- Lewis may face SEC probe. Bank of America (BAC) CEO Ken Lewis may come under SEC scrutiny for failing to disclose mounting Merrill Lynch losses. Lewis had testified in February that the Treasury and Federal Reserve strongly pressured him to stay quiet on potential problems with the deal, a claim that both Bernanke and then-Treasury chief Paulson deny. Even if Lewis had been under government pressure, he was still required by law to disclose the potential losses to his shareholders. New York AG Cuomo suggested the SEC "appears to have been kept in the dark" about talks between Bank of America and the Fed and Treasury, while the SEC says it is now "actively reviewing the disclosure."
- Gov't plans for possible Chrysler bankruptcy. As Chrysler nears its deadline to cut its costs and reach a Fiat tie-up, the Treasury is preparing a bankruptcy filing out of 'due diligence.' As of yesterday afternoon, Chrysler was nearing a labor deal with its Canadian union and had substantially completed negotiations with the United Auto Workers as well. Chrysler's lenders and the Treasury have been going back and forth about the terms of a possible debt swap. However, some sources say Chrysler is preparing to file for bankruptcy as early as next week, regardless of whether it reaches a deal with lenders or Fiat.
- Fed opens up its books on Bear. The Federal Reserve provided more details on its efforts to shore up the financial system and the accompanying jump in its balance sheets. The Fed's combined assets hit $2.25T as of Dec. 31, a sharp rise from $1.33T a year ago. Of the $74B in assets the Fed took on from Bear Sterns and AIG (AIG), the Fed had an unrealized loss of $9.6B as of Dec. 31. The value of the Bear Sterns commercial mortgage holdings owned by the Fed was written down by 28% to $5.6B, and residential loans were written down by 38% to $937M.
- Madoff investors sue JPMorgan. Florida investors filed a lawsuit against JPMorgan Chase (JPM), claiming the bank 'entered into a conspiracy' with Bernie Madoff after learning his returns were false in September 2008. The investors lost $12.8M in Madoff's Ponzi scheme. According to the complaint, JPMorgan 'quietly liquidated its entire $250M cash position' with a fund that invested in Madoff while continuing to provide fee-generating services to Madoff's business.
- Morgan may spin-off trading unit. Morgan Stanley (MS) may make major changes to its biggest proprietary-trading desk, including spinning it out into a hedge fund or opening up the unit to outside investors. Sources don't expect a quick decision on the matter and say Morgan may choose to leave the unit unchanged. However, Morgan has already eliminated several proprietary-trading desks since the financial crisis began, in part because of the repercussions of the government's intervention in the financial industry.
- HSBC closes Japan units. HSBC (HBC) will close its equity research and trading businesses in Japan, laying off around 40 workers and moving the equity operations to Hong Kong. Several other banks have recently retreated from the world's second-largest economy, including UBS (UBS), Goldman Sachs (GS) and Citigroup (C).
- NYSE, Deutsche Borse resume talks. Deutsche Borse and NYSE Euronext (NYX) resumed talks on a possible deal, after potential merger discussions were abandoned in December. There are conflicting reports about the nature of the talks; some say the firms are less serious than the first time around and are unlikely to see a near-term tie-up, while at least one business publication reported the talks are in an advanced stage already and a deal could be struck in a few weeks.
- Promotions, Kindle boost Amazon. Amazon (AMZN) beat quarterly earnings expectations (see details below) as Kindle sales picked up and online shoppers were drawn to low prices on Amazon's website. Though some analysts have worried how deep discounting will affect Amazon's bottom line, the company reported operating margins for the quarter of 6.6%, among the highest in recent years.
- Microsoft hit by PC slump. Microsoft (MSFT) met expectations for quarterly earnings (see details below) but fell short on revenue, posting a 5.6% drop from the year before, its first ever decline in quarterly revenue. Four of Microsoft's five business divisions recorded lower sales, which executives blamed on a general pullback in PC spending by both consumers and businesses. The company expects the rest of the calendar year to 'remain very challenging.'
- EU passes rating rules. The EU approved new rules to create European oversight for ratings agencies. The rules primarily aim to avoid conflicts of interest in the ratings process and to improve the way agencies rate debt. They also demand some increased disclosure to ensure agencies understand the risks of the debt being rated.
- Moody's warns on U.K. finances. The pound fell against the yen, euro and dollar after Moody's said the U.K.'s finances are 'deteriorating rapidly' and the government is taking 'risks.' Moody's and S&P are reviewing the U.K.’s AAA sovereign credit rating after the government said the nation’s debt will reach £1.4T ($2.05T) over the next five years.
- U.K. GDP shrinks. The U.K. economy shrank a larger-than-expected 1.9% in Q1, the third consecutive quarter of output declines and the largest quarterly decline since 1979.
- Jobless claims rise. Initial Jobless Claims rose to 640K, up from last week's 613K (revised) and in-line with estimates. Continuing claims rose 93K to 6,137,000.
- Home sales dip. Existing home sales fell to 4.57M in March from 4.72M last month, short of the 4.7M expected by economists. NAR chief economist Lawrence Yun noted that first-time buyers seem to be returning, but sales in the upper price ranges remain stalled.
Earnings: Friday Before Open
- American Electric Power Company (AEP): Q1 EPS of $0.89 beats by $0.08. Revenue of $3.5B (+0%) in-line. Reaffirms full-year guidance. (PR)
- Ford (F): Q1 EPS of -$0.75 beats by $0.48. Revenue of $24.8B (-42.7%) vs. $22B. Says it's still on track to meet or beat financial targets, including breakeven or better in 2011. On track to reduce costs by $4B in 2009. Q1 cash burn $3.7B. Shares +14.7% premarket. (PR)
- Honeywell (HON): Q1 EPS of $0.54 in-line. Revenue of $7.57B (-14.9%) in-line. Full-year guidance in line. (PR)
- ITT Industries (ITT): Q1 EPS of $0.72 beats by $0.14. Revenue of $2.56B (-8.9%) in-line. Full-year guidance in line with expectations. (PR)
- Metavante (MV): Q1 EPS of $0.39 beats by $0.01. Revenue of $427M (+0.5%) in-line. (PR)
- Schlumberger (SLB): Q1 EPS of $0.78 beats by $0.05. Revenue of $6B (-4.6%) in-line. "We do not see any significant recovery in North American gas drilling before 2010." (PR)
- Xerox (XRX): Q1 EPS of $0.05 beats by $0.01. Revenue of $3.55B (-18%) in-line. Sees Q2 EPS of $0.10-0.12 vs. $0.14. (PR)
Earnings: Thursday After Close
- Amazon.com (AMZN): Q1 EPS of $0.41 beats by $0.10. Revenue of $4.89B vs. $4.76B. Sees Q2 revenue of $4.3-4.75B vs. $4.61B consensus. Says "Kindle sales have exceeded our most optimistic expectations," but no numbers. Shares +3% premarket. (PR)
- American Express (AXP): Q1 EPS of $0.32 beats by $0.20. Revenue of $5.93B (-18.1%) vs. $6.45B. Consolidated provisions of $1.8B vs. $1.2B last year "primarily reflecting additions to the lending credit reserves in view of increased write-offs and past due loans." Tier-1 ratio 14.8%. "While we did see some recent improvement in early delinquency rates, overall credit indicators reflected rising unemployment levels and the broad-scale weakness in the economy. Based on current indicators, we expect Q2 U.S. lending write-off rates on a managed basis to rise between 200 and 250 bps over Q1 levels. We expect an additional increase of 50 bps or less in Q3, before leveling off during Q4." "If permitted by our supervisors and if supported by the results of the stress assessment, we intend to repay the government investment of preferred shares and warrants." Shares +8.9% premarket. (PR)
- Amgen (AMGN): Q1 EPS of $1.08 misses by $0.07. Revenue of $3.31B (-8.4%) vs. $3.63B. Full-year guidance in line with expectations. Shares -2.5% AH. (PR)
- Burlington Northern Santa Fe (BNI): Q1 EPS of $1.05 beats by $0.09. Revenue of $3.42B vs. $3.68B. Shares +2.1% AH. (PR)
- CF Industries (CF): Q1 EPS of $1.23 beats by $0.52. Revenue of $681M (+2%) vs. $479M. Shares +4.1% AH. (PR)
- Chartered Semiconductor Manufacturing (CHRT): Q1 EPS of -$0.26 beats by $0.16. Revenue of $244M (-37.2%) vs. $240M. Sees Q2 EPS of -$0.09 to -$0.05 vs. consensus of -$0.35, and revenue of $321-333M vs. $269M. Shares +15% AH. (PR)
- Chubb (CB): Q1 EPS of $1.43 beats by $0.05. Shares +0.7% AH. (PR)
- DeVry (DV): FQ3 EPS of $0.70 beats by $0.03. Revenue of $392M (+34.7%) vs. $388M. Shares +0.7% AH. (PR)
- Host Hotels & Resorts (HST): Q1 EPS of $0.10 misses by $0.01. Revenue of $882M (-16.2%) in-line. Will sell 60M shares for cash for operations and to pay down debt. Shares -4.3% AH. (PR)
- Interactive Brokers (IBKR): Q1 EPS of $0.30 misses by $0.16. Revenue of $312.5M (-51.3%) vs. $422.5M. "Our strict risk controls have not completely immunized us from the secondary effects of the financial crises as our results have been largely impacted by competitive pressures on spreads. Exchange listed options are one of the few life rafts still afloat and more and more traders are trying to hold onto it." Shares -12.8% AH. (PR)
- Juniper Networks (JNPR): Q1 EPS of $0.17 in-line. Revenue of $764M (-7.1%) in-line. Shares +7.2% AH. (PR)
- KLA-Tencor (KLAC): FQ3 EPS of -$0.34 misses by $0.08. Revenue of $310M (-48.5%) vs. $300M. Shares -1.6% AH. (PR)
- MEMC Electronic Materials (WFR): Q1 EPS of $0.01 beats by $0.03. Revenue of $214M (-49.7%) vs. $217M. Won't provide guidance due to limited visibility. Shares -1.9% AH. (PR)
- Microsoft (MSFT): FQ3 EPS of $0.39 in-line. Revenue of $13.65B (-5.6%) vs. $14.09B. "We expect the weakness to continue through at least the next quarter." Shares +3.9% AH. (PR)
- Mohawk Industries (MHK): Q1 EPS of -$1.55 vs. consensus of -$0.85. Revenue of $1.21B (-30.5%) vs. $1.38B. Shares +7.1% AH. (PR)
- Netflix (NFLX): Q1 EPS of $0.40 beats by $0.09. Revenue of $394M vs. $391M. Sees full-year EPS and revenue in line. Shares -6.7% AH. (PR)
- Riverbed Technology (RVBD): Q1 EPS of $0.11 beats by $0.01. Revenue of $88.5M (+21.2%) vs. $85.12M. Shares +5.3% AH. (PR)
- SunPower (SPWRA): Q1 EPS of $0.05 misses by $0.19. Revenue of $214M (-21.8%) vs. $269M. Sees full-year EPS of $1.25-1.75 vs. $1.90. Shares -7% AH. (PR)
- Western Digital (WDC): FQ3 EPS of $0.30 beats by $0.18. Revenue of $1.59B (-24.6%) vs. $1.48B. Shares +2% AH. (PR)
- YRC Worldwide (YRCW): Q1 EPS of -$2.63 misses by $0.73. Revenue of $1.5B (-32.7%) vs. $1.61B. Shares +1.4% AH. (PR)
Asia markets closed mixed Friday. Europe has moved higher, while futures are flat.
- Asia: Nikkei -1.57% to 8,7008. Hang Seng +0.29% to 15,259. Shanghai -0.62% to 2,449. BSE +1.74% to 11,329.
- Europe at midday: London +1.8%. Paris +1.6%. Frankfurt +1.6%.
- Futures at 7:00: Dow +0.1% to 7920. S&P +0.1% to 849.50. Nasdaq +0.3%. Crude +0.8% to $50. Gold +0.5% to $911.50. Euro +0.8% vs. dollar. Yen +0.9%. Pound -0.75%.
Friday's Economic Calendar
- 8:30 Durable Goods Orders
10:00 New Home Sales
4:30 PM Geithner speaks after meeting of G7 finance ministers
- Notable earnings before Friday's open: ACI, AEP, F, HON, ITT, MMM, MV, SLB, SWK, WL, XRX
Seeking Alpha editor Eli Hoffmann contributed to this post.
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