- Fed frets CRE collapse. In a just-revealed presentation to banking regulators last month, the Fed lamented that U.S. banks “are slow” to book losses on commercial real-estate loans being battered by slumping property values and rental payments (see below for more on commercial rentals). “Banks will be slow to recognize the severity of the loss – just as they were in residential,” the Fed warned, suggesting banking regulators are girding for a rerun of the home-lending breakdown. NY Fed chief Bill Dudley echoed similar concerns in a speech this week, saying, “More pain likely lies ahead for this sector and for those banks with heavy commercial real estate exposures.”
- Kindle goes global. Amazon.com (AMZN) announced late Tuesday a new version of its bestselling book reader that will wirelessly download books in more than 100 countries using AT&T (T) and its international roaming partners’ network instead of Amazon’s U.S. partner Sprint (S). The global Kindle will retail for $279, while the price of the domestic version drops by $40 to to $259. Electronic book readers are having a breakout year; in a report being released today, Forrester will revise its sales volume forecast prediction for the industry to 3M devices, up from a previous estimate of 2M.
- Fannie, Freddie lend a hand. Sources say Fannie Mae (FNM) and Freddie Mac (FRE) are readying a program that will help mortgage banks acquire the short-term credit they need to make home loans by committing in advance to purchase certain mortgages. The plan builds on an undisclosed pilot that Freddie has with lenders Provident Funding Associates and NattyMac, which provides short-term loans to mortgage lenders. GSE commitments to buy loans reduce the risk lenders will be stuck with GSE-reject loans which must then be resold at huge discounts.
- Nine EU members have ‘excessive debt.’ The European Commission warned nine countries, including Germany and Italy, that their budget deficits are too large. Twenty of the EU’s 27 member countries are on track to breach the bloc’s 3%-of-GDP limit on deficits, but the nine warned today “are neither close to the reference value nor temporary,” the Commission said.
- HSBC in talks for RBS Asia assets. Sources say HSBC Holdings (HBC) is in advanced discussions to buy Royal Bank of Scotland’s (RBS) retail and commercial banking assets of in China, India, and Malaysia after RBS’s negotiations with Standard Chartered faltered yesterday.
- Santander: World’s biggest IPO in 18 months. Santander’s (STD) spinoff of part of its Brazilian unit, the world’s biggest IPO in 18 months, will bring in about $8B. Spain’s biggest bank hopes to open 600 branches in Brazil by 2013, and carve out new business in lending to companies and homebuyers as it bets on the Brazil’s expansion while Spain wades through its worst recession in 60 years.
- BofA shortlist gets very short. Sources say Bank of America (BAC) has narrowed its list of internal candidates for CEO to Chief Risk Officer Gregory Curl and Brian Moynihan, the consumer and small-business banking chief – although the search committee continues to consider an outside hire. If the 61-year-old Curl were named CEO, it would likely be a two-year stint; Moynihan, 49, would likely be a longer-term choice.
- Europe contracts more than expected. Euro area GDP fell by 0.2% in Q2, according to Eurostat’s second estimate (.pdf), far less than Q1’s 2.5% contraction and the 4.8% decline of a year ago. In comparison, U.S. GDP also declined 0.2% in Q2, while Japan’s GDP increased by 0.6%. The decline was sharper than the 0.1% dip estimated last month. While the report is “slightly negative,” economist Nick Kounis said, it “adds nothing to the big picture: The economy very likely returned to growth in Q3, and a rather moderate recovery is likely to follow in the coming quarters.”
- Office rents plunge. Office rents fell 8.5% Y/Y in Q3, the biggest drop since 1995, according to research firm Reis. The decline came as renters returned a net 19.6M square feet to landlords; YTD they’ve given back 64.2M square feet – the highest negative absorption rate on record. The vacancy rate of 16.5% is a five-year high. With more job losses still predicted, many say it’s too soon to look for a bottom: “If employers are still shedding jobs, they are also going to shed space.”
- Better economy doesn’t inspire spending. Consumers are feeling an improvement in the U.S. economy, but concerns about their personal finances are limiting their spending plans. Only 19% of respondents in Discover’s U.S. Spending Monitor said they expect to spend more in the next month, even though 33% now feel an improvement in economic conditions. “There appears to be no indication consumers are willing to increase their spending,” Discover’s Julie Loeger said.
- Mtg. apps rise. Mortgage applications increased 16.4% from a week ago, MBA said this morning, led by an 18.2% in refinancings. Average rates on 30-year fixed mortgages fell five points to 4.89%.
Earnings: Wed. Before Open
- Costco (COST): FQ4 EPS of $0.83 beats by $0.06. Revenue of $22.38B (-3.1%) in-line. Says sales were negatively impacted by ongoing softness in U.S. sales, higher employee benefit costs, and lower U.S. dollar amounts of international profits as a result of weaker foreign currencies. (PR)
- Family Dollar Stores (FDO): FQ4 EPS of $0.43 beats by $0.02. Revenue of $1.81B (+2.5%) in-line. Gross profit as a percentage of sales rose to 34.8% from 33.6% last year. Co. ends year with $439M in cash vs. $158M a year ago. (PR)
Earnings: Tue. After Close
- AngioDynamics (ANGO): FQ1 EPS of $0.09 beats by $0.01. Revenue of $50M (+13%) vs. $48M. Shares +2.1% AH. (PR)
- Yum! Brands (YUM): FQ3 EPS of $0.70 beats by $0.12. Revenue of $2.8B (-2%) in-line. Shares +1.3% AH. (PR)
Asia markets were mostly higher Wednesday following Tuesday’s strong U.S. showing. Europe stocks are flat at midday, and premarket futures are slightly higher.
- Asia: Nikkei +1.11% to 9,780. Hang Seng +2.07% to 21,242. BSE -0.9% to 16,807. Shanghai was closed.
- Europe at midday: London -0.1%. Paris +0.1%. Frankfurt flat.
- Futures at 7:00: Dow +0.2% to 9674. S&P +0.2% to 1051. Nasdaq +0.2%. Crude +0.4% to $71.19. Gold +0.7% to %1,047.10. Treasurys are flat. Euro flat vs. dollar. Yen +0.5%.
Wednesday’s Economic Calendar
- 7:00 MBA Mortgage Applications
10:00 House Financial Services Committee on OTC Derivatives
10:30 EIA Petroleum Inventories
1:00 PM Results of $20B, 10-Year Note Auction
3:00 PM Consumer Credit