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.
Wednesday, March 31, 2010
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."
Monday, March 22, 2010
Monday's Economic Calendar
Monday's Economic Calendar
8:30 Chicago Fed National Activity Index
3:45 PM Fed's Lockhart: Economic Outlook
4:30 PM Geithner: 'The Case for Enacting Financial Reform Now'
8:30 Chicago Fed National Activity Index
3:45 PM Fed's Lockhart: Economic Outlook
4:30 PM Geithner: 'The Case for Enacting Financial Reform Now'
Wall Street Breakfast
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Sweeping healthcare overhaul approved. In a 219-212 vote late yesterday, the House of Representatives approved the largest healthcare overhaul in four decades. The bill, which failed to garner a single Republican vote, will be signed into law by Obama, who called it "a victory for the American people." All told, the healthcare measures will cost $940B over ten years and cover 32M uninsured Americans. The bill is a mixed bag for insurers, who stand to gain over 20M new customers but are unhappy the bill doesn't substantially address the problem of rising healthcare costs and further reduces government subsidies to the industry. Pharmaceutical companies, on the other hand, emerge as clear winners from the bill, while large businesses are worried about higher costs and stricter coverage rules.
Shell, PetroChina buy Arrow Energy. Royal Dutch Shell (RDS.A) and PetroChina (PTR) agreed to buy Australia's Arrow Energy for A$3.5B ($3.2B) in cash, a 35% premium to Arrow's stock before deal talks began. Investors will also get shares in a new company holding Arrow’s gas assets in China, Indonesia, India and Vietnam. Arrow's shares fell 2.6% in Australia, reflecting disappointment among investors who had expected a bigger increase from Shell/PetroChina's original A$3.3B offer. Premarket: RDS. A -1.2% (7:00 ET).
Novell says no to Elliott bid. On Saturday, Novell (NOVL) rejected Elliott Associates' $1.8B bid to take it private, calling the offer "inadequate," and saying it "undervalues the company's franchise and growth prospects." Some have questioned whether Novell is really worth that much, but others say it could be worth even more considering its $1.82B in assets. Novell plans to initiate a review of alternatives, including a share buyback, cash dividend, joint ventures, recapitalization, alliances or an outright sale. Premarket: NOVL +0.2% (7:00 ET).
Bernanke on the Fed's role and TBTF. Speaking to a bankers' convention on Saturday, Bernanke said it's "unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms," a line which generated some mockery among critics wondering if Bernanke only reached this conclusion now. Bernanke also reiterated that the Federal Reserve should retain oversight of financial firms large and small, noting that "a supervisory agency that focused only on the largest banking institutions, without knowledge of community banks, would get a limited and potentially distorted picture."
IMF: Wealthiest nations face debt problems. IMF official John Lipsky issued a grim prognosis for the world's wealthiest nations yesterday, warning the debt-to-GDP ratio for five of the G-7 countries (not Germany or Canada) will approach or exceed 100% by 2014. If left unaddressed, the rising debt "could undermine confidence in the economic recovery." For the U.S. specifically, Lipsky said a higher public savings rate will be necessary to ensure long-term fiscal sustainability.
Consol Energy increases CNX holdings. T. Rowe Price (TROW), on behalf of its investment advisory clients, agreed to tender 9.5M shares of gas producer CNX Gas Corp. (CXG) to Consol Energy (CNX) for $38.25/share in cash. The stake represents around 37% of the CNX shares that Consol doesn't already own. Consol, which currently holds around 83.3% of CNX's shares, plans to start a tender offer by May 5 to buy the rest of CNX's common stock.
EMI may license music to rivals. EMI Group has reportedly held early-stage talks with rival record labels, including Warner Music Group (WMG) and Sony Music (SNE), to license its music in North America. EMI has approached the firms with the possibility of a five-year licensing deal, which could bring in up to £100M ($150M) per year. The firm is under pressure to raise funds quickly; if it can't come up with £120M ($182M) by June 14, it could be taken over by lender Citigroup (C).
New iron ore pricing system in the works. Global mining companies have reached a tentative deal with Japanese steelmakers to replace the 40-year-old iron ore pricing system that relies on annual contracts and drawn-out negotiations. Instead, the two sides are talking about moving to quarterly pricing and contracts linked to the spot market. Miners, including BHP Billiton (BHP) and Rio Tinto (RTP), have been pushing for these changes, but sources said the miners still have significant obstacles to resolve before reaching a final agreement. A final deal could be reached by the end of the month. Premarket: RTP -1.6%, BHP -0.5% (7:00 ET).
China-U.S. spat continues over yuan valuation. China's commerce minister warned the U.S. against imposing trade sanctions because of the yuan, saying China "won't turn a blind eye" to such actions and that, in any case, China is likely to report a trade deficit in March. "Strong pressure on a nation's currency isn't mutually beneficial, it's a type of irrational choice," said Minister of Commerce Chen Deming.
IPO hopes rise this week. Six initial public offerings are set to launch this week. Though six IPOs wouldn't be noteworthy in previous years, it marks the most in a single week so far this year and is also notable for the level of positive chatter surrounding the offerings.
Virgin readies RBS bid. Virgin Money has secured financial backing from Abu Dhabi-based sovereign wealth funds and private equity firm Blackstone (BX) in order to bid for the 320 branches that Royal Bank of Scotland (RBS) is being forced to sell. Other bidders expected to submit offers by the April 6 deadline include National Australia Bank and Banco Santander (STD).
Friday's failures. Regulators closed seven banks on Friday, the most closures in a single day since October 2009 and bringing this year's total to 37. Failures in Alabama, Minnesota, Utah, Ohio and Georgia (I, II, III) will cost the FDIC's insurance fund an estimated $1.28B.
by SA Editor Rachael Granby
Sweeping healthcare overhaul approved. In a 219-212 vote late yesterday, the House of Representatives approved the largest healthcare overhaul in four decades. The bill, which failed to garner a single Republican vote, will be signed into law by Obama, who called it "a victory for the American people." All told, the healthcare measures will cost $940B over ten years and cover 32M uninsured Americans. The bill is a mixed bag for insurers, who stand to gain over 20M new customers but are unhappy the bill doesn't substantially address the problem of rising healthcare costs and further reduces government subsidies to the industry. Pharmaceutical companies, on the other hand, emerge as clear winners from the bill, while large businesses are worried about higher costs and stricter coverage rules.
Shell, PetroChina buy Arrow Energy. Royal Dutch Shell (RDS.A) and PetroChina (PTR) agreed to buy Australia's Arrow Energy for A$3.5B ($3.2B) in cash, a 35% premium to Arrow's stock before deal talks began. Investors will also get shares in a new company holding Arrow’s gas assets in China, Indonesia, India and Vietnam. Arrow's shares fell 2.6% in Australia, reflecting disappointment among investors who had expected a bigger increase from Shell/PetroChina's original A$3.3B offer. Premarket: RDS. A -1.2% (7:00 ET).
Novell says no to Elliott bid. On Saturday, Novell (NOVL) rejected Elliott Associates' $1.8B bid to take it private, calling the offer "inadequate," and saying it "undervalues the company's franchise and growth prospects." Some have questioned whether Novell is really worth that much, but others say it could be worth even more considering its $1.82B in assets. Novell plans to initiate a review of alternatives, including a share buyback, cash dividend, joint ventures, recapitalization, alliances or an outright sale. Premarket: NOVL +0.2% (7:00 ET).
Bernanke on the Fed's role and TBTF. Speaking to a bankers' convention on Saturday, Bernanke said it's "unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms," a line which generated some mockery among critics wondering if Bernanke only reached this conclusion now. Bernanke also reiterated that the Federal Reserve should retain oversight of financial firms large and small, noting that "a supervisory agency that focused only on the largest banking institutions, without knowledge of community banks, would get a limited and potentially distorted picture."
IMF: Wealthiest nations face debt problems. IMF official John Lipsky issued a grim prognosis for the world's wealthiest nations yesterday, warning the debt-to-GDP ratio for five of the G-7 countries (not Germany or Canada) will approach or exceed 100% by 2014. If left unaddressed, the rising debt "could undermine confidence in the economic recovery." For the U.S. specifically, Lipsky said a higher public savings rate will be necessary to ensure long-term fiscal sustainability.
Consol Energy increases CNX holdings. T. Rowe Price (TROW), on behalf of its investment advisory clients, agreed to tender 9.5M shares of gas producer CNX Gas Corp. (CXG) to Consol Energy (CNX) for $38.25/share in cash. The stake represents around 37% of the CNX shares that Consol doesn't already own. Consol, which currently holds around 83.3% of CNX's shares, plans to start a tender offer by May 5 to buy the rest of CNX's common stock.
EMI may license music to rivals. EMI Group has reportedly held early-stage talks with rival record labels, including Warner Music Group (WMG) and Sony Music (SNE), to license its music in North America. EMI has approached the firms with the possibility of a five-year licensing deal, which could bring in up to £100M ($150M) per year. The firm is under pressure to raise funds quickly; if it can't come up with £120M ($182M) by June 14, it could be taken over by lender Citigroup (C).
New iron ore pricing system in the works. Global mining companies have reached a tentative deal with Japanese steelmakers to replace the 40-year-old iron ore pricing system that relies on annual contracts and drawn-out negotiations. Instead, the two sides are talking about moving to quarterly pricing and contracts linked to the spot market. Miners, including BHP Billiton (BHP) and Rio Tinto (RTP), have been pushing for these changes, but sources said the miners still have significant obstacles to resolve before reaching a final agreement. A final deal could be reached by the end of the month. Premarket: RTP -1.6%, BHP -0.5% (7:00 ET).
China-U.S. spat continues over yuan valuation. China's commerce minister warned the U.S. against imposing trade sanctions because of the yuan, saying China "won't turn a blind eye" to such actions and that, in any case, China is likely to report a trade deficit in March. "Strong pressure on a nation's currency isn't mutually beneficial, it's a type of irrational choice," said Minister of Commerce Chen Deming.
IPO hopes rise this week. Six initial public offerings are set to launch this week. Though six IPOs wouldn't be noteworthy in previous years, it marks the most in a single week so far this year and is also notable for the level of positive chatter surrounding the offerings.
Virgin readies RBS bid. Virgin Money has secured financial backing from Abu Dhabi-based sovereign wealth funds and private equity firm Blackstone (BX) in order to bid for the 320 branches that Royal Bank of Scotland (RBS) is being forced to sell. Other bidders expected to submit offers by the April 6 deadline include National Australia Bank and Banco Santander (STD).
Friday's failures. Regulators closed seven banks on Friday, the most closures in a single day since October 2009 and bringing this year's total to 37. Failures in Alabama, Minnesota, Utah, Ohio and Georgia (I, II, III) will cost the FDIC's insurance fund an estimated $1.28B.
Friday, March 19, 2010
More Bad News for Condo's in FL
Revenue-starved condominium and homeowners associations struggling to keep the taps running and the lawns mowed have found a novel way to squeeze money from units that don't pay what they owe.
It's called a reverse foreclosure, a tool that can force banks to pay association maintenance fees when unit owners don't.
It's a way for associations to halt the decline that begins when one owner quits paying maintenance fees, followed by another, then another, forcing a reduction in general maintenance, driving down property values even more, and leaving a community riddled with vacancies and vandalism.
Also, it's a way for associations to stick it to banks -- who they are convinced have been sticking it to them since the real estate meltdown began.
Banks, for their part, deny any dishonorable intent and say they are just protecting their interests, as any prudent business would do.
Here's how a reverse foreclosure works: When a home or condominium owner stops paying the mortgage, the bank files a notice of foreclosure to safeguard its stake. After that, some banks deliberately delay the process of taking back the property.
They take their time because, if it's like most South Florida properties, the delinquent unit is worth less than the outstanding mortgage. In the lingo of the trade, such units are ``upside-down.''
Banks are in no rush to have upside-down properties on their books.
Delaying foreclosure can be a nightmare for homeowner and condo associations. When people stop paying the mortgage, they invariably stop paying their maintenance fees. As long as a foreclosure is in limbo -- and the process can take years if a bank wants to slow things down, associations say -- unpaid maintenance fees pile up.
Under a reverse foreclosure, the association files its own foreclosure notice and takes title, which is its right after the homeowner stops paying maintenance fees. The association can't sell because of the bank's lien. But it can renounce its claim on the property in court and ask the judge to give the title back to the bank.
Then the bank has to pay the fees.
It's a hardball tactic, but condo and homeowner associations say they have been forced to resort to it because the Legislature, beholden to lenders and their lobbyists, refuses to make the banks take over the units and cover the unpaid bills.
Although reverse foreclosure is a new concept, it could become very popular very quickly. In a recent survey, 60 percent of Florida condo and homeowner associations reported that half of their units were two months behind in paying maintenance fees.
When unpaid fees become an epidemic, associations sometimes have to charge ``special assessments'' to owners in good standing to make up for lost revenue and cover the cost of utilities, upkeep and insurance.
Special assessments cause fierce neighbor-vs.-neighbor resentment, and can trigger a domino effect -- even more units sliding into default.
``These legal strategies are a direct response to the fact that the laws haven't changed,'' said Ben Solomon, an attorney with Association Law Group. In January, he engineered the state's first reverse foreclosure, on behalf of Keys Gate, a master-planned community in Homestead.
Although a reverse foreclosure sticks a bank with a property it doesn't want, Florida law gives the lender a break on the outstanding bill. Under existing statutes, banks cannot be forced to pay more than 12 months of past-due homeowner association fees or 1 percent of the overall mortgage amount, whichever is less. In the case of condos, the cap is six months.
It's called a reverse foreclosure, a tool that can force banks to pay association maintenance fees when unit owners don't.
It's a way for associations to halt the decline that begins when one owner quits paying maintenance fees, followed by another, then another, forcing a reduction in general maintenance, driving down property values even more, and leaving a community riddled with vacancies and vandalism.
Also, it's a way for associations to stick it to banks -- who they are convinced have been sticking it to them since the real estate meltdown began.
Banks, for their part, deny any dishonorable intent and say they are just protecting their interests, as any prudent business would do.
Here's how a reverse foreclosure works: When a home or condominium owner stops paying the mortgage, the bank files a notice of foreclosure to safeguard its stake. After that, some banks deliberately delay the process of taking back the property.
They take their time because, if it's like most South Florida properties, the delinquent unit is worth less than the outstanding mortgage. In the lingo of the trade, such units are ``upside-down.''
Banks are in no rush to have upside-down properties on their books.
Delaying foreclosure can be a nightmare for homeowner and condo associations. When people stop paying the mortgage, they invariably stop paying their maintenance fees. As long as a foreclosure is in limbo -- and the process can take years if a bank wants to slow things down, associations say -- unpaid maintenance fees pile up.
Under a reverse foreclosure, the association files its own foreclosure notice and takes title, which is its right after the homeowner stops paying maintenance fees. The association can't sell because of the bank's lien. But it can renounce its claim on the property in court and ask the judge to give the title back to the bank.
Then the bank has to pay the fees.
It's a hardball tactic, but condo and homeowner associations say they have been forced to resort to it because the Legislature, beholden to lenders and their lobbyists, refuses to make the banks take over the units and cover the unpaid bills.
Although reverse foreclosure is a new concept, it could become very popular very quickly. In a recent survey, 60 percent of Florida condo and homeowner associations reported that half of their units were two months behind in paying maintenance fees.
When unpaid fees become an epidemic, associations sometimes have to charge ``special assessments'' to owners in good standing to make up for lost revenue and cover the cost of utilities, upkeep and insurance.
Special assessments cause fierce neighbor-vs.-neighbor resentment, and can trigger a domino effect -- even more units sliding into default.
``These legal strategies are a direct response to the fact that the laws haven't changed,'' said Ben Solomon, an attorney with Association Law Group. In January, he engineered the state's first reverse foreclosure, on behalf of Keys Gate, a master-planned community in Homestead.
Although a reverse foreclosure sticks a bank with a property it doesn't want, Florida law gives the lender a break on the outstanding bill. Under existing statutes, banks cannot be forced to pay more than 12 months of past-due homeowner association fees or 1 percent of the overall mortgage amount, whichever is less. In the case of condos, the cap is six months.
Covered Bonds - Are they on the Horizon?
The mortgage-finance alternative to securitization, covered bonds, came one step closer to larger acceptance in the US secondary markets with the introduction of the highly-anticipated United States Covered Bond Act by Rep. Scott Garrett (R-N.J.).
In the February issue of HousingWire magazine, Garrett is featured in a lengthy Q&A on his push to get legislative and regulatory recognition for covered bonds, products that are collateralized typically by prime mortgages. Covered bonds are so named for the dual recourse provided, where the issuer is on the hook to pay out regardless of whether or not the collateral performs as expected.
Usually, covered bonds hedge this risk by using over-collateralization as credit enhancement. This allows for non-performing mortgages to be pulled from bonded pools and replaced with performing mortgages.
The platform is Europe’s oldest form of structured finance and has yet to see triple-A defaults. So in that sense, covered bonds remain to be vigorously tested. However in an e-mail to reporters, Garrett, along with support from co-sponsors Rep. Paul Kanjorski (D-Pa.) and Financial Services Committee Ranking Member Spencer Bachus (R-Ala.), says the bill will establish regulatory oversight of covered bond programs, includes provisions for default and insolvency of covered bond issuers and subjects covered bonds to appropriate securities regulations by federal regulators.
Alberto Basu, the head of the US (dollar-denominated) covered bond trading at JP Morgan (JPM: 43.64 0.00%) remarked that such legislation is necessary to show support for the product in the market place. And the Securities Industry and Financial Markets Association (SIFMA), a secondary market trade group, agrees.
“SIFMA’s US Covered Bond Council is pleased to see the increased momentum for a dedicated legislative framework for covered bonds that is fundamental to building a vibrant US covered bonds market,” said Sean Davy, managing director at SIFMA, in a statement. “We thank Congressman Garrett for his leadership on this issue and are pleased to see Reps. Kanjorski and Bachus join him in this effort.”
The United States Covered Bond Act is the legislative follow-up to Garrett’s original legislation, The Equal Treatment for Covered Bonds Act, first introduced in 2008. The US Treasury also lists the options on Federal Deposit Insurance Corp. (FDIC) policy concerning what investors can expect if the bank that ‘covers’ the bonds itself goes out of business.
Garrett’s Act list eligible assets for covered bonds as residential property, home equity assets, as well as auto, commercial and student loans. Credit cards, public sector assets and small business assets are also eligible. The established regulator, if passed, will be required to approve all covered bond platforms, and list on a single website, and establish over-collateralization minimums.
As Garrett discussed in his Q&A, obstacles to introducing the legislation included not only getting co-sponsors, but also satisfying some concerns of the FDIC. One solution seems to be that, in the case of bank failure, the FDIC will have 15 days to shift the platform to another issuer. Thereby disallowing investors from seeking recourse from the FDIC.
In the February issue of HousingWire magazine, Garrett is featured in a lengthy Q&A on his push to get legislative and regulatory recognition for covered bonds, products that are collateralized typically by prime mortgages. Covered bonds are so named for the dual recourse provided, where the issuer is on the hook to pay out regardless of whether or not the collateral performs as expected.
Usually, covered bonds hedge this risk by using over-collateralization as credit enhancement. This allows for non-performing mortgages to be pulled from bonded pools and replaced with performing mortgages.
The platform is Europe’s oldest form of structured finance and has yet to see triple-A defaults. So in that sense, covered bonds remain to be vigorously tested. However in an e-mail to reporters, Garrett, along with support from co-sponsors Rep. Paul Kanjorski (D-Pa.) and Financial Services Committee Ranking Member Spencer Bachus (R-Ala.), says the bill will establish regulatory oversight of covered bond programs, includes provisions for default and insolvency of covered bond issuers and subjects covered bonds to appropriate securities regulations by federal regulators.
Alberto Basu, the head of the US (dollar-denominated) covered bond trading at JP Morgan (JPM: 43.64 0.00%) remarked that such legislation is necessary to show support for the product in the market place. And the Securities Industry and Financial Markets Association (SIFMA), a secondary market trade group, agrees.
“SIFMA’s US Covered Bond Council is pleased to see the increased momentum for a dedicated legislative framework for covered bonds that is fundamental to building a vibrant US covered bonds market,” said Sean Davy, managing director at SIFMA, in a statement. “We thank Congressman Garrett for his leadership on this issue and are pleased to see Reps. Kanjorski and Bachus join him in this effort.”
The United States Covered Bond Act is the legislative follow-up to Garrett’s original legislation, The Equal Treatment for Covered Bonds Act, first introduced in 2008. The US Treasury also lists the options on Federal Deposit Insurance Corp. (FDIC) policy concerning what investors can expect if the bank that ‘covers’ the bonds itself goes out of business.
Garrett’s Act list eligible assets for covered bonds as residential property, home equity assets, as well as auto, commercial and student loans. Credit cards, public sector assets and small business assets are also eligible. The established regulator, if passed, will be required to approve all covered bond platforms, and list on a single website, and establish over-collateralization minimums.
As Garrett discussed in his Q&A, obstacles to introducing the legislation included not only getting co-sponsors, but also satisfying some concerns of the FDIC. One solution seems to be that, in the case of bank failure, the FDIC will have 15 days to shift the platform to another issuer. Thereby disallowing investors from seeking recourse from the FDIC.
Wall Street Breakfast
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Rio, Chinalco reach iron-ore deal. Chinalco (ACH) signed a deal this morning to develop Rio Tinto's (RTP) massive iron ore project in Guinea as a joint venture. Under the terms of a non-binding memorandum of understanding, Rio, which currently owns 95% of the project, will transfer its holdings to a new JV, and Chinalco will take a 47% interest in return for $1.35B. Analysts said the deal, though priced fairly, appeared to be designed to mend relations between the two companies. RTP -0.4% premarket (7:00 ET).
Lloyds surprises with 2010 profit forecast. Lloyds (LYG) surprised investors this morning by saying it expects to return to profit this year as its trading performance improves, impairments ease and costs remain tightly controlled. The news sent Lloyds' shares up premarket, and lifted other U.K. banks as well: LYG +9.1%, RBS +4.7%, BCS +0.7% (7:00 ET).
Accounting gaffe hurts SunPower earnings. SunPower (SPWRA) said it will restate its earnings for 2008-2010 after concluding an internal investigation into accounting issues, resulting in $33.2M in additional expenses and a $16.9M reduction in income. SunPower also released Q4 results yesterday (see details below), reporting a 70% drop in profit on sagging margins. Shares fell nearly 10% in after hours trading.
Jobs bill becomes law. Obama signed a $17.6B jobs bill into law but said the measure "is by no means enough" and more must be done to "bring about a full economic recovery." The new law aims to spur employment by providing tax breaks to businesses that hire new workers.
Regulators point to driver error in Prius crash. Officials from the National Highway Traffic Safety Administration said yesterday that investigation of a Prius (TM) crash in New York shows the driver didn't apply the brakes at the time of the accident and the throttle was open. The NHTSA did not elaborate. A Toyota spokesman declined to comment. Separately, Toyota is demanding a public retraction and formal apology from ABC News (DIS) for an "irresponsible broadcast" last month on purported Toyota defects.
SEC, Fed were warned of Lehman's liquidity problems. Former Merrill Lynch officials reportedly contacted the Federal Reserve and SEC about Lehman Brothers' (LEHMQ.PK) financial health months before it collapsed in 2008. The Merrill officials suggested Lehman was incorrectly calculating a key measure of its liquidity. They had looked into the matter following concerns from trading partners and investors that Merrill may have been less liquid than Lehman.
UBS wants to clean the exec slate. UBS (UBS) said it will seek a formal discharge of board members and senior executives who were in charge during the credit crisis. A formal vote of confidence on management had been pushed off for two years as UBS argued it was inappropriate to hold a vote while internal and external investigations were underway. Shareholders will now be able to express their feelings on the matter at next month's annual meeting. UBS +2.2% premarket (7:00 ET).
China tries to ease yuan tensions. China said this morning that it would send an envoy to the U.S. to discuss "Sino-U.S. trade balance and trade frictions" and to ease tensions caused by disagreement on the yuan's valuation. However, Chinese officials warned pressure from U.S. legislators would only complicate matters and said a further appreciation of the yuan risks driving exporters out of business.
MGM auction doesn't look good. Today is the deadline to bid for debt-laden film studio Metro-Goldwyn-Mayer, but the results are likely to disappoint MGM management. Of the six companies that had been considering bids, it appears only three (including TWX and LGF) are likely to make offers, and the bid range of $1.2B-1.5B is far short of the nearly $4B that MGM owes its bank lenders. In the event of a "busted auction" where bids are too low, the studio may pursue a standalone restructuring plan.
FDIC may extend guarantee program. The FDIC may extend the Transaction Account Guarantee program set up during the peak of the financial crisis. The program is set to expire on June 30 but regulators are worried that doing so could cause liquidity failures at small banks.
Doubts cast on U.S. oil data. Internal Department of Energy documents raise some serious questions as to the accuracy of the U.S.'s oil-inventory data. The figures in the Energy Information Agency's [EIA] weekly oil report affect the production and prices of the world's most important industrial commodity, but the Energy Department documents expose several errors in the report, one of which was large enough to make oil prices jump in September. There are also several problems with the EIA's data collection, including the use of outdated technologies and methodologies, which make errors difficult to detect.
Lehman levies more windfall allegations against Barclays. Lehman Brothers (LEHMQ.PK) filed documents in bankruptcy court yesterday with new allegations against Barclays (BCS), saying the bank received a $13B windfall profit from its deal to buy Lehman's U.S. operations in 2008. Lehman claims new evidence shows the deal presented to the court at the time wasn't the one actually executed, that Barclays unfairly got a $5B discount on Lehman's $70B book of securities and that Barclays paid less than the promised $2B in bonuses to former Lehman employees.
NY AG probes pension spiking. New York Attorney General Andrew Cuomo is investigating the practice of pension "spiking," in which big increases to a government worker's salary are made shortly before retirement to raise the lifelong pension payout. Though spiking is legal in most places, it has come under increased scrutiny in recent years. Cuomo calls it a "manipulation" that adds to the taxpayer burden.
More foreclosed homes to sell. The number of foreclosed homes that banks are trying to sell is on the rise again, suggesting certain U.S. markets will experience further downward pressure on home prices. Mortgage analysts at Barclays Capital estimate banks and mortgage investors held 645,800 foreclosed homes in January, a 4.6% increase from the 617,286 held in December. The supply peaked at around 845,000 in November 2008.
by SA Editor Rachael Granby
Rio, Chinalco reach iron-ore deal. Chinalco (ACH) signed a deal this morning to develop Rio Tinto's (RTP) massive iron ore project in Guinea as a joint venture. Under the terms of a non-binding memorandum of understanding, Rio, which currently owns 95% of the project, will transfer its holdings to a new JV, and Chinalco will take a 47% interest in return for $1.35B. Analysts said the deal, though priced fairly, appeared to be designed to mend relations between the two companies. RTP -0.4% premarket (7:00 ET).
Lloyds surprises with 2010 profit forecast. Lloyds (LYG) surprised investors this morning by saying it expects to return to profit this year as its trading performance improves, impairments ease and costs remain tightly controlled. The news sent Lloyds' shares up premarket, and lifted other U.K. banks as well: LYG +9.1%, RBS +4.7%, BCS +0.7% (7:00 ET).
Accounting gaffe hurts SunPower earnings. SunPower (SPWRA) said it will restate its earnings for 2008-2010 after concluding an internal investigation into accounting issues, resulting in $33.2M in additional expenses and a $16.9M reduction in income. SunPower also released Q4 results yesterday (see details below), reporting a 70% drop in profit on sagging margins. Shares fell nearly 10% in after hours trading.
Jobs bill becomes law. Obama signed a $17.6B jobs bill into law but said the measure "is by no means enough" and more must be done to "bring about a full economic recovery." The new law aims to spur employment by providing tax breaks to businesses that hire new workers.
Regulators point to driver error in Prius crash. Officials from the National Highway Traffic Safety Administration said yesterday that investigation of a Prius (TM) crash in New York shows the driver didn't apply the brakes at the time of the accident and the throttle was open. The NHTSA did not elaborate. A Toyota spokesman declined to comment. Separately, Toyota is demanding a public retraction and formal apology from ABC News (DIS) for an "irresponsible broadcast" last month on purported Toyota defects.
SEC, Fed were warned of Lehman's liquidity problems. Former Merrill Lynch officials reportedly contacted the Federal Reserve and SEC about Lehman Brothers' (LEHMQ.PK) financial health months before it collapsed in 2008. The Merrill officials suggested Lehman was incorrectly calculating a key measure of its liquidity. They had looked into the matter following concerns from trading partners and investors that Merrill may have been less liquid than Lehman.
UBS wants to clean the exec slate. UBS (UBS) said it will seek a formal discharge of board members and senior executives who were in charge during the credit crisis. A formal vote of confidence on management had been pushed off for two years as UBS argued it was inappropriate to hold a vote while internal and external investigations were underway. Shareholders will now be able to express their feelings on the matter at next month's annual meeting. UBS +2.2% premarket (7:00 ET).
China tries to ease yuan tensions. China said this morning that it would send an envoy to the U.S. to discuss "Sino-U.S. trade balance and trade frictions" and to ease tensions caused by disagreement on the yuan's valuation. However, Chinese officials warned pressure from U.S. legislators would only complicate matters and said a further appreciation of the yuan risks driving exporters out of business.
MGM auction doesn't look good. Today is the deadline to bid for debt-laden film studio Metro-Goldwyn-Mayer, but the results are likely to disappoint MGM management. Of the six companies that had been considering bids, it appears only three (including TWX and LGF) are likely to make offers, and the bid range of $1.2B-1.5B is far short of the nearly $4B that MGM owes its bank lenders. In the event of a "busted auction" where bids are too low, the studio may pursue a standalone restructuring plan.
FDIC may extend guarantee program. The FDIC may extend the Transaction Account Guarantee program set up during the peak of the financial crisis. The program is set to expire on June 30 but regulators are worried that doing so could cause liquidity failures at small banks.
Doubts cast on U.S. oil data. Internal Department of Energy documents raise some serious questions as to the accuracy of the U.S.'s oil-inventory data. The figures in the Energy Information Agency's [EIA] weekly oil report affect the production and prices of the world's most important industrial commodity, but the Energy Department documents expose several errors in the report, one of which was large enough to make oil prices jump in September. There are also several problems with the EIA's data collection, including the use of outdated technologies and methodologies, which make errors difficult to detect.
Lehman levies more windfall allegations against Barclays. Lehman Brothers (LEHMQ.PK) filed documents in bankruptcy court yesterday with new allegations against Barclays (BCS), saying the bank received a $13B windfall profit from its deal to buy Lehman's U.S. operations in 2008. Lehman claims new evidence shows the deal presented to the court at the time wasn't the one actually executed, that Barclays unfairly got a $5B discount on Lehman's $70B book of securities and that Barclays paid less than the promised $2B in bonuses to former Lehman employees.
NY AG probes pension spiking. New York Attorney General Andrew Cuomo is investigating the practice of pension "spiking," in which big increases to a government worker's salary are made shortly before retirement to raise the lifelong pension payout. Though spiking is legal in most places, it has come under increased scrutiny in recent years. Cuomo calls it a "manipulation" that adds to the taxpayer burden.
More foreclosed homes to sell. The number of foreclosed homes that banks are trying to sell is on the rise again, suggesting certain U.S. markets will experience further downward pressure on home prices. Mortgage analysts at Barclays Capital estimate banks and mortgage investors held 645,800 foreclosed homes in January, a 4.6% increase from the 617,286 held in December. The supply peaked at around 845,000 in November 2008.
Thursday, March 18, 2010
Thursday's Economic Calendar
Thursday's Economic Calendar
7:30 American Bankers Association Conference
8:30 Consumer Price Index
8:30 Initial Jobless Claims
8:30 Current Account
10:00 Leading Indicators
10:00 Philly Fed Business Outlook
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
7:30 American Bankers Association Conference
8:30 Consumer Price Index
8:30 Initial Jobless Claims
8:30 Current Account
10:00 Leading Indicators
10:00 Philly Fed Business Outlook
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
4:30 PM Money Supply
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Teva said to be Ratiopharm winner. Teva Pharmaceutical (TEVA) has reportedly edged out Pfizer (PFE) and Iceland's Actavis in its bid for Ratiopharm. The companies are close to a formal agreement in which Teva will pay €3.5B ($4.8B) for the German generic-drug maker. TEVA +2.4% premarket (7:00 ET).
Citi's Primerica opts for IPO. Citigroup's (C) Primerica unit filed for an initial public offering of up to $252M. The life insurance unit will sell 18M shares to the public in addition to the 17.2M shares it plans to sell to private equity firm Warburg Pincus. Citigroup, which is trying to offload non-core assets, tried to sell Primerica last year but couldn't find a buyer willing to pay enough. Following the IPO, Citigroup's stake in Primerica will be between 32 and 46 percent, and Citi hopes to divest that stake "as soon as is practicable."
Milan charges banks on derivatives fraud. The City of Milan charged Deutsche Bank (DB), JPMorgan (JPM), UBS (UBS) and Hypo Real Estate with fraud connected to the sale of derivatives. The four firms, 11 bankers and two former city officials will face trial in May for misleading the city on swaps and earning hidden fees. The case could have far broader implications, as prosecutors across Italy are investigating banks that have left local and national government agencies facing potential losses of €2.5B ($3.4B) on derivatives. Premarket: DB -1.2%, JPM -1.2% (7:00 ET).
Apax wants Polycom to go private. Apax Partners is said to be in talks with Polycom (PLCM) to take the video conferencing developer private for more than $3B, or about $37/share. Negotiations have been ongoing since November but deal talks may now fall apart as Polycom's shares have risen more than 40% since discussions between the two sides began. Polycom rose nearly 9% in trading yesterday.
SEC: Lehman oversight a little sloppy. The SEC's Mary Schapiro acknowledged that the agency's oversight of Lehman Brothers (LEHMQ.PK) may have been inadequate during a critical period when the firm may have been hiding its losses. Schapiro said the SEC wasn't aware of an accounting loophole called Repo 105 which allowed Lehman to hide some of the risks it took before it collapsed. The SEC was "ill-suited, because of our disclosure and enforcement mentality, to really convert to being a prudential regulator."
SEC investigates firms' actions pre-meltdown. The SEC's Mary Schapiro confirmed that the agency is investigating the actions of several companies in the lead-up to the financial crisis of 2008. She declined to name specific firms, but said the recently released report on Lehman Brothers' (LEHMQ.PK) failure raised "some very interesting points" and would be helpful in the investigation.
Bernanke, Volcker back Fed bank supervision. Bernanke and Paul Volcker both testified in Congress yesterday. Bernanke urged lawmakers to maintain, or boost, the Federal Reserve's involvement in bank regulation, saying the Fed's role "as lender of last resort, guardian of financial stability, and monetary policymaker" gives it a unique perch from which to monitor risks to firms both large and small and to the broader financial system. Volcker echoed Bernanke's message, saying "there is no other official institution that has the breadth of institutional knowledge, the expertise, and the experience to identify market and institutional vulnerabilities... And the Fed after all, is the only agency that has financial resources at hand in amounts capable of emergency response." A draft bill in the Senate would relegate the Fed to regulating only the largest firms.
Greece may get IMF help in German reversal. In a major reversal for Germany, a government spokesman said Greece should turn to the IMF if it needs aid, and that attempting a Greek rescue without the IMF “would be a very daring experiment.” The comments signal a major rift between Germany's Angela Merkel and European leaders Jean-Claude Trichet, Jean-Claude Juncker and Nicolas Sarkozy. Greece itself said yesterday that it may turn to the IMF for funding help if the rest of the eurozone members don't provide "clear support" next week. The move would be unprecedented for a eurozone member and deeply embarrassing for the bloc. Merkel had also said that expulsion from the eurozone should be a last-resort option for countries that consistently fail to meet the bloc's requirements.
EU countries overly optimistic on budgets. Greece isn't the only European nation in fiscal trouble. The European Commission warned yesterday that Spain, Ireland and France are among the European nations which may miss their budget-deficit targets because they're basing their budget plans on overly-optimistic growth forecasts. The EC has asked several countries for additional details on how they plan to bring their deficits back within EU limits.
CIBC nets subprime suit victory. A U.S. federal judge dismissed a shareholder lawsuit accusing Canadian Imperial Bank of Commerce (CM) and four top executives of misleading investors about its exposure to subprime mortgages. The judge ruled that "CIBC, like so many other institutions, could not have been expected to anticipate the crisis with the accuracy (the) plaintiff enjoys in hindsight."
Wachovia reaches DOJ settlement. Wachovia (WFC) reached a $160M settlement with the Justice Department over charges that a failure in bank controls allowed drug traffickers to launder money. Wachovia "admitted failure to identify, detect, and report suspicious transactions in third-party payment processor accounts," but said it has made significant improvements in its compliance programs since then.
OPEC holds steady. OPEC agreed to keep oil production quotas steady, despite efforts by several members, including Angola and Nigeria, to secure an increase in their output allowances. The group said it won't meet again for seven months, a sign of confidence that crude prices will remain buoyant. Oil rose more than 1% to close near $83/barrel yesterday.
Indian oil pushes for sovereign fund. India's state-owned oil industry is pushing for the creation of India's first sovereign wealth fund, which would be able to compete with China in the race to secure global energy assets. Talks are still at an early stage but any progress in this direction would run counter to an Indian proposal from 2006 for India and China to join forces in bidding for energy projects in order to keep costs down.
Toyota faces racketeering claims. Toyota's potential liability from class-action suits is growing as lawsuits add racketeering claims against the automaker. Toyota is currently facing more than 80 suits in at least 40 states, and the racketeering charges bring the potential liability for Toyota from $2B in damages to more than $10B. Separately, an AP analysis found that the government has received over 100 complaints from drivers who say their recalled Toyotas are still accelerating even after the cars were supposedly fixed.
More pressure on the yuan. China faces additional pressure to let its currency appreciate. Aside from increasingly heated rhetoric coming from the U.S., IMF chief Dominique Strauss-Kahn said yesterday that the yuan is "very much undervalued." World Bank officials, warning that rapid economic growth could cause inflation and asset bubbles, are also pushing China to use its exchange rate to help rebalance its economy. Despite the broad-based calls for an appreciation, some argue that the U.S. is more wrong than China in this case, and that both sides need to be careful to avoid resorting to damaging protectionism. Meanwhile, rumors are flying that China plans to stress test an appreciation of the yuan in certain provinces.
Finra's enforcement chief steps down. Susan Merrill, the head of enforcement at the Financial Industry Regulatory Authority, is stepping down after nearly three years on the job, leaving Finra to find an enforcement chief who can shore up the organization's reputation and bring more cases. In the last three years, Finra's disciplinary actions and fines against the brokerage industry have declined.
The future of phones. Bad news for Google (GOOG), and good news for Sprint (S). Google's trademark application for its Nexus One phone was denied because of "a likelihood of confusion" with a related trademark held by Integra Telecom Inc. Integra currently offers a telecommunications service under the name "Nexus." Google will submit further evidence in support of its application. On a different front, Sprint (S) reportedly plans to introduce the Supersonic, a phone that runs on a 4G network, next week. Sprint is banking on the phone, the first in the U.S. to run on a faster wireless network, to help stem client defections.
Mesa eyes Miramax, but deal's future still unclear. Investment banking firm Mesa Global is said to be among the potential bidders for Disney's (DIS) Miramax film unit. The offer deadline is tomorrow, but sources say a deal may not happen in the near-term because Disney is asking a pricey $650M+ for the unit.
by SA Editor Rachael Granby
Teva said to be Ratiopharm winner. Teva Pharmaceutical (TEVA) has reportedly edged out Pfizer (PFE) and Iceland's Actavis in its bid for Ratiopharm. The companies are close to a formal agreement in which Teva will pay €3.5B ($4.8B) for the German generic-drug maker. TEVA +2.4% premarket (7:00 ET).
Citi's Primerica opts for IPO. Citigroup's (C) Primerica unit filed for an initial public offering of up to $252M. The life insurance unit will sell 18M shares to the public in addition to the 17.2M shares it plans to sell to private equity firm Warburg Pincus. Citigroup, which is trying to offload non-core assets, tried to sell Primerica last year but couldn't find a buyer willing to pay enough. Following the IPO, Citigroup's stake in Primerica will be between 32 and 46 percent, and Citi hopes to divest that stake "as soon as is practicable."
Milan charges banks on derivatives fraud. The City of Milan charged Deutsche Bank (DB), JPMorgan (JPM), UBS (UBS) and Hypo Real Estate with fraud connected to the sale of derivatives. The four firms, 11 bankers and two former city officials will face trial in May for misleading the city on swaps and earning hidden fees. The case could have far broader implications, as prosecutors across Italy are investigating banks that have left local and national government agencies facing potential losses of €2.5B ($3.4B) on derivatives. Premarket: DB -1.2%, JPM -1.2% (7:00 ET).
Apax wants Polycom to go private. Apax Partners is said to be in talks with Polycom (PLCM) to take the video conferencing developer private for more than $3B, or about $37/share. Negotiations have been ongoing since November but deal talks may now fall apart as Polycom's shares have risen more than 40% since discussions between the two sides began. Polycom rose nearly 9% in trading yesterday.
SEC: Lehman oversight a little sloppy. The SEC's Mary Schapiro acknowledged that the agency's oversight of Lehman Brothers (LEHMQ.PK) may have been inadequate during a critical period when the firm may have been hiding its losses. Schapiro said the SEC wasn't aware of an accounting loophole called Repo 105 which allowed Lehman to hide some of the risks it took before it collapsed. The SEC was "ill-suited, because of our disclosure and enforcement mentality, to really convert to being a prudential regulator."
SEC investigates firms' actions pre-meltdown. The SEC's Mary Schapiro confirmed that the agency is investigating the actions of several companies in the lead-up to the financial crisis of 2008. She declined to name specific firms, but said the recently released report on Lehman Brothers' (LEHMQ.PK) failure raised "some very interesting points" and would be helpful in the investigation.
Bernanke, Volcker back Fed bank supervision. Bernanke and Paul Volcker both testified in Congress yesterday. Bernanke urged lawmakers to maintain, or boost, the Federal Reserve's involvement in bank regulation, saying the Fed's role "as lender of last resort, guardian of financial stability, and monetary policymaker" gives it a unique perch from which to monitor risks to firms both large and small and to the broader financial system. Volcker echoed Bernanke's message, saying "there is no other official institution that has the breadth of institutional knowledge, the expertise, and the experience to identify market and institutional vulnerabilities... And the Fed after all, is the only agency that has financial resources at hand in amounts capable of emergency response." A draft bill in the Senate would relegate the Fed to regulating only the largest firms.
Greece may get IMF help in German reversal. In a major reversal for Germany, a government spokesman said Greece should turn to the IMF if it needs aid, and that attempting a Greek rescue without the IMF “would be a very daring experiment.” The comments signal a major rift between Germany's Angela Merkel and European leaders Jean-Claude Trichet, Jean-Claude Juncker and Nicolas Sarkozy. Greece itself said yesterday that it may turn to the IMF for funding help if the rest of the eurozone members don't provide "clear support" next week. The move would be unprecedented for a eurozone member and deeply embarrassing for the bloc. Merkel had also said that expulsion from the eurozone should be a last-resort option for countries that consistently fail to meet the bloc's requirements.
EU countries overly optimistic on budgets. Greece isn't the only European nation in fiscal trouble. The European Commission warned yesterday that Spain, Ireland and France are among the European nations which may miss their budget-deficit targets because they're basing their budget plans on overly-optimistic growth forecasts. The EC has asked several countries for additional details on how they plan to bring their deficits back within EU limits.
CIBC nets subprime suit victory. A U.S. federal judge dismissed a shareholder lawsuit accusing Canadian Imperial Bank of Commerce (CM) and four top executives of misleading investors about its exposure to subprime mortgages. The judge ruled that "CIBC, like so many other institutions, could not have been expected to anticipate the crisis with the accuracy (the) plaintiff enjoys in hindsight."
Wachovia reaches DOJ settlement. Wachovia (WFC) reached a $160M settlement with the Justice Department over charges that a failure in bank controls allowed drug traffickers to launder money. Wachovia "admitted failure to identify, detect, and report suspicious transactions in third-party payment processor accounts," but said it has made significant improvements in its compliance programs since then.
OPEC holds steady. OPEC agreed to keep oil production quotas steady, despite efforts by several members, including Angola and Nigeria, to secure an increase in their output allowances. The group said it won't meet again for seven months, a sign of confidence that crude prices will remain buoyant. Oil rose more than 1% to close near $83/barrel yesterday.
Indian oil pushes for sovereign fund. India's state-owned oil industry is pushing for the creation of India's first sovereign wealth fund, which would be able to compete with China in the race to secure global energy assets. Talks are still at an early stage but any progress in this direction would run counter to an Indian proposal from 2006 for India and China to join forces in bidding for energy projects in order to keep costs down.
Toyota faces racketeering claims. Toyota's potential liability from class-action suits is growing as lawsuits add racketeering claims against the automaker. Toyota is currently facing more than 80 suits in at least 40 states, and the racketeering charges bring the potential liability for Toyota from $2B in damages to more than $10B. Separately, an AP analysis found that the government has received over 100 complaints from drivers who say their recalled Toyotas are still accelerating even after the cars were supposedly fixed.
More pressure on the yuan. China faces additional pressure to let its currency appreciate. Aside from increasingly heated rhetoric coming from the U.S., IMF chief Dominique Strauss-Kahn said yesterday that the yuan is "very much undervalued." World Bank officials, warning that rapid economic growth could cause inflation and asset bubbles, are also pushing China to use its exchange rate to help rebalance its economy. Despite the broad-based calls for an appreciation, some argue that the U.S. is more wrong than China in this case, and that both sides need to be careful to avoid resorting to damaging protectionism. Meanwhile, rumors are flying that China plans to stress test an appreciation of the yuan in certain provinces.
Finra's enforcement chief steps down. Susan Merrill, the head of enforcement at the Financial Industry Regulatory Authority, is stepping down after nearly three years on the job, leaving Finra to find an enforcement chief who can shore up the organization's reputation and bring more cases. In the last three years, Finra's disciplinary actions and fines against the brokerage industry have declined.
The future of phones. Bad news for Google (GOOG), and good news for Sprint (S). Google's trademark application for its Nexus One phone was denied because of "a likelihood of confusion" with a related trademark held by Integra Telecom Inc. Integra currently offers a telecommunications service under the name "Nexus." Google will submit further evidence in support of its application. On a different front, Sprint (S) reportedly plans to introduce the Supersonic, a phone that runs on a 4G network, next week. Sprint is banking on the phone, the first in the U.S. to run on a faster wireless network, to help stem client defections.
Mesa eyes Miramax, but deal's future still unclear. Investment banking firm Mesa Global is said to be among the potential bidders for Disney's (DIS) Miramax film unit. The offer deadline is tomorrow, but sources say a deal may not happen in the near-term because Disney is asking a pricey $650M+ for the unit.
Wednesday, March 17, 2010
Wednesday's Economic Calendar
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Producer Price Index
10:30 EIA Petroleum Inventories
1:45 PM Dallas Fed: 'The Euro and the Dollar in the Crisis and Beyond' conference
2:00 PM Hearing: Fed Bank Supervision and Monetary Policy
7:00 MBA Mortgage Applications
8:30 Producer Price Index
10:30 EIA Petroleum Inventories
1:45 PM Dallas Fed: 'The Euro and the Dollar in the Crisis and Beyond' conference
2:00 PM Hearing: Fed Bank Supervision and Monetary Policy
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
Pfizer to make final bid for Ratiopharm. Pfizer (PFE) is expected to make an offer today for Ratiopharm as part of the final round of bids for the German generic-drug maker. Teva (TEVA) and Iceland's Actavis are also among the final bidders. Sources say Actavis' offer, at around €3B ($4.1B), is thus far the highest. PFE +0.8% premarket (7:00 ET).
Simon readies a second try for GGP. Simon Property Group (SPG) is reportedly preparing a sweetened takeover bid for General Growth Properties (GGP), and will present its improved proposal either late this week or early next. The new offer will have to not only address antitrust questions, but will also have to top the $15/share value in an existing plan from Brookfield Asset Management (BAM) and other GGP investors to recapitalize and split the company.
Blockbuster heading for the chopping block? In a 10-K filing yesterday, Blockbuster (BBI) said it may have to file for bankruptcy as part of a debt exchange, and may pledge Canadian assets as collateral for accounts payable to studios. CEO James Keyes said bankruptcy is unlikely, and the company has been discussing new deals with studios to increase studio revenue share while cutting Blockbuster's DVD costs. Shares fell nearly 28% in after hours trading to $0.29.
Staples to buy rest of Corp. Express Australia. In a long-awaited move, Staples (SPLS) offered to buy the remaining shares it doesn't already own of Corporate Express Australia. Staples holds a 58.6% stake in the company, and its offer values Corporate Express Australia at around $1B Australian ($918M).
CIT posts Q4 loss. In a 10-K filing late yesterday, CIT Group (CIT) said it lost $1B in the fourth quarter, excluding a huge one-time reorganization benefit. Including the reorganization benefit, the company earned $3.2B in Q4. The full-year loss was $4M as losses on bad loans exceeded the financial benefits of CIT's bankruptcy restructuring. Commercial net charge-offs in Q4 totaled $385M, or 4.8% of average finance receivables. Shares rose 2.5% in after hours trading.
Hartford to repay TARP. Hartford Financial Group (HIG) announced its TARP repayment plan yesterday afternoon, which will include an offering of $1.45B in common stock and $500M in mandatory convertible preferred stock, along with debt securities. All told, Hartford will repurchase $3.4B in preferred shares from the Treasury. Shares fell 1.6% in after hours trading.
Harley rises on leveraged buyout rumor. Shares of Harley-Davidson (HOG) rose 7% yesterday on speculation the motorcycle maker may be the target of a leveraged buyout, as traders cited chatter that private-equity firm KKR is a potential bidder. Though the timing of a deal might make sense, many analysts were skeptical, noting that leveraged buyout rumors for several companies have been circulating widely in the last week without any substantiation. One analyst believes that if anything is likely near-term, it will be a "joint venture or fee type of arrangement with a depository institution partner" for Harley's in-house finance unit.
Bernanke pushes for Fed bank oversight. Bernanke will testify in Congress today on the link between the Federal Reserve's bank supervision and monetary policy. He plans to tell lawmakers that the Fed's "wide range of expertise" makes it “uniquely suited to supervise large, complex financial organizations," and that the Fed should retain oversight over smaller institutions as well. According to his prepared testimony, Bernanke will also stress that the central bank's supervisory role complements monetary policy. Paul Volcker will testify at the same hearing.
FOMC maintains rates, language. As widely expected, the Federal Open Market Committee announced that it will keep the federal funds rate at zero to 0.25%. Many were looking to see if the FOMC would change its language on the rate, but its statement was little changed and the committee still expects "exceptionally low levels of the federal funds rate for an extended period." The Fed will move forward with its plan to end its $1.25T of purchases of mortgage backed securities. On the whole, the economy continues to strengthen and labor is stabilizing, but investment in "nonresidential structures" is declining and housing starts are flat and depressed. "Substantial" resource slack should hold down inflation.
Pressure grows for the U.S. to act on yuan. The Senate introduced legislation yesterday that would make it easier for the U.S. to declare currency manipulation and take corrective action, and said China's currency manipulation is hurting the U.S. economy. Even if the bill stalls, this latest policy push may force the White House to take a stronger stance against how the yuan is valued. Meanwhile, China said this morning that it "could not be any clearer" in its repeated commitment to a stable exchange rate, and called on U.S. multinational firms to lobby the White House against taking protectionist measures over China's currency.
Massey Energy to buy Cumberland. Massey Energy (MEE) announced late Tuesday that it's buying private Virginia coal producer Cumberland Resources for $960M in cash and stock. Shares fell 2.15% in after hours trading.
Honda joins the recall train. Honda (HMC) plans to recall 412,000 vehicles in the U.S. because of brake-related defects. The company received customer complaints that the brake pedals may feel soft and slip closer to the floor over time.
Rescap piques buyer interest. BlackRock (BLK) and Blackstone Group (BX) are said to be among the buyers showing early interest in GMAC's Residential Capital unit. Investor Wilbur Ross is also said to be interested, and GMAC has hired Citigroup (C) and Goldman Sachs (GS) as advisors. A deal would be difficult to pull off, however, as heavy losses at the mortgage unit mean a buyer would have to find a way to both pay for the acquisition and fund the business going forward, as well as deal with liabilities from warranties to Fannie Mae (FNM) and Freddie Mac (FRE).
Nissan wants to be the third wheel. Nissan (NSANY.PK) may join Renault and Daimler (DAI) in discussions about an equity tie-up as part of a possible longer-term partnership. The discussions between Renault and Daimler were reported yesterday, citing unnamed sources on the matter, and Nissan's interest was reported today in the Nikkei business daily.
Reliance targets U.S. shale. India's Reliance Industries is said to be in late-stage talks with Atlas Energy (ATLS) to buy a big stake in a U.S. natural-gas field in the Marcellus Shale. Reliance would pay between $1B and $1.5B to take a joint venture stake with Atlas, which has sought a partner for months.
U.K. unemployment much better than expected. U.K. unemployment claims released this morning showed a drop of 32,300 in February, vs. an expected increase of 6,000. January's +23,500 was revised down to a much more mild +5,300, ending concerns that January's large increase signaled a weaker-than-expected economy. The pound is +0.7% against the dollar (7:00 ET).
BoJ loosens monetary policy. The Bank of Japan kept its benchmark interest rate unchanged at 0.1% today, as expected, but opted to further loosen monetary policy by doubling the size of a ¥10T ($111B) program providing low-interest loans to the money market.
Confidence rises, but consumers still nervous. ABC's Consumer Comfort Index rose an out-of-the-ordinary 6 points to -43. Despite the relatively large increase, 90% of Americans still rate the economy negatively, 54% are negative on their personal finances and 71% say it's a bad time to spend money.
by SA Editor Rachael Granby
Pfizer to make final bid for Ratiopharm. Pfizer (PFE) is expected to make an offer today for Ratiopharm as part of the final round of bids for the German generic-drug maker. Teva (TEVA) and Iceland's Actavis are also among the final bidders. Sources say Actavis' offer, at around €3B ($4.1B), is thus far the highest. PFE +0.8% premarket (7:00 ET).
Simon readies a second try for GGP. Simon Property Group (SPG) is reportedly preparing a sweetened takeover bid for General Growth Properties (GGP), and will present its improved proposal either late this week or early next. The new offer will have to not only address antitrust questions, but will also have to top the $15/share value in an existing plan from Brookfield Asset Management (BAM) and other GGP investors to recapitalize and split the company.
Blockbuster heading for the chopping block? In a 10-K filing yesterday, Blockbuster (BBI) said it may have to file for bankruptcy as part of a debt exchange, and may pledge Canadian assets as collateral for accounts payable to studios. CEO James Keyes said bankruptcy is unlikely, and the company has been discussing new deals with studios to increase studio revenue share while cutting Blockbuster's DVD costs. Shares fell nearly 28% in after hours trading to $0.29.
Staples to buy rest of Corp. Express Australia. In a long-awaited move, Staples (SPLS) offered to buy the remaining shares it doesn't already own of Corporate Express Australia. Staples holds a 58.6% stake in the company, and its offer values Corporate Express Australia at around $1B Australian ($918M).
CIT posts Q4 loss. In a 10-K filing late yesterday, CIT Group (CIT) said it lost $1B in the fourth quarter, excluding a huge one-time reorganization benefit. Including the reorganization benefit, the company earned $3.2B in Q4. The full-year loss was $4M as losses on bad loans exceeded the financial benefits of CIT's bankruptcy restructuring. Commercial net charge-offs in Q4 totaled $385M, or 4.8% of average finance receivables. Shares rose 2.5% in after hours trading.
Hartford to repay TARP. Hartford Financial Group (HIG) announced its TARP repayment plan yesterday afternoon, which will include an offering of $1.45B in common stock and $500M in mandatory convertible preferred stock, along with debt securities. All told, Hartford will repurchase $3.4B in preferred shares from the Treasury. Shares fell 1.6% in after hours trading.
Harley rises on leveraged buyout rumor. Shares of Harley-Davidson (HOG) rose 7% yesterday on speculation the motorcycle maker may be the target of a leveraged buyout, as traders cited chatter that private-equity firm KKR is a potential bidder. Though the timing of a deal might make sense, many analysts were skeptical, noting that leveraged buyout rumors for several companies have been circulating widely in the last week without any substantiation. One analyst believes that if anything is likely near-term, it will be a "joint venture or fee type of arrangement with a depository institution partner" for Harley's in-house finance unit.
Bernanke pushes for Fed bank oversight. Bernanke will testify in Congress today on the link between the Federal Reserve's bank supervision and monetary policy. He plans to tell lawmakers that the Fed's "wide range of expertise" makes it “uniquely suited to supervise large, complex financial organizations," and that the Fed should retain oversight over smaller institutions as well. According to his prepared testimony, Bernanke will also stress that the central bank's supervisory role complements monetary policy. Paul Volcker will testify at the same hearing.
FOMC maintains rates, language. As widely expected, the Federal Open Market Committee announced that it will keep the federal funds rate at zero to 0.25%. Many were looking to see if the FOMC would change its language on the rate, but its statement was little changed and the committee still expects "exceptionally low levels of the federal funds rate for an extended period." The Fed will move forward with its plan to end its $1.25T of purchases of mortgage backed securities. On the whole, the economy continues to strengthen and labor is stabilizing, but investment in "nonresidential structures" is declining and housing starts are flat and depressed. "Substantial" resource slack should hold down inflation.
Pressure grows for the U.S. to act on yuan. The Senate introduced legislation yesterday that would make it easier for the U.S. to declare currency manipulation and take corrective action, and said China's currency manipulation is hurting the U.S. economy. Even if the bill stalls, this latest policy push may force the White House to take a stronger stance against how the yuan is valued. Meanwhile, China said this morning that it "could not be any clearer" in its repeated commitment to a stable exchange rate, and called on U.S. multinational firms to lobby the White House against taking protectionist measures over China's currency.
Massey Energy to buy Cumberland. Massey Energy (MEE) announced late Tuesday that it's buying private Virginia coal producer Cumberland Resources for $960M in cash and stock. Shares fell 2.15% in after hours trading.
Honda joins the recall train. Honda (HMC) plans to recall 412,000 vehicles in the U.S. because of brake-related defects. The company received customer complaints that the brake pedals may feel soft and slip closer to the floor over time.
Rescap piques buyer interest. BlackRock (BLK) and Blackstone Group (BX) are said to be among the buyers showing early interest in GMAC's Residential Capital unit. Investor Wilbur Ross is also said to be interested, and GMAC has hired Citigroup (C) and Goldman Sachs (GS) as advisors. A deal would be difficult to pull off, however, as heavy losses at the mortgage unit mean a buyer would have to find a way to both pay for the acquisition and fund the business going forward, as well as deal with liabilities from warranties to Fannie Mae (FNM) and Freddie Mac (FRE).
Nissan wants to be the third wheel. Nissan (NSANY.PK) may join Renault and Daimler (DAI) in discussions about an equity tie-up as part of a possible longer-term partnership. The discussions between Renault and Daimler were reported yesterday, citing unnamed sources on the matter, and Nissan's interest was reported today in the Nikkei business daily.
Reliance targets U.S. shale. India's Reliance Industries is said to be in late-stage talks with Atlas Energy (ATLS) to buy a big stake in a U.S. natural-gas field in the Marcellus Shale. Reliance would pay between $1B and $1.5B to take a joint venture stake with Atlas, which has sought a partner for months.
U.K. unemployment much better than expected. U.K. unemployment claims released this morning showed a drop of 32,300 in February, vs. an expected increase of 6,000. January's +23,500 was revised down to a much more mild +5,300, ending concerns that January's large increase signaled a weaker-than-expected economy. The pound is +0.7% against the dollar (7:00 ET).
BoJ loosens monetary policy. The Bank of Japan kept its benchmark interest rate unchanged at 0.1% today, as expected, but opted to further loosen monetary policy by doubling the size of a ¥10T ($111B) program providing low-interest loans to the money market.
Confidence rises, but consumers still nervous. ABC's Consumer Comfort Index rose an out-of-the-ordinary 6 points to -43. Despite the relatively large increase, 90% of Americans still rate the economy negatively, 54% are negative on their personal finances and 71% say it's a bad time to spend money.
Tuesday, March 16, 2010
Hitting the Redo Button on Recent Regulation by RICK GRANT
Sometimes it seems that the world would work better if more people thought like engineers. Sure, there would be less music and art and fewer people (because it would be harder for couples to hook up). But the world would also come with a version number, so everyone would know that it was a work in progress. And there would be other benefits, too.
I embarked upon this line of reasoning because I had an interesting experience over a recent weekend. I was called upon by a local Robotics Institute to judge a contest where 28 teams of high school students from the eastern US and Canada came together with their robotic creations to compete for prizes and recognition. I came away very impressed and feeling a little bit better about a country that seems to be kicked around quite a bit when it comes to science and math education.
I know we need to do a better job of preparing our kids for a highly technical future, but I was thrilled to know that there are some kids out there who really get this stuff. And it wasn’t just that they knew about software for automation or the physical construction of a robotic device within certain design criteria or even about managing complex machine control via software and sensors. The really cool thing about these kids is that all through the design process, they actually expected things would go wrong.
After the initial design was put down in their engineering notebooks, the rest of the exercise was mostly about watching things go wrong and fixing them in a way that didn’t break something else. Some kids ran out of time before they worked all the bugs out. But even those ‘engineers’ could tell you what they would have tried next, if given the time. I was thrilled.
“This is how things should be approached,” I exclaimed to the other judges, both of whom were professional engineers who simply looked at me and blinked as if they were seeing someone gushing over the fact that the sky was blue. This is how engineers think, I reminded myself.
Wouldn’t it be great if our political leaders thought more like this?
Unfortunately, when we speak of political engineering, we usually mean gaming the system to create an outcome that benefits a special interest instead of one that makes the world a better place. As we watch the government duke it out over healthcare and financial services reform like players in a giant game of pub sumo wrestling, we get no indication that anyone is seriously considering the long term outcome of their work or that there might be a version 2.0 somewhere down the road.
No, when it comes to politics, the players are out to “fix” the problem quickly, preferably before the next election. A real engineer would not do well in this environment. In fact, according to the National Association of Professional Engineers, there is only one licensed professional engineer currently serving in Congress (Joe Barton, P.E.(R-TX), holds a B.S. degree in engineering from Texas A&M University and a master’s degree in industrial administration). There are a handful more that have engineering degrees, but aren’t practicing engineers.
I bet if you put a bunch of mortgage technologists in charge of the regulations, you’d come up with something like…well, like MISMO. Granted, it took a long time to bash out these standards and they’re still under construction and they likely always will be, but they work and they’ve put the vast majority of industry players on the same page. Big win.
Of course, in this case, the industry knew exactly what the inputs would be and what outputs were expected and so they worked together to connect the dots. The kids building robots didn’t have that luxury. They had to make assumptions about how their robot would function in the real world, test to the point of failure and then come up with new plans. Even then, they were unsure of what they would be competing against until the day of the competition, so they had to create contingency plans there as well.
Our political leaders don’t have to guess what problems exist in their districts. They have plenty of people to tell them, including lobbyists, community organizations, such as ACORN, and other special interests. Sometimes, they get feedback from the people most likely to be affected by the laws they make, but too often that feedback comes after the law is already on the books. By then, there’s no easy way to fix it.
If engineers were in charge, they would put a big red “Redo” button on the side of every new law, making it easy to get to the next version in the case of unintended consequences. Wouldn’t it be great if we could hit a redo button on some recent legislation affecting our industry? What would you delete?
I embarked upon this line of reasoning because I had an interesting experience over a recent weekend. I was called upon by a local Robotics Institute to judge a contest where 28 teams of high school students from the eastern US and Canada came together with their robotic creations to compete for prizes and recognition. I came away very impressed and feeling a little bit better about a country that seems to be kicked around quite a bit when it comes to science and math education.
I know we need to do a better job of preparing our kids for a highly technical future, but I was thrilled to know that there are some kids out there who really get this stuff. And it wasn’t just that they knew about software for automation or the physical construction of a robotic device within certain design criteria or even about managing complex machine control via software and sensors. The really cool thing about these kids is that all through the design process, they actually expected things would go wrong.
After the initial design was put down in their engineering notebooks, the rest of the exercise was mostly about watching things go wrong and fixing them in a way that didn’t break something else. Some kids ran out of time before they worked all the bugs out. But even those ‘engineers’ could tell you what they would have tried next, if given the time. I was thrilled.
“This is how things should be approached,” I exclaimed to the other judges, both of whom were professional engineers who simply looked at me and blinked as if they were seeing someone gushing over the fact that the sky was blue. This is how engineers think, I reminded myself.
Wouldn’t it be great if our political leaders thought more like this?
Unfortunately, when we speak of political engineering, we usually mean gaming the system to create an outcome that benefits a special interest instead of one that makes the world a better place. As we watch the government duke it out over healthcare and financial services reform like players in a giant game of pub sumo wrestling, we get no indication that anyone is seriously considering the long term outcome of their work or that there might be a version 2.0 somewhere down the road.
No, when it comes to politics, the players are out to “fix” the problem quickly, preferably before the next election. A real engineer would not do well in this environment. In fact, according to the National Association of Professional Engineers, there is only one licensed professional engineer currently serving in Congress (Joe Barton, P.E.(R-TX), holds a B.S. degree in engineering from Texas A&M University and a master’s degree in industrial administration). There are a handful more that have engineering degrees, but aren’t practicing engineers.
I bet if you put a bunch of mortgage technologists in charge of the regulations, you’d come up with something like…well, like MISMO. Granted, it took a long time to bash out these standards and they’re still under construction and they likely always will be, but they work and they’ve put the vast majority of industry players on the same page. Big win.
Of course, in this case, the industry knew exactly what the inputs would be and what outputs were expected and so they worked together to connect the dots. The kids building robots didn’t have that luxury. They had to make assumptions about how their robot would function in the real world, test to the point of failure and then come up with new plans. Even then, they were unsure of what they would be competing against until the day of the competition, so they had to create contingency plans there as well.
Our political leaders don’t have to guess what problems exist in their districts. They have plenty of people to tell them, including lobbyists, community organizations, such as ACORN, and other special interests. Sometimes, they get feedback from the people most likely to be affected by the laws they make, but too often that feedback comes after the law is already on the books. By then, there’s no easy way to fix it.
If engineers were in charge, they would put a big red “Redo” button on the side of every new law, making it easy to get to the next version in the case of unintended consequences. Wouldn’t it be great if we could hit a redo button on some recent legislation affecting our industry? What would you delete?
Monday, March 15, 2010
Today's Economic Calendar
Monday's Economic Calendar
8:30 Empire State Mfg Survey
9:00 International Capital Flow
9:15 Industrial Production
1:00 PM NAHB Housing Market Index
8:30 Empire State Mfg Survey
9:00 International Capital Flow
9:15 Industrial Production
1:00 PM NAHB Housing Market Index
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachel Granby
CNOOC seals oil and gas JV. CNOOC (CEO) has agreed to pay $3.1B for a 50% stake in Bridas Corp., the subsidiary owned by Argentinian oil giant Bridas Energy Holdings. This is CNOOC's first foray into Latin America. Following this transaction, CNOOC, China’s biggest offshore oil explorer, may step up its overseas acquisitions as it works to reach its goal of boosting production by 28% this year.
Dodd pushes forward on financial reform. Sen. Chris Dodd, the chairman of the Senate Banking Committee, will unveil a draft bill for financial reform today that will, among other points, consolidate banking regulators, create a systemic risk council and place a new consumer watchdog agency in the Federal Reserve. Despite the fact that Republicans view it as "a much better bill" than the one introduced in November, Republican lawmakers say it's still too far to the left and they can't support it without amendments that will push it back to the middle. Meanwhile, financial firms are bracing themselves for legislation that may be much tougher than what was expected just a few weeks ago.
Arrow may reject Shell, PetroChina bid. Arrow Energy may reject a $3.1B bid from Royal Dutch Shell (RDS.A) and PetroChina (PTR) as being too low. Though the offer represents a 28% premium to Arrow's stock, sources said Arrow is trying to decide whether it can deliver better returns for shareholders by pursuing its own liquefied natural gas plans. A rejection could trigger a higher, hostile bid by Shell and PetroChina.
Deal nears for sale of Hilfiger brand. Clothing conglomerate Phillips-Van Heusen (PVH) is reportedly close to buying Tommy Hilfiger Corp. for around €2.2B ($3B) in cash and stock. Phillips-Van Heusen, which owns brands like Calvin Klein and Kenneth Cole, is hoping to use Hilfiger's strong European distribution channels for its own products. Though talks are ongoing, sources said a deal is possible as soon as this morning.
T. Rowe Price eyes stake in China fund. T. Rowe Price (TROW) is reportedly in advanced talks to buy a stake in China Asset Management from Chinese brokerage Citic Securities. Citic has been told by regulators to sell a 51% stake in China Asset Management, said one source, in a deal that could be worth more than 9B yuan ($1.32B). It's unclear how big a stake T. Rowe Price is looking to buy, as foreign investors can own a maximum of 49% of a Chinese fund house.
Mark-to-market back in the spotlight. The Financial Accounting Standards Board is likely to propose an expansion of mark-to-market to include assets such as loans. At present, banks hold loans at their original costs and create reserves based on their own view of potential losses. If the proposal moves forward, it will mean major changes for banks' balance sheets; looking at JPMorgan (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC), the proposal could affect $2.8T of loans, or around 40% of their total assets. Smaller banks would see an even bigger impact.
UBS hopeful for 2010. In its annual report, released today, UBS (UBS) expressed confidence about its ability to stage a turnaround this year, noting that "more favorable market conditions in January and February 2010 have benefited most of our businesses." For 2009, the company had a net loss of 2.74B Swiss francs ($2.6B), better than the year-earlier loss of 21.3B francs. Executive board members earned 68.7M francs in 2009.
China concerned about safety of dollar assets. China had some harsh words for the U.S. at the end of its annual legislative session on Sunday. Chinese Premier Wen Jiabao said he doesn't think the yuan is undervalued, warning the U.S. and other countries not to pressure the country for a currency appreciation. He also expressed his continued concern about dollar volatility, calling U.S. efforts to boost exports through a weaker dollar "a kind of trade protectionism." Wen asked the U.S. to “take concrete steps to reassure investors” about the safety of dollar assets.
Moody's: U.S. triple-A safe, for now. The four large countries with triple-A credit ratings - the U.K., the U.S., France and Germany - all face "an increasingly delicate balancing act," said Moody's, as they consider ways to reduce government debt. None of the four countries are in immediate risk of a downgrade, but their "'distance-to-downgrade' has in all cases substantially diminished." Since much of the global rebound seems to have bypassed the four countries, there is "substantial execution risk" in the countries' efforts to cut spending without derailing a recovery.
Google likely to exit China. Google (GOOG) is '99.9%' certain that it will shut down its search engine in China, sources say, and has drawn up detailed plans about how to wind down its search operations there. The company is likely to take action within weeks, leaving the growing Chinese internet market dominated almost entirely by local companies. Meanwhile, Chinese authorities have warned major partners of Google's China-based search engine that they must adhere to local censorship laws even if Google does not. GOOG -0.9% premarket (7:00 ET).
U.S. in talks on Pacific trade deal. Trade talks are underway between the U.S., Australia and six other nations on a transpacific trade deal that could add momentum to stalled World Trade Organization talks. The U.S. hopes that joining an expanded Trans Pacific Partnership pact will help the country meet its goal of doubling exports in five years, and will also create jobs in the U.S. All told, the eight countries (Australia, Peru, Vietnam, the U.S., Chile, Singapore, New Zealand and Brunei) have a combined GDP of $16T.
AIG tries to end bonus backlash. AIG (AIG) is expected to pay $46M in retention bonuses today to current and former employees of its financial products unit, around 30% less than previously scheduled. AIG executives are hoping that by holding back $21M in bonuses, they can finally put an end to the bonus backlash that has plagued the insurer since it was bailed out by the government in the fall of 2008.
Blockbuster looks to sell European arm. Blockbuster (BBI) has put its European arm up for sale, including 650 stores in the U.K. and outlets in Denmark, Ireland and Italy. The struggling movie rental chain is facing more than $1B of debts and is trying to sell the division, which it values at around $76M, to raise some cash.
Warner Music, KKR have an eye on EMI. Warner Music Group (WMG) and private-equity firm KKR are reportedly in early-stage talks about how to structure a breakup bid for EMI. KKR would take the music publishing arm of EMI and Warner Music would take EMI's recorded music division. EMI is owned by private equity group Terra Firma, but could be taken over by its lender Citigroup (C) if it doesn't come up with £120M ($182M) by June 14. In that event, sources say Citigroup would be quick to put EMI up for sale.
EU leaders want to help Greece without paying. European finance ministers are still hoping that a bailout of Greece will be unnecessary, and are meeting today to work on plans to help Greece push past its debt crisis. Any aid would likely be through either loan guarantees or bilateral loans. Meanwhile, the main sales tax in Greece is rising to 21% from 19% as of today, increasing the cost of fuel and most consumer goods and services.
Friday's failures. Three more banks were closed by regulators on Friday, bringing this year's total failures to 30. The closures in Florida, Louisiana, and New York are estimated to cost the FDIC's insurance fund $183.4M.
by SA Editor Rachel Granby
CNOOC seals oil and gas JV. CNOOC (CEO) has agreed to pay $3.1B for a 50% stake in Bridas Corp., the subsidiary owned by Argentinian oil giant Bridas Energy Holdings. This is CNOOC's first foray into Latin America. Following this transaction, CNOOC, China’s biggest offshore oil explorer, may step up its overseas acquisitions as it works to reach its goal of boosting production by 28% this year.
Dodd pushes forward on financial reform. Sen. Chris Dodd, the chairman of the Senate Banking Committee, will unveil a draft bill for financial reform today that will, among other points, consolidate banking regulators, create a systemic risk council and place a new consumer watchdog agency in the Federal Reserve. Despite the fact that Republicans view it as "a much better bill" than the one introduced in November, Republican lawmakers say it's still too far to the left and they can't support it without amendments that will push it back to the middle. Meanwhile, financial firms are bracing themselves for legislation that may be much tougher than what was expected just a few weeks ago.
Arrow may reject Shell, PetroChina bid. Arrow Energy may reject a $3.1B bid from Royal Dutch Shell (RDS.A) and PetroChina (PTR) as being too low. Though the offer represents a 28% premium to Arrow's stock, sources said Arrow is trying to decide whether it can deliver better returns for shareholders by pursuing its own liquefied natural gas plans. A rejection could trigger a higher, hostile bid by Shell and PetroChina.
Deal nears for sale of Hilfiger brand. Clothing conglomerate Phillips-Van Heusen (PVH) is reportedly close to buying Tommy Hilfiger Corp. for around €2.2B ($3B) in cash and stock. Phillips-Van Heusen, which owns brands like Calvin Klein and Kenneth Cole, is hoping to use Hilfiger's strong European distribution channels for its own products. Though talks are ongoing, sources said a deal is possible as soon as this morning.
T. Rowe Price eyes stake in China fund. T. Rowe Price (TROW) is reportedly in advanced talks to buy a stake in China Asset Management from Chinese brokerage Citic Securities. Citic has been told by regulators to sell a 51% stake in China Asset Management, said one source, in a deal that could be worth more than 9B yuan ($1.32B). It's unclear how big a stake T. Rowe Price is looking to buy, as foreign investors can own a maximum of 49% of a Chinese fund house.
Mark-to-market back in the spotlight. The Financial Accounting Standards Board is likely to propose an expansion of mark-to-market to include assets such as loans. At present, banks hold loans at their original costs and create reserves based on their own view of potential losses. If the proposal moves forward, it will mean major changes for banks' balance sheets; looking at JPMorgan (JPM), Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC), the proposal could affect $2.8T of loans, or around 40% of their total assets. Smaller banks would see an even bigger impact.
UBS hopeful for 2010. In its annual report, released today, UBS (UBS) expressed confidence about its ability to stage a turnaround this year, noting that "more favorable market conditions in January and February 2010 have benefited most of our businesses." For 2009, the company had a net loss of 2.74B Swiss francs ($2.6B), better than the year-earlier loss of 21.3B francs. Executive board members earned 68.7M francs in 2009.
China concerned about safety of dollar assets. China had some harsh words for the U.S. at the end of its annual legislative session on Sunday. Chinese Premier Wen Jiabao said he doesn't think the yuan is undervalued, warning the U.S. and other countries not to pressure the country for a currency appreciation. He also expressed his continued concern about dollar volatility, calling U.S. efforts to boost exports through a weaker dollar "a kind of trade protectionism." Wen asked the U.S. to “take concrete steps to reassure investors” about the safety of dollar assets.
Moody's: U.S. triple-A safe, for now. The four large countries with triple-A credit ratings - the U.K., the U.S., France and Germany - all face "an increasingly delicate balancing act," said Moody's, as they consider ways to reduce government debt. None of the four countries are in immediate risk of a downgrade, but their "'distance-to-downgrade' has in all cases substantially diminished." Since much of the global rebound seems to have bypassed the four countries, there is "substantial execution risk" in the countries' efforts to cut spending without derailing a recovery.
Google likely to exit China. Google (GOOG) is '99.9%' certain that it will shut down its search engine in China, sources say, and has drawn up detailed plans about how to wind down its search operations there. The company is likely to take action within weeks, leaving the growing Chinese internet market dominated almost entirely by local companies. Meanwhile, Chinese authorities have warned major partners of Google's China-based search engine that they must adhere to local censorship laws even if Google does not. GOOG -0.9% premarket (7:00 ET).
U.S. in talks on Pacific trade deal. Trade talks are underway between the U.S., Australia and six other nations on a transpacific trade deal that could add momentum to stalled World Trade Organization talks. The U.S. hopes that joining an expanded Trans Pacific Partnership pact will help the country meet its goal of doubling exports in five years, and will also create jobs in the U.S. All told, the eight countries (Australia, Peru, Vietnam, the U.S., Chile, Singapore, New Zealand and Brunei) have a combined GDP of $16T.
AIG tries to end bonus backlash. AIG (AIG) is expected to pay $46M in retention bonuses today to current and former employees of its financial products unit, around 30% less than previously scheduled. AIG executives are hoping that by holding back $21M in bonuses, they can finally put an end to the bonus backlash that has plagued the insurer since it was bailed out by the government in the fall of 2008.
Blockbuster looks to sell European arm. Blockbuster (BBI) has put its European arm up for sale, including 650 stores in the U.K. and outlets in Denmark, Ireland and Italy. The struggling movie rental chain is facing more than $1B of debts and is trying to sell the division, which it values at around $76M, to raise some cash.
Warner Music, KKR have an eye on EMI. Warner Music Group (WMG) and private-equity firm KKR are reportedly in early-stage talks about how to structure a breakup bid for EMI. KKR would take the music publishing arm of EMI and Warner Music would take EMI's recorded music division. EMI is owned by private equity group Terra Firma, but could be taken over by its lender Citigroup (C) if it doesn't come up with £120M ($182M) by June 14. In that event, sources say Citigroup would be quick to put EMI up for sale.
EU leaders want to help Greece without paying. European finance ministers are still hoping that a bailout of Greece will be unnecessary, and are meeting today to work on plans to help Greece push past its debt crisis. Any aid would likely be through either loan guarantees or bilateral loans. Meanwhile, the main sales tax in Greece is rising to 21% from 19% as of today, increasing the cost of fuel and most consumer goods and services.
Friday's failures. Three more banks were closed by regulators on Friday, bringing this year's total failures to 30. The closures in Florida, Louisiana, and New York are estimated to cost the FDIC's insurance fund $183.4M.
Friday, March 12, 2010
Today's Economic Calendar
Friday's Economic Calendar
8:30 Retail Sales
9:55 Reuters/UofM Consumer Sentiment
10:00 Business Inventories
8:30 Retail Sales
9:55 Reuters/UofM Consumer Sentiment
10:00 Business Inventories
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
S&P gains some altitude. The S&P 500 closed at 1,150.24, a 17-month closing high, thanks to a late rally led by bank shares. Financial stocks continued their recent gains amid speculation that new banking regulations being studied by Congress could be watered down.
Everything you ever wanted to know about Lehman's failure. A court-appointed examiner has at long last released his report on Lehman Brothers' (LEHMQ.PK) failure. Among the most salient points in the 2,200 page report: Though the firm's directors didn't breach a fiduciary duty as it gathered toxic mortgages, their conduct was "subject to question." Misleading statements were certified by CEO Dick Fuld, CFO Erin Callan and others, and the firm was insolvent for weeks before it filed for bankruptcy. JPMorgan Chase (JPM) and Citigroup (C) helped cause the illiquidity that led to Lehman's collapse. Some assets were "improperly transferred" in Lehman's deal with Barclays (BCS).
U.S. credit rating at risk. The triple-A credit rating of the U.S. is at risk, warned ratings agency S&P, unless the country creates a credible medium-term plan to rein in fiscal spending. If no action is taken, "external creditors could reduce their U.S. dollar holdings, especially if they conclude that eurozone members are adopting stronger macroeconomic policies." This could hurt the dollar's status as a global reserve currency and consequently "weigh on the AAA rating on the U.S."
Agrium abandons CF bid, Yara abandons Terra bid. Agrium (AGU) has abandoned its $5.4B bid for CF Industries (CF), ending one part of the fertilizer war that's been going on for more than a year. The second part of that war was brought to a close this morning, when Yara International said it would not raise its $4.1B offer for Terra Industries (TRA) to meet CF's "superior" $4.7B offer. The two moves pave the way for CF to acquire Terra, as it planned.
China tells U.S. to back off yuan appreciation calls. Chinese officials warned the U.S. not to make a political issue out of the yuan, while the White House is trying to decide whether to label China as a "currency manipulator" and yesterday called on the country to move to a "more market-oriented exchange rate." China said the U.S. should look to itself to boost exports (see below) and not blame other countries.
Obama eyes Yellen for Fed slot. Obama reportedly plans to tap Janet Yellen to be vice chairman of the Federal Reserve Board. Yellen has been president of the Federal Reserve Bank of San Francisco since 2004 and a strong supporter of Bernanke's policies.
Goldman gets go-ahead for ResCap sale. Sources say GMAC (GKM) has hired Goldman Sachs (GS) to sell its troubled mortgage unit ResCap. Warren Buffett (BRK.A), who already owns a chunk of the ResCap's debt, is seen as a likely buyer.
U.S. export uptick at risk. A recovery in Asia and a weaker dollar are contributing to an upsurge in U.S. exports, but the trend could be cut short because of shipping bottlenecks which have left goods stranded in warehouses and shipping containers. During the recession, shipping rates dropped below the cost of operation for some routes, which led to carriers idling ships, cutting trips to the U.S., and reducing the speed at which their ships travel to save fuel. Many shippers have not yet reversed these measures, resulting in the current shipping shortage.
Financial reform is coming. Sen. Chris Dodd failed to drum up bipartisan support for the financial reform bill, but said he's moving forward anyway. Though Dodd's decision to break off negotiations with Republicans could speed the bill's progress, it also makes it more likely that a substantive regulatory overhaul won't get approved. Dodd plans to introduce the legislation on Monday.
EU pushing forward on hedge fund rules. The U.K.'s Gordon Brown and France's Nicolas Sarkozy will meet today to try to reach a compromise on proposed EU financial reforms. Specifically, the U.S. and U.K. are concerned that the tighter regulatory controls proposed could hurt the hedge fund and private equity industries.
Americans are regaining wealth, but not spending it. There were some encouraging signs to be found in yesterday's Flow of Funds report. Though the gain was slight, household net worth rose 1.3% last quarter to $54.2T, the third consecutive quarterly gain. However, Americans' net worth would have to rise another 21% to return to its pre-recession peak of $65.9T. Real estate holdings edged up 0.2%, and the value of stocks climbed 4%. Household debt contracted at an annualized 1.75% in 2009, the first annual decline since records began in 1945.
NHTSA wants more power over auto industry. As it comes under question for its handling of Toyota's (TM) safety problems, the National Highway Traffic Safety Administration may ask Congress for more authority to regulate the auto industry. The agency plans to take a "hard look" at its power to set safety standards, and warns current authority may be outdated given the modern technology used in cars. One lawmaker responded that the NHTSA's problems seem to have more to do with "ineptitude" and lack of money than with insufficient powers.
Comcast-NBC deal to be reviewed. Federal antitrust regulators promised to undertake a rigorous review of the proposed deal between Comcast (CMCSA) and NBC (GE). Though many industry analysts expect the deal to be conditionally approved, lawmakers expressed concern at a hearing yesterday that combining both content and distribution into one company would potentially leave consumers with less programming and higher prices.
AIG employees pay back $45M. AIG (AIG) will reportedly recoup $45M in controversial retention payments it made to employees in 2009. Employees have agreed to give back $40M, and the remaining $5M will be deducted from 2010 retention payments that were going to be paid to former AIG employees.
Chicago exchange to get its IPO. As expected, the Chicago Board Options Exchange filed for an initial public offering in which it plans to raise as much as $300M. The IPO will be completed by the end of the second quarter, "pending favorable market conditions."
Friday's failures come a bit early. Regulators closed New York City's LibertyPointe Bank yesterday, bringing this year's failures up to 27. The closure is estimated to cost the FDIC's insurance fund $24.8M.
by SA Editor Rachael Granby
S&P gains some altitude. The S&P 500 closed at 1,150.24, a 17-month closing high, thanks to a late rally led by bank shares. Financial stocks continued their recent gains amid speculation that new banking regulations being studied by Congress could be watered down.
Everything you ever wanted to know about Lehman's failure. A court-appointed examiner has at long last released his report on Lehman Brothers' (LEHMQ.PK) failure. Among the most salient points in the 2,200 page report: Though the firm's directors didn't breach a fiduciary duty as it gathered toxic mortgages, their conduct was "subject to question." Misleading statements were certified by CEO Dick Fuld, CFO Erin Callan and others, and the firm was insolvent for weeks before it filed for bankruptcy. JPMorgan Chase (JPM) and Citigroup (C) helped cause the illiquidity that led to Lehman's collapse. Some assets were "improperly transferred" in Lehman's deal with Barclays (BCS).
U.S. credit rating at risk. The triple-A credit rating of the U.S. is at risk, warned ratings agency S&P, unless the country creates a credible medium-term plan to rein in fiscal spending. If no action is taken, "external creditors could reduce their U.S. dollar holdings, especially if they conclude that eurozone members are adopting stronger macroeconomic policies." This could hurt the dollar's status as a global reserve currency and consequently "weigh on the AAA rating on the U.S."
Agrium abandons CF bid, Yara abandons Terra bid. Agrium (AGU) has abandoned its $5.4B bid for CF Industries (CF), ending one part of the fertilizer war that's been going on for more than a year. The second part of that war was brought to a close this morning, when Yara International said it would not raise its $4.1B offer for Terra Industries (TRA) to meet CF's "superior" $4.7B offer. The two moves pave the way for CF to acquire Terra, as it planned.
China tells U.S. to back off yuan appreciation calls. Chinese officials warned the U.S. not to make a political issue out of the yuan, while the White House is trying to decide whether to label China as a "currency manipulator" and yesterday called on the country to move to a "more market-oriented exchange rate." China said the U.S. should look to itself to boost exports (see below) and not blame other countries.
Obama eyes Yellen for Fed slot. Obama reportedly plans to tap Janet Yellen to be vice chairman of the Federal Reserve Board. Yellen has been president of the Federal Reserve Bank of San Francisco since 2004 and a strong supporter of Bernanke's policies.
Goldman gets go-ahead for ResCap sale. Sources say GMAC (GKM) has hired Goldman Sachs (GS) to sell its troubled mortgage unit ResCap. Warren Buffett (BRK.A), who already owns a chunk of the ResCap's debt, is seen as a likely buyer.
U.S. export uptick at risk. A recovery in Asia and a weaker dollar are contributing to an upsurge in U.S. exports, but the trend could be cut short because of shipping bottlenecks which have left goods stranded in warehouses and shipping containers. During the recession, shipping rates dropped below the cost of operation for some routes, which led to carriers idling ships, cutting trips to the U.S., and reducing the speed at which their ships travel to save fuel. Many shippers have not yet reversed these measures, resulting in the current shipping shortage.
Financial reform is coming. Sen. Chris Dodd failed to drum up bipartisan support for the financial reform bill, but said he's moving forward anyway. Though Dodd's decision to break off negotiations with Republicans could speed the bill's progress, it also makes it more likely that a substantive regulatory overhaul won't get approved. Dodd plans to introduce the legislation on Monday.
EU pushing forward on hedge fund rules. The U.K.'s Gordon Brown and France's Nicolas Sarkozy will meet today to try to reach a compromise on proposed EU financial reforms. Specifically, the U.S. and U.K. are concerned that the tighter regulatory controls proposed could hurt the hedge fund and private equity industries.
Americans are regaining wealth, but not spending it. There were some encouraging signs to be found in yesterday's Flow of Funds report. Though the gain was slight, household net worth rose 1.3% last quarter to $54.2T, the third consecutive quarterly gain. However, Americans' net worth would have to rise another 21% to return to its pre-recession peak of $65.9T. Real estate holdings edged up 0.2%, and the value of stocks climbed 4%. Household debt contracted at an annualized 1.75% in 2009, the first annual decline since records began in 1945.
NHTSA wants more power over auto industry. As it comes under question for its handling of Toyota's (TM) safety problems, the National Highway Traffic Safety Administration may ask Congress for more authority to regulate the auto industry. The agency plans to take a "hard look" at its power to set safety standards, and warns current authority may be outdated given the modern technology used in cars. One lawmaker responded that the NHTSA's problems seem to have more to do with "ineptitude" and lack of money than with insufficient powers.
Comcast-NBC deal to be reviewed. Federal antitrust regulators promised to undertake a rigorous review of the proposed deal between Comcast (CMCSA) and NBC (GE). Though many industry analysts expect the deal to be conditionally approved, lawmakers expressed concern at a hearing yesterday that combining both content and distribution into one company would potentially leave consumers with less programming and higher prices.
AIG employees pay back $45M. AIG (AIG) will reportedly recoup $45M in controversial retention payments it made to employees in 2009. Employees have agreed to give back $40M, and the remaining $5M will be deducted from 2010 retention payments that were going to be paid to former AIG employees.
Chicago exchange to get its IPO. As expected, the Chicago Board Options Exchange filed for an initial public offering in which it plans to raise as much as $300M. The IPO will be completed by the end of the second quarter, "pending favorable market conditions."
Friday's failures come a bit early. Regulators closed New York City's LibertyPointe Bank yesterday, bringing this year's failures up to 27. The closure is estimated to cost the FDIC's insurance fund $24.8M.
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