Wall Street Breakfast: Must-Know News

• AIG gets slammed on bonuses... AIG's (AIG) announcement that it will spend around $450M on bonuses has caused a political uproar. Obama called the payments an 'outrage' and demanded AIG rescind or repay them, promising he would "pursue every single legal avenue to block" the payments. New York Attorney General Andrew Cuomo, who has subpoenaed the company seeking more information about the bonuses and their recipients, learned that AIG had already released the bonuses in question last Friday. In light of this, White House officials later said the payouts couldn't be recovered from their recipients without a legal fight that would be even more expensive to taxpayers. Instead, the Treasury plans to attach new provisions to the $30B installment of bailout funds approved March 2 in order to force repayment of the bonuses.
• ...while others look for bonus loopholes. As AIG (AIG) faces widespread outrage over its bonus payments, other Wall Street firms are looking for loopholes in compensation caps. In response to expected bonus restrictions, Citigroup (C), Morgan Stanley (MS) and other recipients of government aid are considering an increase in base salaries for some executives and top employees. Plans are still in an early stage because the government hasn't yet issued specific rules on bonus payments, but critics are ready to cry foul on any attempts to out-maneuver federal pay caps. Separately, U.S. regulators have ruled that shareholders must be allowed to vote on JPMorgan Chase (JPM) measures to tie executive bonuses to the bank's long-term stock performance.
• Alcoa cuts dividend, capex. Alcoa (AA) announced plans to slash its dividend to $0.03 from $0.17, issue stock and convertible notes worth around $1.1B and trim 2010 capital expenditure by $1B. Alcoa has faced falling demand from the automotive, commercial transportation and construction sectors, pushing its stock to a 21-year low earlier this month and to what will be its second consecutive quarterly loss. CEO Klaus Kleinfeld expects demand to continue weakening, forecasting that global aluminum demand will drop 6-7% this year vs. the 2% drop he predicted in January. Kleinfeld said the company's "actions better prepare Alcoa to manage through a prolonged downturn." Shares fell 9.8% after hours.
• Mark-to-market begins to waver. The Financial Accounting Standards Board has proposed allowing companies to use 'significant judgment' in valuing assets in inactive markets or under distressed circumstances. The FASB has been under pressure from lawmakers who feel the fair-value rule, also known as mark-to-market accounting, has made the current financial crisis worse. The board will vote on the proposal April 2 and, if approved, companies will be able to apply the revised rule to their Q1 financial statements.
• One less newspaper. After two months of looking for a buyer, the Hearst Corp. is shutting down the print edition of its Seattle Post-Intelligencer today and moving the business online. Of the paper's staff, 145 employees accepted severance packages while 20 remained onboard to work on the new and free online version of the paper. The 146 year old Seattle Post-Intelligencer was done in by crumbling advertising sales.
• Gov't goes after Madoff properties. According to court papers, U.S. prosecutors want Bernie Madoff to forfeit more than $100M worth of homes, cars, boats, securities, silverware and a piano, much of which is held in the name of his wife Ruth. In a court filing from early March, the Madoffs' lawyer said $69M in property and accounts belong to Ruth Madoff and are not connected to the fraud.
• Marvelous deal for Gazillion. Marvel Entertainment (MVL) inked an exclusive ten-year deal to allow videogame publisher Gazillion Entertainment to make multiplayer online games based on Marvel's characters. Gazillion and Marvel will share revenue generated from such Marvel characters as Spider-Man and the Incredible Hulk, but exact details of the financial arrangement have not been disclosed. Gazillion's first Marvel-themed game, Super Hero Squad, will launch in 2010.
• Ackman has Target in sight. Activist investor William Ackman launched a proxy battle to replace five directors at struggling retailer Target Corp. (TGT). Ackman, whose Pershing Square Capital Management hedge fund owns 7.8% of Target stock, says he'll vie for one of the seats up for election at the next annual meeting and will push for "directors with relevant expertise, who can draw from their personal experience when the board has a decision to make."
• Mexico sets stage for trade war. Mexico placed a tariff on $2.4B of U.S. goods after the U.S. restricted Mexican trucking. The tariff affects around 90 items from 40 states. Mexico's economic minister Gerardo Ruiz Mateos said the measure was taken "for the incompliance of the country in its agreements regarding transport under the North American Free Trade Agreement... That is what is commonly known as measures of retaliation."
• NY Mfg worsens. The Empire State Manufacturing survey showed New York manufacturing deteriorated significantly in March. Business conditions fell to a fresh low, while new orders and shipments also dropped sharply to record lows.
• Industrial production falls. Industrial production fell 1.4% in February, according to the Federal Reserve, making it four consecutive months of contraction and 10 out of 12. Industrial production is now at its lowest level since 2002. Capacity utilization fell to 70.9% - matching an all time low set in 1982.
• Housing stays near low. NAHB's Housing Market Index for March came in at 9, unchanged at just one point off its all-time low, and in line with consensus. Prospective buyers fell to 9 from 11. Home sales over the next six months are unchanged at 15.

Earnings: Monday After Close

• Sina (SINA): Q4 EPS of $0.49 beats by $0.04. Revenue of $101.5M (+43.6%) vs. $99.4M. (PR)

Today's Markets

• Asia markets were mostly higher Tuesday, with Tokyo leading the way up for a second day. Nikkei +3.128% to 7,419. Hang Seng -0.76% to 12,878. Shanghai +3.02% to 2,218. BSE -0.89% to 8,864.
• In Europe, markets opened down and have yet to regain breakeven. London -0.3%. Paris -0.8%. Frankfurt -0.2%.
• Stock futures are marginally higher. Dow +0.3% to 7203. S&P +0.3% to 756.50. Nasdaq +0.3%. Crude +1% to $47.81. Gold -0.05% to $921.90.

Tuesday's Economic Calendar

• FOMC Meeting
  7:45 ICSC Retail Store Sales
  8:30 Housing Starts
  8:30 Producer Price Index
  8:55 Redbook
  5:00 PM ABC Consumer Confidence Index
• Notable earnings before Tuesday's open: none.
• Notable earnings after Tuesday's close: ADBE, DRI, GES

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[expat in China:]

CUTE PICTURE!

Mar 17 07:37 AM

[Boulderbiker:]

"Madoffs' lawyer said $69M in property and accounts belong to Ruth Madoff and are not connected to the fraud."

Where the hell did this money come from...SANTA?

Mar 17 08:05 AM

[pockyclips ...:]

Incompliance? No speaky English, no drive.

Mar 17 08:18 AM

[daffy:]

I am very curious about the mark-to-market modification. What does "significant judgment" mean? Is that a new legalese term? It seems to make sense to me to modify the rules such that maturity dates of 10 years or greater would not be subject, but how does that equate to significant judgment?

Mar 17 08:22 AM

[APM:]

Hmm ?? Who is going to be forced to repay the bonus? AIG with the bailout money, or the individuals who received the bonus? If it is the former, what's the point? If it is the latter, then how can this avoid the "legal fight"?


> In light of this, White House officials later said the payouts couldn't be recovered from their recipients without a legal fight that would be even more expensive to taxpayers. Instead, the Treasury plans to attach new provisions to the $30B installment of bailout funds approved March 2 in order to force repayment of the bonuses.

Mar 17 08:33 AM

[BlueOkie:]

Why not just say we want our $170B bailout money BEFORE you pay any bonuses. Ofcourse, why did they pay 100% value on CDO's to foreign banks? Do you get the feeling our government talks the talk but don't walk the walk when it comes to taxpayer money. Is the $160M bonus money a smoke screen for the wasted $170B?

Mar 17 09:20 AM

[engine3:]

No more bailout money for AIG. It seems to be "whats in it for me and screw everyone else",

Mar 17 09:28 AM

[MadAsUKnoWhat:]

It's interesting how all are outraged, but AIG still got the money. Can anyone do anything about it other that flap their jaws. All lip service to apease the taxpayer voters, but never really do anything about it.

Mar 17 09:53 AM

[bobbobwhite:]

If anyone has any doubts left about the hubris and arrogance of the Wall Street banks which have accepted bailouts as a result of their greedy and criminal behavior that has ruined the business of those same banks, their paying of bonuses with bailout money to employees who had a part in causing this economic mess is the very last straw. Let these banks now fail as they don't have the right attitude for a serious business in America. All of what they are and have done is obviously nothing more than a big game to them.

Also, the elimination of mark to market brings us to the world of "cloud accounting", which values assets according to what the heavenly spirits might think they are worth, not the street of reality. And, this is supposed to be an improvement and solve something?

Make all the Madoffs now live just the same as those they stole from who now have nothing. Madoff, his brother, wife, sons....all the Madoffs in the business must be punished as they obviously were all in it together.

Mar 17 09:55 AM

[AndrewBaker:]

I'd like to know on what criteria the AIG bonuses were paid: what slight of hand accountancy can settle a bonus on someone in a company that has traded its way to being bust, and only still exists because of taxpayer charity? And bankers and other financial wreckers are looking for higher basic pay because their bonuses have been taken away because they are not good enough to trade their company to a profit! I'll tell them now what their bonus is: they've still got a job.

Mar 17 10:03 AM

[charles hopfl:]

If Geithner knew about these bonuses to AIG financial group's crooks, and said nothing until he knew they would be paid, he has lost all credibility. To even suggest that they could not have been stopped because of contractual requirements is an erroneous argument. These culprits had committed fraud, on the company and the American financial system (worldwide actually) by selling insurance without assets to back it up and hiding these facts from the world. IF it was with the encouragement of the US financial system and equity traders, it is easy to see why Paulson, Geithner and the various insiders on Wall Street do not want to rock the boat. That being said, it is not easy to see where the fraud and criminality will stop.

Mar 17 11:26 AM

[jr007:]

Why not make an adjustment to the IRS tax code and tax all compensation, bonuses and incentitives..etc. paid to exec's of companies receiving Government funds, over and above the $500K limit ..at 100%? Effective until all government funds are repaid?
If you want to return some of the money looted by management from those failing companies... in the immediate past.. make it retroactive to 2007and 2008.
I would wager that any positions vacated by those exec's who believe they can find work that pays more than $500,000, could be easily filled by qualified replacements, who are currently unemployed.

Mar 17 11:59 AM

[grayfox:]

Wasn't it Senator Clinton who brought up the mental exercise of suspending disbelief? That the Administration did not know about the payout of the AIG bonuses destroys any credibility the Administration ever had.

The light just flashed on for me regarding recent calculations comparing the total AIG bailout and the bonus payout. The truth is that AIG has sent more, much more, taxpayer money to businesses and foreign governments than we would ever believe.

All the commotion regarding the bonuses is just a cover for the recent disclosures pertaining to AIG's bailout beneficiaries

Mar 17 12:16 PM

[bbowen7:]

Who can think of anything other than AIG?

1. Blue Okie has a point. More important than the bonuses are the discounts (if any) that were made on the debt obligations that AIG redeemed for counterparties. Probably billions with little or no business risk adjustment.

2. Why not have the next tranche include a provision that $165,000,000 comes back immediately, and that amount is to be taken out of the bonus pool for the next two years? And the members of the compensation committee all be fired? And that a criminal investigation be started to see where there was fraud?

3. And does anybody really think that the US government should be involved ir running companies? AIG; Fannie; Freddie; GM; Chrysler; etc. It should be crystal clear that this is just not something that the government is capable of doing.

Mar 17 01:56 PM

[TBill:]

That's exactly right. These bonuses were contractuallly made a year ago, everyone knew they were coming and how much they were, including the Congresscritters, before the bailouts were made. If they were interested in stopping them, that would have been the time to do it. The Chairman of the Senate Finance Committee inserted an ammendment in the bill allowing all bonuses contracted before Feb. Now he is one of the loudest voices. Shame on him. Seems the political strategists marked everyone's calender "protest the bonuses today".

TBill
***


On Mar 17 11:26 AM charles hopfl wrote:

> If Geithner knew about these bonuses to AIG financial group's crooks,
> and said nothing until he knew they would be paid, he has lost all
> credibility. To even suggest that they could not have been stopped
> because of contractual requirements is an erroneous argument. These
> culprits had committed fraud, on the company and the American financial
> system (worldwide actually) by selling insurance without assets to
> back it up and hiding these facts from the world. IF it was with
> the encouragement of the US financial system and equity traders,
> it is easy to see why Paulson, Geithner and the various insiders
> on Wall Street do not want to rock the boat. That being said, it
> is not easy to see where the fraud and criminality will stop.

Mar 17 02:34 PM

[woodsey:]

Mexico sets stage for trade war ??? NO, Hoffa did. Obama is in hock to the Teamsters, so Hoffa calls the shots. Nice shot, Hoffa !!! ??? Nice shot, Mexico.

Mar 17 02:41 PM

[jackooo:]

My contract with TWA was adjusted as were 1,000's of other employees. Lost $5 / hr. to help TWA.
Why can't management contracts be adjusted at AIG?
I blame the losers in congress.

Mar 17 03:07 PM

[Joseph Sherman:]

One less newspaper. - Survival is optional. The newspaper industry must evolve it it will succeed.

Mar 17 03:24 PM

[PainfullyAware:]

"Significant Judgment" means "Because I Say So".

This valuation method is already in effect and is just now about to be legitimized.




On Mar 17 08:22 AM daffy wrote:

> I am very curious about the mark-to-market modification. What does
> "significant judgment" mean? Is that a new legalese term? It seems
> to make sense to me to modify the rules such that maturity dates
> of 10 years or greater would not be subject, but how does that equate
> to significant judgment?

Mar 17 03:34 PM

[a. palmer jr.:]

I'd kinda like to see the border to Mexico completely blocked..nobody goes either way. I'd also like to see the North American Free Trade Agreement apply only to the U.S. and Canada. I don't think Mexico has earned a position in NAFTA because of their allowing massive drug smuggling and illegal immigration by the millions into the U.S. If they don't like it, so what?

Mar 17 08:03 PM

[doubleguns:]

How much of the money AIG paid to third parties was used to pay bonuses to third party execs? I am sure that the amount at AIG is only the teeny tiny tip of the iceburg. If this was known the noise from americans outrage would be heard in china.

AIG is just the first stop on this march to quash the waste of tax payer money.

Congress on the other had sits there and acts so incredulous it makes me sick. They are the biggest wasters of tax payers dollars how can they even look americans in the face as they make all of these hypocritical accusations. We need to take away congress' paychecks and pork but unfortunately that seems to only seem possible in my nightly dreams/nighmares.

Mar 18 07:26 AM

[pacman1947:]

Boulderbiker must have friends in the FBI. I love the editorial cartoons that show Madoff in prison working new Ponzi schemes to barter cigarettes and soap bars (If you give me a cigarette now, I'll give you back two on Tuesday...). Lawyers will say and do anything to win their case. After all, the wife had nothing to do with the husband, right?


On Mar 17 08:05 AM Boulderbiker wrote:

> "Madoffs' lawyer said $69M in property and accounts belong to Ruth
> Madoff and are not connected to the fraud."
>
> Where the hell did this money come from...SANTA?

Mar 18 08:48 AM

[bobbobwhite:]

How about a shoot to kill order for border jumpers? Either way, doesn't matter.

Whoa, better change my vacation plans right now!


On Mar 17 08:03 PM a. palmer jr. wrote:

> I'd kinda like to see the border to Mexico completely blocked..nobody
> goes either way. I'd also like to see the North American Free Trade
> Agreement apply only to the U.S. and Canada. I don't think Mexico
> has earned a position in NAFTA because of their allowing massive
> drug smuggling and illegal immigration by the millions into the U.S.
> If they don't like it, so what?

Mar 18 01:33 PM