- 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 (NYSE:JPM), Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), American Express (NYSE:AXP), Capital One Financial (NYSE:COF), BB&T (NYSE:BBT), U.S. Bancorp (NYSE:USB), Bank of New York Mellon (NYSE:BK), Northern Trust (NASDAQ:NTRS) and State Street (NYSE: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 (NYSE: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 (NYSE: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 (NYSE: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 (NASDAQ:MSFT) goes on the offensive with Bing, it's also taking issue with Google's (NASDAQ: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 (NYSE:GE) has said it will use Microsoft technology to sell commercial time on its TV networks, an area in which eBay (NASDAQ: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 (NYSE:SJM): FQ4 EPS of $1.02 beats by $0.39. Revenue of $1.1B (+81.1%) vs. $997M. (PR)
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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