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%.