- G-20 recap. G-20 leaders met this weekend to discuss solutions to the global financial crisis. The group called for a regulatory crackdown on high-risk lending and investments, and will require banks to meet higher capital standards and better risk management. They also indicated an openness to so-called dynamic capital rules, as currently used by Spain's banking system. President Bush blamed a looming global recession on investors who "sought higher yields without an adequate appreciation of the risks" and on supervisors who failed to address market dangers. Summit participants wanted to institute ways to increase international surveillance of firms that operate across multiple countries. However, at the end of the summit, it remained unclear how much power regulators would have and whether there will ultimately be a global financial markets authority. G-20 leaders have until March 31 to come up with plans to implement the discussed proposals, and will meet again in April. (Read the official G-20 statement.)
- Analysts weigh in on the G-20 summit. Analysts say calls for more regulation could rein in excessive risk but will also make financial services less profitable. Economist Mark Cliffe warns "efforts to make the system more robust may make recovery harder in the short term," while Carl Weinberg of High Frequency Economics Ltd. says immediate action is "what matters for markets at the moment, not regulatory changes for the next decade." Simon Johnson, formerly of the IMF, thinks stricter lending standards for banks could backfire because "the last thing you want to do in a global credit crunch is go around and basically tell people to tighten, tighten, tighten."
- FDIC mulls debt-guarantee changes. The FDIC may alter its $1.4T debt-insurance program after companies complained it would create an exodus from the overnight federal funds market. Firms including JPMorgan Chase (JPM) and Bank of America (BAC) said the original proposal would have made overnight loans too expensive compared to alternatives like direct loans from the Federal Reserve. As such, the FDIC may switch to a sliding scale of fees based on the maturity of the debt instead of the flat fee it had previously suggested. "Complexity is somewhat inevitable," said FDIC's Art Murton, but "we're doing our best to take away unnecessary confusion." The FDIC plans to release final regulations for the program as early as this week, and banks have until December 5 to decide whether they will participate.
- Insiders snap up company shares. General Electric's (GE) Jeffrey Immelt and Citigroup's (C) Vikram Pandit are among recent insiders to buy shares of their own companies. CEOs, directors and other senior executives at NYSE-listed companies bought $1.37B worth of equities in October, buying $57 worth of shares for every $100 sold last month, up from a low of $21 bought in June. A bullish signal for two decades, insider buying now has a mixed record and could be a sign of an impending decline. The last time insiders bought this much was in March, and the buying spree was followed by a significant drop in the S&P 500 a month later. "Everyone’s drinking the Kool-Aid," says money manager Michael Levine. "These guys know their companies better than the market, so they think they’ll be right. But the economic slowdown has happened much more quickly and has been much deeper than people expected."
- Some clamor for federal money,... First it was banks, brokerages, mortgage lenders, insurance firms. Then automakers joined the fight for government funds. The most recent group to come hat in hand to lawmakers is now the auto-parts makers. As Detroit's Big Three wait for aid, auto-parts makers are arguing they deserve access to TARP funds too, and over 100 parts maker companies have signed a letter sent to Congress today asking for a change in pending legislation to make their industry eligible for federal money. Auto-parts suppliers employ 600,000 people, nearly three times as many as those working for the Big Three automakers, and say they are already feeling the effects of automakers' financial woes.
- ...others keep a wary distance. Over 60 banking institutions have indicated they are eligible to receive more than $173B via TARP, but several institutions have made clear that they don't want any help. Over 35 companies, ranging from United Financial Bancorp (UBNK) to Charles Schwab (SCHW) to nine-branch thrift Ocean Shore Holding (OSHC), have chosen not to apply for federal aid. Some, like United Financial Bancorp, say they are 'financially solid' and have no need for the aid. Others say TARP has 'too many unknowns within the program' for a bank to prudently enter, or are resistant to TARP rules that limit stock buybacks for banks. One thing the institutions have in common is their desire to make sure the public knows they have not applied for aid; analysts are expecting an industry shake-out and say banks that apply for aid and are rejected face almost certain failure.
- GM sells assets. General Motors (GM) sold its remaining 3% stake in Suzuki Motor (SZKMF.PK) on the open Tokyo market for around $230M. Desperate for cash, GM sold the stock almost 5% below Suzuki's 25-day moving average, and at less than half Suzuki's high for the year. CEO Rick Wagoner stressed GM continues to value its 'strategic relationship' with Suzuki, and said the move was 'based on a mutual agreement.' The sale marks GM's first exit from Suzuki since it first invested in the Japanese company in 1981.
- Toyota faces downgrade. Toyota Motor (TM) is the automaker with the best credit, but may not hold that distinction for long. Fitch Ratings, citing 'unprecedented' challenges in the auto industry, has placed the company on 'Rating Watch Negative' and will review the carmaker in the next several weeks, potentially leading to a downgrade from Toyota's current AAA rating. A ratings cut would raise borrowing costs for Toyota and would be the company's first downgrade in a decade.
- Bonuses begone. Seven top executives at Goldman Sachs (GS) have decided to give up their 2008 bonuses, forfeiting potentially tens of millions of dollars in payouts. A company spokesman said the executives felt it was 'the right thing' to do. Wall Street's top players have been under pressure from regulators and investors to eliminate bonus payments this year. Goldman's move is being closely watched by Wall Street, but it is unclear whether other firms will choose to follow suit.
- GE eyes expansion. General Electric (GE) CEO Jeffrey Immelt said his company has the resources to take advantage of buying opportunities during the economic downturn. In specific, he named the oil and gas, media, infrastructure and aviation sectors. The professed interest in buying media assets has brought some reassurance to investors who worried GE might sell its NBC Universal unit.
- Recession metrics. If a survey by the National Association of Business Economists (NABE) is any measure, the economic future of the U.S. looks grim indeed. Economists believe the U.S. is in a recession, the economy will contract more severely in Q4, the decline will extend into early 2009 and unemployment will likely peak at 7.5% by the third quarter of 2009. NABE President Chris Varvares said economists have become "decidedly more negative on the economic outlook for the next several quarters" as the credit crisis intensifies and spills over to the 'real economy.'
- Recession hits Japan. Japan, the world's second largest economy, entered its first recession since 2001 last quarter, and conditions are expected to get worse before they get better. GDP shrank an annualized 0.4% last quarter, vs. predictions of 0.1% growth, and had contracted 3.7% in the quarter before. The recession could grow more severe as demand for exports falls and the Japanese government faces serious constraints in its ability to stimulate growth.
Earnings: Monday Before Open
- Covidien (COV): FQ4 EPS of $0.73 beats by $0.05. Revenue of $2.6B (+12%) in-line. (PR)
- Gol Linhas Aereas Inteligentes (GOL): Q3 EPS of -R$1.47 misses by R$1.12. Revenue of R$1.8B (+38.5%) vs. R$1.3B. (PR)
- Lowe's (LOW): Q3 EPS of $0.33 beats by $0.05. Revenue of $11.7B (+1.4%) vs. $11.6B. (PR)
- Asia markets closed mixed. Nikkei +0.7% to 8,523. Hang Seng -0.1% to 13,530. Shanghai +2.2% to 2,030. BSE -1.0% to 9,291.
- In Europe at midday, stocks are trading down. London -2.0%. Paris -2.0%. Frankfurt -2.8%.
- U.S. futures: Dow -0.9%. S&P -1.0%. Nasdaq -0.8%. Crude -2.7% to $55.49. Gold -0.2% to $740.80.
Monday's Economic Calendar
- 8:30 Empire State Mfg Survey
9:15 Industrial Production
- Notable earnings before Monday's open: COV, GOL, LOW, TGT
- Notable earnings after Monday's close: CTRP
Seeking Alpha editor Eli Hoffmann contributed to this post.
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