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.