Wall Street Breakfast: Must-Know News

• Probe into TARP influence on SEC fines. SEC Inspector General David Kotz has launched an inquiry into whether the SEC's imposition of fines on financial firms may be influenced by TARP, since the fines it assesses on TARP recipients could be passed along to hurt U.S. taxpayers. In particular, Kotz will look at the SEC's decision to settle with Bank of America (BAC) for $33M. Rep. Elijah Cummings requested the investigation, and said that in addition to Bank of America, "it is conceivable to expect that additional violations of securities laws will be revealed” at other banks that took aid.
• China to allow foreign listings. China is gearing up to transform Shanghai into a major finance center and to become a larger player on the international financial stage. In its most recent move, it plans to finally start allowing foreign companies to list on the Shanghai stock exchange. Foreign listings will begin with a pilot phase, with the first few companies expected to be listed early next year. China is also nearing a deal that would open Taiwan's stock exchange to mainland investment. Earlier this week, the finance ministry announced a small but groundbreaking step earlier this week by saying it plans to sell 6B yuan ($878M) of bonds in Hong Kong as part of a strategy to "improve the international status" of its currency.
• Magna wins Opel bid. After months of deliberation, General Motors decided to sell a 55% stake in its Opel unit to the consortium of Magna International (MGA) and Russia's Sberbank, while keeping a 35% stake for itself and a 10% stake for employees. The deal is a victory for Germany's Angela Merkel, who had lobbied for Magna's bid and could get a boost in the upcoming elections, as well as for Russia, which has aggressively pushed for a role in the consolidating global car market. Details of German financing for the deal will be finalized in the next few weeks. (Read GM's press release)
• More signs of a China recovery? China's industrial output rose at a faster pace than forecast in August (+12.3%), new lending spiked to 410B yuan ($60B, vs. consensus of 320B yuan), and retail sales were up a robust 15.4%, sending the Shanghai Composite up 2.2%. Strategists say policy stimulus is driving the robust growth, and note the biggest challenge Beijing now faces is how to take its foot off the gas before it's too late.
• Geithner: Time to start unwinding gov't support. Testifying before the Congressional Oversight Panel, Geithner said the economy is strengthening, which leaves room for the government to begin unwinding some of its emergency support measures. Though the economy still has problems to correct, "it is clear that we have stepped back from the brink and that we are pointed in the right direction." As a result of this improvement, "we are now in a position to evolve our strategy as we move from crisis response to recovery." (Read Geithner's prepared testimony (.pdf))
• Ex-AIG exec to face grand jury. Federal prosecutors are reportedly preparing to impanel a grand jury to consider the indictment of former AIG (AIG) executive Joseph Cassano on charges of securities fraud. Cassano led the AIG Financial Products unit that nearly caused the insurer to collapse a year ago, and the Justice Department and SEC have been investigating whether Cassano misled investors by overstating the value of mortgage-related contracts and by failing to disclose material facts to AIG's external auditor.
• Heightened scrutiny on Microhoo deal. The Justice Department has expanded its review of the search deal between Microsoft (MSFT) and Yahoo (YHOO) and has asked both firms for more details on the proposed partnership. Though this means the deal will be subject to extensive examination rather than immediate approval, a Microsoft spokesman said the company expected as much when it announced the deal in July.
• Morgan Stanley gets new chief. Morgan Stanley (MS) CEO John Mack plans to step on January 1 and will be replaced by co-president James Gorman. Mack will retain his position as chairman. (Read the press release)
• Jobless claims decline. Initial jobless claims came in at 550K, down 26K from a week ago (revised) and better than the 565K consensus. Continuing claims fell 159K to 6.088M.
• International trade. July's trade balance was -$32B vs. consensus of -$27.3B. June's balance was revised to -$27.5B from -$27B. Exports rose to $127.6B from $124.9B in June, while imports were up to $159.6B from $152.4B.

Earnings: Thursday After Close

• National Semiconductor (NSM): FQ1 EPS of $0.13 beats by $0.06. Revenue of $314M (-33%) vs. $300M. (PR)

Today's Markets

Most overseas markets moved higher Friday, led by sharp gains in China. Futures are marginally higher.

• Asia: Nikkei -0.66% to 10,444. Hang Seng +0.44% to 21,161. Shanghai +2.22% to 2,989. BSE +0.29% to 16,264.
• Europe at midday: London +0.7%. Paris +0.9%. Frankfurt +0.6%.
• Futures: Dow +0.1%. S&P +0.2%. 30-year Tsy +0.1%. Euro +0.1% vs. dollar. Yen +1.1%. Crude flat at $71.90. Gold +0.6% to $1,002. Natural gas +0.5% to $3.272.

Friday's Economic Calendar

• 8:30 Import/Export Prices
  9:55 University of Michigan Consumer Sentiment
  10:00 Wholesale Inventories
  2:00 PM Treasury Budget
• Notable earnings before Friday's open: CPB

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[tripleblack:]

LOL, in the darkest tone possible...

Should we be surprised when TARP participants jump at the chance to air any dirty laundry NOW, when they will receive the lightest possible penalty as "wards of the State"?

This is truly rich. Oh, the joys of fascism...

Sep 11 08:21 AM

[David White:]

I think you painted a little too rosy a picture of China. You neglected to mention the following:

China's exports contracted 23% in August. The overall trade surplus plunged 45% from a year ago. They are producing more with Industrial Production up 12.3%, but they still need a market for tose products. It clearly isn't there. Roubini has also said that the individual Chinese person is not going to change their buying/savings habits overnight. They may buy when given stimulus vouchers, but it will not continue beyond that. Thus far Roubini seems to be correct.

For this reason experts belive that China cannot lead the world out of the recession.

Sep 11 09:34 AM

[AndrewBaker:]

Too much reliance on China: they're going to do this, to do that, to do whatever, and it'll be so good for us and the rest of the world is the message; but I don't buy it. China still needs the US and the west generally to trade with it to do the things it wants for itself. It is not yet at the stage where it can be self sufficient yet alone drive the economies of other countries like the US. They need western countries internal recoveries to provide the trade for them to expand and continue to grow. Relying on China first is plain wrong, and if that is the case, we are still a long way away from coming out of recession.

Sep 11 12:03 PM

[bbowen7:]

There are lots of distorted views about China - some a little bit about jealousy. Their economy is only a quarter of our size, but they have continued to grow in spite of the world's problems. The fact that their production is up while exports are down seems like a good thing to this observer.

One small opportunity: "China is also nearing a deal that would open Taiwan's stock exchange to mainland investment." In the long run, China wants to bring Taiwan back into the fold and has recently been working with a favorable Taiwanese government on joint deals as part of a strategy of using the Mainland's resources and market to attract their lost cousins. The thought - buy EWT, an ETF that tracks the Taiwan market. (Disclosure: I did.)

Sep 11 01:12 PM