Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
BHP subject of corruption probe. BHP Billiton (BHP) said today that following an information request from the SEC the company has found "possible violations of applicable anti-corruption laws involving interactions with government officials." The company didn't disclose the location of the projects in question, but said it wasn't related to business in China and that the firm is cooperating fully with authorities. The SEC couldn’t “confirm or deny the existence or non-existence of any investigation,” but sources said an investigation began in August 2009. BHP -1.6% premarket (7:00 ET).
TARP watchdog probes Goldman role in AIG losses. Neil Barofsky, the special inspector general for TARP, plans to investigate whether securities sold by Goldman Sachs (GS) led to losses at AIG (AIG) and, by extension, if U.S. taxpayers were the victims of fraud. Barofsky is in touch with the SEC and may coordinate with the Justice Department as well. Separately, Barofsky said he may also launch a broader audit of BlackRock's (BLK) role in TARP. Premarket: GS -0.3%, AIG +0.2% (7:00 ET).
Regulators may rethink repo accounting. The Financial Accounting Standards Board, which is in charge of setting U.S. accounting rules, may change repo accounting methods after the SEC finishes its examination of the accounting practices at the 19 largest U.S. banks. In a letter to the House Financial Services Committee, FASB Chairman Robert Herz said the board will "work closely" with the SEC on determining whether any changes are necessary. Repo accounting has recently been in the spotlight after a bankruptcy examiner said the accounting trick led to the collapse of Lehman Brothers (LEHMQ.PK).
SEC could bring Lehman charges. Former SEC chairman Christopher Cox said the SEC could potentially file charges against Lehman Brothers (LEHMQ.PK) after a bankruptcy examiner's report showed the firm "filed misleading financial reports and failed to disclose material accounting information." Cox, who was chairman of the SEC when Lehman filed for bankruptcy in September 2008, also said that neither the SEC nor the Federal Reserve were aware of Lehman's use of Repo 105 transactions.
SEC may create new debt rules for banks. Testifying before lawmakers yesterday, the SEC's Mary Schapiro said the agency is considering new rules that would prevent financial firms from temporarily lowering their debt levels immediately before quarterly reporting deadlines as a way to mask their true risk exposure. If done intentionally, the practice violates existing guidelines, but the SEC may require stricter disclosures, and could extend the rules to all companies instead of just to banks. Recent media reports have shown that 18 large banks lowered a specific kind of debt at the end of each of the past five quarters by an average of 42% from quarterly peaks.
Banks boost lobbying ahead of reform legislation. Banks are spending more money on donations and lobbying as lawmakers prepare to vote on financial reform legislation as soon as this week. Six of the top ten U.S. banks, including Goldman Sachs (GS), JPMorgan (JPM) and Morgan Stanley (MS), increased their donations to lawmakers in the last month. Goldman, Bank of America (BAC) and U.S. Bancorp (USB) were among seven banks that increased their lobbying in the first three months of the year, and the U.S. Chamber of Commerce doubled its lobbying spending in the first quarter.
IMF calls for taxes on banks. The IMF advised G-20 nations to tax the balance sheets, profits and compensation of financial firms in order to reduce the likelihood of another financial crisis and to cover the costs should a crisis occur. The IMF recommended that the tax, called a "Financial Stability Contribution," seek to raise between 2-4% of GDP over time, or roughly $1T-2T if all G-20 nations adopt the tax. Additionally, the IMF revised its forecast for global bank losses from the financial crisis. It now expects losses to total $2.28T, a drop of $533B from the estimate it made in October.
Live Nation faces breach-of-contract claim. In an 8-K filing, Live Nation Entertainment (LYV) disclosed that it faces a breach-of-contract claim by German ticketing firm CTS Eventim. Live Nation said the claims are "without merit and inconsistent with the terms of the CTS agreement," but warned that if the matter is resolved in CTS' favor, it could prevent the recently merged company from realizing "the full operational efficiencies that the combined company might otherwise obtain." LYV shares closed -3.15% in after hours trading.
EADS takes on Boeing in tanker bid. Airbus parent EADS (EADSF.PK) plans to compete directly against Boeing (BA) for a $50B U.S. military refueling plane contract. Ralph Crosby, chairman of EADS North America, called it "a hell of an opportunity," but analysts warn it will likely be an uphill fight for EADS, as "Boeing has put significant political capital into securing this win."
Google may buy travel software firm. Google (GOOG) is said to be in talks to acquire airline IT and services provider ITA Software Inc. in a deal that could cost as much as $1B. Negotiations may still fall apart, but a successful purchase would allow Google to use ITA Software's tools to help users find online flight information, helping Google compete with travel-search features offered by Microsoft (MSFT).
Hedge fund assets back on top. Assets managed by the global hedge fund industry are just 2% below their previous all-time high reached in October 2007. Hedge funds collectively manage around $1.67T of assets, and the average hedge fund saw compounded gains of 24.55% last year, making 2009 the industry's best year in a decade.
Volcano flight ban draws to an end. London's Heathrow airport became the last major European terminal to re-open after a six-day flight ban following the eruption of a volcano in Iceland. The ash cloud that shut down air travel has cost airlines an estimated $1.7B in lost revenue, and more than 100,000 flights were canceled.
Confidence dips down. ABC's Consumer Comfort Index dropped 3 points to -50, matching a 2010 low and not far above its all-time low of -54. Positive ratings of the national economy held steady at 8%, but those who think it's a good time to buy things slipped to 24% and positive ratings of personal finances slipped to 43% from 47%.
Wednesday, April 21, 2010
Tuesday, April 20, 2010
Today's Economic Calendar
Tuesday's Economic Calendar
7:45 ICSC Retail Store Sales
8:55 Redbook
9:00 Bank of Canada Announcement
11:00 Hearing: Lehman Bankruptcy (Bernanke, Geithner, Fuld)
5:00 PM ABC Consumer Confidence Index
7:45 ICSC Retail Store Sales
8:55 Redbook
9:00 Bank of Canada Announcement
11:00 Hearing: Lehman Bankruptcy (Bernanke, Geithner, Fuld)
5:00 PM ABC Consumer Confidence Index
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
AIG may go after Goldman on CDO losses. AIG (AIG) may go after Goldman Sachs (GS) over losses it suffered on $6B of insurance deals tied to mortgage-backed securities. AIG lost around $2B on the deals, and any action on the part of the insurer could signal the SEC's decision to file civil fraud charges against Goldman is about to set off a wave of investor lawsuits. Financial firms should brace themselves, as the fallout may not be limited to Goldman alone and litigation risk post-crisis has the potential to get very costly very quickly. According to a Credit Suisse report, Bank of America/Merrill Lynch (BAC) leads the "CDO litigation risk" list after offering $16.85B of CDOs similar to the ones Goldman is being charged for. Premarket: GS +2.6%, BAC +0.6% (7:00 ET).
SEC was split on Goldman charges. The SEC's decision to bring civil fraud charges against Goldman Sachs (GS) was hardly unanimous; the five-member commission voted 3-2 along political lines in favor of the charges, with the unusual split threatening to politicize one of the agency's biggest cases in years. Both Republican commissioners objected to the charges, and Rep. Darrell Issa (R., Calif.) plans to send the SEC a letter today questioning why the agency chose to press charges at the same time lawmakers are fighting over a financial reform bill.
U.K. opens formal Goldman probe. The U.K.'s Financial Services Authority announced today that it will launch a formal investigation into Goldman Sachs' (GS) London units in connection to the SEC's recent allegations. German and French securities regulators are considering whether to launch investigations of their own.
Fuld defends Lehman. Former Lehman Brothers (LEHMQ.PK) CEO Dick Fuld will testify before lawmakers today on Lehman's failure. According to his prepared testimony, Fuld will argue that Lehman has been "unfairly vilified," that he wasn't aware of the bank's controversial Repo 105 transactions until a year after Lehman filed for bankruptcy and that, in any case, "Lehman should not be criticized for complying with the applicable accounting standards." Notably, Fuld will also say that the SEC and Federal Reserve were aware of everything happening at Lehman as it moved towards bankruptcy, a claim that contradicts with regulators' version of events. Bernanke, Geithner and the SEC's Schapiro will also testify at the hearing.
More Toyota recalls. Toyota (TM) is recalling its Lexus GX 460 SUV after Consumer Reports called it a "safety risk" and company technicians were able to replicate the problem. Toyota, which had halted sales of the SUV last week, said a software fix for the stability control system will be at dealers by the end of April. The recall affects around 13,000 vehicles, including 9,400 in the U.S.
California takes Moody's to court. California is suing Moody's (MCO) to force it to explain the ratings it assigned during the crisis. California's Attorney General Jerry Brown said the state is seeking a court order to make Moody's comply with a subpoena issued in September, which seeks "information regarding Moody's decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities." Brown said Moody's has been stonewalling and had called the subpoena "a waste of time."
Greece may need far more than €30B in aid. Bundesbank President Axel Weber told German lawmakers that Greece may need more than the €45B ($61B) in aid that the EU and IMF have committed, said sources present at the briefing. Greece may ultimately need as much as €80B to avoid default. Weber also expressed concern that Greek citizens demonstrating against austerity measures don't realize what a serious situation Greece faces, and that Greece's situation is worsening.
CKE dumps THL for superior bid. CKE Restaurants (CKR) said this morning that it has received a superior bid from Western Acquisition Holdings and will terminate its merger agreement with private-equity firm Thomas H. Lee Partners. Western Acquisition offered $12.55 per share in cash, compared to THL's offer of $11.05 per share in cash.
GM to repay loans early. General Motors (GMGMQ.PK) plans to announce today that it's repaying its remaining $4.7B in government loans ahead of schedule. GM CEO Edward Whitacre believes the repayment is a critical step in winning back U.S. customers.
Unilever to sell frozen-foods unit. Unilever (UN) is reportedly ready to put its Italian frozen-foods division up for sale in an auction that could bring in more than €600M ($839M). The move reflects the continued consolidation of Europe's frozen food industry as consumers opt for fresh and chilled products.
Paulson buys ACAS stake. Hedge fund billionaire John Paulson is buying around a 13% stake in business developer American Capital (ACAS), picking up 43.7M shares of a 58.3M share common offering. The move is a boon for American Capital, which has been trying to restructure $2.4B in debt. ACAS rose 5.1% in regular trading yesterday, and climbed another 2.1% after hours.
Supreme Court to hear Costco case. The Supreme Court agreed to rule on whether Costco (COST) can be held liable for copyright infringement for reselling luxury Swiss watches it obtained through third-party sources. The case will be closely watched by retailers such as eBay (EBAY), Target (TGT) and Amazon (AMZN), firms that routinely facilitate the resale of goods, often at reduced prices.
by SA Editor Rachael Granby
AIG may go after Goldman on CDO losses. AIG (AIG) may go after Goldman Sachs (GS) over losses it suffered on $6B of insurance deals tied to mortgage-backed securities. AIG lost around $2B on the deals, and any action on the part of the insurer could signal the SEC's decision to file civil fraud charges against Goldman is about to set off a wave of investor lawsuits. Financial firms should brace themselves, as the fallout may not be limited to Goldman alone and litigation risk post-crisis has the potential to get very costly very quickly. According to a Credit Suisse report, Bank of America/Merrill Lynch (BAC) leads the "CDO litigation risk" list after offering $16.85B of CDOs similar to the ones Goldman is being charged for. Premarket: GS +2.6%, BAC +0.6% (7:00 ET).
SEC was split on Goldman charges. The SEC's decision to bring civil fraud charges against Goldman Sachs (GS) was hardly unanimous; the five-member commission voted 3-2 along political lines in favor of the charges, with the unusual split threatening to politicize one of the agency's biggest cases in years. Both Republican commissioners objected to the charges, and Rep. Darrell Issa (R., Calif.) plans to send the SEC a letter today questioning why the agency chose to press charges at the same time lawmakers are fighting over a financial reform bill.
U.K. opens formal Goldman probe. The U.K.'s Financial Services Authority announced today that it will launch a formal investigation into Goldman Sachs' (GS) London units in connection to the SEC's recent allegations. German and French securities regulators are considering whether to launch investigations of their own.
Fuld defends Lehman. Former Lehman Brothers (LEHMQ.PK) CEO Dick Fuld will testify before lawmakers today on Lehman's failure. According to his prepared testimony, Fuld will argue that Lehman has been "unfairly vilified," that he wasn't aware of the bank's controversial Repo 105 transactions until a year after Lehman filed for bankruptcy and that, in any case, "Lehman should not be criticized for complying with the applicable accounting standards." Notably, Fuld will also say that the SEC and Federal Reserve were aware of everything happening at Lehman as it moved towards bankruptcy, a claim that contradicts with regulators' version of events. Bernanke, Geithner and the SEC's Schapiro will also testify at the hearing.
More Toyota recalls. Toyota (TM) is recalling its Lexus GX 460 SUV after Consumer Reports called it a "safety risk" and company technicians were able to replicate the problem. Toyota, which had halted sales of the SUV last week, said a software fix for the stability control system will be at dealers by the end of April. The recall affects around 13,000 vehicles, including 9,400 in the U.S.
California takes Moody's to court. California is suing Moody's (MCO) to force it to explain the ratings it assigned during the crisis. California's Attorney General Jerry Brown said the state is seeking a court order to make Moody's comply with a subpoena issued in September, which seeks "information regarding Moody's decision to give its highest credit ratings to securities backed by risky and toxic mortgage-backed securities." Brown said Moody's has been stonewalling and had called the subpoena "a waste of time."
Greece may need far more than €30B in aid. Bundesbank President Axel Weber told German lawmakers that Greece may need more than the €45B ($61B) in aid that the EU and IMF have committed, said sources present at the briefing. Greece may ultimately need as much as €80B to avoid default. Weber also expressed concern that Greek citizens demonstrating against austerity measures don't realize what a serious situation Greece faces, and that Greece's situation is worsening.
CKE dumps THL for superior bid. CKE Restaurants (CKR) said this morning that it has received a superior bid from Western Acquisition Holdings and will terminate its merger agreement with private-equity firm Thomas H. Lee Partners. Western Acquisition offered $12.55 per share in cash, compared to THL's offer of $11.05 per share in cash.
GM to repay loans early. General Motors (GMGMQ.PK) plans to announce today that it's repaying its remaining $4.7B in government loans ahead of schedule. GM CEO Edward Whitacre believes the repayment is a critical step in winning back U.S. customers.
Unilever to sell frozen-foods unit. Unilever (UN) is reportedly ready to put its Italian frozen-foods division up for sale in an auction that could bring in more than €600M ($839M). The move reflects the continued consolidation of Europe's frozen food industry as consumers opt for fresh and chilled products.
Paulson buys ACAS stake. Hedge fund billionaire John Paulson is buying around a 13% stake in business developer American Capital (ACAS), picking up 43.7M shares of a 58.3M share common offering. The move is a boon for American Capital, which has been trying to restructure $2.4B in debt. ACAS rose 5.1% in regular trading yesterday, and climbed another 2.1% after hours.
Supreme Court to hear Costco case. The Supreme Court agreed to rule on whether Costco (COST) can be held liable for copyright infringement for reselling luxury Swiss watches it obtained through third-party sources. The case will be closely watched by retailers such as eBay (EBAY), Target (TGT) and Amazon (AMZN), firms that routinely facilitate the resale of goods, often at reduced prices.
Monday, April 19, 2010
Today's Economic Calendar
Monday's Economic Calendar
10:00 Financial Literacy and Education Summit
10:00 Leading Indicators
3:00 PM International Economic Development Council Federal Forum
10:00 Financial Literacy and Education Summit
10:00 Leading Indicators
3:00 PM International Economic Development Council Federal Forum
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Rachael Granby
More pain for Goldman Sachs. After the SEC charged Goldman Sachs (GS) with fraud on Friday, saying the firm created and sold a mortgage investment designed for failure, the U.K. said it would launch its own probe into Goldman's "morally bankrupt" actions. Germany may follow suit, and has requested information from the SEC. Meanwhile, the EU has launched an investigation into Goldman's role in providing swaps to the Greek government. As for the SEC suit, Goldman learned in July 2009 that it might face a suit but said it was blindsided by Friday's announcement; the SEC usually notifies firms in advance to allow for last-minute settlements, and the SEC's failure to do so signals the agency is trying to take a particularly aggressive stance, suggesting the move may be more about politics than financial villainy. On the other hand, though only one Goldman employee, Fabrice Tourre, was named in the suit, sources said senior bank executives, including CEO Lloyd Blankfein, played a pivotal role in overseeing the mortgage unit. John Paulson, the hedge fund investor who made billions betting against the housing market and who was short on some of the underlying securities at issue here, was not named in the SEC's complaint (which raised some eyebrows), but may face lawsuits from investors who lost more than $1B on the deal. GS -0.1% premarket (7:00 ET) after falling nearly 13% on Friday. (For more reading: the SEC's complaint (.pdf) against Goldman, Goldman's response, Goldman's pitchbook for the Abacus deal, and a blogosphere take on why the scandal is not so scandalous)
SEC looks into other soured mortgage deals. Following its civil fraud charge against Goldman Sachs (GS), the SEC is investigating whether other Wall Street firms misled investors over mortgage investments. It's not yet known which firms the SEC is looking into, but there were similarly troubled mortgage deals created at Deutsche Bank (DB), UBS (UBS) and Merrill Lynch (BAC), among others. The SEC is using this opportunity to raise its sights and send a warning to Wall Street, but by doing so it faces the risk of further damaging its reputation if it loses the Goldman case or similar cases against other Wall Street firms. Premarket: DB +0.2%, UBS -2.3%, BAC -0.6% (7:00 ET).
Toyota likely to agree to $16.4M fine. Toyota (TM) is expected to agree today to pay a record $16.4M fine for failing to alert regulators about potential safety issues related to sticky gas pedals. Though the fine is less than 2% of Toyota's projected net income for the fiscal year, the company's acquiescence could make a stronger case for plaintiffs seeking compensation from the carmaker, unless the agreement doesn't require Toyota to admit wrongdoing. To date, Toyota has recalled more than 8M vehicles worldwide because of safety issues related to sticky gas pedals and unintended acceleration.
United mulls alliance with Continental, US Airways. With Continental (CAL) and United Airlines (UAUA) reportedly in merger talks, and US Airways (LCC) and United Airlines reportedly in merger talks, sources said United is now discussing the possibility of forgoing a merger with either airline and instead deepening an existing three-way alliance. United has raised the topic with each airline, but the three have yet to sit down together. A strengthened alliance could raise antitrust concerns and face objections from labor unions.
Glaxo's Avandia under FDA scrutiny. The FDA is deciding whether to halt a safety study involving thousands of patients taking GlaxoSmithKline's (GSK) diabetes drug Avandia. Studies during the past three years have suggested a connection between the drug and an increased risk of heart attack, and a decision to halt the study could influence whether the drug stays on the U.S. market.
Citic, Agricole may create global brokerage. Citic Securities, China's largest brokerage, and France's Credit Agricole (CRARY.PK) are reportedly close to an agreement to create a global brokerage venture. The alliance would contain assets worth more than $4B, and would help Credit Agricole push past rivals like Goldman Sachs (GS) in the world's fastest-growing major economy. An announcement could come as soon as today.
Aussies reject NAB bid for Axa Asia Pacific. Australian regulators rejected National Australia Bank's A$13.3B ($12.3B) bid for Axa Asia Pacific Holdings (which belongs to parent company AXA). Analysts had expected the deal to be approved with conditions such as asset sales, and the surprise ruling may create an opportunity for rival AMP to renew its offer for Axa Asia Pacific.
Tune in for RadioShack sale? RadioShack (RSH) is reportedly drawing closer to a possible sale, with a list of potential acquirers that includes private-equity groups and rival Best Buy (BBY). Both RadioShack and Best Buy declined to comment, but sources said JPMorgan (JPM) has already been selected to lead the sale process and there are several indications that the process is moving quietly forward. Premarket: RSH +1.8% (7:00 ET).
Airlines, travelers frustrated by Iceland's volcano. Iceland's volcano continues to cause mayhem for travelers, giving hotels a boost on both sides of the Atlantic as stranded fliers look for places to stay. Airlines, which are now losing close to $300M per day, are putting pressure on authorities to ease no-fly directives, pointing to several test flights that didn't experience any problems, but forecasters suggest airports in northern and central Europe may remain closed for at least another three days, if not longer. More than 63,000 flights have been canceled so far, and an extended disruption could pose a threat to Europe's shaky economic recovery.
Countrywide case picks up steam. A federal probe into the collapse of Countrywide Financial appears to be gaining momentum, as sources said investigators have been calling witnesses before a grand jury. Though few details are available since grand jury proceedings are generally kept secret, and the calling of witnesses doesn't guarantee charges will be filed, the progress is notable; the former mortgage giant, which was bought by Bank of America (BAC) in 2008, has been the subject of a slow-moving investigation for around two years. An SEC civil trial against the company and three former top Countrywide executives is scheduled for October.
Obama pushes for financial reform. Obama is taking a hands-on approach to financial regulatory reform, and is putting pressure on Republicans to get on board. The White House has been drafting legislative language to pass on to Congress, is pushing for the bill to be brought to the Senate floor ahead of schedule and is expected to have Obama makes a high-stakes appearance on Wall Street, as both Democrats and Republicans try to leverage the Goldman Sachs (GS) scandal to their legislative advantage.
Lockheed, Sikorsky join up on helicopter bid. Lockheed Martin (LMT) and Sikorsky Aircraft (UTX) are expected to announce today that they're teaming up to bid on a new contract for a fleet of Marine One helicopters. Other bidders may include Boeing (BA), Bell Helicopters (TXT) and AgustaWestland, the European firm that teamed with Lockheed five years ago to beat out Sikorsky on the previous Marine One bid. Sikorsky, which built every presidential helicopter since 1957 except for the 2005 contract, is hoping a successful bid, even one that requires Lockheed's help, will show that the company has rebuilt itself.
Mortgage delinquencies show improvements. Mortgage delinquencies fell in March for the second month in a row, dropping 8.6%. The largest slide was among loans that were 30 days past due; these loans fell a record 342,000 to around 1.45M, a level last seen in spring 2008. Though the data is encouraging, delinquencies generally fall in February and March as borrowers get their tax refunds, so it's too soon to suggest that a turnaround has begun.
Friday's failures. Regulators shut down eight banks on Friday, bringing this year's total closures to 50. The failures in Michigan, Massachusetts, Florida, California (I, II) and Washington are estimated to cost the FDIC's insurance fund nearly $1B.
by SA Editor Rachael Granby
More pain for Goldman Sachs. After the SEC charged Goldman Sachs (GS) with fraud on Friday, saying the firm created and sold a mortgage investment designed for failure, the U.K. said it would launch its own probe into Goldman's "morally bankrupt" actions. Germany may follow suit, and has requested information from the SEC. Meanwhile, the EU has launched an investigation into Goldman's role in providing swaps to the Greek government. As for the SEC suit, Goldman learned in July 2009 that it might face a suit but said it was blindsided by Friday's announcement; the SEC usually notifies firms in advance to allow for last-minute settlements, and the SEC's failure to do so signals the agency is trying to take a particularly aggressive stance, suggesting the move may be more about politics than financial villainy. On the other hand, though only one Goldman employee, Fabrice Tourre, was named in the suit, sources said senior bank executives, including CEO Lloyd Blankfein, played a pivotal role in overseeing the mortgage unit. John Paulson, the hedge fund investor who made billions betting against the housing market and who was short on some of the underlying securities at issue here, was not named in the SEC's complaint (which raised some eyebrows), but may face lawsuits from investors who lost more than $1B on the deal. GS -0.1% premarket (7:00 ET) after falling nearly 13% on Friday. (For more reading: the SEC's complaint (.pdf) against Goldman, Goldman's response, Goldman's pitchbook for the Abacus deal, and a blogosphere take on why the scandal is not so scandalous)
SEC looks into other soured mortgage deals. Following its civil fraud charge against Goldman Sachs (GS), the SEC is investigating whether other Wall Street firms misled investors over mortgage investments. It's not yet known which firms the SEC is looking into, but there were similarly troubled mortgage deals created at Deutsche Bank (DB), UBS (UBS) and Merrill Lynch (BAC), among others. The SEC is using this opportunity to raise its sights and send a warning to Wall Street, but by doing so it faces the risk of further damaging its reputation if it loses the Goldman case or similar cases against other Wall Street firms. Premarket: DB +0.2%, UBS -2.3%, BAC -0.6% (7:00 ET).
Toyota likely to agree to $16.4M fine. Toyota (TM) is expected to agree today to pay a record $16.4M fine for failing to alert regulators about potential safety issues related to sticky gas pedals. Though the fine is less than 2% of Toyota's projected net income for the fiscal year, the company's acquiescence could make a stronger case for plaintiffs seeking compensation from the carmaker, unless the agreement doesn't require Toyota to admit wrongdoing. To date, Toyota has recalled more than 8M vehicles worldwide because of safety issues related to sticky gas pedals and unintended acceleration.
United mulls alliance with Continental, US Airways. With Continental (CAL) and United Airlines (UAUA) reportedly in merger talks, and US Airways (LCC) and United Airlines reportedly in merger talks, sources said United is now discussing the possibility of forgoing a merger with either airline and instead deepening an existing three-way alliance. United has raised the topic with each airline, but the three have yet to sit down together. A strengthened alliance could raise antitrust concerns and face objections from labor unions.
Glaxo's Avandia under FDA scrutiny. The FDA is deciding whether to halt a safety study involving thousands of patients taking GlaxoSmithKline's (GSK) diabetes drug Avandia. Studies during the past three years have suggested a connection between the drug and an increased risk of heart attack, and a decision to halt the study could influence whether the drug stays on the U.S. market.
Citic, Agricole may create global brokerage. Citic Securities, China's largest brokerage, and France's Credit Agricole (CRARY.PK) are reportedly close to an agreement to create a global brokerage venture. The alliance would contain assets worth more than $4B, and would help Credit Agricole push past rivals like Goldman Sachs (GS) in the world's fastest-growing major economy. An announcement could come as soon as today.
Aussies reject NAB bid for Axa Asia Pacific. Australian regulators rejected National Australia Bank's A$13.3B ($12.3B) bid for Axa Asia Pacific Holdings (which belongs to parent company AXA). Analysts had expected the deal to be approved with conditions such as asset sales, and the surprise ruling may create an opportunity for rival AMP to renew its offer for Axa Asia Pacific.
Tune in for RadioShack sale? RadioShack (RSH) is reportedly drawing closer to a possible sale, with a list of potential acquirers that includes private-equity groups and rival Best Buy (BBY). Both RadioShack and Best Buy declined to comment, but sources said JPMorgan (JPM) has already been selected to lead the sale process and there are several indications that the process is moving quietly forward. Premarket: RSH +1.8% (7:00 ET).
Airlines, travelers frustrated by Iceland's volcano. Iceland's volcano continues to cause mayhem for travelers, giving hotels a boost on both sides of the Atlantic as stranded fliers look for places to stay. Airlines, which are now losing close to $300M per day, are putting pressure on authorities to ease no-fly directives, pointing to several test flights that didn't experience any problems, but forecasters suggest airports in northern and central Europe may remain closed for at least another three days, if not longer. More than 63,000 flights have been canceled so far, and an extended disruption could pose a threat to Europe's shaky economic recovery.
Countrywide case picks up steam. A federal probe into the collapse of Countrywide Financial appears to be gaining momentum, as sources said investigators have been calling witnesses before a grand jury. Though few details are available since grand jury proceedings are generally kept secret, and the calling of witnesses doesn't guarantee charges will be filed, the progress is notable; the former mortgage giant, which was bought by Bank of America (BAC) in 2008, has been the subject of a slow-moving investigation for around two years. An SEC civil trial against the company and three former top Countrywide executives is scheduled for October.
Obama pushes for financial reform. Obama is taking a hands-on approach to financial regulatory reform, and is putting pressure on Republicans to get on board. The White House has been drafting legislative language to pass on to Congress, is pushing for the bill to be brought to the Senate floor ahead of schedule and is expected to have Obama makes a high-stakes appearance on Wall Street, as both Democrats and Republicans try to leverage the Goldman Sachs (GS) scandal to their legislative advantage.
Lockheed, Sikorsky join up on helicopter bid. Lockheed Martin (LMT) and Sikorsky Aircraft (UTX) are expected to announce today that they're teaming up to bid on a new contract for a fleet of Marine One helicopters. Other bidders may include Boeing (BA), Bell Helicopters (TXT) and AgustaWestland, the European firm that teamed with Lockheed five years ago to beat out Sikorsky on the previous Marine One bid. Sikorsky, which built every presidential helicopter since 1957 except for the 2005 contract, is hoping a successful bid, even one that requires Lockheed's help, will show that the company has rebuilt itself.
Mortgage delinquencies show improvements. Mortgage delinquencies fell in March for the second month in a row, dropping 8.6%. The largest slide was among loans that were 30 days past due; these loans fell a record 342,000 to around 1.45M, a level last seen in spring 2008. Though the data is encouraging, delinquencies generally fall in February and March as borrowers get their tax refunds, so it's too soon to suggest that a turnaround has begun.
Friday's failures. Regulators shut down eight banks on Friday, bringing this year's total closures to 50. The failures in Michigan, Massachusetts, Florida, California (I, II) and Washington are estimated to cost the FDIC's insurance fund nearly $1B.
Friday, April 9, 2010
Wall Street Morning News
Wall Street Breakfast: Must-Know News
by SA Editor Eli Hoffmann
Banks back to same old tricks. An analysis of data released by the New York Fed shows large banks are hiding their risk levels by temporarily lowering their debt just before reporting periods. A group of 18 banks - including MS, GS, JPM, BAC and C - lowered the debt used to fund trading ventures by an average of 42% at the end of each of the past five quarters, refilling their tanks in subsequent months. While not illegal, the practice gives investors a false impression of banks' leverage - one of the factors that led to the massive panic in 2008.
Greece bankruptcy looms. Rates on 10-year Greek bonds spiked as high as 7.5% on Thursday, up from 6.5% just three days ago, delivering a clear message: Artfully worded communiqués aren't enough; to avoid bankruptcy, Greece needs an EU bailout, fast. At a press conference Thursday, ECB chief Trichet insisted the joint EU/IMF aid proposal is a "very, very serious commitment," but his assurances did little to calm nerves as investors continue to withdraw funds from Greek banks.
Retail sales rocket higher. Sales at top retail chains rose a robust 9.1% in March, the largest monthly jump in at least 10 years, and far stronger than the +6.3% Street consensus. More than 90% of all retailers beat expectations, although executives cautioned that the March rise could foretell a weaker than usual April. Economists were upbeat, saying the data indicated consumer spending was accelerating. Department stores were the strongest performers, but discounters and teen apparel chains also exceeded projections. Strong performers included TGT, TJX, M, KSS, LTS and GPS. Abercrombie & Fitch (ANF) posted weaker-than-expected comps.
iPad sales approach 500K. Apple (AAPL) has sold 450K iPads since its debut on Saturday, CEO Steve Jobs said Thursday, including more than 300K on launch day. Analysts expect sales of 1-2M units in Q2, and estimate 2010 sales of anywhere from 3M to 7M. Jobs said users have downloaded 600K digital books and 3.5M iPad apps so far. Apple also stepped up its rivalry with Google (GOOG) by revealing iAd, an in-house advertising platform that will power its gadgets. Jobs also unveiled a new version of the iPhone/iPod OS that will finally bring multitasking to the devices.
Initial jobless claims jump. The number of U.S. workers filing for unemployment benefits shot higher, up 18K from a week ago to 460K, well above economist estimates of 435K - although the Dept. of Labor warned the data may contain statistical biases due to the Easter holiday. But the number of people still receiving benefits after an initial week of aid fell to the lowest level since Dec. 2008, and the insured unemployment rate dropped to 3.5%, the lowest since Jan. 2009.
Panel pounds Prince, Rubin. Appearing before the Financial Crisis Inquiry Commission Thursday, former Citigroup (C) CEO Charles Prince apologized repeatedly for the billions of dollars investors lost as a result of soured investments. But former Chairman Robert Rubin downplayed his role in the crisis, and was met with anger and disbelief. "You were either pulling the levers or asleep at the switch," committee chair Philip Angelides told him. Bill Thomas, a former chairman of the House Ways and Means Committee, summed up the feelings of the millions who lost their savings and their homes: "To make the argument that somehow a simple apology still allows you to maintain a profile of income based upon what devastated everybody else doesn't fit the scale test," he said, "no matter how often you feel really, really sad about what happened."
Goldman denies it would profit from Greece collapse. Goldman Sachs (GS) admitted the firm "has bought some credit protection" to hedge its exposure to the Greek debt crisis, but suggested that - contrary to reports - it would lose money if Greece's credit situation worsens. On Wednesday, Rochdale's Dick Bove hinted that Goldman could profit handsomely if bad turns to worse in Greece, sending shares up 2%.
Yuan rise could come by June-Oct. China might increase interest rates as early as this month, but will probably not allow the yuan to rise until the June-Oct. period, senior government economist Zhu Baoliang said this morning. He added that another one-off revaluation was unlikely, but said the yuan peg could be shifted to a basket of currencies.
Coal-maker bidding war heats up. Macarthur Coal spurned a $3.5B bid from Australian rival New Hope, saying it would continue to move forward with a plan to take over Gloucester Coal in alliance with Noble Group (NOBGF.PK). Macarthur had already rejected an earlier $3.45B bid from New Hope, and a $3.3B bid from Peabody (BTU). Meanwhile, sources say Xstrata (XSRAF.PK) has approached ArcelorMittal (MT) and POSCO about a possible joint bid; ArcelorMittal and POSCO control a combined 25% of Macarthur. Shareholders were scheduled to vote on the Gloucester deal on Monday, but Macarthur today pushed off the vote for a week to give investors more time to consider their options. Suitors are attracted by Macarthur's specialist pulverized or PCI coal, a cleaner input for steelmakers' blast furnaces.
Tribune inks bankruptcy exit. Tribune Co. said Thursday it has agreed with creditors on a plan that would help it exit bankruptcy protection later this year. "Under the plan, the company would emerge from bankruptcy, significantly deleveraged, with its business units intact and with adequate liquidity for operating and capital needs," Tribune said. The agreement releases Sam Zell from all liability for the company's collapse following his $8.2B leveraged buyout in 2007, much to the consternation of junior bondholders who oppose the deal.
MasterCard ventures into predictive shopping. MasterCard (MA) will Monday unveil a web shopping mall that it says can pinpoint with uncanny accuracy what its cardholders are likely to purchase.
by SA Editor Eli Hoffmann
Banks back to same old tricks. An analysis of data released by the New York Fed shows large banks are hiding their risk levels by temporarily lowering their debt just before reporting periods. A group of 18 banks - including MS, GS, JPM, BAC and C - lowered the debt used to fund trading ventures by an average of 42% at the end of each of the past five quarters, refilling their tanks in subsequent months. While not illegal, the practice gives investors a false impression of banks' leverage - one of the factors that led to the massive panic in 2008.
Greece bankruptcy looms. Rates on 10-year Greek bonds spiked as high as 7.5% on Thursday, up from 6.5% just three days ago, delivering a clear message: Artfully worded communiqués aren't enough; to avoid bankruptcy, Greece needs an EU bailout, fast. At a press conference Thursday, ECB chief Trichet insisted the joint EU/IMF aid proposal is a "very, very serious commitment," but his assurances did little to calm nerves as investors continue to withdraw funds from Greek banks.
Retail sales rocket higher. Sales at top retail chains rose a robust 9.1% in March, the largest monthly jump in at least 10 years, and far stronger than the +6.3% Street consensus. More than 90% of all retailers beat expectations, although executives cautioned that the March rise could foretell a weaker than usual April. Economists were upbeat, saying the data indicated consumer spending was accelerating. Department stores were the strongest performers, but discounters and teen apparel chains also exceeded projections. Strong performers included TGT, TJX, M, KSS, LTS and GPS. Abercrombie & Fitch (ANF) posted weaker-than-expected comps.
iPad sales approach 500K. Apple (AAPL) has sold 450K iPads since its debut on Saturday, CEO Steve Jobs said Thursday, including more than 300K on launch day. Analysts expect sales of 1-2M units in Q2, and estimate 2010 sales of anywhere from 3M to 7M. Jobs said users have downloaded 600K digital books and 3.5M iPad apps so far. Apple also stepped up its rivalry with Google (GOOG) by revealing iAd, an in-house advertising platform that will power its gadgets. Jobs also unveiled a new version of the iPhone/iPod OS that will finally bring multitasking to the devices.
Initial jobless claims jump. The number of U.S. workers filing for unemployment benefits shot higher, up 18K from a week ago to 460K, well above economist estimates of 435K - although the Dept. of Labor warned the data may contain statistical biases due to the Easter holiday. But the number of people still receiving benefits after an initial week of aid fell to the lowest level since Dec. 2008, and the insured unemployment rate dropped to 3.5%, the lowest since Jan. 2009.
Panel pounds Prince, Rubin. Appearing before the Financial Crisis Inquiry Commission Thursday, former Citigroup (C) CEO Charles Prince apologized repeatedly for the billions of dollars investors lost as a result of soured investments. But former Chairman Robert Rubin downplayed his role in the crisis, and was met with anger and disbelief. "You were either pulling the levers or asleep at the switch," committee chair Philip Angelides told him. Bill Thomas, a former chairman of the House Ways and Means Committee, summed up the feelings of the millions who lost their savings and their homes: "To make the argument that somehow a simple apology still allows you to maintain a profile of income based upon what devastated everybody else doesn't fit the scale test," he said, "no matter how often you feel really, really sad about what happened."
Goldman denies it would profit from Greece collapse. Goldman Sachs (GS) admitted the firm "has bought some credit protection" to hedge its exposure to the Greek debt crisis, but suggested that - contrary to reports - it would lose money if Greece's credit situation worsens. On Wednesday, Rochdale's Dick Bove hinted that Goldman could profit handsomely if bad turns to worse in Greece, sending shares up 2%.
Yuan rise could come by June-Oct. China might increase interest rates as early as this month, but will probably not allow the yuan to rise until the June-Oct. period, senior government economist Zhu Baoliang said this morning. He added that another one-off revaluation was unlikely, but said the yuan peg could be shifted to a basket of currencies.
Coal-maker bidding war heats up. Macarthur Coal spurned a $3.5B bid from Australian rival New Hope, saying it would continue to move forward with a plan to take over Gloucester Coal in alliance with Noble Group (NOBGF.PK). Macarthur had already rejected an earlier $3.45B bid from New Hope, and a $3.3B bid from Peabody (BTU). Meanwhile, sources say Xstrata (XSRAF.PK) has approached ArcelorMittal (MT) and POSCO about a possible joint bid; ArcelorMittal and POSCO control a combined 25% of Macarthur. Shareholders were scheduled to vote on the Gloucester deal on Monday, but Macarthur today pushed off the vote for a week to give investors more time to consider their options. Suitors are attracted by Macarthur's specialist pulverized or PCI coal, a cleaner input for steelmakers' blast furnaces.
Tribune inks bankruptcy exit. Tribune Co. said Thursday it has agreed with creditors on a plan that would help it exit bankruptcy protection later this year. "Under the plan, the company would emerge from bankruptcy, significantly deleveraged, with its business units intact and with adequate liquidity for operating and capital needs," Tribune said. The agreement releases Sam Zell from all liability for the company's collapse following his $8.2B leveraged buyout in 2007, much to the consternation of junior bondholders who oppose the deal.
MasterCard ventures into predictive shopping. MasterCard (MA) will Monday unveil a web shopping mall that it says can pinpoint with uncanny accuracy what its cardholders are likely to purchase.
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