Wall Street Breakfast: Must-Know News

• Citi in SEC settlement talks. Citigroup (C) is reportedly in early stage negotiations with the SEC to settle a probe into whether it misled investors on the amount of troubled mortgage assets it held. Among issues being debated inside the SEC is whether Citigroup should have to pay a large penalty in the case; there's a concern about financial institutions using taxpayer funding to pay penalties to government bodies. The SEC began a number of civil probes in late 2007 as the market began to implode, and talks with Citigroup signal the SEC could be moving toward a resolution on several of its other investigations.
• One regulator to rule them all. White House officials are close to recommending the creation of a single regulator to oversee the entire banking sector. The new agency could be controversial, since it would consolidate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and strip powers from the Federal Reserve and FDIC. However, the Fed would likely gain the ability to oversee systemic risks in the economy and the FDIC would likely have expanded powers to take large financial companies into receivership. Officials are also considering other efforts at overhauling financial supervision, including an agency to monitor financial products and a more powerful regulator to protect investors.
• Legacy Loans looks shaky. The Legacy Loans Program, part of the $1T Public Private Investment Program, is currently stalled and may soon be shelved altogether. The program is being crafted by the FDIC and is meant to rid banks of bad loans. However, prospective participants have expressed reluctance to join the program because of an increased sense of stability and fears the program's rules might change mid-game. Administration officials say the purchase of toxic assets may not be as critical to a recovery as it once seemed, and a test run of the program expected to take place next month will likely be delayed.
• Fed limits banks' reliance on future revenue. The Federal Reserve began notifying stress-tested banks that they won't be allowed to rely too heavily on expected future revenues to plug capital holes. Bank of America (BAC) had counted on billions of dollars of future revenue as part of its plan to shore up capital, and will now have to raise much of that money from other sources. Other banks that have revamped their capital-raising strategies, or may need to, include PNC Financial (PNC) and Wells Fargo (WFC).
• Opel talks stall. Negotiations to rescue General Motors' (GM) Opel unit stalled after the automaker unexpectedly demanded an extra €300M ($415M) in cash. German government officials narrowed the bidders to Fiat and Magna International (MGA) and hope to reach a resolution by tomorrow.
• AOL to go it alone. Time Warner (TWX) is set to announce a separation of its AOL division as soon as today. AOL would be spun out into an independent company, a move Time Warner CEO Jeff Bewkes has signaled for months, though the structure of the transaction hasn't been finalized yet.
• Samsung, SanDisk reach patent agreement. After lengthy negotiations, Samsung Electronics and SanDisk (SNDK) reached a patent licensing deal eliminating the threat of litigation between the two companies. The deal extends an existing licensing agreement that was set to expire in August, but fixed payments and royalty rates are expected to be about half those of recent years.
• OPEC holds firm. As expected, OPEC members left their production quota unchanged. However, members are split on the future outlook for oil; some forecast oil at $75-80/barrel by the end of the year, others are less optimistic.
• News Corp. eyes broader ad deal. News Corp. (NWS) is looking to broaden its advertising deal with Google (GOOG) by selling access to more of its media properties. The current deal, which is set to expire in a year and a half, allows Google to run its internet search ads on the MySpace social media website.
• Show her the money. Yahoo (YHOO) CEO Carol Bartz said she's open to doing a search deal with Microsoft (MSFT) if the company is offered 'boatloads of money.' Bartz also said Yahoo is interested in acquiring social-networking and video start-ups.
• Toys 'R' Us buys FAO Schwarz. Toys 'R' Us will acquire specialty retailer FAO Schwarz, and plans to maintain the "distinctiveness and integrity of FAO Schwarz's stores and brand." The move nets Toys 'R' Us the retailer's flagship Fifth Avenue store in New York and a chance to increase its specialty market share. FAO had struggled in recent years from increased competition from Wal-Mart (WMT) and Target (TGT).
• Pequot closes ahead of probe. Pequot Capital Management, once one of the largest hedge funds in the world, is shutting down amid a revived insider-trading probe. Founder Arthur Samberg strongly denies any wrongdoing but said the continued investigation had become "increasingly untenable for the firm and for me."
• Retail sales. Chain store sales fell 0.4% in the first three weeks of May vs. last month, according to Redbook, worse than the expected 0.1% drop. Weekly sales were up 0.8% vs. last week, ICSC reported, noting the Memorial Day holiday weekend "sparked some renewed consumer spending."
• Home prices fall (.pdf). FHFA's House Price Index showed U.S. home prices fell 0.5% in Q1 vs. Q4's 3.3% decline. Prices were down 7.1% Y/Y. The data provides "growing evidence that housing market conditions may be stabilizing in some parts of the country... [and] home price depreciation may be easing."
• Home sales rise. Existing home sales climbed 2.9% to 4.68M in April from 4.55M in March (revised), in-line with consensus. First-time sales were strongest, with a seasonal jump in repeat buyers. High-end sales remained sluggish, leading NAR chief economist Lawrence Yun to recommend that the Federal Reserve use TALF to buy jumbo mortgages.

Earnings: Thursday Before Open

• Big Lots (BIG): Q1 EPS of $0.44 beats by $0.04. Revenue of $1.1B (-0.9%) in-line. (PR)
• Costco (COST): FQ3 EPS of $0.48 misses by $0.05. Revenue of $15.8B (-4.9%) vs. $16.2B. (PR)
• Frontline (FRO): Q1 EPS of $0.97 beats by $0.27. Revenue of $356.6M (-32.4%) vs. $300M. (PR)
• Vimpel-Communications (VIP): Q1 EPS of -$0.25 misses by $0.43. Revenue of $1.97B (-6.5%) vs. $1.96B. (PR)

Earnings: Wednesday After Close

• TiVo (TIVO): Q1 EPS of -$0.04 beats by $0.01. Revenue of $48.5M (-11.7%) in-line. Gross additions fell to 37K from 48K last year. Churn edged up to 1.4%.(PR)

Today's Markets

European markets are under water after yesterday's U.S. selloff.

• Asia: Nikkei +0.13% to 9,451. BSE +1.32% to 14,296. Hong Kong and China were closed.
• Europe at midday: London -1.3%. Paris -1%. Frankfurt -1.3%.
• Futures: Dow +0.4% to 8328. S&P +0.4% to 896. Nasdaq +0.4%. Crude +0.3% to $63.66. Gold -0.1% to $952.50. 30-year Tsy +0.09%. Euro -0.1% vs. dollar. Yen -1.7%. Pound -0.3%.

Thursday's Economic Calendar

• 8:30 Durable Goods Orders
  8:30 Jobless Claims
  10:00 New Home Sales
  10:30 EIA Natural Gas Inventory
  11:00 Kansas City Fed Mfg Survey
  4:30 PM Fed Balance Sheet
  4:30 PM Money Supply
  5:45 PM Fed's Fisher speaks on the economic outlook
• Notable earnings before Thursday's open: BIG, COST, FRO, HNZ, TSL, VIP
• Notable earnings after Thursday's close: DELL, JCG, MRVL, NOVL, SINA

Seeking Alpha editor Eli Hoffmann contributed to this post.

Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.

After you finish reading Wall Street BreakfastSeeking Alpha's Market Currentswill keep you current all day long.

Comments

[doubleguns:]

What a mess. Banks must really be deep in the do do now. Fed wants them to raise money NOW not later should tell you something.

One regulator to rule the roost. Could these two items be the final fleecing of the tax payers in the making. I would really not buy into any more secondary offerings by the banks..but thats just me. I suspect those that already did are going to have big regrets.

Home prices still falling but sales are up..duh... rates are about to go through the roof. Its get in now or you wont get in!!! Thats not a recovery sign that sales are up, its a panic over the rate surge coming.

Bear rally about to morph to grizzly.

May 28 07:47 AM

[swanpoint:]

Department of Homeland Securities

May 28 07:59 AM

[TeresaE:]

Since the National Association of Realtors does not label auction sales as anything other than a sale, their figures are as faulty as anything.

Personally, unless you are buying a very expensive home in a high tax area, if married, the standard deduction is getting close to the amount of deduction for taxes and interest anyway. I foresee the "tax savings" part of home ownership to be stripped away soon.

May 28 08:14 AM

[robert.b.fe...:]

Let's recap: PPIP in trouble because investors can't trust government partners. Say it ain't so! Who could have seen that comming? Oh yea, everyone. SEC worried that TARP money will be used to pay fines stemming from investigations into shenanagans by banks? Well duh. No more tax bennies from home ownership. With the kind of defficits we will be running they will find new ways to tax you for owning a home. Unless your a sub-prime or alt-a borrower in which case they will bail you out. AOL to be kicked to the curb to die alone. Probably a little late Ted Turner is probably saying I told you so. GM (Government Motors) bond holders forcing bankruptcy as team Obama continues negotiations. How long bfore President and CEO Obama comes out and publicly excoriates them for being greedy? Did I miss anything?

May 28 08:51 AM

[JCCIII:]

Robert B Ferguson, you covered a lot very well. Now that the Obama administration has trampled on contract and bankruptcy laws (and introduced a new risk that must now be quantified), I would add, it will be interesting to see what interest rate potential new "secured" bond investors will demand of the new government and UAW owned GM/Chrysler/Ford.

May 28 09:38 AM

[notsosmart:]

let the nevada gaming comm. run the show.

May 28 10:33 AM

[johnmorrison9:]

Hey the way Democrats do business I would not partner with them unless I was in a union or the communist party

May 28 11:09 AM

[bbowen7:]

It does seem as if the ice is beginning to crack. Cannot get market participation in PPIP. Bond holders in nationalized car companies screwed. 10 year treasuries spiking in price as Treasury prepares to issue trillions to cover roll-over of debt plus cost of "stimulus" and planned deficit spending. Buy TIPS.

May 28 11:37 AM

[Spartacuss:]

To sum up is to say we are all screwed. Profits are down as evidenced by the tax receipt short fall reported as about 40 percent. Then there are those 600 empty cargo ships in the straights of Mallaca and don't forget those 35,000 empty containers sitting in Singapore (I think). More quantitive easing coming as the FED wants to puff up it's balance sheet some more and there is a lot of rustling going on in the wings as the big players are deperately looking for an escape plan from the dollar.

And, of course no transparency with the banks as might be expected but not for the reasons offered. The real reason is that the dollar value of all that bad paper is much larger than Geithner and Obama had figured and that the needed capital may just be more than the whole system can sustain no matter what. It is time to pay the piper and write all this junk off and stop putting band aids on the gaping holes in the Titanic.

May 28 12:54 PM

[AndrewBaker:]

There's a wall of money out there looking for a good home, and the owners, be they private individuals or money managers, are getting more and more scared that they may be missing out on the next bull market. So ... the markets keep moving up and in doing so are creating a self-fulfilling feedback loop that encourages more buying: but there are few if any fundamental reasons for higher prices; so come the correction, the fall will be that much more, and a lot of people will get financially burned.

This is not the way we should be going. Enjoy your summer but keep your cash uncommitted - in the fall there will be the same stocks out there to buy, and you'll get them at a far lower price, so will be able to buy more, making you a lot richer later when we really do have a genuine recovery. Don't get suckered in now.

May 28 01:59 PM

[sticktoitiv...:]

"Citigroup (C) is reportedly in early stage negotiations with the SEC to settle a probe into whether it misled investors on the amount of troubled mortgage assets it held."

Shareholder get misled, then their money is used to defend against a sec probe, and their tax dollars are used to both investigate and bail out citi. Ouch!

May 28 02:13 PM

[notsosmart:]

i said years ago-its all ponzi.made-off is a piker.wall st & congress should be in jail. not enough cells.they cover for each other.

May 28 02:17 PM

[Joseph Sherman:]

Show her the money. - Neither Microsoft or Yahoo can expect to succeed in social media or online videos simply by throwing a pile of money at the projects. The must be strategic and must offer something that Google and Youtube cannot easily mimic. Simply offering a similar platform will not work.

May 28 03:35 PM