Wall Street Breakfast: Must-Know News

• Cuomo subpoenas BoA directors. New York Attorney General Andrew Cuomo subpoenaed five board members from Bank of America (BAC) in connection with the probe over Merrill Lynch bonuses. The five directors will likely be asked how much they knew about Merrill's losses, what role they played in disclosure decisions, whether there was pressure from government officials and whether the board sought outside counsel. Cuomo is also considering possible civil fraud charges against CEO Ken Lewis.
• eBay faces Skype lawsuit. The founders of Skype software have filed a copyright lawsuit against current owner eBay (EBAY) and the proposed buyers of a 65% stake in Skype, alleging breach of licensing terms and escalating eBay's ongoing legal drama over the unit. eBay denied the claims, but the suit could complicate the deal which is due to close in Q4 2009.
• Kodak takes a moment for financing. Eastman Kodak (EK) plans to raise up to $700M in debt to shore up its balance sheet. The financing, which is being led by Kohlberg Kravis Roberts, gives Kodak more financial breathing room and will help it pay off debt due next year. However, the deal is not without its costs and KKR could end up with as much as a 20% equity stake in Kodak through warrants issued as part of the deal. Shares -2.7% premarket (7:00 ET).
• FDIC repackages loans. The FDIC launched a new program yesterday to package loans from failed banks and subsidize their purchase by investors. To kick-off the long-awaited program, the FDIC announced a partnership with Residential Credit Solutions to take ownership of loans originally worth $1.3B. Officials said a second deal will follow soon, and others will be announced before the end of the year.
• Insurance regulators target ratings agencies. Regulators of some of the largest bond buyers in the world are considering cutting the role of ratings agencies in the market in response to the poor job the agencies did with complex mortgage securities. State insurance regulators are in the early stages of reassessing their reliance on firms like Moody's (MCO) and Standard & Poor's (MHP) and may opt instead for analysis from other financial firms with expertise in valuing the securities.
• California AG targets ratings agencies. In addition to being challenged by insurance regulators (see above) and facing heightened scrutiny from the SEC, ratings agencies will soon be under investigation by California Attorney General Jerry Brown for the role they played in the economic crisis through their evaluations of asset-backed securities. Ratings agencies "worked behind the scenes with the same Wall Street firms that created [the securities]," said Brown, earning "billions of dollars in revenue, at a rate double what they earned for rating other financial products." Brown didn't specify which companies will be investigated.
• Google focused on book deal. Google (GOOG) is reportedly in talks with the Department of Justice and a group of authors and publishers to modify its book-scanning settlement, with the hope of easing regulators' concerns that Google's ambitious project will discourage companies from competing for access to books online. Meanwhile, Google is buying reCaptcha, an online fraud prevention start-up, to use in its book-scanning project. Terms of the deal weren't disclosed.
• Oracle's sales cloud tech recovery hopes. Oracle (ORCL) reported quarterly earnings in-line with estimates (see details below), but its software sales were sharply lower than expected. New license sales were down 17% vs. the 4-14% decline Oracle had forecast, disappointing analysts hoping to see further signs of a tech sector rebound. Shares -2.1% premarket (7:00 ET). (Read Oracle's earnings call transcript)
• Toyota revs up for U.S. sales push. Toyota (TM) is planning a major marketing campaign to lift U.S. sales in Q4. The effort will cost $1B, which is 30-40% more than Toyota usually spends in a quarter, and will include subsidized leases and loans, customer incentives and financial support for dealer advertisements. The company also intends to expand its line of Prius hybrids.
• BoJ holds rates steady. As expected, the Bank of Japan left its key interest rate unchanged at 0.1%, but raised its economic forecast for the first time since July. The bank said "Japan's economic conditions are showing signs of recovery," a marked improvement from July's comment that the country's economy had "stopped worsening." (Read BoJ's statement (.pdf))
• Housing index ticks up. The NAHB Housing Market Index increased by 1 point to 19, its third straight gain and its highest point since May 2008. Current sales expectations and prospective buyer traffic ticked up, but expectations for the next six months declined slightly, likely as a result of the expected expiration of the homebuyer tax credit.
• Consumer prices rise. The Consumer Price Index rose 0.4% in August from the previous month and fell 1.5% Y/Y, vs. consensus of +0.3% and -1.7%. Core CPI rose 0.1% M/M and 1.4% Y/Y, both in-line with consensus.
• TIC: Foreign purchases fall. July Treasury International Capital data was released yesterday, with net foreign purchases of long-term securities registering at $15.3B, way down from June's $90.7B. Foreigners picked up $44B in long-term U.S. securities ($32.1B by private investors and $12B by official institutions), and U.S. residents bought $28.8B in foreign debt.
• Industrial production increases. Industrial Production rose 0.8% in August vs. consensus of +0.6%, the second straight monthly gain. July's increase was revised to +1% from +0.5%. Ex-auto, manufacturing was +0.4%. Capacity utilization rose to 69.6% from 69%, but is still 11.3 points below its historical average.
• Current account deficit. The Current Account Deficit was $98.8B in Q2 vs. consensus of $92B. The Q1 deficit was revised to $104.5B from $101.5B. The deficit on both goods and services moved lower.

Earnings: Thursday Before Open

• Pier 1 Imports (PIR): Q2 EPS of -$0.17 vs. consensus of -$0.22 (may not be comparable). Revenue of $287M (-11%) vs. $282M. Comparable store sales -7.6%. (PR)

Earnings: Wednesday After Close

• CKE Restaurants (CKR): Q2 EPS of $0.22 in-line. Revenue of $336M (-5%) vs. $341M. Same-store sales declined 2.3%. (PR)
• CLARCOR (CLC): FQ3 EPS of $0.42 misses by $0.01. Revenue of $230M (-17%) vs. $246M. (PR)
• Herman Miller (MLHR): FQ1 EPS of $0.22 beats by $0.03. Revenue of $324M (-32%) vs. $326M. (PR)
• Oracle (ORCL): FQ1 EPS of $0.30 in-line. Revenue of $5.1B (-5%) vs. $5.3B. Operating margin up 570bp to 46%; reduced value of foreign currencies hurt EPS by $0.02. (PR)
• The Dress Barn (DBRN): FQ4 EPS of $0.39 beats by $0.02. Revenue of $399M (+4%) vs. $401M. (PR)

Today's Markets

Markets worldwide are showing gains.

• In Asia, Nikkei +1.7% to 10,444. Hang Seng +1.7% to 21,769. Shanghai +2% to 3,060. BSE +0.2% to 16,711.
• In Europe at midday, London +0.8%. Paris +0.5%. Frankfurt +0.6%.
• Futures: Dow +0.3%. S&P +0.2%. Nasdaq +0.2%. Crude flat. Gold flat.

Thursday's Economic Calendar

• 8:30 Housing Starts
  8:30 Jobless Claims
  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: DFS, FDX, PIR
• Notable earnings after Thursday's close: PALM

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Comments

[doubleguns:]

This is two days in a row that I have looked at that "net foreign purchases of long-term securities registering at $15.3B" but then are shown that "Foreigners picked up $44B in long-term U.S. securities ($32.1B by private investors and $12B by official institutions)".

Is this data saying that 44b bought, 29b sold for a net sale of 15b. It seems the article leaves the 29b sale out of the equation. Am I missing something?

Down from 90B is a frightening number. Looking like no one wants the dollar. Can you blame them.

Sep 17 07:47 AM

[JCCIII:]

Good that the ratings agencies are finally being investigated; they are the, as yet, unpunished villains in the Crash of 2008. Very hefty judgments against and maybe some serious prison time for a few executives are in order. Don't know exactly what to make of the comment, "Brown didn't specify which companies will be investigated." If Brown does not investigate them all, what does that say?

Sep 17 09:38 AM

[spald_fr:]

[Cuomo subpoenas BoA directors. ]

Boa Constrictor?

Sep 17 09:48 AM

[axelrod608:]

That states' Attorneys General are starting to investigate the perps responsible for vaporizing $trillions is good news. It's been so long, it was beginning to look like they were going to get away scot free.

Lord knows, the federal government - run by the same gang that bailed out the perps - will do nothing. The casino gambling as business practices crowd cost me mid six figures. Who's going to bail me out and the millions of individuals investors like me ??

I want justice. And, honestly, payback. The fraudulent ratings of financial instruments was at least as destructive as what Madoff did, it cost more people more money as well. Go Cuomo. Go Brown. Sic 'em

Sep 17 09:48 AM

[notsosmart:]

i have said it for years & luckily figured it out for myself..wall st is a ponzi/casino.it will continue to be that as the crooks & scoundrels pay off congress to make sure no strong regs are passed. the pres is busy with health.something he should have left alone for now.the rating agencies should be ignored by all in hope they will go away.made-off is a piker compared to those who should be in jail with him.unless you are an insider the best you can hope for is a few crumbs from investing(does this word still apply?) or gambling.lying ceos,self serving boards,crooked accounting,lack of ethics,no transparency insure that all the homework you do could be wrong.buy good cos that pay a fair div & join their drip plan.its the only way to win a few crumbs.wall st greed is killing capitalism.sad.

Sep 17 10:25 AM

[Drew Horn:]

You are right, but those you complain about all belong to the same club, hire and help each other, play golf and tennis in Greenwich, CT., and they own the only game in town. Like Major league baseball and the NFL, finance is an oligopoly legalized by congress, and licensed by various federal and state political appointees. In short, complaining will do nothing to change the "system". What we need is a good constitutional lawyer to find a way to break up the game so it is no longer "too big to fail". Without a game changer like that, --- play the game, its the only one in town.


On Sep 17 10:25 AM notsosmart wrote:

> i have said it for years & luckily figured it out for myself..wall
> st is a ponzi/casino.it will continue to be that as the crooks &
> scoundrels pay off congress to make sure no strong regs are passed.
> the pres is busy with health.something he should have left alone
> for now.the rating agencies should be ignored by all in hope they
> will go away.made-off is a piker compared to those who should be
> in jail with him.unless you are an insider the best you can hope
> for is a few crumbs from investing(does this word still apply?) or
> gambling.lying ceos,self serving boards,crooked accounting,lack of
> ethics,no transparency insure that all the homework you do could
> be wrong.buy good cos that pay a fair div & join their drip plan.its
> the only way to win a few crumbs.wall st greed is killing capitalism.sad.

Sep 17 10:43 AM

[Old Trader:]

"Cuomo subpoenas BoA directors"

In too many cases, BoDs have been servile lapdogs to entrenched managements. Actions like this may serve as a "wake up call".

Sep 17 11:09 AM

[Anthony Alfidi:]

Kodak had better hope it's getting long-term debt at a fixed rate.

What does the FDIC know about securitization? Seeing them get into that biz is a sign of desperation. They know something we don't and it can't be good.

Here's a thought for state insurance regulators. Let them rate mortgage securities themselves. Who says they can't? The FDA puts a stamp of approval on food and drugs.

Sep 18 02:15 AM