesday's Economic Calendar
7:45 ICSC Retail Store Sales
8:55 Redbook
9:00 Bank of Canada Announcement
11:00 Hearing: Lehman Bankruptcy (Bernanke, Geithner, Fuld)
5:00 PM ABC Consumer Confidence Index
7:45 ICSC Retail Store Sales
8:55 Redbook
9:00 Bank of Canada Announcement
11:00 Hearing: Lehman Bankruptcy (Bernanke, Geithner, Fuld)
5:00 PM ABC Consumer Confidence Index
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
AIG may go after Goldman on CDO losses. AIG (AIG) may go after Goldman Sachs (GS) over losses it suffered on $6B of insurance deals tied to mortgage-backed securities. AIG lost around $2B on the deals, and any action on the part of the insurer could signal the SEC's decision to file civil fraud charges against Goldman is about to set off a wave of investor lawsuits. Financial firms should brace themselves, as the fallout may not be limited to Goldman alone and litigation risk post-crisis has the potential to get very costly very quickly. According to a Credit Suisse report, Bank of America/Merrill Lynch (BAC) leads the "CDO litigation risk" list after offering $16.85B of CDOs similar to the ones Goldman is being charged for. Premarket: GS +2.6%, BAC +0.6% (7:00 ET).
SEC was split on Goldman charges. The SEC's decision to bring civil fraud charges against Goldman Sachs (GS) was hardly unanimous; the five-member commission voted 3-2 along political lines in favor of the charges, with the unusual split threatening to politicize one of the agency's biggest cases in years. Both Republican commissioners objected to the charges, and Rep. Darrell Issa (R., Calif.) plans to send the SEC a letter today questioning why the agency chose to press charges at the same time lawmakers are fighting over a financial reform bill.
U.K. opens formal Goldman probe. The U.K.'s Financial Services Authority announced today that it will launch a formal investigation into Goldman Sachs' (GS) London units in connection to the SEC's recent allegations. German and French securities regulators are considering whether to launch investigations of their own.
Fuld defends Lehman. Former Lehman Brothers (LEHMQ.PK) CEO Dick Fuld will testify before lawmakers today on Lehman's failure. According to his prepared testimony, Fuld will argue that Lehman has been "unfairly vilified," that he wasn't aware of the bank's controversial Repo 105 transactions until a year after Lehman filed for bankruptcy and that, in any case, "Lehman should not be criticized for complying with the applicable accounting standards." Notably, Fuld will also say that the SEC and Federal Reserve were aware of everything happening at Lehman as it moved towards bankruptcy, a claim that contradicts with regulators' version of events. Bernanke, Geithner and the SEC's Schapiro will also testify at the hearing.
More Toyota recalls. Toyota (TM) is recalling its Lexus GX 460 SUV after Consumer Reports called it a "safety risk" and company technicians were able to replicate the problem. Toyota, which had halted sales of the SUV last week, said a software fix for the stability control system will be at dealers by the end of April. The recall affects around 13,000 vehicles, including 9,400 in the U.S.
California takes Moody's to court. California is suing Moody's (MCO) to force it to explain the ratings it assigned during the crisis. California's Attorney General Jerry Brown said the state is seeking a court order to make Moody's comply with a subpoena issued in September, which seeks "information regarding Moody's decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities." Brown said Moody's has been stonewalling and had called the subpoena "a waste of time."
Greece may need far more than €30B in aid. Bundesbank President Axel Weber told German lawmakers that Greece may need more than the €45B ($61B) in aid that the EU and IMF have committed, said sources present at the briefing. Greece may ultimately need as much as €80B to avoid default. Weber also expressed concern that Greek citizens demonstrating against austerity measures don't realize what a serious situation Greece faces, and that Greece's situation is worsening.
CKE dumps THL for superior bid. CKE Restaurants (CKR) said this morning that it has received a superior bid from Western Acquisition Holdings and will terminate its merger agreement with private-equity firm Thomas H. Lee Partners. Western Acquisition offered $12.55 per share in cash, compared to THL's offer of $11.05 per share in cash.
GM to repay loans early. General Motors (GMGMQ.PK) plans to announce today that it's repaying its remaining $4.7B in government loans ahead of schedule. GM CEO Edward Whitacre believes the repayment is a critical step in winning back U.S. customers.
Unilever to sell frozen-foods unit. Unilever (UN) is reportedly ready to put its Italian frozen-foods division up for sale in an auction that could bring in more than €600M ($839M). The move reflects the continued consolidation of Europe's frozen food industry as consumers opt for fresh and chilled products.
Paulson buys ACAS stake. Hedge fund billionaire John Paulson is buying around a 13% stake in business developer American Capital (ACAS), picking up 43.7M shares of a 58.3M share common offering. The move is a boon for American Capital, which has been trying to restructure $2.4B in debt. ACAS rose 5.1% in regular trading yesterday, and climbed another 2.1% after hours.
Supreme Court to hear Costco case. The Supreme Court agreed to rule on whether Costco (COST) can be held liable for copyright infringement for reselling luxury Swiss watches it obtained through third-party sources. The case will be closely watched by retailers such as eBay (EBAY), Target (TGT) and Amazon (AMZN), firms that routinely facilitate the resale of goods, often at reduced prices.
by SA Editor Rachael Granby
AIG may go after Goldman on CDO losses. AIG (AIG) may go after Goldman Sachs (GS) over losses it suffered on $6B of insurance deals tied to mortgage-backed securities. AIG lost around $2B on the deals, and any action on the part of the insurer could signal the SEC's decision to file civil fraud charges against Goldman is about to set off a wave of investor lawsuits. Financial firms should brace themselves, as the fallout may not be limited to Goldman alone and litigation risk post-crisis has the potential to get very costly very quickly. According to a Credit Suisse report, Bank of America/Merrill Lynch (BAC) leads the "CDO litigation risk" list after offering $16.85B of CDOs similar to the ones Goldman is being charged for. Premarket: GS +2.6%, BAC +0.6% (7:00 ET).
SEC was split on Goldman charges. The SEC's decision to bring civil fraud charges against Goldman Sachs (GS) was hardly unanimous; the five-member commission voted 3-2 along political lines in favor of the charges, with the unusual split threatening to politicize one of the agency's biggest cases in years. Both Republican commissioners objected to the charges, and Rep. Darrell Issa (R., Calif.) plans to send the SEC a letter today questioning why the agency chose to press charges at the same time lawmakers are fighting over a financial reform bill.
U.K. opens formal Goldman probe. The U.K.'s Financial Services Authority announced today that it will launch a formal investigation into Goldman Sachs' (GS) London units in connection to the SEC's recent allegations. German and French securities regulators are considering whether to launch investigations of their own.
Fuld defends Lehman. Former Lehman Brothers (LEHMQ.PK) CEO Dick Fuld will testify before lawmakers today on Lehman's failure. According to his prepared testimony, Fuld will argue that Lehman has been "unfairly vilified," that he wasn't aware of the bank's controversial Repo 105 transactions until a year after Lehman filed for bankruptcy and that, in any case, "Lehman should not be criticized for complying with the applicable accounting standards." Notably, Fuld will also say that the SEC and Federal Reserve were aware of everything happening at Lehman as it moved towards bankruptcy, a claim that contradicts with regulators' version of events. Bernanke, Geithner and the SEC's Schapiro will also testify at the hearing.
More Toyota recalls. Toyota (TM) is recalling its Lexus GX 460 SUV after Consumer Reports called it a "safety risk" and company technicians were able to replicate the problem. Toyota, which had halted sales of the SUV last week, said a software fix for the stability control system will be at dealers by the end of April. The recall affects around 13,000 vehicles, including 9,400 in the U.S.
California takes Moody's to court. California is suing Moody's (MCO) to force it to explain the ratings it assigned during the crisis. California's Attorney General Jerry Brown said the state is seeking a court order to make Moody's comply with a subpoena issued in September, which seeks "information regarding Moody's decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities." Brown said Moody's has been stonewalling and had called the subpoena "a waste of time."
Greece may need far more than €30B in aid. Bundesbank President Axel Weber told German lawmakers that Greece may need more than the €45B ($61B) in aid that the EU and IMF have committed, said sources present at the briefing. Greece may ultimately need as much as €80B to avoid default. Weber also expressed concern that Greek citizens demonstrating against austerity measures don't realize what a serious situation Greece faces, and that Greece's situation is worsening.
CKE dumps THL for superior bid. CKE Restaurants (CKR) said this morning that it has received a superior bid from Western Acquisition Holdings and will terminate its merger agreement with private-equity firm Thomas H. Lee Partners. Western Acquisition offered $12.55 per share in cash, compared to THL's offer of $11.05 per share in cash.
GM to repay loans early. General Motors (GMGMQ.PK) plans to announce today that it's repaying its remaining $4.7B in government loans ahead of schedule. GM CEO Edward Whitacre believes the repayment is a critical step in winning back U.S. customers.
Unilever to sell frozen-foods unit. Unilever (UN) is reportedly ready to put its Italian frozen-foods division up for sale in an auction that could bring in more than €600M ($839M). The move reflects the continued consolidation of Europe's frozen food industry as consumers opt for fresh and chilled products.
Paulson buys ACAS stake. Hedge fund billionaire John Paulson is buying around a 13% stake in business developer American Capital (ACAS), picking up 43.7M shares of a 58.3M share common offering. The move is a boon for American Capital, which has been trying to restructure $2.4B in debt. ACAS rose 5.1% in regular trading yesterday, and climbed another 2.1% after hours.
Supreme Court to hear Costco case. The Supreme Court agreed to rule on whether Costco (COST) can be held liable for copyright infringement for reselling luxury Swiss watches it obtained through third-party sources. The case will be closely watched by retailers such as eBay (EBAY), Target (TGT) and Amazon (AMZN), firms that routinely facilitate the resale of goods, often at reduced prices.
Monday, April 19, 2010
Today's Economic Calendar
Monday's Economic Calendar
10:00 Financial Literacy and Education Summit
10:00 Leading Indicators
3:00 PM International Economic Development Council Federal Forum
10:00 Financial Literacy and Education Summit
10:00 Leading Indicators
3:00 PM International Economic Development Council Federal Forum
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
More pain for Goldman Sachs. After the SEC charged Goldman Sachs (GS) with fraud on Friday, saying the firm created and sold a mortgage investment designed for failure, the U.K. said it would launch its own probe into Goldman's "morally bankrupt" actions. Germany may follow suit, and has requested information from the SEC. Meanwhile, the EU has launched an investigation into Goldman's role in providing swaps to the Greek government. As for the SEC suit, Goldman learned in July 2009 that it might face a suit but said it was blindsided by Friday's announcement; the SEC usually notifies firms in advance to allow for last-minute settlements, and the SEC's failure to do so signals the agency is trying to take a particularly aggressive stance, suggesting the move may be more about politics than financial villainy. On the other hand, though only one Goldman employee, Fabrice Tourre, was named in the suit, sources said senior bank executives, including CEO Lloyd Blankfein, played a pivotal role in overseeing the mortgage unit. John Paulson, the hedge fund investor who made billions betting against the housing market and who was short on some of the underlying securities at issue here, was not named in the SEC's complaint (which raised some eyebrows), but may face lawsuits from investors who lost more than $1B on the deal. GS -0.1% premarket (7:00 ET) after falling nearly 13% on Friday. (For more reading: the SEC's complaint (.pdf) against Goldman, Goldman's response, Goldman's pitchbook for the Abacus deal, and a blogosphere take on why the scandal is not so scandalous)
SEC looks into other soured mortgage deals. Following its civil fraud charge against Goldman Sachs (GS), the SEC is investigating whether other Wall Street firms misled investors over mortgage investments. It's not yet known which firms the SEC is looking into, but there were similarly troubled mortgage deals created at Deutsche Bank (DB), UBS (UBS) and Merrill Lynch (BAC), among others. The SEC is using this opportunity to raise its sights and send a warning to Wall Street, but by doing so it faces the risk of further damaging its reputation if it loses the Goldman case or similar cases against other Wall Street firms. Premarket: DB +0.2%, UBS -2.3%, BAC -0.6% (7:00 ET).
Toyota likely to agree to $16.4M fine. Toyota (TM) is expected to agree today to pay a record $16.4M fine for failing to alert regulators about potential safety issues related to sticky gas pedals. Though the fine is less than 2% of Toyota's projected net income for the fiscal year, the company's acquiescence could make a stronger case for plaintiffs seeking compensation from the carmaker, unless the agreement doesn't require Toyota to admit wrongdoing. To date, Toyota has recalled more than 8M vehicles worldwide because of safety issues related to sticky gas pedals and unintended acceleration.
United mulls alliance with Continental, US Airways. With Continental (CAL) and United Airlines (UAUA) reportedly in merger talks, and US Airways (LCC) and United Airlines reportedly in merger talks, sources said United is now discussing the possibility of forgoing a merger with either airline and instead deepening an existing three-way alliance. United has raised the topic with each airline, but the three have yet to sit down together. A strengthened alliance could raise antitrust concerns and face objections from labor unions.
Glaxo's Avandia under FDA scrutiny. The FDA is deciding whether to halt a safety study involving thousands of patients taking GlaxoSmithKline's (GSK) diabetes drug Avandia. Studies during the past three years have suggested a connection between the drug and an increased risk of heart attack, and a decision to halt the study could influence whether the drug stays on the U.S. market.
Citic, Agricole may create global brokerage. Citic Securities, China's largest brokerage, and France's Credit Agricole (CRARY.PK) are reportedly close to an agreement to create a global brokerage venture. The alliance would contain assets worth more than $4B, and would help Credit Agricole push past rivals like Goldman Sachs (GS) in the world's fastest-growing major economy. An announcement could come as soon as today.
Aussies reject NAB bid for Axa Asia Pacific. Australian regulators rejected National Australia Bank's A$13.3B ($12.3B) bid for Axa Asia Pacific Holdings (which belongs to parent company AXA). Analysts had expected the deal to be approved with conditions such as asset sales, and the surprise ruling may create an opportunity for rival AMP to renew its offer for Axa Asia Pacific.
Tune in for RadioShack sale? RadioShack (RSH) is reportedly drawing closer to a possible sale, with a list of potential acquirers that includes private-equity groups and rival Best Buy (BBY). Both RadioShack and Best Buy declined to comment, but sources said JPMorgan (JPM) has already been selected to lead the sale process and there are several indications that the process is moving quietly forward. Premarket: RSH +1.8% (7:00 ET).
Airlines, travelers frustrated by Iceland's volcano. Iceland's volcano continues to cause mayhem for travelers, giving hotels a boost on both sides of the Atlantic as stranded fliers look for places to stay. Airlines, which are now losing close to $300M per day, are putting pressure on authorities to ease no-fly directives, pointing to several test flights that didn't experience any problems, but forecasters suggest airports in northern and central Europe may remain closed for at least another three days, if not longer. More than 63,000 flights have been canceled so far, and an extended disruption could pose a threat to Europe's shaky economic recovery.
Countrywide case picks up steam. A federal probe into the collapse of Countrywide Financial appears to be gaining momentum, as sources said investigators have been calling witnesses before a grand jury. Though few details are available since grand jury proceedings are generally kept secret, and the calling of witnesses doesn't guarantee charges will be filed, the progress is notable; the former mortgage giant, which was bought by Bank of America (BAC) in 2008, has been the subject of a slow-moving investigation for around two years. An SEC civil trial against the company and three former top Countrywide executives is scheduled for October.
Obama pushes for financial reform. Obama is taking a hands-on approach to financial regulatory reform, and is putting pressure on Republicans to get on board. The White House has been drafting legislative language to pass on to Congress, is pushing for the bill to be brought to the Senate floor ahead of schedule and is expected to have Obama makes a high-stakes appearance on Wall Street, as both Democrats and Republicans try to leverage the Goldman Sachs (GS) scandal to their legislative advantage.
Lockheed, Sikorsky join up on helicopter bid. Lockheed Martin (LMT) and Sikorsky Aircraft (UTX) are expected to announce today that they're teaming up to bid on a new contract for a fleet of Marine One helicopters. Other bidders may include Boeing (BA), Bell Helicopters (TXT) and AgustaWestland, the European firm that teamed with Lockheed five years ago to beat out Sikorsky on the previous Marine One bid. Sikorsky, which built every presidential helicopter since 1957 except for the 2005 contract, is hoping a successful bid, even one that requires Lockheed's help, will show that the company has rebuilt itself.
Mortgage delinquencies show improvements. Mortgage delinquencies fell in March for the second month in a row, dropping 8.6%. The largest slide was among loans that were 30 days past due; these loans fell a record 342,000 to around 1.45M, a level last seen in spring 2008. Though the data is encouraging, delinquencies generally fall in February and March as borrowers get their tax refunds, so it's too soon to suggest that a turnaround has begun.
Friday's failures. Regulators shut down eight banks on Friday, bringing this year's total closures to 50. The failures in Michigan, Massachusetts, Florida, California (I, II) and Washington are estimated to cost the FDIC's insurance fund nearly $1B.
by SA Editor Rachael Granby
More pain for Goldman Sachs. After the SEC charged Goldman Sachs (GS) with fraud on Friday, saying the firm created and sold a mortgage investment designed for failure, the U.K. said it would launch its own probe into Goldman's "morally bankrupt" actions. Germany may follow suit, and has requested information from the SEC. Meanwhile, the EU has launched an investigation into Goldman's role in providing swaps to the Greek government. As for the SEC suit, Goldman learned in July 2009 that it might face a suit but said it was blindsided by Friday's announcement; the SEC usually notifies firms in advance to allow for last-minute settlements, and the SEC's failure to do so signals the agency is trying to take a particularly aggressive stance, suggesting the move may be more about politics than financial villainy. On the other hand, though only one Goldman employee, Fabrice Tourre, was named in the suit, sources said senior bank executives, including CEO Lloyd Blankfein, played a pivotal role in overseeing the mortgage unit. John Paulson, the hedge fund investor who made billions betting against the housing market and who was short on some of the underlying securities at issue here, was not named in the SEC's complaint (which raised some eyebrows), but may face lawsuits from investors who lost more than $1B on the deal. GS -0.1% premarket (7:00 ET) after falling nearly 13% on Friday. (For more reading: the SEC's complaint (.pdf) against Goldman, Goldman's response, Goldman's pitchbook for the Abacus deal, and a blogosphere take on why the scandal is not so scandalous)
SEC looks into other soured mortgage deals. Following its civil fraud charge against Goldman Sachs (GS), the SEC is investigating whether other Wall Street firms misled investors over mortgage investments. It's not yet known which firms the SEC is looking into, but there were similarly troubled mortgage deals created at Deutsche Bank (DB), UBS (UBS) and Merrill Lynch (BAC), among others. The SEC is using this opportunity to raise its sights and send a warning to Wall Street, but by doing so it faces the risk of further damaging its reputation if it loses the Goldman case or similar cases against other Wall Street firms. Premarket: DB +0.2%, UBS -2.3%, BAC -0.6% (7:00 ET).
Toyota likely to agree to $16.4M fine. Toyota (TM) is expected to agree today to pay a record $16.4M fine for failing to alert regulators about potential safety issues related to sticky gas pedals. Though the fine is less than 2% of Toyota's projected net income for the fiscal year, the company's acquiescence could make a stronger case for plaintiffs seeking compensation from the carmaker, unless the agreement doesn't require Toyota to admit wrongdoing. To date, Toyota has recalled more than 8M vehicles worldwide because of safety issues related to sticky gas pedals and unintended acceleration.
United mulls alliance with Continental, US Airways. With Continental (CAL) and United Airlines (UAUA) reportedly in merger talks, and US Airways (LCC) and United Airlines reportedly in merger talks, sources said United is now discussing the possibility of forgoing a merger with either airline and instead deepening an existing three-way alliance. United has raised the topic with each airline, but the three have yet to sit down together. A strengthened alliance could raise antitrust concerns and face objections from labor unions.
Glaxo's Avandia under FDA scrutiny. The FDA is deciding whether to halt a safety study involving thousands of patients taking GlaxoSmithKline's (GSK) diabetes drug Avandia. Studies during the past three years have suggested a connection between the drug and an increased risk of heart attack, and a decision to halt the study could influence whether the drug stays on the U.S. market.
Citic, Agricole may create global brokerage. Citic Securities, China's largest brokerage, and France's Credit Agricole (CRARY.PK) are reportedly close to an agreement to create a global brokerage venture. The alliance would contain assets worth more than $4B, and would help Credit Agricole push past rivals like Goldman Sachs (GS) in the world's fastest-growing major economy. An announcement could come as soon as today.
Aussies reject NAB bid for Axa Asia Pacific. Australian regulators rejected National Australia Bank's A$13.3B ($12.3B) bid for Axa Asia Pacific Holdings (which belongs to parent company AXA). Analysts had expected the deal to be approved with conditions such as asset sales, and the surprise ruling may create an opportunity for rival AMP to renew its offer for Axa Asia Pacific.
Tune in for RadioShack sale? RadioShack (RSH) is reportedly drawing closer to a possible sale, with a list of potential acquirers that includes private-equity groups and rival Best Buy (BBY). Both RadioShack and Best Buy declined to comment, but sources said JPMorgan (JPM) has already been selected to lead the sale process and there are several indications that the process is moving quietly forward. Premarket: RSH +1.8% (7:00 ET).
Airlines, travelers frustrated by Iceland's volcano. Iceland's volcano continues to cause mayhem for travelers, giving hotels a boost on both sides of the Atlantic as stranded fliers look for places to stay. Airlines, which are now losing close to $300M per day, are putting pressure on authorities to ease no-fly directives, pointing to several test flights that didn't experience any problems, but forecasters suggest airports in northern and central Europe may remain closed for at least another three days, if not longer. More than 63,000 flights have been canceled so far, and an extended disruption could pose a threat to Europe's shaky economic recovery.
Countrywide case picks up steam. A federal probe into the collapse of Countrywide Financial appears to be gaining momentum, as sources said investigators have been calling witnesses before a grand jury. Though few details are available since grand jury proceedings are generally kept secret, and the calling of witnesses doesn't guarantee charges will be filed, the progress is notable; the former mortgage giant, which was bought by Bank of America (BAC) in 2008, has been the subject of a slow-moving investigation for around two years. An SEC civil trial against the company and three former top Countrywide executives is scheduled for October.
Obama pushes for financial reform. Obama is taking a hands-on approach to financial regulatory reform, and is putting pressure on Republicans to get on board. The White House has been drafting legislative language to pass on to Congress, is pushing for the bill to be brought to the Senate floor ahead of schedule and is expected to have Obama makes a high-stakes appearance on Wall Street, as both Democrats and Republicans try to leverage the Goldman Sachs (GS) scandal to their legislative advantage.
Lockheed, Sikorsky join up on helicopter bid. Lockheed Martin (LMT) and Sikorsky Aircraft (UTX) are expected to announce today that they're teaming up to bid on a new contract for a fleet of Marine One helicopters. Other bidders may include Boeing (BA), Bell Helicopters (TXT) and AgustaWestland, the European firm that teamed with Lockheed five years ago to beat out Sikorsky on the previous Marine One bid. Sikorsky, which built every presidential helicopter since 1957 except for the 2005 contract, is hoping a successful bid, even one that requires Lockheed's help, will show that the company has rebuilt itself.
Mortgage delinquencies show improvements. Mortgage delinquencies fell in March for the second month in a row, dropping 8.6%. The largest slide was among loans that were 30 days past due; these loans fell a record 342,000 to around 1.45M, a level last seen in spring 2008. Though the data is encouraging, delinquencies generally fall in February and March as borrowers get their tax refunds, so it's too soon to suggest that a turnaround has begun.
Friday's failures. Regulators shut down eight banks on Friday, bringing this year's total closures to 50. The failures in Michigan, Massachusetts, Florida, California (I, II) and Washington are estimated to cost the FDIC's insurance fund nearly $1B.
Friday, April 9, 2010
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Eli Hoffmann
Banks back to same old tricks. An analysis of data released by the New York Fed shows large banks are hiding their risk levels by temporarily lowering their debt just before reporting periods. A group of 18 banks - including MS, GS, JPM, BAC and C - lowered the debt used to fund trading ventures by an average of 42% at the end of each of the past five quarters, refilling their tanks in subsequent months. While not illegal, the practice gives investors a false impression of banks' leverage - one of the factors that led to the massive panic in 2008.
Greece bankruptcy looms. Rates on 10-year Greek bonds spiked as high as 7.5% on Thursday, up from 6.5% just three days ago, delivering a clear message: Artfully worded communiqués aren't enough; to avoid bankruptcy, Greece needs an EU bailout, fast. At a press conference Thursday, ECB chief Trichet insisted the joint EU/IMF aid proposal is a "very, very serious commitment," but his assurances did little to calm nerves as investors continue to withdraw funds from Greek banks.
Retail sales rocket higher. Sales at top retail chains rose a robust 9.1% in March, the largest monthly jump in at least 10 years, and far stronger than the +6.3% Street consensus. More than 90% of all retailers beat expectations, although executives cautioned that the March rise could foretell a weaker than usual April. Economists were upbeat, saying the data indicated consumer spending was accelerating. Department stores were the strongest performers, but discounters and teen apparel chains also exceeded projections. Strong performers included TGT, TJX, M, KSS, LTS and GPS. Abercrombie & Fitch (ANF) posted weaker-than-expected comps.
iPad sales approach 500K. Apple (AAPL) has sold 450K iPads since its debut on Saturday, CEO Steve Jobs said Thursday, including more than 300K on launch day. Analysts expect sales of 1-2M units in Q2, and estimate 2010 sales of anywhere from 3M to 7M. Jobs said users have downloaded 600K digital books and 3.5M iPad apps so far. Apple also stepped up its rivalry with Google (GOOG) by revealing iAd, an in-house advertising platform that will power its gadgets. Jobs also unveiled a new version of the iPhone/iPod OS that will finally bring multitasking to the devices.
Initial jobless claims jump. The number of U.S. workers filing for unemployment benefits shot higher, up 18K from a week ago to 460K, well above economist estimates of 435K - although the Dept. of Labor warned the data may contain statistical biases due to the Easter holiday. But the number of people still receiving benefits after an initial week of aid fell to the lowest level since Dec. 2008, and the insured unemployment rate dropped to 3.5%, the lowest since Jan. 2009.
Panel pounds Prince, Rubin. Appearing before the Financial Crisis Inquiry Commission Thursday, former Citigroup (C) CEO Charles Prince apologized repeatedly for the billions of dollars investors lost as a result of soured investments. But former Chairman Robert Rubin downplayed his role in the crisis, and was met with anger and disbelief. "You were either pulling the levers or asleep at the switch," committee chair Philip Angelides told him. Bill Thomas, a former chairman of the House Ways and Means Committee, summed up the feelings of the millions who lost their savings and their homes: "To make the argument that somehow a simple apology still allows you to maintain a profile of income based upon what devastated everybody else doesn't fit the scale test," he said, "no matter how often you feel really, really sad about what happened."
Goldman denies it would profit from Greece collapse. Goldman Sachs (GS) admitted the firm "has bought some credit protection" to hedge its exposure to the Greek debt crisis, but suggested that - contrary to reports - it would lose money if Greece's credit situation worsens. On Wednesday, Rochdale's Dick Bove hinted that Goldman could profit handsomely if bad turns to worse in Greece, sending shares up 2%.
Yuan rise could come by June-Oct. China might increase interest rates as early as this month, but will probably not allow the yuan to rise until the June-Oct. period, senior government economist Zhu Baoliang said this morning. He added that another one-off revaluation was unlikely, but said the yuan peg could be shifted to a basket of currencies.
Coal-maker bidding war heats up. Macarthur Coal spurned a $3.5B bid from Australian rival New Hope, saying it would continue to move forward with a plan to take over Gloucester Coal in alliance with Noble Group (NOBGF.PK). Macarthur had already rejected an earlier $3.45B bid from New Hope, and a $3.3B bid from Peabody (BTU). Meanwhile, sources say Xstrata (XSRAF.PK) has approached ArcelorMittal (MT) and POSCO about a possible joint bid; ArcelorMittal and POSCO control a combined 25% of Macarthur. Shareholders were scheduled to vote on the Gloucester deal on Monday, but Macarthur today pushed off the vote for a week to give investors more time to consider their options. Suitors are attracted by Macarthur's specialist pulverized or PCI coal, a cleaner input for steelmakers' blast furnaces.
Tribune inks bankruptcy exit. Tribune Co. said Thursday it has agreed with creditors on a plan that would help it exit bankruptcy protection later this year. "Under the plan, the company would emerge from bankruptcy, significantly deleveraged, with its business units intact and with adequate liquidity for operating and capital needs," Tribune said. The agreement releases Sam Zell from all liability for the company's collapse following his $8.2B leveraged buyout in 2007, much to the consternation of junior bondholders who oppose the deal.
MasterCard ventures into predictive shopping. MasterCard (MA) will Monday unveil a web shopping mall that it says can pinpoint with uncanny accuracy what its cardholders are likely to purchase.
by SA Editor Eli Hoffmann
Banks back to same old tricks. An analysis of data released by the New York Fed shows large banks are hiding their risk levels by temporarily lowering their debt just before reporting periods. A group of 18 banks - including MS, GS, JPM, BAC and C - lowered the debt used to fund trading ventures by an average of 42% at the end of each of the past five quarters, refilling their tanks in subsequent months. While not illegal, the practice gives investors a false impression of banks' leverage - one of the factors that led to the massive panic in 2008.
Greece bankruptcy looms. Rates on 10-year Greek bonds spiked as high as 7.5% on Thursday, up from 6.5% just three days ago, delivering a clear message: Artfully worded communiqués aren't enough; to avoid bankruptcy, Greece needs an EU bailout, fast. At a press conference Thursday, ECB chief Trichet insisted the joint EU/IMF aid proposal is a "very, very serious commitment," but his assurances did little to calm nerves as investors continue to withdraw funds from Greek banks.
Retail sales rocket higher. Sales at top retail chains rose a robust 9.1% in March, the largest monthly jump in at least 10 years, and far stronger than the +6.3% Street consensus. More than 90% of all retailers beat expectations, although executives cautioned that the March rise could foretell a weaker than usual April. Economists were upbeat, saying the data indicated consumer spending was accelerating. Department stores were the strongest performers, but discounters and teen apparel chains also exceeded projections. Strong performers included TGT, TJX, M, KSS, LTS and GPS. Abercrombie & Fitch (ANF) posted weaker-than-expected comps.
iPad sales approach 500K. Apple (AAPL) has sold 450K iPads since its debut on Saturday, CEO Steve Jobs said Thursday, including more than 300K on launch day. Analysts expect sales of 1-2M units in Q2, and estimate 2010 sales of anywhere from 3M to 7M. Jobs said users have downloaded 600K digital books and 3.5M iPad apps so far. Apple also stepped up its rivalry with Google (GOOG) by revealing iAd, an in-house advertising platform that will power its gadgets. Jobs also unveiled a new version of the iPhone/iPod OS that will finally bring multitasking to the devices.
Initial jobless claims jump. The number of U.S. workers filing for unemployment benefits shot higher, up 18K from a week ago to 460K, well above economist estimates of 435K - although the Dept. of Labor warned the data may contain statistical biases due to the Easter holiday. But the number of people still receiving benefits after an initial week of aid fell to the lowest level since Dec. 2008, and the insured unemployment rate dropped to 3.5%, the lowest since Jan. 2009.
Panel pounds Prince, Rubin. Appearing before the Financial Crisis Inquiry Commission Thursday, former Citigroup (C) CEO Charles Prince apologized repeatedly for the billions of dollars investors lost as a result of soured investments. But former Chairman Robert Rubin downplayed his role in the crisis, and was met with anger and disbelief. "You were either pulling the levers or asleep at the switch," committee chair Philip Angelides told him. Bill Thomas, a former chairman of the House Ways and Means Committee, summed up the feelings of the millions who lost their savings and their homes: "To make the argument that somehow a simple apology still allows you to maintain a profile of income based upon what devastated everybody else doesn't fit the scale test," he said, "no matter how often you feel really, really sad about what happened."
Goldman denies it would profit from Greece collapse. Goldman Sachs (GS) admitted the firm "has bought some credit protection" to hedge its exposure to the Greek debt crisis, but suggested that - contrary to reports - it would lose money if Greece's credit situation worsens. On Wednesday, Rochdale's Dick Bove hinted that Goldman could profit handsomely if bad turns to worse in Greece, sending shares up 2%.
Yuan rise could come by June-Oct. China might increase interest rates as early as this month, but will probably not allow the yuan to rise until the June-Oct. period, senior government economist Zhu Baoliang said this morning. He added that another one-off revaluation was unlikely, but said the yuan peg could be shifted to a basket of currencies.
Coal-maker bidding war heats up. Macarthur Coal spurned a $3.5B bid from Australian rival New Hope, saying it would continue to move forward with a plan to take over Gloucester Coal in alliance with Noble Group (NOBGF.PK). Macarthur had already rejected an earlier $3.45B bid from New Hope, and a $3.3B bid from Peabody (BTU). Meanwhile, sources say Xstrata (XSRAF.PK) has approached ArcelorMittal (MT) and POSCO about a possible joint bid; ArcelorMittal and POSCO control a combined 25% of Macarthur. Shareholders were scheduled to vote on the Gloucester deal on Monday, but Macarthur today pushed off the vote for a week to give investors more time to consider their options. Suitors are attracted by Macarthur's specialist pulverized or PCI coal, a cleaner input for steelmakers' blast furnaces.
Tribune inks bankruptcy exit. Tribune Co. said Thursday it has agreed with creditors on a plan that would help it exit bankruptcy protection later this year. "Under the plan, the company would emerge from bankruptcy, significantly deleveraged, with its business units intact and with adequate liquidity for operating and capital needs," Tribune said. The agreement releases Sam Zell from all liability for the company's collapse following his $8.2B leveraged buyout in 2007, much to the consternation of junior bondholders who oppose the deal.
MasterCard ventures into predictive shopping. MasterCard (MA) will Monday unveil a web shopping mall that it says can pinpoint with uncanny accuracy what its cardholders are likely to purchase.
Wednesday, April 7, 2010
Today's Economic Calendar
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
9:00 Hearing: Subprime Lending and Securitization and the GSEs
9:30 Business Roundtable CEO Survey
10:00 SEC Meets on Asset-Backed Securities
10:30 EIA Petroleum Inventories
12:05 BoJ Rate Decision
12:15 PM Fed's Dudley: Economic Outlook
1:30 PM Fed's Bernanke: Economic Challenges
2:00 PM Fed's Hoenig: 'What About Zero?'
3:00 PM Consumer Credit
7:00 MBA Mortgage Applications
9:00 Hearing: Subprime Lending and Securitization and the GSEs
9:30 Business Roundtable CEO Survey
10:00 SEC Meets on Asset-Backed Securities
10:30 EIA Petroleum Inventories
12:05 BoJ Rate Decision
12:15 PM Fed's Dudley: Economic Outlook
1:30 PM Fed's Bernanke: Economic Challenges
2:00 PM Fed's Hoenig: 'What About Zero?'
3:00 PM Consumer Credit
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Eli Hoffmann
Fed's foot still on the brakes. Minutes from the most-recent FOMC meeting suggest the Fed could keep target interest rates near zero for even longer than investors anticipate if the outlook worsens or inflation drops. Minutes from the March 16 meeting indicated most board members were in no hurry to raise rates, and still have some concerns over the U.S. economic recovery. KC Fed's Hoenig again dissented, advocating for a more flexible commitment to keep rates low "for some time" rather than the "for an extended period" formulation that appeared in the Fed's statement.
Eurozone recovery hits a snag. Eurozone growth came to an unexpected halt in Q4 on weak consumer and investment spending. Eurostat had previously pegged Q4 growth at 0.1%, but in its final estimate said output was unchanged from Q3, while output in seven of 16 member nations actually fell. Looking forward, recent business surveys indicate that the eurozone economy grew in Q1, with private sector growth at its strongest rate in 31 months, fueled by a surge in Germany.
Macarthur snubs Peabody bid. Macarthur Coal rebuffed Peabody Energy's (BTU) second bid to acquire the company, saying the A$14/share offer was unattractive. Macarthur recommended its shareholders back an alternative plan to take over smaller rival Gloucester Coal, and give a 25% stake in Macarthur to Gloucester's main shareholder, Noble Group (NOBGF.PK). A Peabody spokesman said the company will continue to attempt to engage the Macarthur board "in what we feel is a far superior bid to the Noble bargain basement price that is under consideration right now," but would not say whether Peabody would make another offer before Monday, when shareholders meet to vote on the Gloucester plan.
Goldman: We didn't bet against clients. In its annual report released this morning, Goldman Sachs (GS) denied it bet against clients in the mortgage-derivatives market, adding that most of its successful bets against residential mortgage-related products only helped the firm lose less money in the collapse, but did not generate profits. Goldman also gave thanksgiving to world governments for stepping in and protecting the global financial system from complete collapse, "and we recognize that our firm and our shareholders benefited from it."
China appears to be preparing for yuan rise. Treasury Secretary Geithner will hold talks in Beijing tomorrow amid new signals that Beijing might be paving the way to let the yuan rise. China's top economic planner, the National Development and Reform Commission (NDRC), said China would monitor exchange rate risks facing exporters, and suggested keeping the yuan "basically stable at a balanced and reasonable level." An economist from the agency also said Beijing should edge towards a more flexible yuan.
SEC to mull ABS clampdown. An SEC open-meeting this morning will consider whether to propose new rules to force issuers of asset-backed securities to retain 5% of the credit risk, and to disclose in-depth information on every loan in a mortgage-backed security. The proposal comes as regulators try to revive a securitization market that dried up during the financial meltdown. The FDIC is expected to provide "safe harbor" protection to securitized assets for which issuers provide better disclosure and underwriting.
Comcast deals FCC Net Neutrality blow. Comcast (CMCSA) won a key verdict against the FCC after a federal appeals court ruled the government agency does not have the authority to force Comcast to refrain from withholding bandwidth from traffic-intensive downloads like movies. The court said the FCC failed to show that it had the necessary authority to impose such restrictions. The ruling is a blow to the so-called Net Neutrality initiative, which believes all internet traffic should be treated equally.
Putting HFT on a leash. Sources say the SEC may formulate a plan to improve oversight of high-frequency trading by keeping track of executed transactions through issuing firms unique identifiers that would tag every trade. Regulators are trying to get a better handle on so-called HFT, which is currently thought to account for about 40% of all U.S. futures trading.
Time to buy a house? Nearly two-thirds of Americans think the time is right to buy a house, and that prices will be the same or higher over the coming year, according to a Fannie Mae survey. The 64% of respondents that said it's a good time to buy is just shy of the 66% that said the same thing in 2003, as the housing market took flight. But most also said that it would be tougher for them to get a loan than it was for their parents. The survey notes most Americans still "strongly believe" in upholding their financial commitments, though that weakens once people know someone who is defaulting.
Chicago Fed manufacturing slips. Midwest manufacturing tapered off in February, largely due to a decline in auto production, the Chicago Fed reported Tuesday. The Midwest Manufacturing Index fell 0.8% to 82.6, paring back a 2% gain in January. Compared to a year ago, the index was -0.5% in the midwest, and +2% nationwide.
Fisher sees no price pressures. Dallas Fed President Richard Fisher - previously known as an inflation hawk - believes the global economy is burdened by such large amounts of unused industrial capacity and idle labor that consumer prices face little risk of shooting higher. "Because of the enormous slack in the system, and as you know I tend to be very vigilant about inflation, we're just not seeing price pressures right now," Fisher said in an interview yesterday. "If anything, the tail risks are on the deflationary side."
FTC may challenge Google/AdMob combo. Sources say the FTC is preparing to challenge Google's (GOOG) proposed $750M acquisition of mobile-ad provider AdMob on antitrust grounds. The FTC reportedly sent letters to AdMob's competitors asking them to testify about the potential impact of the purchase, and has assembled an internal team of litigators if it decides to block the deal. Many analysts believe mobile search will eclipse traditional search traffic in coming years. "It is therefore of vital importance to be wary of any transaction that would create undue market dominance of search- or application-based advertising on mobile devices such as smart phones," Sen. Herb Kohl, a vehement opponent of the deal, wrote in a letter to the FTC Tuesday.
by SA Editor Eli Hoffmann
Fed's foot still on the brakes. Minutes from the most-recent FOMC meeting suggest the Fed could keep target interest rates near zero for even longer than investors anticipate if the outlook worsens or inflation drops. Minutes from the March 16 meeting indicated most board members were in no hurry to raise rates, and still have some concerns over the U.S. economic recovery. KC Fed's Hoenig again dissented, advocating for a more flexible commitment to keep rates low "for some time" rather than the "for an extended period" formulation that appeared in the Fed's statement.
Eurozone recovery hits a snag. Eurozone growth came to an unexpected halt in Q4 on weak consumer and investment spending. Eurostat had previously pegged Q4 growth at 0.1%, but in its final estimate said output was unchanged from Q3, while output in seven of 16 member nations actually fell. Looking forward, recent business surveys indicate that the eurozone economy grew in Q1, with private sector growth at its strongest rate in 31 months, fueled by a surge in Germany.
Macarthur snubs Peabody bid. Macarthur Coal rebuffed Peabody Energy's (BTU) second bid to acquire the company, saying the A$14/share offer was unattractive. Macarthur recommended its shareholders back an alternative plan to take over smaller rival Gloucester Coal, and give a 25% stake in Macarthur to Gloucester's main shareholder, Noble Group (NOBGF.PK). A Peabody spokesman said the company will continue to attempt to engage the Macarthur board "in what we feel is a far superior bid to the Noble bargain basement price that is under consideration right now," but would not say whether Peabody would make another offer before Monday, when shareholders meet to vote on the Gloucester plan.
Goldman: We didn't bet against clients. In its annual report released this morning, Goldman Sachs (GS) denied it bet against clients in the mortgage-derivatives market, adding that most of its successful bets against residential mortgage-related products only helped the firm lose less money in the collapse, but did not generate profits. Goldman also gave thanksgiving to world governments for stepping in and protecting the global financial system from complete collapse, "and we recognize that our firm and our shareholders benefited from it."
China appears to be preparing for yuan rise. Treasury Secretary Geithner will hold talks in Beijing tomorrow amid new signals that Beijing might be paving the way to let the yuan rise. China's top economic planner, the National Development and Reform Commission (NDRC), said China would monitor exchange rate risks facing exporters, and suggested keeping the yuan "basically stable at a balanced and reasonable level." An economist from the agency also said Beijing should edge towards a more flexible yuan.
SEC to mull ABS clampdown. An SEC open-meeting this morning will consider whether to propose new rules to force issuers of asset-backed securities to retain 5% of the credit risk, and to disclose in-depth information on every loan in a mortgage-backed security. The proposal comes as regulators try to revive a securitization market that dried up during the financial meltdown. The FDIC is expected to provide "safe harbor" protection to securitized assets for which issuers provide better disclosure and underwriting.
Comcast deals FCC Net Neutrality blow. Comcast (CMCSA) won a key verdict against the FCC after a federal appeals court ruled the government agency does not have the authority to force Comcast to refrain from withholding bandwidth from traffic-intensive downloads like movies. The court said the FCC failed to show that it had the necessary authority to impose such restrictions. The ruling is a blow to the so-called Net Neutrality initiative, which believes all internet traffic should be treated equally.
Putting HFT on a leash. Sources say the SEC may formulate a plan to improve oversight of high-frequency trading by keeping track of executed transactions through issuing firms unique identifiers that would tag every trade. Regulators are trying to get a better handle on so-called HFT, which is currently thought to account for about 40% of all U.S. futures trading.
Time to buy a house? Nearly two-thirds of Americans think the time is right to buy a house, and that prices will be the same or higher over the coming year, according to a Fannie Mae survey. The 64% of respondents that said it's a good time to buy is just shy of the 66% that said the same thing in 2003, as the housing market took flight. But most also said that it would be tougher for them to get a loan than it was for their parents. The survey notes most Americans still "strongly believe" in upholding their financial commitments, though that weakens once people know someone who is defaulting.
Chicago Fed manufacturing slips. Midwest manufacturing tapered off in February, largely due to a decline in auto production, the Chicago Fed reported Tuesday. The Midwest Manufacturing Index fell 0.8% to 82.6, paring back a 2% gain in January. Compared to a year ago, the index was -0.5% in the midwest, and +2% nationwide.
Fisher sees no price pressures. Dallas Fed President Richard Fisher - previously known as an inflation hawk - believes the global economy is burdened by such large amounts of unused industrial capacity and idle labor that consumer prices face little risk of shooting higher. "Because of the enormous slack in the system, and as you know I tend to be very vigilant about inflation, we're just not seeing price pressures right now," Fisher said in an interview yesterday. "If anything, the tail risks are on the deflationary side."
FTC may challenge Google/AdMob combo. Sources say the FTC is preparing to challenge Google's (GOOG) proposed $750M acquisition of mobile-ad provider AdMob on antitrust grounds. The FTC reportedly sent letters to AdMob's competitors asking them to testify about the potential impact of the purchase, and has assembled an internal team of litigators if it decides to block the deal. Many analysts believe mobile search will eclipse traditional search traffic in coming years. "It is therefore of vital importance to be wary of any transaction that would create undue market dominance of search- or application-based advertising on mobile devices such as smart phones," Sen. Herb Kohl, a vehement opponent of the deal, wrote in a letter to the FTC Tuesday.
Monday, April 5, 2010
Today's Economic Calendar
Monday's Economic Calendar
10:00 ISM Non-Manufacturing Index
10:00 Existing Home Sales
10:00 Employment Trends Index
10:00 ISM Non-Manufacturing Index
10:00 Existing Home Sales
10:00 Employment Trends Index
Wall Street Morning News
Wall Street Breakfast: Must Know News
by Mary Hunt
Jobs growth arrives. Nonfarm payrolls rose by 162K in March, the biggest monthly advance in three years and the first convincing evidence since the recession began that the job market is recovering. Job creation was spread across industries, suggesting the uptick reflects broad economic momentum. Still, the duration of unemployment remains near record highs, and the number of long-term unemployed (+27 weeks) rose by 414K to 6.5M. Economist Heidi Shierholz summed up the Street's cautious optimism: "We have had this massive disaster, but we're at a place now where things are stabilizing. But it's nowhere near the level of growth we need to start moving the dial." Stock markets were closed Friday, giving investors the long weekend to mull the data's significance going into the new week.
Geithner delays call on China currency manipulation. Treasury's Tim Geithner is delaying his April 15 report to Congress on the exchange rate policies of major U.S. trading partners, buying time to decide whether to label China as a currency manipulator. Geithner urged China to move toward a more flexible currency, and said the goal of the delay is to capitalize on "the G-20 and S&ED meetings with China to make material progress in the coming months." In another indication of a possible China-U.S. detente over the yuan, Li Daokui, a member of China's central bank monetary policy committee, said the countries' currency disagreement can be easily solved as long as the U.S. respects China's "core interests." The delay, and Li's comments, come ahead of Chinese President Hu Jintao's trip to Washington D.C. on April 12-13.
NBER official says recession has ended. There's been no official word from the National Bureau of Economic Research, but a key official says the recession is likely over. Robert Hall, head of the NBER's Business Cycle Dating Committee, referencing Friday's payrolls figure, said he "personally put lots of emphasis on employment. I would say 'pretty clear' is a good description" for whether the economic contraction has ended. An official announcement from the NBER may still be some time away, however, as the committee won't make a declaration until it can assign a precise end date to the recession, a process which usually takes 6-18 months.
Criminal charges unlikely in AIG probe. Two years after federal prosecutors launched an investigation into the role of AIG's (AIG) executives in the insurer's collapse, the probe will likely end without a single criminal charge, sources say. Former AIG executive Joseph Cassano has been at the center of the probe, but the case against him has reportedly "hit a brick wall," with investigators unable to uncover evidence that Cassano lied to his bosses or shareholders about the company's financial problems.
iPad debut. Apple (AAPL) enthusiasts lined up Saturday morning to get their hands on a spanking new iPad (teardown), but once doors opened things were relatively tame, with some reports of sellouts, but many store managers saying they were well stocked. Piper Jaffray analyst Gene Munster - a respected Apple authority - estimates first-weekend sales at 600-700K, vastly stronger than his initial projection of 200-300K. But launch sales could be tempered by the fact that customers have been able to pre-order the iPad for home delivery, and because 3G-enabled iPads only begin selling later this month.
Backlash against iron ore pricing. The China Iron and Steel Association (CISA) has asked domestic steel companies and traders with import licenses not to buy iron ore from Vale (VALE), Rio Tinto (RTP) and BHP Billiton (BHP) in the next two months, in protest of the new quarterly iron ore pricing system. CISA believes global iron ore producers have made "unreasonable requests for price hikes," and Chinese steelmakers have enough iron ore inventory to sustain a two-month buying moratorium.
Faulty paperwork at center of foreclosure probe. Docx, a unit of Lender Processing Services (LPS) - which provides backoffice services for banks in the foreclosure process - is being investigated by federal prosecutors for criminal violations. A U.S. government lawyer who monitors bankruptcy courts believes some of LPS's loan documents were "patently false or misleading"; among the docs being reviewed is one that names "Bogus Assignee" as the owner of a loan (a company spokesman says that this phrase is used as a placeholder and was inadvertently not updated). Faulty paperwork has been an ongoing issue in foreclosure proceedings since the housing crisis began.
Signs of life in real estate? Two possible signs of a possible real-estate rebound, one each from the west and east coasts. Home prices in so-called sand states - the sandy, sunny retreats that lured investors during the boom and were among the hardest hit in the bust - are starting to recover. In areas of California, prices for single-family homes are up 8.5%-14.7%, and in Arizona prices are up 7.4%. Florida and Nevada, in contrast, have yet to see a meaningful bounce. And in Manhattan, apartment sales doubled in Q1 as bargain hunters scooped up condos at prices about 29% below the peak.
CEO pay falls for the second year. Pay czar Kenneth Feinberg is making his mark. A report analyzing the compensation for 200 chief executives of public companies found that pay dropped 15% in 2009, the second annual decline. The average total was $9.5M in 2009, roughly comparable with 2004. However, last year's drop was largely due to a decline in the value of stock and option awards, which means a handful of lucky CEOs received a windfall when share prices rose. Alan Mulally of Ford (F), for example, saw his 2009 options package grow nearly 10 times in value, to more than $50M.
by Mary Hunt
Jobs growth arrives. Nonfarm payrolls rose by 162K in March, the biggest monthly advance in three years and the first convincing evidence since the recession began that the job market is recovering. Job creation was spread across industries, suggesting the uptick reflects broad economic momentum. Still, the duration of unemployment remains near record highs, and the number of long-term unemployed (+27 weeks) rose by 414K to 6.5M. Economist Heidi Shierholz summed up the Street's cautious optimism: "We have had this massive disaster, but we're at a place now where things are stabilizing. But it's nowhere near the level of growth we need to start moving the dial." Stock markets were closed Friday, giving investors the long weekend to mull the data's significance going into the new week.
Geithner delays call on China currency manipulation. Treasury's Tim Geithner is delaying his April 15 report to Congress on the exchange rate policies of major U.S. trading partners, buying time to decide whether to label China as a currency manipulator. Geithner urged China to move toward a more flexible currency, and said the goal of the delay is to capitalize on "the G-20 and S&ED meetings with China to make material progress in the coming months." In another indication of a possible China-U.S. detente over the yuan, Li Daokui, a member of China's central bank monetary policy committee, said the countries' currency disagreement can be easily solved as long as the U.S. respects China's "core interests." The delay, and Li's comments, come ahead of Chinese President Hu Jintao's trip to Washington D.C. on April 12-13.
NBER official says recession has ended. There's been no official word from the National Bureau of Economic Research, but a key official says the recession is likely over. Robert Hall, head of the NBER's Business Cycle Dating Committee, referencing Friday's payrolls figure, said he "personally put lots of emphasis on employment. I would say 'pretty clear' is a good description" for whether the economic contraction has ended. An official announcement from the NBER may still be some time away, however, as the committee won't make a declaration until it can assign a precise end date to the recession, a process which usually takes 6-18 months.
Criminal charges unlikely in AIG probe. Two years after federal prosecutors launched an investigation into the role of AIG's (AIG) executives in the insurer's collapse, the probe will likely end without a single criminal charge, sources say. Former AIG executive Joseph Cassano has been at the center of the probe, but the case against him has reportedly "hit a brick wall," with investigators unable to uncover evidence that Cassano lied to his bosses or shareholders about the company's financial problems.
iPad debut. Apple (AAPL) enthusiasts lined up Saturday morning to get their hands on a spanking new iPad (teardown), but once doors opened things were relatively tame, with some reports of sellouts, but many store managers saying they were well stocked. Piper Jaffray analyst Gene Munster - a respected Apple authority - estimates first-weekend sales at 600-700K, vastly stronger than his initial projection of 200-300K. But launch sales could be tempered by the fact that customers have been able to pre-order the iPad for home delivery, and because 3G-enabled iPads only begin selling later this month.
Backlash against iron ore pricing. The China Iron and Steel Association (CISA) has asked domestic steel companies and traders with import licenses not to buy iron ore from Vale (VALE), Rio Tinto (RTP) and BHP Billiton (BHP) in the next two months, in protest of the new quarterly iron ore pricing system. CISA believes global iron ore producers have made "unreasonable requests for price hikes," and Chinese steelmakers have enough iron ore inventory to sustain a two-month buying moratorium.
Faulty paperwork at center of foreclosure probe. Docx, a unit of Lender Processing Services (LPS) - which provides backoffice services for banks in the foreclosure process - is being investigated by federal prosecutors for criminal violations. A U.S. government lawyer who monitors bankruptcy courts believes some of LPS's loan documents were "patently false or misleading"; among the docs being reviewed is one that names "Bogus Assignee" as the owner of a loan (a company spokesman says that this phrase is used as a placeholder and was inadvertently not updated). Faulty paperwork has been an ongoing issue in foreclosure proceedings since the housing crisis began.
Signs of life in real estate? Two possible signs of a possible real-estate rebound, one each from the west and east coasts. Home prices in so-called sand states - the sandy, sunny retreats that lured investors during the boom and were among the hardest hit in the bust - are starting to recover. In areas of California, prices for single-family homes are up 8.5%-14.7%, and in Arizona prices are up 7.4%. Florida and Nevada, in contrast, have yet to see a meaningful bounce. And in Manhattan, apartment sales doubled in Q1 as bargain hunters scooped up condos at prices about 29% below the peak.
CEO pay falls for the second year. Pay czar Kenneth Feinberg is making his mark. A report analyzing the compensation for 200 chief executives of public companies found that pay dropped 15% in 2009, the second annual decline. The average total was $9.5M in 2009, roughly comparable with 2004. However, last year's drop was largely due to a decline in the value of stock and option awards, which means a handful of lucky CEOs received a windfall when share prices rose. Alan Mulally of Ford (F), for example, saw his 2009 options package grow nearly 10 times in value, to more than $50M.
Thursday, April 1, 2010
Today's Economic Calendar
Thursday's Economic Calendar
6:00 Auto sales
6:00 Monster Employment Index
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
5:00 PM Fed's Dudley: 'Economic Outlook for 2010'
6:00 Auto sales
6:00 Monster Employment Index
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
5:00 PM Fed's Dudley: 'Economic Outlook for 2010'
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
NY Fed releases Maiden Lane data. Late yesterday afternoon, the New York Federal Reserve disclosed nearly all the details related to the Maiden Lane holdings, the three limited liability companies that became storehouses for assets from Bear Stearns and AIG (AIG). The disclosure, which came after months of political pressure, shows that the government is stuck holding a portfolio of questionable loans and property that have lost their value and are facing the threat of rising defaults. Though the general size of the portfolio had already been known, the new information shows the range of properties covered in the portfolio.
GGP files bankruptcy exit plan. General Growth Properties (GGP) filed a plan to exit bankruptcy and laid out a two-round bidding process. In the standalone plan, Brookfield Asset Management (BAM), Fairholme Capital Management and William Ackman's Pershing Square Capital will invest $6.55B to fund the firm's bankruptcy exit, receiving in return a majority interest and warrants to buy another 120M shares. However, other interested firms, like Simon Property Group (SPG), will be able to submit rival bids. GGP wants first-round bids by April 19, a final deal in place by July 2 and a bankruptcy exit by September 30.
Obama expands offshore drilling. The White House unveiled a "comprehensive strategy for energy security" yesterday that allows offshore oil and natural gas drilling in a huge section of East Coast waters and in other protected areas in Alaska and the Gulf of Mexico. The decision could help U.S. producers hold down the cost of exploration, and could impact the country's domestic and foreign policies as "we are going to need vital energy sources to maintain our economic growth and our security."
Borders surges on EPS jump. Borders Group (BGP) rocketed nearly 34% in after hours trading after announcing its Q4 earnings per share had risen to $0.91 from $0.48 the year before, and that it had secured new credit facilities of nearly $800M. Though its profit rose, helped in part by an income tax benefit and cost cuts, sales fell 13%. The company plans to put more emphasis on "growing market share by acquiring, engaging and retaining customers through a transformation of the Borders brand."
EMI breaches debt covenants. Terra Firma's EMI music company breached its debt covenants yesterday after failing to reach a licensing deal with either Universal Music Group (VIVDY.PK) or Sony Music (SNE). Terra Firma will now have to turn to its investors to raise £120M ($183M) by June 12, or face a seizure of EMI by lender Citigroup (C).
Mixed messages on mortgages. In its monthly summary, Fannie Mae (FNM) reported the serious delinquency rate for single-family houses hit a new record of 5.52% in January, a jump from December's 5.38% and nearly double the 2.77% registered in Jan. 2009. However, an industry trade group reported that for the first time in four years, borrowers catching up on overdue mortgages outnumbered new delinquencies. Last month 80,758 privately insured homeowners got back on track vs. 68,675 that fell into default. Yesterday also marked the end of the Federal Reserve's $1.25T program to purchase mortgage-backed securities.
Report faults China on unfair trade. In its annual report on trade barriers, the U.S. Trade Representative's office accused China of engaging in several dubious measures meant to keep foreign companies from competing fairly in its market. Though China has reduced official trade tariffs and quotas, its "willingness to encourage domestic or 'indigenous' innovation at the cost of foreign innovation and technologies" is troubling. The report sidestepped China's policies on the yuan.
Credit Suisse may buy hedge fund stake. Credit Suisse (CS) may buy a minority stake in hedge-fund giant York Capital, sources said, though talks could still fall apart. Tie-ups between big banks and hedge funds aren't new, but there have been few such deals lately. Perhaps more importantly, the talks suggest that at least some on Wall Street think regardless of whatever financial reform legislation is ultimately passed, large financial firms will be allowed to continue owning hedge-fund stakes.
Yahoo gets hacked. Several activists and journalists working on issues related to China and Taiwan reported yesterday that their Yahoo (YHOO) email accounts were hacked into, making this the latest of a string of internet incidents involving China. Yahoo "condemns all cyber attacks regardless of origin or purpose," but a spokeswoman declined to discuss the latest breach for privacy reasons.
Google's China business starts to fall apart. Google's (GOOG) China business is starting to show signs of strain. Earlier this week, the company accused China of blocking searches on its Hong Kong website, and as of yesterday, searches out of China remained problematic. As a result, advertisers say they are seeing a major drop-off in traffic, and are inclined to respond by switching to other search engines. According to some analysts, the returns in China from Google's search ads have dropped 30-50% as compared to before Chinese search was moved to the Hong Kong site.
Hartford repays TARP. Hartford Financial Services (HIG) said yesterday that it had bought back $3.4B in TARP preferred shares but doesn't plan to repurchase 52M warrants. With the government repaid, the company is "well positioned from both a capital and balance sheet perspective." Shares closed up 1.4% yesterday.
MSFT, Ford team up on electric cars. Microsoft (MSFT) will expand its Hohm consumer energy management software to work with Ford's (F) electric cars. The partnership will allow drivers to determine the best time to recharge their vehicles at home. As more people use electric cars and want to recharge the batteries after coming home from work, "the demand placed on the energy grid will be momentous. Addressing the challenge of how that demand is managed in a smart and affordable way is absolutely going to be critical."
IPOs fare favorably. A handful of companies made their market debuts, with most of the initial public offerings showing favorable results. Wireless network provider Meru Networks (MERU) closed nearly 28% above its IPO price, while financial services software maker SS&C Technologies (SSNC) opened 6.7% above its IPO price (though it closed up only 0.5%). Primerica (PRI), Citigroup's (C) life insurance unit, sold 21.4M shares instead of the 18M expected, and priced at $15 instead of the $12-14 expected. Crude oil and petroleum transporter Scorpio Tankers (STNG) performed worse-than-expected, closing 3.4% below its IPO price.
by SA Editor Rachael Granby
NY Fed releases Maiden Lane data. Late yesterday afternoon, the New York Federal Reserve disclosed nearly all the details related to the Maiden Lane holdings, the three limited liability companies that became storehouses for assets from Bear Stearns and AIG (AIG). The disclosure, which came after months of political pressure, shows that the government is stuck holding a portfolio of questionable loans and property that have lost their value and are facing the threat of rising defaults. Though the general size of the portfolio had already been known, the new information shows the range of properties covered in the portfolio.
GGP files bankruptcy exit plan. General Growth Properties (GGP) filed a plan to exit bankruptcy and laid out a two-round bidding process. In the standalone plan, Brookfield Asset Management (BAM), Fairholme Capital Management and William Ackman's Pershing Square Capital will invest $6.55B to fund the firm's bankruptcy exit, receiving in return a majority interest and warrants to buy another 120M shares. However, other interested firms, like Simon Property Group (SPG), will be able to submit rival bids. GGP wants first-round bids by April 19, a final deal in place by July 2 and a bankruptcy exit by September 30.
Obama expands offshore drilling. The White House unveiled a "comprehensive strategy for energy security" yesterday that allows offshore oil and natural gas drilling in a huge section of East Coast waters and in other protected areas in Alaska and the Gulf of Mexico. The decision could help U.S. producers hold down the cost of exploration, and could impact the country's domestic and foreign policies as "we are going to need vital energy sources to maintain our economic growth and our security."
Borders surges on EPS jump. Borders Group (BGP) rocketed nearly 34% in after hours trading after announcing its Q4 earnings per share had risen to $0.91 from $0.48 the year before, and that it had secured new credit facilities of nearly $800M. Though its profit rose, helped in part by an income tax benefit and cost cuts, sales fell 13%. The company plans to put more emphasis on "growing market share by acquiring, engaging and retaining customers through a transformation of the Borders brand."
EMI breaches debt covenants. Terra Firma's EMI music company breached its debt covenants yesterday after failing to reach a licensing deal with either Universal Music Group (VIVDY.PK) or Sony Music (SNE). Terra Firma will now have to turn to its investors to raise £120M ($183M) by June 12, or face a seizure of EMI by lender Citigroup (C).
Mixed messages on mortgages. In its monthly summary, Fannie Mae (FNM) reported the serious delinquency rate for single-family houses hit a new record of 5.52% in January, a jump from December's 5.38% and nearly double the 2.77% registered in Jan. 2009. However, an industry trade group reported that for the first time in four years, borrowers catching up on overdue mortgages outnumbered new delinquencies. Last month 80,758 privately insured homeowners got back on track vs. 68,675 that fell into default. Yesterday also marked the end of the Federal Reserve's $1.25T program to purchase mortgage-backed securities.
Report faults China on unfair trade. In its annual report on trade barriers, the U.S. Trade Representative's office accused China of engaging in several dubious measures meant to keep foreign companies from competing fairly in its market. Though China has reduced official trade tariffs and quotas, its "willingness to encourage domestic or 'indigenous' innovation at the cost of foreign innovation and technologies" is troubling. The report sidestepped China's policies on the yuan.
Credit Suisse may buy hedge fund stake. Credit Suisse (CS) may buy a minority stake in hedge-fund giant York Capital, sources said, though talks could still fall apart. Tie-ups between big banks and hedge funds aren't new, but there have been few such deals lately. Perhaps more importantly, the talks suggest that at least some on Wall Street think regardless of whatever financial reform legislation is ultimately passed, large financial firms will be allowed to continue owning hedge-fund stakes.
Yahoo gets hacked. Several activists and journalists working on issues related to China and Taiwan reported yesterday that their Yahoo (YHOO) email accounts were hacked into, making this the latest of a string of internet incidents involving China. Yahoo "condemns all cyber attacks regardless of origin or purpose," but a spokeswoman declined to discuss the latest breach for privacy reasons.
Google's China business starts to fall apart. Google's (GOOG) China business is starting to show signs of strain. Earlier this week, the company accused China of blocking searches on its Hong Kong website, and as of yesterday, searches out of China remained problematic. As a result, advertisers say they are seeing a major drop-off in traffic, and are inclined to respond by switching to other search engines. According to some analysts, the returns in China from Google's search ads have dropped 30-50% as compared to before Chinese search was moved to the Hong Kong site.
Hartford repays TARP. Hartford Financial Services (HIG) said yesterday that it had bought back $3.4B in TARP preferred shares but doesn't plan to repurchase 52M warrants. With the government repaid, the company is "well positioned from both a capital and balance sheet perspective." Shares closed up 1.4% yesterday.
MSFT, Ford team up on electric cars. Microsoft (MSFT) will expand its Hohm consumer energy management software to work with Ford's (F) electric cars. The partnership will allow drivers to determine the best time to recharge their vehicles at home. As more people use electric cars and want to recharge the batteries after coming home from work, "the demand placed on the energy grid will be momentous. Addressing the challenge of how that demand is managed in a smart and affordable way is absolutely going to be critical."
IPOs fare favorably. A handful of companies made their market debuts, with most of the initial public offerings showing favorable results. Wireless network provider Meru Networks (MERU) closed nearly 28% above its IPO price, while financial services software maker SS&C Technologies (SSNC) opened 6.7% above its IPO price (though it closed up only 0.5%). Primerica (PRI), Citigroup's (C) life insurance unit, sold 21.4M shares instead of the 18M expected, and priced at $15 instead of the $12-14 expected. Crude oil and petroleum transporter Scorpio Tankers (STNG) performed worse-than-expected, closing 3.4% below its IPO price.
Wednesday, March 31, 2010
Double Dip on Housing Prices?
Home prices in January 2010 showed only minimal decline from a year earlier, according to the latest Standard & Poor’s (S&P)/Case-Shiller US National Home Price Index.
The annual declines in the 10-city and 20-city composites show improvement from December’s declines, but mixed results underscore the threat of a double dip in house prices.
The 10-city index showed no change from January 2009, and the 20-city index declined only 0.7% during the same time. S&P/Case-Shiller notes in the latest report that annual rates for the two composites have not been so close to “a positive print” in three years, since January 2007. Both indices showed seasonally unadjusted declines and are back to their autumn 2003 levels:
“While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading,” said David Blitzer, managing director and chairman of the S&P Index Committee, in a press statement. “Fewer cities experienced month-to-month gains in January than in December 2009, on both a seasonally adjusted and unadjusted basis.”
Blitzer is not the only one seeing mixed results in the January report.
Paul Dales, the US economist at Toronto-based Capital Economics, notes in e-mailed commentary that although house prices on the 20-city composite have yet to reverse recent increases, “it is only a matter of time before the index records a double-dip in prices, much like that already seen on the alternative [Federal Housing Finance Agency] FHFA measure.”
Dales pointed out the 0.4% monthly decline in the seasonally unadjusted 20-city composite index from December 2009 — the fourth fall in as many months. But a “normal softness” in the market meant seasonally adjusted prices rose 0.3% in the same time — the eighth increase in as many months, according to Dales.
“This run-up in prices primarily reflects the increase in sales generated by the [first-time homebuyer] tax credit towards the end of last year, which reduced the excess supply,” he said. “The real test for the market will therefore come when the tax credit expires at the end of June. At that point, we think that demand will fall back and foreclosures will continue to boost supply.”
Dales added: “Such a toxic combination will push prices lower again. The FHFA index, which fell in the two months to January, suggests these trends may have already begun to weigh on prices even before the tax credit has expired.”
Capital Economics projects prices on the Case-Shiller measure to fall back by at least 5%, undermining the “still fragile household sector” as well as the strength and sustainability of the overall economic recovery seen so far, Dales said.
As of January 2010, S&P/Case-Shiller said average home prices are now at similar levels seen in the autumn of 2003. The 10-city composite fell 33.5% and the 20-city composite fell 32.6% from the peak in June and July 2006 to the April 2009 trough. The peak-to-date differences through January 2010 are -30.2% and -29.6% respectively.
The annual declines in the 10-city and 20-city composites show improvement from December’s declines, but mixed results underscore the threat of a double dip in house prices.
The 10-city index showed no change from January 2009, and the 20-city index declined only 0.7% during the same time. S&P/Case-Shiller notes in the latest report that annual rates for the two composites have not been so close to “a positive print” in three years, since January 2007. Both indices showed seasonally unadjusted declines and are back to their autumn 2003 levels:
“While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading,” said David Blitzer, managing director and chairman of the S&P Index Committee, in a press statement. “Fewer cities experienced month-to-month gains in January than in December 2009, on both a seasonally adjusted and unadjusted basis.”
Blitzer is not the only one seeing mixed results in the January report.
Paul Dales, the US economist at Toronto-based Capital Economics, notes in e-mailed commentary that although house prices on the 20-city composite have yet to reverse recent increases, “it is only a matter of time before the index records a double-dip in prices, much like that already seen on the alternative [Federal Housing Finance Agency] FHFA measure.”
Dales pointed out the 0.4% monthly decline in the seasonally unadjusted 20-city composite index from December 2009 — the fourth fall in as many months. But a “normal softness” in the market meant seasonally adjusted prices rose 0.3% in the same time — the eighth increase in as many months, according to Dales.
“This run-up in prices primarily reflects the increase in sales generated by the [first-time homebuyer] tax credit towards the end of last year, which reduced the excess supply,” he said. “The real test for the market will therefore come when the tax credit expires at the end of June. At that point, we think that demand will fall back and foreclosures will continue to boost supply.”
Dales added: “Such a toxic combination will push prices lower again. The FHFA index, which fell in the two months to January, suggests these trends may have already begun to weigh on prices even before the tax credit has expired.”
Capital Economics projects prices on the Case-Shiller measure to fall back by at least 5%, undermining the “still fragile household sector” as well as the strength and sustainability of the overall economic recovery seen so far, Dales said.
As of January 2010, S&P/Case-Shiller said average home prices are now at similar levels seen in the autumn of 2003. The 10-city composite fell 33.5% and the 20-city composite fell 32.6% from the peak in June and July 2006 to the April 2009 trough. The peak-to-date differences through January 2010 are -30.2% and -29.6% respectively.
Wednesday's Economic Calendar
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 Chicago PMI
10:00 Factory Orders
10:30 EIA Petroleum Inventories
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 Chicago PMI
10:00 Factory Orders
10:30 EIA Petroleum Inventories
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Macarthur rebuffs Peabody offer. Peabody Energy (BTU) made an unsolicited A$3.3B ($3B) offer for Australia's Macarthur Coal, but was rebuffed this morning. Macarthur's board said the "highly conditional proposal" doesn't represent "the best interests of shareholders" and undervalues the company's growth prospects by offering just a 7.5% premium to Macarthur's recent closing price. Peabody is still open to a deal and is in talks with Macarthur's three largest shareholders. BTU -1% premarket (7:00 ET).
Baker Hughes agrees on conditional asset sale. Baker Hughes (BHI) said yesterday that it reached a general understanding with antitrust regulators over asset sales it will have to make to gain approval for its merger with BJ Services (BJS). Baker Hughes will need to divest certain assets used to perform sand control services in the U.S. Gulf of Mexico, but the divestitures are not expected to have a material impact on the combined company. The company said it's working with regulators to finalize the proposal, which must then receive court approval before the deal can close. Shareholders from both companies will vote on the merger today.
China may adjust yuan policy. China may adjust its exchange rate system next month, according to Chinese media reports, possibly allowing the yuan a more flexible exchange rate by widening its narrow daily trading band. A policy change next month could preempt the possibility the U.S. Treasury will label China a "currency manipulator" in a report due April 15. Separately, taking a stance opposed to that of the U.S., a high-profile World Bank official rejected claims that the yuan is undervalued and warned that "a yuan appreciation, if it happened soon, would destroy Chinese exports, push up property prices and accelerate the inflow of hot money into China."
China rolls out new trading tools. China launched its trial program today for margin trading and short selling, part of its effort to introduce risky alternative-investment tools to its stock market. Though the initial impact of margin trading and short selling is expected to be limited, the two options are meant to better prepare investors for the April 16 launch of stock-index futures, a product that is both more complicated and riskier.
Mutual funds score win on fees. The mutual fund industry won a key Supreme Court case yesterday on the fairness of fees. The court ruled in favor of an earlier legal standard that gave funds considerable leeway in setting their investment adviser charges. The ruling reduces the potential that lawmakers or lower courts could try to force the industry to lower the roughly $90B in fees collected annually.
Bank of Ireland plans to raise capital. Bank of Ireland (IRE) reported a net loss of €1.46B ($2B) for the last nine months of 2009, due to bad debts related to real estate, and said Q1 trading conditions remain "challenging." However, the bank also said today that it's working with a "syndicate of major international investment banks" to help raise the €2.7B of capital it needs by the end of the year, potentially making it the only participant in Ireland's "bad bank" plan to avoid a fresh bailout. IRE +12.3% premarket (7:00 ET).
Astellas extends tender offer. Japan's Astellas Pharma extended its tender offer for U.S. drugmaker OSI Pharmaceuticals (OSIP) to April 23. The offer was set to expire today but only 37,858 OSI shares had been tendered for sale to Astellas as of yesterday, representing just 0.06% of OSI's outstanding shares. Astellas had previously decided to freeze its takeover attempt, but may ultimately make a new offer for OSI pending the tender offer extension and a review of OSI's non-public information.
Blockbuster drops like a ton of blocks. Beleaguered Blockbuster (BBI) fell more than 10% again in trading yesterday, to just $0.25, following Monday's announcement that it's not in compliance with NYSE listing requirements regarding minimum market value. Blockbuster, which earlier this month said it may need to file for bankruptcy, plans to submit a plan to NYSE to demonstrate its ability to regain compliance within 18 months, and will ask shareholders to vote in May on a reverse stock split.
Redwood may test market for unbacked MBS. Redwood Trust (RWT) is reportedly trying to jumpstart the market for mortgage-backed securities that aren't backed by the government. Sources said Redwood may launch an offer next week of at least $200M of securities backed by newly-originated "jumbo" mortgages, loans that are too big for government backing. If successful, it would mark the first such sale in more than two years and the first step in the return of the private-label mortgage securities market.
Novell wins Unix copyright case. A federal court ruled that Novell (NOVL), not SCO Group Inc., is the rightful owner of two key Unix copyrights. The decision may mark the end of much of the copyright case that SCO filed against Novell in 2004, and could affect another Unix-related lawsuit that SCO filed against IBM (IBM) in 2003.
Terra Firma restarts EMI licensing talks. Private-equity firm Terra Firma has reportedly restarted talks to license the North American rights to its EMI music unit to Universal Music Group (VIVDY.PK). The licensing deal would generate an estimated $300M over five years. Sources said Terra Firma is pushing to secure a deal, and an upfront cash payment, ahead of a key banking covenant test today.
Confidence still struggling for altitude. Three data points released yesterday showed that while consumer and investor confidence have seen some minor gains, uncertainty still reigns. The ABC Consumer Comfort Index dropped one-point to -45. There was an increase in those rating the national economy positively, but positive ratings of personal finance slipped. Conference Board's Consumer Confidence Index came in at 52.5 vs. 51 expected and 46.4 prior, but "consumers continue to express concern about current business and labor market conditions. And, their outlook for the next six months is still rather pessimistic." The State Street Investor Confidence Index rose to 108 from a revised 102.6, but the breakdown saw a large jump in Asian confidence, a small increase in North American confidence and a fall in European confidence.
by SA Editor Rachael Granby
Macarthur rebuffs Peabody offer. Peabody Energy (BTU) made an unsolicited A$3.3B ($3B) offer for Australia's Macarthur Coal, but was rebuffed this morning. Macarthur's board said the "highly conditional proposal" doesn't represent "the best interests of shareholders" and undervalues the company's growth prospects by offering just a 7.5% premium to Macarthur's recent closing price. Peabody is still open to a deal and is in talks with Macarthur's three largest shareholders. BTU -1% premarket (7:00 ET).
Baker Hughes agrees on conditional asset sale. Baker Hughes (BHI) said yesterday that it reached a general understanding with antitrust regulators over asset sales it will have to make to gain approval for its merger with BJ Services (BJS). Baker Hughes will need to divest certain assets used to perform sand control services in the U.S. Gulf of Mexico, but the divestitures are not expected to have a material impact on the combined company. The company said it's working with regulators to finalize the proposal, which must then receive court approval before the deal can close. Shareholders from both companies will vote on the merger today.
China may adjust yuan policy. China may adjust its exchange rate system next month, according to Chinese media reports, possibly allowing the yuan a more flexible exchange rate by widening its narrow daily trading band. A policy change next month could preempt the possibility the U.S. Treasury will label China a "currency manipulator" in a report due April 15. Separately, taking a stance opposed to that of the U.S., a high-profile World Bank official rejected claims that the yuan is undervalued and warned that "a yuan appreciation, if it happened soon, would destroy Chinese exports, push up property prices and accelerate the inflow of hot money into China."
China rolls out new trading tools. China launched its trial program today for margin trading and short selling, part of its effort to introduce risky alternative-investment tools to its stock market. Though the initial impact of margin trading and short selling is expected to be limited, the two options are meant to better prepare investors for the April 16 launch of stock-index futures, a product that is both more complicated and riskier.
Mutual funds score win on fees. The mutual fund industry won a key Supreme Court case yesterday on the fairness of fees. The court ruled in favor of an earlier legal standard that gave funds considerable leeway in setting their investment adviser charges. The ruling reduces the potential that lawmakers or lower courts could try to force the industry to lower the roughly $90B in fees collected annually.
Bank of Ireland plans to raise capital. Bank of Ireland (IRE) reported a net loss of €1.46B ($2B) for the last nine months of 2009, due to bad debts related to real estate, and said Q1 trading conditions remain "challenging." However, the bank also said today that it's working with a "syndicate of major international investment banks" to help raise the €2.7B of capital it needs by the end of the year, potentially making it the only participant in Ireland's "bad bank" plan to avoid a fresh bailout. IRE +12.3% premarket (7:00 ET).
Astellas extends tender offer. Japan's Astellas Pharma extended its tender offer for U.S. drugmaker OSI Pharmaceuticals (OSIP) to April 23. The offer was set to expire today but only 37,858 OSI shares had been tendered for sale to Astellas as of yesterday, representing just 0.06% of OSI's outstanding shares. Astellas had previously decided to freeze its takeover attempt, but may ultimately make a new offer for OSI pending the tender offer extension and a review of OSI's non-public information.
Blockbuster drops like a ton of blocks. Beleaguered Blockbuster (BBI) fell more than 10% again in trading yesterday, to just $0.25, following Monday's announcement that it's not in compliance with NYSE listing requirements regarding minimum market value. Blockbuster, which earlier this month said it may need to file for bankruptcy, plans to submit a plan to NYSE to demonstrate its ability to regain compliance within 18 months, and will ask shareholders to vote in May on a reverse stock split.
Redwood may test market for unbacked MBS. Redwood Trust (RWT) is reportedly trying to jumpstart the market for mortgage-backed securities that aren't backed by the government. Sources said Redwood may launch an offer next week of at least $200M of securities backed by newly-originated "jumbo" mortgages, loans that are too big for government backing. If successful, it would mark the first such sale in more than two years and the first step in the return of the private-label mortgage securities market.
Novell wins Unix copyright case. A federal court ruled that Novell (NOVL), not SCO Group Inc., is the rightful owner of two key Unix copyrights. The decision may mark the end of much of the copyright case that SCO filed against Novell in 2004, and could affect another Unix-related lawsuit that SCO filed against IBM (IBM) in 2003.
Terra Firma restarts EMI licensing talks. Private-equity firm Terra Firma has reportedly restarted talks to license the North American rights to its EMI music unit to Universal Music Group (VIVDY.PK). The licensing deal would generate an estimated $300M over five years. Sources said Terra Firma is pushing to secure a deal, and an upfront cash payment, ahead of a key banking covenant test today.
Confidence still struggling for altitude. Three data points released yesterday showed that while consumer and investor confidence have seen some minor gains, uncertainty still reigns. The ABC Consumer Comfort Index dropped one-point to -45. There was an increase in those rating the national economy positively, but positive ratings of personal finance slipped. Conference Board's Consumer Confidence Index came in at 52.5 vs. 51 expected and 46.4 prior, but "consumers continue to express concern about current business and labor market conditions. And, their outlook for the next six months is still rather pessimistic." The State Street Investor Confidence Index rose to 108 from a revised 102.6, but the breakdown saw a large jump in Asian confidence, a small increase in North American confidence and a fall in European confidence.
Monday, March 29, 2010
Monday's Economic Calendar
Monday's Economic Calendar
8:30 Personal Income and Outlays
10:00 Treasury: 'Women in Finance Symposium'
10:30 Dallas Fed Manufacturing Outlook
8:30 Personal Income and Outlays
10:00 Treasury: 'Women in Finance Symposium'
10:30 Dallas Fed Manufacturing Outlook
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Geely buys Volvo. China's Geely Holding Group agreed to buy Ford's (F) Volvo unit yesterday for $1.8B, completing 18 months of negotiations and marking the largest overseas acquisition by a Chinese automaker. It's also the first time a Chinese company is in charge of a major global car brand, a reflection of China's rise in the post-crisis world. The companies expect to complete the deal in the third quarter. F +1.3% premarket (7:00 ET).
Rio employees sentenced to up to 14 years. The four Rio Tinto (RTP) employees that were on trial in China have been sentenced to seven to 14 years in jail for accepting bribes and stealing commercial secrets. The case has garnered broad international attention, reflecting foreign investors' concerns over China's legal system. The employees are considering an appeal of what Australia has called a "very tough sentence," while Rio Tinto has terminated the employment of the employees because of "deplorable" conduct that was "at odds" with Rio's ethical culture. RTP +2.7% premarket (7:00 ET).
CIT Group may sell Aussie unit. CIT Group (CIT) confirmed it may sell its Australia and New Zealand vendor-finance unit to Bank of Queensland as part of the lender's reorganization. Bank of Queensland, an Australian regional bank, will begin conducting exclusive due diligence for a potential takeover of the unit.
FDIC, JPMorgan face off on tax benefit. The FDIC has reversed its earlier support for a $1.4B tax break benefiting JPMorgan (JPM). The tax benefit is a result of JPMorgan's acquisition of Washington Mutual; the failed bank's parent company filed a bankruptcy plan on Friday that would allow JPMorgan to claim the sum from an FDIC receivership, and the FDIC's support for the plan was notable missing. It appears the FDIC first became concerned over the potential windfall after meeting with WaMu bondholders who oppose the deal, and after media reports appeared last week with details of JPMorgan's plan. Moreover, TARP specifically excludes companies such as JPMorgan that received government aid from being eligible to receive the tax benefit.
Sinopec taps into upstream assets. Sinopec's (SNP) Hong Kong unit is buying a 55% stake in upstream assets in Angola from parent company China Petrochemical Corp. Sinopec said the $2.46B deal is meant to be the first of many, as more such deals could protect the company from the high oil prices that hurt margins in the fourth quarter. In addition to purchases of more upstream assets from China Petrochemical, analysts said Sinopec could also look for assets in North Africa, the Caspian Sea and Latin America. The transaction will raise Sinopec's proven reserves of crude oil by 3.6%, and will increase its daily crude oil production by 8.8%.
Morgan Stanley to underwrite Citi sale. Morgan Stanley (MS) has reportedly been chosen from a strong competitive field to be the underwriter and adviser in the government's sale of its Citigroup (C) stake. The bank will oversee the "dribble out" sale of the government's 27% stake, a process that could take the rest of the year. Sales are likely to begin after Citigroup's quarterly earnings report on April 19.
Taiwan Semi wants SMI stake. Taiwan Semiconductor (TSM) formally submitted an application to Taiwan authorities to take a stake in Semiconductor Manufacturing International (SMI). Taiwan Semiconductor, the world’s largest custom-chip maker, is looking for up to a 10% stake.
Bank tax efforts pick up steam. The U.S. and European governments are working to build consensus over plans to tax large banks in order to cover the costs of any future bailouts. Germany and Sweden want to use the money to create a "resolution authority," France wants to collect the fees after a crisis has already passed, and the U.S. is split, with Congress favoring a resolution authority and the White House leaning towards a post-crisis option. Despite the differing approaches, the concept of a bank tax has picked up so much momentum that officials expect it to be on the agenda at the G-20 meeting in June.
Toyota supplies hybrid tech to Mazda. Toyota (TM) reached a deal to supply Mazda (MZDAF.PK) with hybrid technology. Mazda plans to launch a car using the hybrid system in Japan by 2013. Separately, Toyota said today that its global production jumped 83% in February from the year before. However, it will be virtually impossible to sustain this pace as the comparison was against a particularly weak February 2009 and Toyota is still reeling from the fallout of its recent recalls.
Friday's failures. Four more bank failures on Friday brought this year's total to 41. The closures in Florida, Arizona and Georgia (I, II) will cost the FDIC's insurance fund an estimated $320.3M. However, the FDIC said it would cut the amount of losses it shares with buyers of failed banks, moving away from taking a 95% share of potential losses. An 80-20 split is expected to become the new norm for the entire loan portfolio.
by SA Editor Rachael Granby
Geely buys Volvo. China's Geely Holding Group agreed to buy Ford's (F) Volvo unit yesterday for $1.8B, completing 18 months of negotiations and marking the largest overseas acquisition by a Chinese automaker. It's also the first time a Chinese company is in charge of a major global car brand, a reflection of China's rise in the post-crisis world. The companies expect to complete the deal in the third quarter. F +1.3% premarket (7:00 ET).
Rio employees sentenced to up to 14 years. The four Rio Tinto (RTP) employees that were on trial in China have been sentenced to seven to 14 years in jail for accepting bribes and stealing commercial secrets. The case has garnered broad international attention, reflecting foreign investors' concerns over China's legal system. The employees are considering an appeal of what Australia has called a "very tough sentence," while Rio Tinto has terminated the employment of the employees because of "deplorable" conduct that was "at odds" with Rio's ethical culture. RTP +2.7% premarket (7:00 ET).
CIT Group may sell Aussie unit. CIT Group (CIT) confirmed it may sell its Australia and New Zealand vendor-finance unit to Bank of Queensland as part of the lender's reorganization. Bank of Queensland, an Australian regional bank, will begin conducting exclusive due diligence for a potential takeover of the unit.
FDIC, JPMorgan face off on tax benefit. The FDIC has reversed its earlier support for a $1.4B tax break benefiting JPMorgan (JPM). The tax benefit is a result of JPMorgan's acquisition of Washington Mutual; the failed bank's parent company filed a bankruptcy plan on Friday that would allow JPMorgan to claim the sum from an FDIC receivership, and the FDIC's support for the plan was notable missing. It appears the FDIC first became concerned over the potential windfall after meeting with WaMu bondholders who oppose the deal, and after media reports appeared last week with details of JPMorgan's plan. Moreover, TARP specifically excludes companies such as JPMorgan that received government aid from being eligible to receive the tax benefit.
Sinopec taps into upstream assets. Sinopec's (SNP) Hong Kong unit is buying a 55% stake in upstream assets in Angola from parent company China Petrochemical Corp. Sinopec said the $2.46B deal is meant to be the first of many, as more such deals could protect the company from the high oil prices that hurt margins in the fourth quarter. In addition to purchases of more upstream assets from China Petrochemical, analysts said Sinopec could also look for assets in North Africa, the Caspian Sea and Latin America. The transaction will raise Sinopec's proven reserves of crude oil by 3.6%, and will increase its daily crude oil production by 8.8%.
Morgan Stanley to underwrite Citi sale. Morgan Stanley (MS) has reportedly been chosen from a strong competitive field to be the underwriter and adviser in the government's sale of its Citigroup (C) stake. The bank will oversee the "dribble out" sale of the government's 27% stake, a process that could take the rest of the year. Sales are likely to begin after Citigroup's quarterly earnings report on April 19.
Taiwan Semi wants SMI stake. Taiwan Semiconductor (TSM) formally submitted an application to Taiwan authorities to take a stake in Semiconductor Manufacturing International (SMI). Taiwan Semiconductor, the world’s largest custom-chip maker, is looking for up to a 10% stake.
Bank tax efforts pick up steam. The U.S. and European governments are working to build consensus over plans to tax large banks in order to cover the costs of any future bailouts. Germany and Sweden want to use the money to create a "resolution authority," France wants to collect the fees after a crisis has already passed, and the U.S. is split, with Congress favoring a resolution authority and the White House leaning towards a post-crisis option. Despite the differing approaches, the concept of a bank tax has picked up so much momentum that officials expect it to be on the agenda at the G-20 meeting in June.
Toyota supplies hybrid tech to Mazda. Toyota (TM) reached a deal to supply Mazda (MZDAF.PK) with hybrid technology. Mazda plans to launch a car using the hybrid system in Japan by 2013. Separately, Toyota said today that its global production jumped 83% in February from the year before. However, it will be virtually impossible to sustain this pace as the comparison was against a particularly weak February 2009 and Toyota is still reeling from the fallout of its recent recalls.
Friday's failures. Four more bank failures on Friday brought this year's total to 41. The closures in Florida, Arizona and Georgia (I, II) will cost the FDIC's insurance fund an estimated $320.3M. However, the FDIC said it would cut the amount of losses it shares with buyers of failed banks, moving away from taking a 95% share of potential losses. An 80-20 split is expected to become the new norm for the entire loan portfolio.
Friday, March 26, 2010
USDA Push
LGI Homes
A house for sale at Canyon Crossing, priced around $145,900.
At the Canyon Crossing community in southwest San Antonio, buyers can still get into a $135,000 four-bedroom home for no money down.
It’s possible thanks to a program from the Department of Agriculture’s rural development division, which offers no-money-down loans in certain parts of the country for low- and middle-income borrowers. The Single-Family Housing Guaranteed Loan Program is likely to run out of funding next month, just as a surge of buyers are expected to ink deals before the federal tax-credit expires April 30.
Originally crafted to encourage home buying in rural areas, it’s become quite popular in some exurbs that have seen rapid development in recent years. Some developers have even created entire communities catering to USDA-backed borrowers.
Builders are worried what happens when the program exhausts its fiscal-year funding. Last month, all of Canyon Crossing’s 13 closings came from buyers tapping the USDA program, said Eric Lipar, chief executive of Texas-based LGI Homes. “It’s going to have a substantial impact on sales,” he said. The company has an entire section of its Web site dedicated to “No Money Down,” but said that it won’t tout the deals after April 1.
The housing downturn has fueled the program’s popularity in recent years. Pre-crash, the USDA typically issued $3 billion in loans for each fiscal year ending Sept. 30, said Jay Fletcher, an agency spokesman. That number has more than quadrupled.
Once lenders, fearing more foreclosures, stopped offering zero-down deals, buyers have flocked to the USDA guaranteed-loan program created in 1991. Lenders consider the loans a safe bet because the USDA guarantees a percentage of the principal amount, up to 90%, meaning they’ll pay should the borrower default. Last fiscal year’s foreclosure rate on USDA loans was 1.72%, far below the Federal Housing Administration’s 3.32%, Fletcher said. Borrowers also can’t make more than 115% of a county’s median income, curbing supersized loans: The average USDA loan is $112,000.
In 2009, the USDA spent a record $16.2 billion to guarantee 115,981 loans. This year, Congress set aside $12 billion and there was $1.1 billion carried over from last year’s economic stimulus. (The 2011 allotment, which would be released Oct. 1, hasn’t been determined.)
With buyers moving beyond their post-crash paralysis, the money is nearly depleted. Some have been rushing to take advantage of low interest rates and falling prices, while others are tapping the federal tax credit for first-time buyers - main users of the USDA program.
There’s an industrywide push - both Chase Home Lending and the National Association of Home Builders are active - for Congress to authorize more funds or find a way to keep the program going until new money becomes available in October. (See the National Association of Home Builders’ letter to Senators Herb Kohl and Sam Brownback). But with leaders focused on health care and the money quickly dwindling, public and private builders nationwide are worried, given they’ve increasingly counted on sales from the obscure offer as the residential downturn drags on.
“These are loans for low- and moderate- income families,” said Tom Kelly, a spokesman for Chase, the nation’s largest originator of such loans. “It’s important to extend it.”
The funds are first-come, first-served - and 1,900 lenders nationwide participate - so anyone with USDA “loans in the pipeline is going to be working fast and furious getting those closed” before the money runs out, said Lisa Marquis Jackson with John Burns Real Estate Consulting. Losing a deal, “that’s a catastrophe, almost, for a builder who has a sale sitting there waiting.”
A house for sale at Canyon Crossing, priced around $145,900.
At the Canyon Crossing community in southwest San Antonio, buyers can still get into a $135,000 four-bedroom home for no money down.
It’s possible thanks to a program from the Department of Agriculture’s rural development division, which offers no-money-down loans in certain parts of the country for low- and middle-income borrowers. The Single-Family Housing Guaranteed Loan Program is likely to run out of funding next month, just as a surge of buyers are expected to ink deals before the federal tax-credit expires April 30.
Originally crafted to encourage home buying in rural areas, it’s become quite popular in some exurbs that have seen rapid development in recent years. Some developers have even created entire communities catering to USDA-backed borrowers.
Builders are worried what happens when the program exhausts its fiscal-year funding. Last month, all of Canyon Crossing’s 13 closings came from buyers tapping the USDA program, said Eric Lipar, chief executive of Texas-based LGI Homes. “It’s going to have a substantial impact on sales,” he said. The company has an entire section of its Web site dedicated to “No Money Down,” but said that it won’t tout the deals after April 1.
The housing downturn has fueled the program’s popularity in recent years. Pre-crash, the USDA typically issued $3 billion in loans for each fiscal year ending Sept. 30, said Jay Fletcher, an agency spokesman. That number has more than quadrupled.
Once lenders, fearing more foreclosures, stopped offering zero-down deals, buyers have flocked to the USDA guaranteed-loan program created in 1991. Lenders consider the loans a safe bet because the USDA guarantees a percentage of the principal amount, up to 90%, meaning they’ll pay should the borrower default. Last fiscal year’s foreclosure rate on USDA loans was 1.72%, far below the Federal Housing Administration’s 3.32%, Fletcher said. Borrowers also can’t make more than 115% of a county’s median income, curbing supersized loans: The average USDA loan is $112,000.
In 2009, the USDA spent a record $16.2 billion to guarantee 115,981 loans. This year, Congress set aside $12 billion and there was $1.1 billion carried over from last year’s economic stimulus. (The 2011 allotment, which would be released Oct. 1, hasn’t been determined.)
With buyers moving beyond their post-crash paralysis, the money is nearly depleted. Some have been rushing to take advantage of low interest rates and falling prices, while others are tapping the federal tax credit for first-time buyers - main users of the USDA program.
There’s an industrywide push - both Chase Home Lending and the National Association of Home Builders are active - for Congress to authorize more funds or find a way to keep the program going until new money becomes available in October. (See the National Association of Home Builders’ letter to Senators Herb Kohl and Sam Brownback). But with leaders focused on health care and the money quickly dwindling, public and private builders nationwide are worried, given they’ve increasingly counted on sales from the obscure offer as the residential downturn drags on.
“These are loans for low- and moderate- income families,” said Tom Kelly, a spokesman for Chase, the nation’s largest originator of such loans. “It’s important to extend it.”
The funds are first-come, first-served - and 1,900 lenders nationwide participate - so anyone with USDA “loans in the pipeline is going to be working fast and furious getting those closed” before the money runs out, said Lisa Marquis Jackson with John Burns Real Estate Consulting. Losing a deal, “that’s a catastrophe, almost, for a builder who has a sale sitting there waiting.”
Thursday, March 25, 2010
Thursday's Economic Calendar
8:30 Initial Jobless Claims
9:10 Fed's Pianalto: Market Pulse event
10:00 Hearing: Unwinding Emergency Federal Reserve Liquidity Programs
10:30 EIA Natural Gas Inventory
11:00 KC Fed Manufacturing
1:00 PM 7-Yr Note Auction
1:30 PM Hearing: Treasury International Programs
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
9:10 Fed's Pianalto: Market Pulse event
10:00 Hearing: Unwinding Emergency Federal Reserve Liquidity Programs
10:30 EIA Natural Gas Inventory
11:00 KC Fed Manufacturing
1:00 PM 7-Yr Note Auction
1:30 PM Hearing: Treasury International Programs
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Treasury has Citi sale plan. The Treasury reportedly plans to sell its 27% stake in Citigroup (C) according to a pre-established plan that will lock the government into a specific timeline for offloading the shares. The program, which may be announced next month, is meant to prevent accusations that the sales are based on non-public information. Several firms are said to be in the running to manage the offering, including JPMorgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS). Citigroup apparently offered to manage the sale at a discount, but is unlikely to be selected because of the appearance of a conflict of interest. C +0.5% premarket (7:00 ET).
Ambac may turn to bankruptcy protection. Ambac (ABK), the troubled bond insurer that delayed its earnings release last week, said it's open to restructuring its debt though a prepackaged bankruptcy. The company also said it will transfer certain liabilities of its Ambac Assurance Corp. unit to a separate account following a directive from the Wisconsin insurance regulator. Ambac doesn't believe the segregated account rehabilitation constitutes a default, and management expects to have enough liquidity to meet the company's needs through Q2 2011. Ambac rose over 9% in trading yesterday as insurers surged across the board, but fell 0.75% in after hours trading.
Schlumberger buys Geoservices. Schlumberger (SLB) agreed to buy analysis firm Geoservices from private-equity group Astorg for just over $1B. The acquisition follows a deal last month in which Schlumberger bought Smith International (SII), as flat energy demand and weak margins spur an industry consolidation.
Dubai offers Dubai World new funds. Dubai will provide $9.5B to support Dubai World's debt restructuring. The state-owned holding company has asked creditors to wait as long as eight years to get all of their money back, and the new cash injection brings Dubai's investment in Dubai World to $20B since November, when the company first said it would delay repaying debt. The funds include $5.7B remaining from a loan Abu Dhabi had made earlier, but no new money from Abu Dhabi.
Aussie concerns over BHP-Rio JV. Australia's competition watchdog raised concerns over a proposed iron ore joint venture between Rio Tinto (RTP) and BHP Billiton (BHP). Regulators plan to examine whether the JV can control iron ore supply and whether it can coordinate supplies with Vale (VALE), the world's top producer. The findings will likely be released by the end of April. Premarket: RTP +0.8%, BHP +0.9% (7:00 ET).
China Unicom drops Google search. China Unicom (CHU) has decided to remove Google's (GOOG) search function from phones using Google's Android operating system. Instead, China's second-largest mobile operator will choose which search engines it wants to use. "We are willing to work with any company that abides by Chinese law... we don’t have any co-operation with Google currently," said a Unicom official. This is the first concrete backlash against Google from its internet censorship showdown with China.
Greek debt looms over EU summit. As an EU summit kicks off today, leaders are still divided as to how best to help Greece, and whether to offer a safety net at all. As of late yesterday, efforts to arrange a special meeting among the 16 eurozone nations had failed, as "Germany does not want to have a meeting of eurozone leaders unless there is a definite chance for a deal." Meanwhile, the chief European economist at Goldman Sachs (GS) has forecast that Greece may ask the IMF for aid within weeks, or "very likely" in the next few months, and the IMF may hand over up to €20B ($27B) over 18 months.
Icahn, Lions Gate continue to spar. Carl Icahn and Lions Gate (LGF) continue to square off. A day after Lions Gate rejected Icahn's purchase offer, Icahn spared no feelings in an open letter to Lions Gate management, saying "hand-picked boards let self-proclaimed 'visionary' CEOs chase their vision indefinitely, even when years pass and their vision is clearly a delusion... The road to bankruptcy is littered with companies whose CEOs - under the banner of 'vision' - have been permitted by lax board oversight to gamble their companies into oblivion." Lions Gate responded that "Mr. Icahn is simply attempting to distract shareholders from the obvious - his offer price is woefully inadequate."
Wells Fargo buys GMAC unit. As previously rumored, Wells Fargo (WFC) agreed to buy GMAC's factoring unit, one of the world's largest accounts-receivable management businesses. The move is part of GMAC's efforts to refocus on auto lending. Terms of the deal were not disclosed.
Tougher liquidity rules for UBS, Credit Suisse. UBS (UBS) and Credit Suisse (CS) may face stricter liquidity requirements than their global rivals, said a key Swiss official. Swiss National Bank vice-chairman Thomas Jordan said the country is still grappling with how to solve the too-big-to-fail problem, and since "Switzerland is a small country with a disproportionally large financial sector... Switzerland may need measures that go beyond the international efforts." Premarket: UBS -0.1%, CS -0.5% (7:00 ET).
Daimler, Renault near tie-up. Daimler (DAI) and Renault are said to be in the final stages of talks that would see the firms take "symbolic" minority stakes in one another as part of a broader strategic alliance. The stakes would be around 3%, just above the threshold where holdings need to be made public. The alliance will likely be announced in April.
Dividends making a comeback. Companies are starting to focus on dividends again. Yesterday, Raytheon (RTN) said it will raise its annual dividend by 21% to $1.50 and authorized a repurchase of up to $2B in stock. Starbucks (SBUX) announced its first-ever dividend, of $0.10/share, and authorized a repurchase of another 15M shares. So far this year, S&P 500 companies have announced $4.4B in combined dividend increases, the best figure since Q4 2007.
IPO showings raise hopes. Three initial public offerings, one for a bank holding company and two for telecom equipment makers, blew past expectations yesterday, raising hopes for the IPO market. Bob Greifeld, CEO of Nasdaq OMX Group (NDAQ), said he's seeing an increase in both the number of IPOs and the "types of companies that are worthy of that investment."
SEC probes hedge fund bets. The SEC is investigating bets made against stocks before new offerings, looking for violations of an "anti-manipulation rule" that bars investors from shorting a stock five days before a new issuance. The probe is reportedly focused on hedge funds including Appaloosa Management and Carlson Capital.
by SA Editor Rachael Granby
Treasury has Citi sale plan. The Treasury reportedly plans to sell its 27% stake in Citigroup (C) according to a pre-established plan that will lock the government into a specific timeline for offloading the shares. The program, which may be announced next month, is meant to prevent accusations that the sales are based on non-public information. Several firms are said to be in the running to manage the offering, including JPMorgan (JPM), Goldman Sachs (GS) and Morgan Stanley (MS). Citigroup apparently offered to manage the sale at a discount, but is unlikely to be selected because of the appearance of a conflict of interest. C +0.5% premarket (7:00 ET).
Ambac may turn to bankruptcy protection. Ambac (ABK), the troubled bond insurer that delayed its earnings release last week, said it's open to restructuring its debt though a prepackaged bankruptcy. The company also said it will transfer certain liabilities of its Ambac Assurance Corp. unit to a separate account following a directive from the Wisconsin insurance regulator. Ambac doesn't believe the segregated account rehabilitation constitutes a default, and management expects to have enough liquidity to meet the company's needs through Q2 2011. Ambac rose over 9% in trading yesterday as insurers surged across the board, but fell 0.75% in after hours trading.
Schlumberger buys Geoservices. Schlumberger (SLB) agreed to buy analysis firm Geoservices from private-equity group Astorg for just over $1B. The acquisition follows a deal last month in which Schlumberger bought Smith International (SII), as flat energy demand and weak margins spur an industry consolidation.
Dubai offers Dubai World new funds. Dubai will provide $9.5B to support Dubai World's debt restructuring. The state-owned holding company has asked creditors to wait as long as eight years to get all of their money back, and the new cash injection brings Dubai's investment in Dubai World to $20B since November, when the company first said it would delay repaying debt. The funds include $5.7B remaining from a loan Abu Dhabi had made earlier, but no new money from Abu Dhabi.
Aussie concerns over BHP-Rio JV. Australia's competition watchdog raised concerns over a proposed iron ore joint venture between Rio Tinto (RTP) and BHP Billiton (BHP). Regulators plan to examine whether the JV can control iron ore supply and whether it can coordinate supplies with Vale (VALE), the world's top producer. The findings will likely be released by the end of April. Premarket: RTP +0.8%, BHP +0.9% (7:00 ET).
China Unicom drops Google search. China Unicom (CHU) has decided to remove Google's (GOOG) search function from phones using Google's Android operating system. Instead, China's second-largest mobile operator will choose which search engines it wants to use. "We are willing to work with any company that abides by Chinese law... we don’t have any co-operation with Google currently," said a Unicom official. This is the first concrete backlash against Google from its internet censorship showdown with China.
Greek debt looms over EU summit. As an EU summit kicks off today, leaders are still divided as to how best to help Greece, and whether to offer a safety net at all. As of late yesterday, efforts to arrange a special meeting among the 16 eurozone nations had failed, as "Germany does not want to have a meeting of eurozone leaders unless there is a definite chance for a deal." Meanwhile, the chief European economist at Goldman Sachs (GS) has forecast that Greece may ask the IMF for aid within weeks, or "very likely" in the next few months, and the IMF may hand over up to €20B ($27B) over 18 months.
Icahn, Lions Gate continue to spar. Carl Icahn and Lions Gate (LGF) continue to square off. A day after Lions Gate rejected Icahn's purchase offer, Icahn spared no feelings in an open letter to Lions Gate management, saying "hand-picked boards let self-proclaimed 'visionary' CEOs chase their vision indefinitely, even when years pass and their vision is clearly a delusion... The road to bankruptcy is littered with companies whose CEOs - under the banner of 'vision' - have been permitted by lax board oversight to gamble their companies into oblivion." Lions Gate responded that "Mr. Icahn is simply attempting to distract shareholders from the obvious - his offer price is woefully inadequate."
Wells Fargo buys GMAC unit. As previously rumored, Wells Fargo (WFC) agreed to buy GMAC's factoring unit, one of the world's largest accounts-receivable management businesses. The move is part of GMAC's efforts to refocus on auto lending. Terms of the deal were not disclosed.
Tougher liquidity rules for UBS, Credit Suisse. UBS (UBS) and Credit Suisse (CS) may face stricter liquidity requirements than their global rivals, said a key Swiss official. Swiss National Bank vice-chairman Thomas Jordan said the country is still grappling with how to solve the too-big-to-fail problem, and since "Switzerland is a small country with a disproportionally large financial sector... Switzerland may need measures that go beyond the international efforts." Premarket: UBS -0.1%, CS -0.5% (7:00 ET).
Daimler, Renault near tie-up. Daimler (DAI) and Renault are said to be in the final stages of talks that would see the firms take "symbolic" minority stakes in one another as part of a broader strategic alliance. The stakes would be around 3%, just above the threshold where holdings need to be made public. The alliance will likely be announced in April.
Dividends making a comeback. Companies are starting to focus on dividends again. Yesterday, Raytheon (RTN) said it will raise its annual dividend by 21% to $1.50 and authorized a repurchase of up to $2B in stock. Starbucks (SBUX) announced its first-ever dividend, of $0.10/share, and authorized a repurchase of another 15M shares. So far this year, S&P 500 companies have announced $4.4B in combined dividend increases, the best figure since Q4 2007.
IPO showings raise hopes. Three initial public offerings, one for a bank holding company and two for telecom equipment makers, blew past expectations yesterday, raising hopes for the IPO market. Bob Greifeld, CEO of Nasdaq OMX Group (NDAQ), said he's seeing an increase in both the number of IPOs and the "types of companies that are worthy of that investment."
SEC probes hedge fund bets. The SEC is investigating bets made against stocks before new offerings, looking for violations of an "anti-manipulation rule" that bars investors from shorting a stock five days before a new issuance. The probe is reportedly focused on hedge funds including Appaloosa Management and Carlson Capital.
Wednesday, March 24, 2010
Financial Reform?
Wednesday, March 24th, 2010, 1:47 pm
In light of the recent passage of health care reform, a hard-fought battle that kept President Obama out of lame duck status, the financial stability and regulatory reform bill looks set for a similar battle. But that’s where the similarities end.
The comparatively short 1,336-page bill on sweeping reforms to the financial markets, originally introduced by Senator Chris Dodd (D-Conn.), narrowly moved forward this week with the approval of the Senate Banking Committee. The vote to shift it to the floor went as expected, with all 10 Senate Banking Committee Republicans opposing the measure. The 13 Democrats who make the rest of the committee all voted in favor.
However, concerns are emerging in the mortgage finance industry over the scope of the financial regulation that, while necessary, may be moving forward simply for the sake of moving forward. Indeed, there are so many points to argue on this bill, that this column could easily compete in page count.
Let’s put the regulation into perspective: mortgage finance cannot regulate itself as the past few years showed, correct?
Dodd’s legislation is meant to fix all this in one fell swoop, establishing a Consumer Financial Protection Agency, and offering changes to the regulation of credit ratings agencies, short-selling, derivative trading, and would require supervision of non-bank financial institutions, to name a few.
Considering that distressed asset trading in the United States is now earning yields in some markets at 30% to 35% per annum, this country is quickly becoming the next EMERGING MARKET. Forget the housing bubbles in Shanghai or Mumbai. Or excessively yielding Greek sovereigns.
This country is attracting investors from all over the world, and they are hungry for deals, both in real estate and in related securities. Dodd’s bill sits at the perfect nexus to draw a line, and to well-regulate the potential abuse these new players to the market conceptually may bring.
The thing is, opportunistic or not, the bill simply won’t do this.
One criticism is that the bill, in its form, will eventually become watered-down legislation. I was taken by today’s comments from Deputy Secretary of the Treasury Department Neal Wolin, speaking before the US Chamber of Commerce: “As the President has made clear, we will oppose efforts to weaken it,” and that “there should be no debate about one thing: a central cause of the financial crisis was a financial regulatory system decades out of date and riddled with gaps and loopholes.”
But, even in its current form, the Dodd bill contains more waivers and exceptions than an insurance policy.
In the case of supervision of non-bank agencies, the governing council can waive this mandated oversight. In the case of consumer protection, licensed real estate brokers appear to enjoy special waivers. As do accountants, lawyers, and many, many others. Even the date of such an agency becoming actualized is not yet settled.
Lending practices considered abusive, by definition in the bill, are opaque and perhaps difficult to determine. For instance, the new regulator will must prove that a certain lending practice actively seeks to capitalize on the borrower’s inability to make sense of what is being offered. A tall order.
However, the so-called Volcker Rule remains largely intact. Named for a former Federal Reserve chairman, the rule forbids trading at banks across its own subsidiaries. Another section, numbered 164, prohibits managers from overseeing multiple bank operations. Good steps, both.
Yet, from a secondary market perspective, the American Securitization Forum is continuing its call to further examine risk retention requirements, before passing a new law.
In a statement of explanation, executive director Tom Deutsch said, “we are committed to restoring credit to Main Street and are particularly concerned that the 5% risk-retention provision in the current legislation will have the effect of severely limiting balance sheet and lending capacity over time.”
He adds: “We are also concerned that any reform, including new accounting regulations, be coordinated so that it manages risk without materially restricting credit availability.”
The Dodd bill seeks to coordinate all of these efforts, to be sure, but at the end of the day it will only draw a line in the sand too close to the tide water.
Jacob Gaffney is the managing editor for HousingWire and HousingWire.com
In light of the recent passage of health care reform, a hard-fought battle that kept President Obama out of lame duck status, the financial stability and regulatory reform bill looks set for a similar battle. But that’s where the similarities end.
The comparatively short 1,336-page bill on sweeping reforms to the financial markets, originally introduced by Senator Chris Dodd (D-Conn.), narrowly moved forward this week with the approval of the Senate Banking Committee. The vote to shift it to the floor went as expected, with all 10 Senate Banking Committee Republicans opposing the measure. The 13 Democrats who make the rest of the committee all voted in favor.
However, concerns are emerging in the mortgage finance industry over the scope of the financial regulation that, while necessary, may be moving forward simply for the sake of moving forward. Indeed, there are so many points to argue on this bill, that this column could easily compete in page count.
Let’s put the regulation into perspective: mortgage finance cannot regulate itself as the past few years showed, correct?
Dodd’s legislation is meant to fix all this in one fell swoop, establishing a Consumer Financial Protection Agency, and offering changes to the regulation of credit ratings agencies, short-selling, derivative trading, and would require supervision of non-bank financial institutions, to name a few.
Considering that distressed asset trading in the United States is now earning yields in some markets at 30% to 35% per annum, this country is quickly becoming the next EMERGING MARKET. Forget the housing bubbles in Shanghai or Mumbai. Or excessively yielding Greek sovereigns.
This country is attracting investors from all over the world, and they are hungry for deals, both in real estate and in related securities. Dodd’s bill sits at the perfect nexus to draw a line, and to well-regulate the potential abuse these new players to the market conceptually may bring.
The thing is, opportunistic or not, the bill simply won’t do this.
One criticism is that the bill, in its form, will eventually become watered-down legislation. I was taken by today’s comments from Deputy Secretary of the Treasury Department Neal Wolin, speaking before the US Chamber of Commerce: “As the President has made clear, we will oppose efforts to weaken it,” and that “there should be no debate about one thing: a central cause of the financial crisis was a financial regulatory system decades out of date and riddled with gaps and loopholes.”
But, even in its current form, the Dodd bill contains more waivers and exceptions than an insurance policy.
In the case of supervision of non-bank agencies, the governing council can waive this mandated oversight. In the case of consumer protection, licensed real estate brokers appear to enjoy special waivers. As do accountants, lawyers, and many, many others. Even the date of such an agency becoming actualized is not yet settled.
Lending practices considered abusive, by definition in the bill, are opaque and perhaps difficult to determine. For instance, the new regulator will must prove that a certain lending practice actively seeks to capitalize on the borrower’s inability to make sense of what is being offered. A tall order.
However, the so-called Volcker Rule remains largely intact. Named for a former Federal Reserve chairman, the rule forbids trading at banks across its own subsidiaries. Another section, numbered 164, prohibits managers from overseeing multiple bank operations. Good steps, both.
Yet, from a secondary market perspective, the American Securitization Forum is continuing its call to further examine risk retention requirements, before passing a new law.
In a statement of explanation, executive director Tom Deutsch said, “we are committed to restoring credit to Main Street and are particularly concerned that the 5% risk-retention provision in the current legislation will have the effect of severely limiting balance sheet and lending capacity over time.”
He adds: “We are also concerned that any reform, including new accounting regulations, be coordinated so that it manages risk without materially restricting credit availability.”
The Dodd bill seeks to coordinate all of these efforts, to be sure, but at the end of the day it will only draw a line in the sand too close to the tide water.
Jacob Gaffney is the managing editor for HousingWire and HousingWire.com
Wednesday's Economic Calendar
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
10:00 New Home Sales
10:30 EIA Petroleum Inventories
10:45 Fed's Hoenig: 'Financial Foundation for Main Street'
12:15 PM Treasury's Wolin: 'The Urgency of Financial Reform'
1:00 PM 5-Yr Note Auction
8:00 PM Fed's Kohn: 'Homework Assignments for Monetary Policymakers'
7:00 MBA Mortgage Applications
8:30 Durable Goods
10:00 New Home Sales
10:30 EIA Petroleum Inventories
10:45 Fed's Hoenig: 'Financial Foundation for Main Street'
12:15 PM Treasury's Wolin: 'The Urgency of Financial Reform'
1:00 PM 5-Yr Note Auction
8:00 PM Fed's Kohn: 'Homework Assignments for Monetary Policymakers'
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Wells Fargo reportedly buys GMAC unit. GMAC has reportedly agreed to sell its U.S. factoring business to Wells Fargo (WFC). The unit lets companies gain liquidity by selling their receivables for cash, and its sale is part of GMAC's efforts to refocus on auto lending after suffering heavy losses in home lending. A sale could be announced today.
JPMorgan may get $1.4B tax windfall. JPMorgan (JPM) is close to a deal with the FDIC that would allow the bank to receive as much as $1.4B in tax refunds, thanks to a little-known provision in the economic stimulus bill. JPMorgan, which took over Washington Mutual's banking operations in 2008, reportedly plans to claim more than half of the $2.6B in tax refunds that WaMu is eligible for because of its heavy losses. The money would be held in an FDIC receivership which JPMorgan could tap to satisfy certain claims related to WaMu's collapse. Hundreds of other companies have used similar measures to secure around $12B in federal tax refunds.
Apax pulls out of Polycom talks. Private equity firm Apax Partners has reportedly broken off talks to acquire video conferencing developer Polycom (PLCM). The news sent Polycom's shares down 4.7% yesterday, largely erasing the gains made when deal talks were first reported. It's unclear why Apax pulled out of talks, but analysts say Polycom is still an attractive target.
Corzine lifts MF Global. MF Global (MF) rallied 12% in after hours trading following the announcement that Jon Corzine would take over as chairman and CEO, effective immediately. Corzine, who was a former chairman at Goldman Sachs (GS) and a former governor of New Jersey, plans to expand the company beyond its futures brokerage, and MF Global has applied to become a primary dealer of U.S. government securities.
Continued Greece doubts plague euro. In a possible compromise, Germany signaled it might be willing to agree on a Greek aid package, but only as a last resort and contingent on strict conditions, including a "substantial" IMF contribution and proof that Greece had exhausted its ability to borrow from capital markets. Eurozone leaders are struggling to agree on how to help Greece and unless a solution surfaces this week, Olli Rehn, the EU's Economic and Monetary Affairs Commissioner, warned the bloc runs the risk of causing a "serious disruption" for the euro. As investors turn bearish on the euro (-1% against the dollar, at 7:00 ET), Greek citizens are growing increasingly despondent over the country's austerity measures. Greek officials, looking for an upside, say the situation is so bad that even a little reform would go a long way to stimulating growth.
Thumbs down for gov't on mortgage aid. A report from TARP's inspector general criticized the White House's $50B effort to prevent foreclosures. Results from the loan modification program have been disappointing, and the program may be delaying many foreclosures rather than preventing them. The report also criticized the Treasury for failing to measure the program's results properly. When the loan modification program was first launched, the White House said it would help 3M-4M homeowners avoid foreclosure. A Treasury official subsequently estimated the program would result in 1.5M-2M mortgage modifications. Thus far, 169,000 households have received long-term payment relief.
Daimler settles bribery case. Daimler (DAI) agreed to pay $185M to settle a long-running U.S. investigation over charges that the automaker paid millions of dollars in bribes to secure business overseas. Daimler will not plead guilty to any charges.
Pay czar makes more cuts. Pay czar Kenneth Feinberg reduced 2010 pay at five U.S. firms that are still dependent on government funds, with compensation for the highest-paid employees at those firms cut by an average of 15% from the year before. Cash payments were cut by an average of 33%. The companies subject to the pay cuts are AIG (AIG), GM, GMAC, Chrysler and Chrysler Financial.
China faces more pressure on the yuan. China is facing pressure over the yuan's valuation from several corners. A report by the Economic Policy Institute blames unfair Chinese trade and currency practices for the loss of up to 2.4M U.S. jobs from 2001-2008. If China doesn't raise "the real value of the yuan by at least 40% and eliminates other trade distortions, the U.S. trade deficit and job losses will continue to grow rapidly." Canadian Finance Minister Jim Flaherty said he expects the G-20 to discuss currency issues this year and foresees an eventual yuan move. Two U.S. senators promised to push forward with a bill that will pressure China to strengthen the yuan.
China, Google showdown continues. After Google's decision to reroute Chinese search requests though its uncensored Hong Kong site, it appears that China began filtering the Hong Kong search results, though it stopped short of blocking the results altogether. Among other signs of escalation yesterday, China Unicom (CHU) pulled the plug on an upcoming Android smartphone, and China Mobile (CHL) is expected to back out of a deal that would have put Google search on its home page.
Arrests in U.K. insider trading probe. U.K. authorities arrested six men yesterday in what the government called a major crackdown on insider trading. The individuals included an employee of U.S. hedge fund Moore Capital Management, an employee of Deutsche Bank (DB) and an employee from a company affiliated with BNP Paribas.
Ending the ambiguity of Fannie/Freddie. In testimony before Congress yesterday, Geithner called for an end to the "ambiguity" over the government's support for Fannie Mae (FNM) and Freddie Mac (FRE). Instead, he wants to see a new housing finance system in which “we preserve the good but end what was too risky.” The transition to a new system is easier said than done, however, since Fannie and Freddie still back 70% of all U.S. home loans, the housing market is showing new signs of weakness and Geithner admitted that he hasn't found "an ideal model yet to replace this current system."
Obama signs healthcare bill into law. Obama signed the healthcare bill into law yesterday morning, prompting 14 state attorneys general to file suit against the departments of Health and Human Services, Treasury and Labor to challenge the law as unconstitutional.
Consumer confidence wavers. ABC's Consumer Comfort Index dipped 1 point to -44, following last week's sharp gain. Positive ratings of the national economy slipped to 8%, while those rating personal finances positively rose a point to 47%, and those who believe it's a good time to buy things held at 29%.
by SA Editor Rachael Granby
Wells Fargo reportedly buys GMAC unit. GMAC has reportedly agreed to sell its U.S. factoring business to Wells Fargo (WFC). The unit lets companies gain liquidity by selling their receivables for cash, and its sale is part of GMAC's efforts to refocus on auto lending after suffering heavy losses in home lending. A sale could be announced today.
JPMorgan may get $1.4B tax windfall. JPMorgan (JPM) is close to a deal with the FDIC that would allow the bank to receive as much as $1.4B in tax refunds, thanks to a little-known provision in the economic stimulus bill. JPMorgan, which took over Washington Mutual's banking operations in 2008, reportedly plans to claim more than half of the $2.6B in tax refunds that WaMu is eligible for because of its heavy losses. The money would be held in an FDIC receivership which JPMorgan could tap to satisfy certain claims related to WaMu's collapse. Hundreds of other companies have used similar measures to secure around $12B in federal tax refunds.
Apax pulls out of Polycom talks. Private equity firm Apax Partners has reportedly broken off talks to acquire video conferencing developer Polycom (PLCM). The news sent Polycom's shares down 4.7% yesterday, largely erasing the gains made when deal talks were first reported. It's unclear why Apax pulled out of talks, but analysts say Polycom is still an attractive target.
Corzine lifts MF Global. MF Global (MF) rallied 12% in after hours trading following the announcement that Jon Corzine would take over as chairman and CEO, effective immediately. Corzine, who was a former chairman at Goldman Sachs (GS) and a former governor of New Jersey, plans to expand the company beyond its futures brokerage, and MF Global has applied to become a primary dealer of U.S. government securities.
Continued Greece doubts plague euro. In a possible compromise, Germany signaled it might be willing to agree on a Greek aid package, but only as a last resort and contingent on strict conditions, including a "substantial" IMF contribution and proof that Greece had exhausted its ability to borrow from capital markets. Eurozone leaders are struggling to agree on how to help Greece and unless a solution surfaces this week, Olli Rehn, the EU's Economic and Monetary Affairs Commissioner, warned the bloc runs the risk of causing a "serious disruption" for the euro. As investors turn bearish on the euro (-1% against the dollar, at 7:00 ET), Greek citizens are growing increasingly despondent over the country's austerity measures. Greek officials, looking for an upside, say the situation is so bad that even a little reform would go a long way to stimulating growth.
Thumbs down for gov't on mortgage aid. A report from TARP's inspector general criticized the White House's $50B effort to prevent foreclosures. Results from the loan modification program have been disappointing, and the program may be delaying many foreclosures rather than preventing them. The report also criticized the Treasury for failing to measure the program's results properly. When the loan modification program was first launched, the White House said it would help 3M-4M homeowners avoid foreclosure. A Treasury official subsequently estimated the program would result in 1.5M-2M mortgage modifications. Thus far, 169,000 households have received long-term payment relief.
Daimler settles bribery case. Daimler (DAI) agreed to pay $185M to settle a long-running U.S. investigation over charges that the automaker paid millions of dollars in bribes to secure business overseas. Daimler will not plead guilty to any charges.
Pay czar makes more cuts. Pay czar Kenneth Feinberg reduced 2010 pay at five U.S. firms that are still dependent on government funds, with compensation for the highest-paid employees at those firms cut by an average of 15% from the year before. Cash payments were cut by an average of 33%. The companies subject to the pay cuts are AIG (AIG), GM, GMAC, Chrysler and Chrysler Financial.
China faces more pressure on the yuan. China is facing pressure over the yuan's valuation from several corners. A report by the Economic Policy Institute blames unfair Chinese trade and currency practices for the loss of up to 2.4M U.S. jobs from 2001-2008. If China doesn't raise "the real value of the yuan by at least 40% and eliminates other trade distortions, the U.S. trade deficit and job losses will continue to grow rapidly." Canadian Finance Minister Jim Flaherty said he expects the G-20 to discuss currency issues this year and foresees an eventual yuan move. Two U.S. senators promised to push forward with a bill that will pressure China to strengthen the yuan.
China, Google showdown continues. After Google's decision to reroute Chinese search requests though its uncensored Hong Kong site, it appears that China began filtering the Hong Kong search results, though it stopped short of blocking the results altogether. Among other signs of escalation yesterday, China Unicom (CHU) pulled the plug on an upcoming Android smartphone, and China Mobile (CHL) is expected to back out of a deal that would have put Google search on its home page.
Arrests in U.K. insider trading probe. U.K. authorities arrested six men yesterday in what the government called a major crackdown on insider trading. The individuals included an employee of U.S. hedge fund Moore Capital Management, an employee of Deutsche Bank (DB) and an employee from a company affiliated with BNP Paribas.
Ending the ambiguity of Fannie/Freddie. In testimony before Congress yesterday, Geithner called for an end to the "ambiguity" over the government's support for Fannie Mae (FNM) and Freddie Mac (FRE). Instead, he wants to see a new housing finance system in which “we preserve the good but end what was too risky.” The transition to a new system is easier said than done, however, since Fannie and Freddie still back 70% of all U.S. home loans, the housing market is showing new signs of weakness and Geithner admitted that he hasn't found "an ideal model yet to replace this current system."
Obama signs healthcare bill into law. Obama signed the healthcare bill into law yesterday morning, prompting 14 state attorneys general to file suit against the departments of Health and Human Services, Treasury and Labor to challenge the law as unconstitutional.
Consumer confidence wavers. ABC's Consumer Comfort Index dipped 1 point to -44, following last week's sharp gain. Positive ratings of the national economy slipped to 8%, while those rating personal finances positively rose a point to 47%, and those who believe it's a good time to buy things held at 29%.
Tuesday, March 23, 2010
Tuesday's Economic Calendar
6:00 Fed's Plosser: Policy Rules in an Uncertain Environment
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
10:00 Existing Home Sales
10:00 FHFA Housing Price Index
10:00 Richmond Fed Mfg.
10:00 Hearing: Perspectives on Housing Finance
3:00 PM Fed's Yellen: Economic Outlook
5:00 PM ABC Consumer Confidence Index
7:45 ICSC Retail Store Sales
8:55 Redbook Chain Store Sales
10:00 Existing Home Sales
10:00 FHFA Housing Price Index
10:00 Richmond Fed Mfg.
10:00 Hearing: Perspectives on Housing Finance
3:00 PM Fed's Yellen: Economic Outlook
5:00 PM ABC Consumer Confidence Index
Wall Street Breakfast
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Google uncensored. Google (GOOG) confirmed that it has stopped censoring its search engine in China, though it plans to maintain sales and R&D teams there. Visitors to Google.cn are being redirected to Google.hk, and Google says it's completely legal to have the Hong Kong service deliver uncensored results in simplified Chinese. The Chinese government says Google has broken its promise and is "totally wrong," while the U.S. government is "disappointed" that Google and China failed to reach a compromise. Residents of mainland China expressed regret at Google's decision, worried that China will choose to simply shut Google's site down rather than let it exploit the "one country, two systems" loophole.
Google wins EU trademark case. The European Court of Justice ruled this morning that Google (GOOG) hadn't violated the rights of luxury goods maker Louis Vuitton (LVMUY.PK) and two other firms by allowing advertisers to buy keywords identical to trademarks. Google may be liable for policing trademark infringements in advertising content on its site, but that is up to a national court to decide.
Senate panel approves financial reform. The Senate Banking Committee approved a financial regulatory reform bill in a 13-10 vote along party lines, sending the 1,336-page bill to the full Senate for review in April. If approved, the bill will create a regulators council to oversee risk, create a wind-down process for failing financial firms, tighten legislation for the derivatives market and take steps to prevent a future financial crisis.
Pay czar takes a closer look at past pay. Ken Feinberg, the "pay czar," reportedly plans to examine past payouts to executives at 419 firms that received TARP funds, including Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS). In particular, Feinberg will check whether the top 25 executives at any of these firms received more than $500,000 between October 2008 and February 2009, the window in which firms had received TARP funds but weren't yet subject to executive-compensation restrictions. Though Feinberg doesn't have enforcement authority, he can seek to negotiate if he finds any payments that were excessive or contrary to public interest.
Jones Soda ends Reed's exclusivity clause. Jones Soda (JSDA) has terminated the exclusivity provision of a potential merger deal with Reed's (REED) in order to explore an unsolicited bid by a third party. Earlier this month, struggling Jones Soda had signed a letter of intent to be acquired by Reed's for about $9.7M in cash and stock. Separately, Jones Soda received a letter from Nasdaq that its shares haven't regained compliance with the $1/share minimum requirement, and trading of its common stock will be suspended as of March 25 unless Jones Soda requests a hearing to appeal by today. JSDA rose 25% in after hours trading to $0.65.
Zale considers Sun Capital financing offer. Sources said Zale (ZLC) has rejected an offer by Apollo Management to buy a stake in the struggling jewelry retailer, but is seriously considering a less-ambitious financing offer from private-equity firm Sun Capital. Sun Capital reportedly offered to invest $50M-100M for preferred stock that could eventually give it a majority stake in Zale, and would provide a bridge loan while Zale tries to refinance its debt. ZLC +2.8% premarket (7:00 ET).
Biogen makes concession to Icahn. Biogen Idec (BIIB) reached an agreement with Carl Icahn in which it will add two members to its board, one of whom was on the three-person slate Icahn nominated in January. Icahn said he "applaud[s] the board for acting so responsibly," and will push for a sale of the company. "Biogen has a great pipeline with great drugs, that at the right price” should be sold to a big pharmaceutical company, he said.
Geithner: Housing finance system needs change. Treasury's Geithner will testify before Congress later today on the need for change in the current housing finance system. According to prepared testimony, Geithner will argue that "private gains can no longer be supported by the umbrella of public protection, capital standards must be higher and excessive risk-taking must be appropriately restrained." Though the effective nationalization of Fannie Mae (FNM) and Freddie Mac (FRE) was a mistake, "there should be no uncertainty" that the government will continue to support the two mortgage giants during the transition to a new system.
Rio employees admit to charges in China trial. The trial of four Rio Tinto (RTP) employees in China is not turning out as Rio had expected. All four defendants have admitted to at least some of the bribery charges that were leveled against them, embarrassing Rio Tinto which had previously said the charges were "without foundation." However, it's possible that the admissions are a legal strategy; pleas of innocence are hard to defend in Chinese courts, whereas pleading guilty while downplaying the extent of the wrongdoing can often bring lighter sentences. The trial continues today with charges of stealing commercial secrets.
Toshiba confirms nuclear plans. Toshiba (TOSBF.PK) confirmed that it may team up with Bill Gates and his company TerraPower to develop an advanced nuclear reactor. According to media reports, the new reactor would be able to operate for up to 100 years without refueling, as opposed to current light-water reactors which must be refueled every few years. The news sent Toshiba shares up 3.6% in Tokyo trading (7:00 ET).
Apollo Management plans IPO. Apollo Management filed for an initial public offering on the New York Stock Exchange, with plans to offer up to $50 of shares. Apollo, which currently trades on a private exchange, had previously announced its intention to move its shares to the NYSE, but hadn't previously proposed a share offering in the process. The $50M of shares would represent only a small percentage of the overall company.
Berkshire slakes its thirst. Berkshire Hathaway (BRK.A) agreed to buy Kahn Ventures Inc, a wholesale distributor of distilled spirits, wine and beer in Georgia and North Carolina, just weeks after completing a $26.5B takeover of railroad company Burlington Northern Santa Fe. Berkshire expects the acquisition will "provide us with a solid platform for potentially acquiring other similar high quality wholesale distributors." Terms of the deal were not disclosed.
MGM bids fall short. Time Warner (TWX), Lions Gate Entertainment (LGF) and Access Industries reportedly placed bids for studio Metro-Goldwyn-Mayer. Time Warner's bid is said to be the highest of the three, which all fell in the $1.2B-$1.5B range, far short of the $2B MGM had hoped for. MGM confirmed it "received a number of bids" which it will review over the next "several weeks."
by SA Editor Rachael Granby
Google uncensored. Google (GOOG) confirmed that it has stopped censoring its search engine in China, though it plans to maintain sales and R&D teams there. Visitors to Google.cn are being redirected to Google.hk, and Google says it's completely legal to have the Hong Kong service deliver uncensored results in simplified Chinese. The Chinese government says Google has broken its promise and is "totally wrong," while the U.S. government is "disappointed" that Google and China failed to reach a compromise. Residents of mainland China expressed regret at Google's decision, worried that China will choose to simply shut Google's site down rather than let it exploit the "one country, two systems" loophole.
Google wins EU trademark case. The European Court of Justice ruled this morning that Google (GOOG) hadn't violated the rights of luxury goods maker Louis Vuitton (LVMUY.PK) and two other firms by allowing advertisers to buy keywords identical to trademarks. Google may be liable for policing trademark infringements in advertising content on its site, but that is up to a national court to decide.
Senate panel approves financial reform. The Senate Banking Committee approved a financial regulatory reform bill in a 13-10 vote along party lines, sending the 1,336-page bill to the full Senate for review in April. If approved, the bill will create a regulators council to oversee risk, create a wind-down process for failing financial firms, tighten legislation for the derivatives market and take steps to prevent a future financial crisis.
Pay czar takes a closer look at past pay. Ken Feinberg, the "pay czar," reportedly plans to examine past payouts to executives at 419 firms that received TARP funds, including Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS). In particular, Feinberg will check whether the top 25 executives at any of these firms received more than $500,000 between October 2008 and February 2009, the window in which firms had received TARP funds but weren't yet subject to executive-compensation restrictions. Though Feinberg doesn't have enforcement authority, he can seek to negotiate if he finds any payments that were excessive or contrary to public interest.
Jones Soda ends Reed's exclusivity clause. Jones Soda (JSDA) has terminated the exclusivity provision of a potential merger deal with Reed's (REED) in order to explore an unsolicited bid by a third party. Earlier this month, struggling Jones Soda had signed a letter of intent to be acquired by Reed's for about $9.7M in cash and stock. Separately, Jones Soda received a letter from Nasdaq that its shares haven't regained compliance with the $1/share minimum requirement, and trading of its common stock will be suspended as of March 25 unless Jones Soda requests a hearing to appeal by today. JSDA rose 25% in after hours trading to $0.65.
Zale considers Sun Capital financing offer. Sources said Zale (ZLC) has rejected an offer by Apollo Management to buy a stake in the struggling jewelry retailer, but is seriously considering a less-ambitious financing offer from private-equity firm Sun Capital. Sun Capital reportedly offered to invest $50M-100M for preferred stock that could eventually give it a majority stake in Zale, and would provide a bridge loan while Zale tries to refinance its debt. ZLC +2.8% premarket (7:00 ET).
Biogen makes concession to Icahn. Biogen Idec (BIIB) reached an agreement with Carl Icahn in which it will add two members to its board, one of whom was on the three-person slate Icahn nominated in January. Icahn said he "applaud[s] the board for acting so responsibly," and will push for a sale of the company. "Biogen has a great pipeline with great drugs, that at the right price” should be sold to a big pharmaceutical company, he said.
Geithner: Housing finance system needs change. Treasury's Geithner will testify before Congress later today on the need for change in the current housing finance system. According to prepared testimony, Geithner will argue that "private gains can no longer be supported by the umbrella of public protection, capital standards must be higher and excessive risk-taking must be appropriately restrained." Though the effective nationalization of Fannie Mae (FNM) and Freddie Mac (FRE) was a mistake, "there should be no uncertainty" that the government will continue to support the two mortgage giants during the transition to a new system.
Rio employees admit to charges in China trial. The trial of four Rio Tinto (RTP) employees in China is not turning out as Rio had expected. All four defendants have admitted to at least some of the bribery charges that were leveled against them, embarrassing Rio Tinto which had previously said the charges were "without foundation." However, it's possible that the admissions are a legal strategy; pleas of innocence are hard to defend in Chinese courts, whereas pleading guilty while downplaying the extent of the wrongdoing can often bring lighter sentences. The trial continues today with charges of stealing commercial secrets.
Toshiba confirms nuclear plans. Toshiba (TOSBF.PK) confirmed that it may team up with Bill Gates and his company TerraPower to develop an advanced nuclear reactor. According to media reports, the new reactor would be able to operate for up to 100 years without refueling, as opposed to current light-water reactors which must be refueled every few years. The news sent Toshiba shares up 3.6% in Tokyo trading (7:00 ET).
Apollo Management plans IPO. Apollo Management filed for an initial public offering on the New York Stock Exchange, with plans to offer up to $50 of shares. Apollo, which currently trades on a private exchange, had previously announced its intention to move its shares to the NYSE, but hadn't previously proposed a share offering in the process. The $50M of shares would represent only a small percentage of the overall company.
Berkshire slakes its thirst. Berkshire Hathaway (BRK.A) agreed to buy Kahn Ventures Inc, a wholesale distributor of distilled spirits, wine and beer in Georgia and North Carolina, just weeks after completing a $26.5B takeover of railroad company Burlington Northern Santa Fe. Berkshire expects the acquisition will "provide us with a solid platform for potentially acquiring other similar high quality wholesale distributors." Terms of the deal were not disclosed.
MGM bids fall short. Time Warner (TWX), Lions Gate Entertainment (LGF) and Access Industries reportedly placed bids for studio Metro-Goldwyn-Mayer. Time Warner's bid is said to be the highest of the three, which all fell in the $1.2B-$1.5B range, far short of the $2B MGM had hoped for. MGM confirmed it "received a number of bids" which it will review over the next "several weeks."
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