After hanging on with its fingertips to the slippy 8,000 level despite the onslaught of awful earnings, weak guidance and dire economic data, the Dow Jones went ahead last night after a market friendly FoMC statement from the US Federal reserve. New Treasury Secretary Tim Geithner helped too, saying that the government has lots of options to keep banks private and has no intention of nationalising them. Add to this the idea of a non punitive bad bank and the talk of an extra $2trn in capital injections and no wonder bank stocks went higher.
Today’s Market Moving News
- The US House of Representatives dutifully passed the $825bn Obamalus bill which now moves up to the Senate for their green light. But given the vote was split strictly along party lines, this does suggest a slightly rockier road ahead. The WSJ is carrying a story that authorities may be seeking as much as $2 trillion (gulp) in additional funds to support a more comprehensive bank bailout package.
- The ECB’s J.C. Trichet has said 'non' to any rate cut at the ECB’s February meeting by stating that the next “important” meeting was in March. Like sixth form schoolboys they do love their little titter titter code words. Note the RBNZ (New Zealand) lowered rates by a larger than expected 1.5% to 3.5% overnight.
- Some sanity beckons for the heavily manipulated CDS (credit default swaps) market. The US agriculture committee chairman in the House (Collin Peterson) has drafted legislation that would ban naked trading in CDS i.e. you would have to OWN the underlying bond or security that you were taking out the credit default insurance on. So you could no longer insure another person's house against burning down.
- The IMF revised down global growth targets. Global growth for 2009 now down to 0.5% from a November estimate of 2.2%. US to contract by 1.6%, Eurozone by 2%, UK 2.8% and Japan 2.6%. China to grow 6.7%, revised down. Also saying that losses on US loans and ABS will be $2.2trn up from October estimate of $1.4trn. Grim reading but not unexpected.
More Irish Banking Developments
An Irish asset protection scheme idea is gaining traction with a view to following the UK model. We could see details in the next few days. Also rumours that alongside €2bn in government preference shares, Bank of Ireland and Allied Irish Bank (AIB) will be tapping private shareholders for another €1bn (de facto underwritten by state).
A report in the Irish Independent suggests that management at Bank of Ireland and AIB favour the option of an insurance scheme, presumably along the lines of those announced by the British and Dutch authorities, rather than a ‘bad bank‘ solution. The report speculates that negotiations with the banks have been progressing at different paces, but the government is keen to unveil a comprehensive plan at the same time.
Separately, EBS, which speculation continues to link with Irish Life & Permanent, was yesterday downgraded by Fitch. The report noted the concern that capital could be eroded through higher impairments on residential mortgages (90% of book) and commercial mortgages (10% of book), and particularly development finance (.3% of the loan book), due to higher unemployment and falling real estate prices.
- Royal Dutch Shell (NYSE:RDS.A) reported their first quarterly loss in ten years ($2.8bn).
- UK miner Xstrata (SXRAF.PK) said that it's planning a $4.1bn rights issue (recall yesterday Rio Tinto (RTP) made the same announcement) in order to repay their debt mountain. They are also scrapping their final 2008 dividend. Their shares are off 11% this morning in response.
- The trend that news of rights issues are poison to the current market was hammered home by Cookson Group today who are down 46% after saying they will need to raise capital.
- Better news from a retailer came from the H&M chain who beat estimates with a 9.4% rise in profits. And bucking the trend, they announced plans to HIRE 7k people as it expands!
- Glanbia’s (OTC:GLAPF) US vitamin and supplement sales remain very robust.
- Wells Fargo (NYSE:WFC) was up 31% after they said they wouldn’t be taking any more TARP monies.
- Sony (NYSE:SNE) had dire results overnight, with profits down 95% on weak demand.
- Boeing (NYSE:BA) plans to cut 10k jobs as demand collapses.
Highlights today from Altria (NYSE:MO) (expected EPS $0.37), Amazon (NASDAQ:AMZN) ($0.39), Broadcom (BRCM) ($0.26), Colgate-Palmolive (NYSE:CL) ($0.98), Ford (NYSE:F) (-$1.19), Eli Lilly (NYSE:LLY) ($1.05), 3M ($0.93) and Wyeth (WYE) ($0.94).
And Finally… He’s Back, Uncle Adolf On The Detroit Bailout