Wall Street Morning News

Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby

AIG may go after Goldman on CDO losses. AIG (AIG) may go after Goldman Sachs (GS) over losses it suffered on $6B of insurance deals tied to mortgage-backed securities. AIG lost around $2B on the deals, and any action on the part of the insurer could signal the SEC's decision to file civil fraud charges against Goldman is about to set off a wave of investor lawsuits. Financial firms should brace themselves, as the fallout may not be limited to Goldman alone and litigation risk post-crisis has the potential to get very costly very quickly. According to a Credit Suisse report, Bank of America/Merrill Lynch (BAC) leads the "CDO litigation risk" list after offering $16.85B of CDOs similar to the ones Goldman is being charged for. Premarket: GS +2.6%, BAC +0.6% (7:00 ET).

SEC was split on Goldman charges. The SEC's decision to bring civil fraud charges against Goldman Sachs (GS) was hardly unanimous; the five-member commission voted 3-2 along political lines in favor of the charges, with the unusual split threatening to politicize one of the agency's biggest cases in years. Both Republican commissioners objected to the charges, and Rep. Darrell Issa (R., Calif.) plans to send the SEC a letter today questioning why the agency chose to press charges at the same time lawmakers are fighting over a financial reform bill.

U.K. opens formal Goldman probe. The U.K.'s Financial Services Authority announced today that it will launch a formal investigation into Goldman Sachs' (GS) London units in connection to the SEC's recent allegations. German and French securities regulators are considering whether to launch investigations of their own.

Fuld defends Lehman. Former Lehman Brothers (LEHMQ.PK) CEO Dick Fuld will testify before lawmakers today on Lehman's failure. According to his prepared testimony, Fuld will argue that Lehman has been "unfairly vilified," that he wasn't aware of the bank's controversial Repo 105 transactions until a year after Lehman filed for bankruptcy and that, in any case, "Lehman should not be criticized for complying with the applicable accounting standards." Notably, Fuld will also say that the SEC and Federal Reserve were aware of everything happening at Lehman as it moved towards bankruptcy, a claim that contradicts with regulators' version of events. Bernanke, Geithner and the SEC's Schapiro will also testify at the hearing.

More Toyota recalls. Toyota (TM) is recalling its Lexus GX 460 SUV after Consumer Reports called it a "safety risk" and company technicians were able to replicate the problem. Toyota, which had halted sales of the SUV last week, said a software fix for the stability control system will be at dealers by the end of April. The recall affects around 13,000 vehicles, including 9,400 in the U.S.

California takes Moody's to court. California is suing Moody's (MCO) to force it to explain the ratings it assigned during the crisis. California's Attorney General Jerry Brown said the state is seeking a court order to make Moody's comply with a subpoena issued in September, which seeks "information regarding Moody's decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities." Brown said Moody's has been stonewalling and had called the subpoena "a waste of time."

Greece may need far more than €30B in aid. Bundesbank President Axel Weber told German lawmakers that Greece may need more than the €45B ($61B) in aid that the EU and IMF have committed, said sources present at the briefing. Greece may ultimately need as much as €80B to avoid default. Weber also expressed concern that Greek citizens demonstrating against austerity measures don't realize what a serious situation Greece faces, and that Greece's situation is worsening.

CKE dumps THL for superior bid. CKE Restaurants (CKR) said this morning that it has received a superior bid from Western Acquisition Holdings and will terminate its merger agreement with private-equity firm Thomas H. Lee Partners. Western Acquisition offered $12.55 per share in cash, compared to THL's offer of $11.05 per share in cash.

GM to repay loans early. General Motors (GMGMQ.PK) plans to announce today that it's repaying its remaining $4.7B in government loans ahead of schedule. GM CEO Edward Whitacre believes the repayment is a critical step in winning back U.S. customers.

Unilever to sell frozen-foods unit. Unilever (UN) is reportedly ready to put its Italian frozen-foods division up for sale in an auction that could bring in more than €600M ($839M). The move reflects the continued consolidation of Europe's frozen food industry as consumers opt for fresh and chilled products.

Paulson buys ACAS stake. Hedge fund billionaire John Paulson is buying around a 13% stake in business developer American Capital (ACAS), picking up 43.7M shares of a 58.3M share common offering. The move is a boon for American Capital, which has been trying to restructure $2.4B in debt. ACAS rose 5.1% in regular trading yesterday, and climbed another 2.1% after hours.

Supreme Court to hear Costco case. The Supreme Court agreed to rule on whether Costco (COST) can be held liable for copyright infringement for reselling luxury Swiss watches it obtained through third-party sources. The case will be closely watched by retailers such as eBay (EBAY), Target (TGT) and Amazon (AMZN), firms that routinely facilitate the resale of goods, often at reduced prices.