Wall Street Breakfast: Must-Know News 15 comments
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- Obama rolls out financial reforms. Obama laid out his vision for overhauling financial regulation, promising to end 'a cascade of mistakes... over the course of decades' that led to the current crisis. As expected, his plan calls for increased capital cushions at banks, regulation of over-the-counter derivatives, a new agency to regulate financial products for consumers and greater power for the Federal Reserve over systemic risk. However, it only partially addresses a promised top-to-bottom overhaul of regulatory agencies, and stops short of proposing a merger of the SEC and CFTC. The plan now goes to Congress, with Obama pushing to get the legislation signed into law by the end of the year. (Read Obama's statement, White Paper (.pdf), and fact sheets I, II, III, IV, V (.pdf))
- Reactions to the reforms. While some Wall Street veterans were relieved the reforms weren't more draconian, banks oppose provisions to create a new consumer agency, saying it will stifle innovation and make loans more expensive, and are expected to vigorously lobby lawmakers on that point. Hedge funds and industry groups were also quick to point out provisions they don't like. The Federal Reserve, despite gaining new powers over systemic risk, plans to oppose parts of Obama's plan because the creation of a new consumer protection agency will strip some of its powers, while a review of the 12 regional Fed banks risks compromising Fed independence.
- For 10 banks, TARP-free at last. The government received $68B yesterday from 10 financial firms that paid back TARP funds, with some of the firms promising to immediately start negotiating the repurchase of government warrants. Despite the TARP escape, financial shares didn't see a relief rally, with all ten stocks closing down for the day, at least partially because of S&P downgrades (see below). TARP escapees: JPMorgan Chase (JPM), Morgan Stanley (MS), Goldman Sachs (GS), American Express (AXP), Capital One Financial (COF), BB&T (BBT), U.S. Bancorp (USB), Bank of New York Mellon (BK), Northern Trust (NTRS) and State Street (STT).
- S&P cuts banks' ratings... S&P downgraded 18 U.S. banks, and pushed five of them into junk territory, noting conditions 'will become less favorable' with greater volatility and tighter regulations. Among the downgrades were Capital One Financial (COF), BB&T (BBT), U.S. Bancorp (USB) and Wells Fargo (WFC).
- ...and reaffirms U.S. rating. S&P said a change to the U.S.'s AAA sovereign credit rating is unlikely in the near-term. Despite bulging deficits and a weak economy, S&P noted that strengths - including the dollar's reserve status and America's free-trade friendliness - continue to outweigh weaknesses.
- MUFG eyes U.S. expansion through MS. Mitsubishi UFJ Financial Group (MTU) is hoping to capitalize on its relationship with Morgan Stanley (MS) to grow its corporate lending business in the U.S. The two firms are expected to announce a broad global alliance by the end of the month, covering such areas as corporate finance, commodities and pan-Asian business.
- NYSE plans derivatives clearinghouse. NYSE Euronext (NYX) signed a deal with Depository Trust & Clearing Corp. to establish a clearinghouse for U.S. fixed-income derivatives. The 50-50 venture, to be called New York Portfolio Clearing, will coincide with a regulatory push to clear and disclose more over-the-counter derivative positions.
- Google, Microsoft clash. As Microsoft (MSFT) goes on the offensive with Bing, it's also taking issue with Google's (GOOG) new Apps Sync software, arguing it disables the search capabilities of Microsoft's Outlook email program. Google acknowledged there's an issue with its software but disputed the severity of the problem. Meanwhile, General Electric (GE) has said it will use Microsoft technology to sell commercial time on its TV networks, an area in which eBay (EBAY) and Google have also tried to find traction.
- Bauer bows to debt load. As widely expected, Eddie Bauer Holdings (EBHI) filed for bankruptcy protection. The company has an agreement to be acquired by private-equity firm CCMP Capital Advisors for $202M, though CCMP can still be outbid at auction.
- CPI inches up. May's Consumer Price Index rose 0.1% vs. consensus of +0.3% and a flat April. Core CPI was up 0.1%, in line with consensus. Since last year, consumer prices are 1.3% lower, while core prices (net of energy and food) are up 1.8%.
- Deficit shrinks. The Q1 Current Account Deficit came in at $101.5B from $154.9B in Q4 (revised), the smallest deficit since Q4 2001. Goods exports decreased to $249.4 from $290.6B, while imports decreased to $373.4B from $469.4B.
Earnings: Thursday Before Open
- J.M. Smucker Company (SJM): FQ4 EPS of $1.02 beats by $0.39. Revenue of $1.1B (+81.1%) vs. $997M. (PR)
Today's Markets
European markets are following Asian markets into the red, while U.S. futures are mostly flat.
- Asian markets closed mostly down. Nikkei -1.4% to 9,704. Hang Seng -1.7% to 17,777. Shanghai +1.6% to 2,854. BSE -1.8% to 14,266.
- In Europe at midday, London -0.7%. Paris -0.4%. Frankfurt -0.2%.
- Futures: Dow flat. S&P flat. Nasdaq -0.4%. Crude -0.2% to $70.89. Gold +0.2% to $937.80.
Thursday's Economic Calendar
- 8:30 Jobless Claims
9:30 Geithner speaks before the Senate Banking Committee
10:00 Leading Indicators
10:00 Philly Fed Business Outlook
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
4:30 PM Money Supply - Notable earnings before Thursday's open: CCL, DFS, SJM
- Notable earnings after Thursday's close: RIMM
Seeking Alpha editor Eli Hoffmann contributed to this post.
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This article has 15 comments:
WFC was one of Cramer's buy,buy,buy bank stocks this week and now it gets a down grade. Yea CNBC and NBC are part of the fed cheerleaders. Listening to them will get you financially eviscerated.
Numerous other banks down graded. So many posts here at SA about the impending additional house failures no on should not have seen this coming.
Jun 18 07:41 AM dardhel78 wrote:
> Maybe the creation of the new agency will help Obama get his 600,000
> jobs saved/created.
changed? disappointed.
There are many more bad debts to surface yet, plus it should be harder to sell profitable but not not necessary financial products to the consumer when stricter regulation stops some dubious sales practices and insists on disclosure of pertinent financial facts and figures, which any effective regulation must do.
We'll see how it pans out, but for me, the banks and other financials are going to get a deserved re-rating downwards. Those who bought at inflated prices were warned.
The Fed is not a Federal agency, as their name would imply. They are not beholden to or have any real interest in protecting ordinary Americans. It serves the interests of the wealthy elite, who in George Carlin's words "...want every last f...ing penny".
Obama is right to get consumer protection and oversight functions out of their hands.
The Fed. A clever ruse upon the sheeple to make them think that monetary policy is in control of the government and in the interests of the citizens who (supposedly) elect them.
As to other posters who moan about more federal 'guvmint' which Ronnie Raygun conditioned them to hate with pavlovian zeal -- here's a few ideas of how to offset the cost:
1. Pass a law that the military budget can only be five times as high as the second largest military spender in the world (as opposed to the current 10x amount). That would save over $300 Billion dollars a year.
2. or, possibly in combination with #1, make the financial industries so regulated pay for it similar to how FDIC is done. Their punishment/restitution for nearly bringing the world to financial Armageddon requiring $trillions in tax payer bailouts.
On Jun 18 11:19 AM Buckoux wrote:
> President Obama's response to the financial crisis (?) of '08-'09
> is the same as President G.W. Bush's response to 9/11, just another
> federal agency. The "credit crisis", just as 9/11, is the result
> of existing federal agency's NOT doing the mission that was assigned
> to them. I don't see how more of the same is a solution to the lack
> of enforcement and downright laziness and incompetence of federal
> agencies. Can you spell SEC, Fed, FDIC, FAA, INS, FBI, CIA boy's
> and girls?
#1 might work...providing you get the military-industrial complex out of the business of lobbying
#2..will not work...I spent 10 years in the federal meat inspection service...inaugerated way back in 1906 by Teddy Roosevelt...and to keep it honest and working, it needs to be paid for by the consumer, because the consumer benefits. There have been numerous attempts to make food processors and meat packers pay for inspection, and it has been rejected because if it is their money paying the bill...they will find a way to get enforcement done the way they want it...not the way the consumer wants it.
The FAA is a prime exemple...the airline industry controls what the FAA does...not what the flying public would like to have. For example...GUNS IN THE COCKPIT..and LOCKED DOOR TO THE COCKPIT...kicked around for years and beaten down by the airline industry in spite of the fact that most of their pilots are ex-military and carried guns all the time when they were flying combat aircraft.