- Derivatives divide threatens regulatory overhaul. Regulators appear more divided than ever on how to increase oversight into the opaque $600B OTC derivatives market. In a rare show of solidarity yesterday, both the SEC and the CFTC urged Congress to force all OTC trades to be cleared in public exchanges, which they say would dampen the risk of another Lehman debacle, and make it harder for the bad guys to hide. But House Financial Services Committee chairman Rep. Barney Frank said he didn’t see lawmakers successfully forcing OTC trades through monitored clearinghouses, noting substantial opposition from both bipartisan lawmakers and Wall Street.
- Google sounds the all-clear. “I would hope we’re a leading indicator,” Google (GOOG) CEO Eric Schmidt told reporters yesterday after surprisingly revealing the internet giant quietly restarted its noted investment and hiring programs two months ago (“We’re increasing our investment and hiring rate in anticipation of a recovery”). “The worst is behind us, and we’re seeing aspects of recovery,” he said, noting the mood within Google’s sales team is “very, very positive.” Shares gained 3.8% Wednesday to $517.54.
- Alcoa serves up a winner. Alcoa (AA) kicked off the Q3 earnings season with a strong beat, posting a profit of $0.08/share compared to the $0.09 loss expected by analysts (see below for more data). Alcoa said it sold more aluminum in Q3 compared with a year ago, citing rising shipments and declining inventories. Most of its important markets, including carmakers and other industrial sectors, began to stabilize, it said. On Alcoa’s earnings call, CEO Klaus Kleinfeld said strong China demand helped neutralize weak demand from Western buyers, bringing aluminum prices up about 20% over the quarter.
- DoJ challenges IBM’s mainframe dominance. The Justice Department has initiated an investigation into whether IBM (IBM) is abusing its monopoly of the mainframe computer market following a complaint by trade group the Computer and Communications Industry Association, which is backed by IBM rivals like Microsoft (MSFT) and Oracle (ORCL). The organization contends IBM stymied competition in the mainframe market, and blocked competitors and potential partners from licensing its software. A similar complaint by mainframe reseller T3 was dismissed last week, but more companies appear ready to take up the cause. About 25% of IBM’s $104B in annual revenue still comes from mainframe related sales.
- U.K. opposes Ticketmaster merger. Britain’s Competition Commission provisionally ruled against the proposed merger of Ticketmaster (TKTM) and Live Nation (LYV), saying it would lead to higher prices and less competition. In response, Ticketmaster stressed that live music is now the industry’s driving force, and said it believes the merger “achieves an important and much needed public interest, and remain optimistic that it will ultimately be approved.” Earlier this week, a ticket broker filed suit against Ticketmaster, alleging it paid him extra to sell choice tickets at a premium.
- Shamu swims on Wall Street. Anheuser-Busch InBev (BUD) confirmed it will sell its theme parks, including the three SeaWorlds and two Busch Gardens, to the Blackstone Group (BX) for as much as $2.7B. Together with the sale of its U.S. packaging operations and beer units in Korea, China, Scotland and Ireland, BUD will have raised about $6.4B of its $7B target for debt reduction related to last year’s $52B merger.
- Year’s biggest IPOs: separated at birth. The two biggest IPOs of 2009 debuted Wednesday, taking off in opposing directions from the get go. Shares of Banco Santander Brasil (BSBR) priced well below market chatter (but in the middle of its proposed range) and proceeded to fall about 2.5% on the NYSE. Meanwhile Insurance risk specialist Verisk Analytics (VRSK) priced its IPO at $22/share, exceeding expectations of $19-21, and never looked back – closing up 24% on the Nasdaq to $27.22.
- SEC isn’t done with Mark Cuban. The SEC appealed Wednesday a federal judge’s dismissal of its case accusing Dallas Mavericks’ owner Mark Cuban of selling his 6% stake in internet search company Mamma.com based on insider information. The case was thrown out in July, saying Cuban would be liable for insider trading only if he specifically promised not to trade shares – which he didn’t. “We believe the District Court erred in dismissing our complaint and we look forward to presenting our position to the Fifth Circuit Court of Appeals,” SEC said in a statement. To which Cuban’s lawyers responded, “This appeal is nothing more than the SEC’s desperate attempt to shock a heartbeat into a case that was dead on arrival.”
- Credit dry-up intensifies. Consumer credit fell for the seventh month in a row, contracting $11.98B in August to $2.46T – translating to a -5.8% annual growth rate. Economists had expected a $12.5B decline. Credit-card debt fell for a record 11th straight month, down $9.91B (an annualized shrinkage of 13.1%) to $899.41B (consumer credit release). The drop highlights how lenders are scaling back after being hit with huge debt writeoffs, but it also reflects a reluctance by consumers to hold substantial amid concerns over their jobs and home values.
- BoE holds steady. Bank of England maintained its commercial bank rate at 0.5%, and left its bond-buying program unchanged at £175B. The bank said it expects the program to complete within a month.
Earnings: Thur. Before Open
- Marriott International (MAR): Q3 EPS of $0.15 beats by $0.02. Revenue of $2.47B (-16.6%) vs. $2.39B. Company says aggressive promotions led to lower than expected loss on revenue per available room. (PR)
- PepsiCo (PEP): Q3 EPS of $1.08 beats by $0.05. Revenue of $11.08B (-1.5%) vs. $11.25B. Shares (PR)
Earnings: Wed. After Close
- Alcoa (AA): Q3 EPS ex-items of $0.04 beats by $0.13. Revenue of $4.6B (-34%) in-line. First-half measures making “strong positive impact on our cash position and profitability.” Shares +7.9% premarket. (PR)
- Ruby Tuesday (RT): FQ1 EPS of $0.11 beats by $0.02. Revenue of $301M (-7%) vs. $297M. Shares +0.1% AH. (PR)
- Richardson Electronics (RELL): FQ1 EPS of $0.11 beats by $0.07. Revenue of $109.5M (-21%) vs. $111M. (PR)
Despite a lackluster U.S. session Wednesday, overseas stocks have moved higher Thursday, augmented by significant gains in U.S. futures.
- Asia: Nikkei +0.34% to 9,832. Hang Seng +1.18% to 21,493. BSE +0.22% to 16,844. Shanghai was closed again.
- Europe at midday: London +0.6%. Paris +1.2%. Frankfurt +1.2%.
- Futures: Dow +0.8% to 9750. S&P +0.9% to 1063. Nasdaq +0.8%. Crude +0.9% to $70.22. Gold +1% to $1,054.50. 30-year bonds -0.13%. Euro +0.7% vs. dollar. Yen +0.2%.
Thursday’s Economic Calendar
- 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
- Ken Lewis, RIP. Ken Lewis lost his battle to stay in control of Bank of America (BAC), leaving the board and its new chairman Walter Massey three months to find a replacement with no heir apparent. The fact that BofA isn’t announcing a successor now is indicative of the chaos within the bank, and suggests Lewis’s departure isn’t entirely voluntary. BAC +1% premarket.
- So long, Saturn. Late yesterday, Penske (PAG) canned what was thought to be a done deal to buy Saturn, citing concerns about the future supply of vehicles beyond the supply period it had negotiated with GM. Another (unknown) carmaker was supposed to take over manufacturing of Saturn-branded cars after two years, and its board nixed the deal, according to Penske. Afterwards GM said it’s pulling the plug on Saturn, putting 357 U.S. dealerships and 13,000 jobs at risk. PAG -7.6% AH.
- One step closer to domination. Cisco Systems (CSCO) agreed to buy Tandberg, a Norwegian manufacturer of videoconferencing systems, for about $3B in cash – an 11% premium to Wednesday’s close and 25.2% higher than its three-month average price. The move indicates how serious Cisco is about video conferencing; Tandberg’s smaller conferencing units will give Cisco a cheaper option to its expensive, room-sized TelePresence systems. In an interview last week, Cisco CEO John Chambers boasted the company has managed to move into 30 new markets through acquisitions and internal product development. “We are involved in things that may shock you.” Keep an eye on Polycom (PLCM), Tandberg’s key rival.
- IMF: recovery faster than expected. In its twice-yearly World Economic Outlook this morning, IMF boosted its 2010 world growth outlook to 3.1% from a previous 2.5%, and adjusted 2009’s expected contraction to 1.1% from 1.4%. But it warned against premature withdrawal of stimulus efforts and said uncertain growth in developed countries could leave governments with the uncomfortable choice of extending stimulus programs at the risk of inflation, or cutting them short and risking a double dip.
- CIT raises stakes in bondholder discussion. CIT Group (CIT) upped the ante with its creditors by drawing up a prepackaged bankruptcy plan Wednesday, sources say. The move pressures CIT’s bondholders to buy into a proposed debt restructuring, or take their chances in bankruptcy court. CIT will ask shareholders to vote on both options when it unveils the proposed debt exchange, which is thought to give bondholders control of the company in exchange for wiping out 30-40% of its debt and extending the rest.
- CNOOC pursues Uganda oil stake. Sources say Chinese state-owned oil company CNOOC (CEO) has entered talks with Uganda over a $5B Tullow Oil-led project. Earlier this week, the Nigerian government confirmed reports CNOOC was looking to enter Nigerian oil blocks underused by major international oil companies.
- Euro-zone joblessness hits decade high. Euro-zone unemployment rose to 9.6% in August from 9.5%, the highest rate in over 10 years and in line with consensus. Spain was worst off at 18.9%, while Netherlands’ 3.5% and Austria’s 4.7% were the least severe.
- Global deflation abates. Consumer prices in developed economies fell 0.3% in the 12 months to August after falling 0.6% in the 12 months to July, OECD said. June marked the first Y/Y episode of deflation since the OECD began compiling data in 1971; as recently as July 2008, the rate stood at an 11-year high of 4.8%.
- Creeping toward growth. BEA’s final reading of Q2 GDP came in at -0.7%, substantially better than the -1.2% economists expected and a preliminary reading of -1%. The much smaller decrease than in Q1 (-5.5%) reflects improvements in nonresidential fixed investment and in exports, an upturn in federal government spending, an upturn in state and local government spending, and a smaller decrease in residential fixed investment, BEA said.
- Job losses narrow. ADP reported 254,000 job losses in September, far worse than the 200K forecasted, while revising August to -277,000 from -298,000. September’s losses were the least severe since July 2008, as job cuts have diminished significantly over the last two quarters. “Nevertheless, employment, which usually trails overall economic activity, is likely to decline for at least several more months, with losses continuing to diminish,” ADP said.
- Chicago ISM disappoints. Business activity in the U.S. Midwest failed to return to growth in September, with ISM’s business barometer dropping unexpectedly to 46.1 vs. consensus of 52 after an even 50 (above 50 indicates growth) in August. New orders dipped to 46.3 from 52.5.
Earnings: After Close
- Diamond Foods (DMND): FQ4 EPS of $0.25 beats by $0.07. Revenue of $114M (+1%) in-line. Shares -0.5% AH. (PR)
- Lawson Software (LWSN): FQ1 EPS of $0.09 beats by $0.04. Revenue of $169M (-11%) vs. $162M. Shares +9% AH. (PR)
- Xyratex (XRTX): FQ3 EPS of $0.36 beats by $0.22. Revenue of $246M (-12%) vs. $239M. Shares +7.5% AH. (PR)
Asia stocks were mixed Thursday, while Europe has turned lower taking U.S. futures along.
- Asia: Nikkei -1.53% to 9,979. BSE +0.05% to 17,135. Hong Kong and Shanghai were closed.
- Europe at midday: London -0.6%. Paris -0.7%. Frankfurt -0.5%.
- Futures at 7:00: Dow -0.4% at 9611. S&P -0.6% to 1047. Nasdaq -0.6%. Crude -0.9% at $70. Gold -0.4% to $1,005. Treasurys are flat. Euro -0.6% vs. dollar. Yen -0.45%.
Thursday’s Economic Calendar
- Fed stays put, stretches mortgage support. As expected, the central bank left its interest-rate unchanged at 0-0.25%, saying the fed funds target would remain low “for an extended period,” and noting consumer spending “remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit.” The Fed also extended its $1.25T program to buy mortgage-backed securities, a move applauded by homebuilders for its potential to keep mortgage rates at record lows. (read the FOMC statement)
- World leaders stuck between a rock and a hard place. G-20 leaders begin their two-day Pittsburgh summit today, having already warned that the recovery is still too fragile to ponder pulling back on governments’ massive liquidity injections. The challenge will be when to start pulling back, and how to do so without sending the global economy into a double-dip tailspin. Economists say soaring sovereign debt is the world’s number-one economic vulnerability emerging from the recession, and could very likely trigger the next crisis.
- Citi mulls shrinking retail footprint. Sources say Citigroup (C) may sell or shutter some of its 1,001 North American branches in an effort to downsize and focus on areas with the highest branch concentrations – New York, Washington, Miami, Chicago, San Francisco and Los Angeles. “The smaller-but-smarter approach is the latest attempt by Citi to mend a business dogged by underinvestment, strategic miscues and management turnover.” In January, when CEO Vikram Pandit said Citi would sell or shut some non-core businesses, retail banking was among the ones he wanted to keep.
- Tech cos. catch a break. The FASB approved a tweak to accounting regulations that could benefit some high-tech companies, allowing them to recognize more revenue when products are sold. Previously, devices such as smartphones that combine hardware and software, were governed by accounting rules that applied to software which requires the revenue to be recognized over a product’s expected life cycle, typically years. Analysts say the accounting change could be impactful for Apple (AAPL), which hasn’t fully reflected iPhone sales in its quarterly results. (FASB statement)
- White House pares financial reform plan. In an effort to find a middle ground between proponents and opponents of a proposed consumer financial protection agency, Rep. Barney Frank announced a modified plan Wednesday that would see the new regulator focus on protecting consumers from deceptive or abusive credit cards, mortgages and other loans, while abandoning President Obama’s proposal to force banks and other financial services companies to offer ‘plain vanilla’ products, like 30-year fixed mortgages and low-interest, low-fee credit cards. Speaking at a House hearing, Tim Geithner praised Frank’s initiative, saying it provided “a better balance of choice and protection.”
- U.K. almost had two Lehmans. On one day in early October, 2008, two major British banks – Royal Bank of Scotland (RBS) and HBOS – were within hours of collapsing, Bank of England Governor Mervyn King told the BBC, explaining the government’s emergency pledge of about £50B to stave off disaster. “Individuals would not have had access to the money in that bank. Their deposits would have been frozen. The accounts would have not been there for salaries to be paid in to so many people would not have been paid their salary. In turn they wouldn’t have been able to pay bills to businesses so the businesses would have found that their flow of payments would have come to an end.”
- Germany cuts Q4 debt sales. Germany lowered its planned Q4 debt issuance by 22% to €59B, citing improved funding conditions and reduced borrowing requirements. After the revision, Germany is set to issue €329B in 2009, still an all-time high. (BDF statement)
- Wii little price. Nintendo (NTDOY.PK) said it will cut the price of its popular Wii game console by 20%, a response to similar cuts by rivals Sony (SNE) and Microsoft (MSFT). In the U.S., a Wii will now set you back $199.99, $50 less than before. PS3 and Xbox each cost about $300. Nintendo has so far outsold its rivals in this generation of consoles, but sales have tailed off in recent months.
- Mass layoffs jump. The Labor Department reported 2,690 layoff events (at least 50 workers) in August that affected 259,000 workers. That’s 533 more layoff actions than July, and 803 more than August 2008.
Earnings: Before Open
- McCormick & Company (MKC): Q3 EPS of $0.57 beats by $0.03. Revenue of $791M (+1.3%) vs. $801M. (PR)
Earnings: Wednesday After Close
- Bed Bath & Beyond (BBBY): Q2 EPS of $0.52 beats by $0.04. Revenue of $1.92B (+3%) vs. $1.9B. Shares -2.3% AH. (PR)
- Copart (CPRT): FQ4 EPS of $0.41 misses by $0.02. Revenue of $184M (-11%) vs. $185M. Shares -7.2% AH. (PR)
- Cintas (CTAS): FQ1 EPS of $0.43 beats by $0.04. Revenue of $892M (-11%) vs. $880M. Shares +2.6% AH. (PR)
- Paychex (PAYX): FQ1 EPS of $0.34 in-line. Revenue of $500M (-6%) vs. $503M. Sees full-year revenue down between 2% and 5% Y/Y. Shares -2.7% AH. (PR)
- Red Hat (RHT): Q2 EPS of $0.20 beats by $0.05. Revenue of $184M (+12%) vs. $179M. Tax benefit added $0.04 to EPS. Shares +4.7% AH. (PR)
Asia markets were mixed, with Tokyo rising strongly after a three-day hiatus. Europe has recovered most of its early losses, and U.S. futures are hovering around breakeven.
- Asia: Nikkei +1.67% to 10,544. Hang Seng -2.52% to 21,051. Shanghai +0.38% to 2,854. BSE +0.37% at 16,781.
- Europe at midday: London -0.1%. Paris -0.3%. Frankfurt -0.3%.
- U.S. futures: Dow -0.2% to 9698. S&P -0.2% to 1057. Nasdaq flat. Crude -0.8% to $68.44. Gold flat at $1,015. Treasurys are marginally higher. Euro +0.2% vs. dollar. Yen +1%. Pound -0.9%.
Thursday’s Economic Calendar