- Opening up OTC. At a news conference late Wednesday afternoon, regulators laid out suggested structural changes to improve policing of the $684T market for over-the-counter derivatives, including moving trades to an open exchange and requiring large players to report positions (read Geithner's remarks). A similar move to open up the corporate bond market seven years ago reduced bank profits by almost half due to tighter spreads and greater transparency. The decision is a dramatic change from the Treasury's previous opposition, and market watchers say it could lead to dramatically lower prices. CME Group (NASDAQ:CME), a frontrunner to clear OTC trades, gained 6% yesterday.
- Take the money, or else. We already knew that then-Treasury Secretary Henry Paulson twisted bank executives' arms to accept a combined $125B in TARP money, but documents obtained yesterday by watchdog Judicial Watch shed new light on the extent of the coercion. "If a capital infusion is not appealing, you should be aware that your regulator will require it in any circumstance," CEOs read in a set of Talking Points handed out by Paulson. The documents "show our government exercising unrestrained power over the private sector," Judicial Watch president Tom Fitton said in a statement, and alleges the Obama administration continues to cover up present Secretary Geithner's role in "this infamous bankers meeting."
- TARP to help smaller banks. Tim Geithner told community bankers in a speech Wednesday morning the Treasury would use TARP repayments from larger banks to reopen the application window for smaller banks, and boost the amount they can receive (full speech). Community bankers have complained the federal response to the crisis has favored larger institutions, while influential analyst Meredith Whitney has argued regional banks, and not their bigger brethren, are the key to fixing broken credit markets.
- Banks sue MBIA over split. Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan (NYSE:JPM), HSBC (HBC), Barclays (NYSE:BCS), and 13 other large financial institutions are suing bond insurer MBIA (NYSE:MBI), over its decision to split its businesses earlier this year into "good" and "bad" banks. The group claims the split was fraudulent, and left the insurance arm a virtual shell company, with no ability to pay the banks' claims.
- April retail sales disappoint. U.S. retail sales fell 0.4% from March, the Census Bureau said Wednesday, well short of economist consensus of +0.1%. Sales were 10.1% lower than a year ago. Ex-auto, sales were -0.5% vs. consensus of +0.2%. The S&P Retail Index was down 3.3% Wednesday on the weak data, and on earnings shortfalls from Liz Claiborne (LIZ) and Macy's (NYSE:M), which declined 26% and 7% respectively.
- BofA sells $7.3B stake in CCB. Bank of America (BAC) unloaded 13.5B shares, or a nearly 6% stake, in China Construction Bank, giving it another $7.3B with which to weather the financial storm. Buyers include China Life Insurance Company (NYSE:LFC). After the sale, BofA still owns about 11% of CCB's shares.
- Has tech spending bottomed? The severe cuts to corporate IT spending appear to be abating, a shift that could reverse revenue declines at tech giants like Hewlett-Packard (NYSE:HPQ), Cisco Systems (NASDAQ:CSCO) and Dell (NASDAQ:DELL). More than a dozen chief information officers and corporate IT executives interviewed by the WSJ say any aggressive reductions are done, although many don't intended to significantly boost their budgets until their businesses and the broader economy put together several quarters of growth.
- Refi fever takes hold. The rush of homeowners to refinance mortgages at lower rates is sparking a boom in home lending, prompting banks to hire thousands of new employees. The Mortgage Bankers Association estimates lenders could originate up to $2.78T in new mortgages this year, 80% of that involving refinancing. Economists estimate U.S. homeowners could save $18B on mortgage repayments this year if they refinance.
- Lehman considers spin off of leftovers. Lehman, which still owes creditors about $200B, may spin off its remaining assets, "a collection of battered real-estate and private-equity holdings," to investors willing to bet prices will recover someday. A spinoff would be the most significant move yet to clean up Lehman's bankruptcy estate. Lehman's estimates peg the assets' current fair-market value at about $45B, down more than half since September, and vs. a nondistressed value of $400B.
- Libor declines to new low. Three-month Libor fell 3 bps to just 0.85%, the biggest drop since March 19, the day after the Fed announced it would buy up to $300B in Treasurys to revive growth. "I wouldn't say that nothing can stop Libor's fall," one strategist remarked, but for now, "there isn't enough out there to cause any big panic."
- Mozilo in SEC's sights. The SEC is readying a civil fraud case against former Countrywide chief Angelo Mozilo. Potential charges include violations of insider-trading laws, and failure to disclose information to shareholders. Mozilo sold $130M of Countrywide shares in H1 2007. His lawyer calls accusations Mozilo "was selling Countrywide stock because he was aware of some supposedly 'secret' adverse information" scandalous.
- Oil costs boost import prices. Import prices rose 1.6% in April, after rising 0.2% (revised) in March, the Department of Labor said Wednesday, more than the economist consensus of +0.6%. Most of the increase came from a rise in petroleum prices. Prices are down 16.3% from a year ago. Export prices were +0.5% M/M and -6.8% Y/Y.
Earnings: Thursday Before Open
- Gildan Activewear (NYSE:GIL): FQ2 EPS of $0.06 misses by $0.04. Revenue of $245M (-16.7%) vs. $226M. Gross margins 15.8% vs. 28.8% a year ago. (PR)
- Kohl's (NYSE:KSS): Q1 EPS of $0.45 beats by $0.02. Revenue of $3.64B (+0.4%) in-line. Sees Q2 EPS of $0.56-0.64, in-line. Sees full-year EPS of $2.19-2.42, vs. a previous $2.00-2.30, vs. consensus of $2.53. (PR)
- Lear (NYSE:LEA): Q1 EPS of -$3.42 misses by $1.69. Revenue of $2.17B (-43.8%) in-line. (PR)
- Prestige Brands (NYSE:PBH): FQ4 EPS of $0.18 beats by $0.01. Revenue of $70.9M (-11.9%) vs. $78.3M. (PR)
- Sony (NYSE:SNE): Full-year loss of ¥98.9 billion ($1B), it's first net loss in 14 years. Sales of ¥7.73T (-12.9%). Electronics division lost ¥168B; games division lost ¥58.5B; financial services lost ¥31.2B. Sees 2010 loss of ¥120B, partly due to a stronger yen. Shares -6.8% in Tokyo. (AP)
- Urban Outfitters (NASDAQ:URBN): Q1 EPS of $0.18 beats by $0.01. Revenue of $385M (-2.4%) in-line. (PR)
- Wal-Mart (NYSE:WMT): Q1 EPS of $0.77 in-line. Revenue of $93.47B (-0.6%) in-line. Sees Q2 EPS of $0.83-0.88 vs. $0.85 consensus. (PR)
Earnings: Wednesday After Close
- CA Inc. (NASDAQ:CA): FQ4 EPS of $0.31 beats by $0.02. Revenue of $1.03B (-4.6%) in-line. Sees full-year EPS in line. Shares +1.1% AH. (PR)
- Clearwire (CLWR): Q1 EPS of $0.38 misses by $0.07. Revenue of $62.1M (+20.6%) vs. $62.6M. Maintains business outlook for 2009-10. Shares +10% AH. (PR)
- URS Corp. (NYSE:URS): Q1 EPS of $0.92 beats by $0.29. Revenue of $2.52B (+11.6%) vs. $2.34B. Shares +4.11% AH. (PR)
- Whole Foods Market (WFMI): FQ2 EPS of $0.24 beats by $0.06. Revenue of $1.86B (-0.5%) in-line. Sees full-year EPS in line. Shares +3.7% AH. (PR)
Asia markets posted heavy losses Thursday. Europe is lower at midday, and futures are near overnight lows.
- Asia: Nikkei -2.64% to 9,094. Hang Seng -3.04% to 16,542. Shanghai -0.9% to 2,640. BSE Sensex -1.22% to 11,873.
- Europe at midday: London +0.1%. Paris -0.4%. Frankfurt -0.5%.
- Futures: Dow -0.4% to 8263. S&P -0.3% to 882.50. Nasdaq -0.15%. Crude -2.2% to $56.75. Gold -0.3% to $923.80. 30-year Tsy +0.19%. 10-year +0.12%. Euro -0.1% vs. dollar. Yen +0.1%. Pound -0.4%.
Thursday's Economic Calendar
- 8:30 Producer Price Index
8:30 Jobless Claims
10:30 EIA Natural Gas Report
4:30 PM Money Supply
- Notable earnings before Thursday's open: AMSC, AEG, GIL, IAG, KSS, LEA, PBH, SNE, URBN, WMT
- Notable earnings after Thursday's close: A, BBI, CIG, CPWR, DAR, HLYS, JWN
Seeking Alpha editor Rachael Granby contributed to this post.
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