Wall Street Breakfast: Must-Know News

• Bank bailout with a twist. Regulators are seriously considering a plan to have healthy banks lend billions of dollars to the FDIC's bank insurance fund, which is rapidly running out of cash amid a wave of bank failures. The plan appeals to banks, because it would forestall yet another across-the-board emergency assessment on them, which could erode $5-10B of their profits. And it appeals to FDIC head Sheila Bair, who bankers say "would take bamboo shoots under her nails" before turning to the Treasury to tap the FDIC's $100B emergency credit line.
• BofA spurns Congress... Bank of America's (BAC) chief marketing officer will meet with Rep. Edolphus Towns today after it defied his request to supply documents detailing BofA's buyout of Merrill Lynch by a noon deadline Monday. According to a spokesman, the meeting will focus on how BofA "can meet their needs without violating attorney-client privilege." In a statement Monday, Rep. Dennis Kucinich, who heads the domestic policy subcommittee, said there is "considerable evidence that BofA violated securities law" in neglecting to tell shareholders about mounting losses at Merrill Lynch. "The question remains whether BofA executives willfully chose to violate securities laws, or received advice from outside counsel" to do so.
• ... as it looks to bid farewell. Bank of America (BAC) said it will pay the government $425M for unused federal guarantees against losses at Merrill, likely the first move of a wider effort to extricate itself from Washington's grip. Sources say BofA is also trying to convince regulators it's sound enough to repay billions in federal aid. Also on Monday, the bank named Charles O. Holliday Jr. to its 15-person board, part of a continuing effort to break with its troubled past. Analysts characterized it as a day of progress, despite the nagging troubles over Merrill.
• Google wins keyword challenge. A top EU adviser backed Google's (GOOG) right to sell trademarked brand names as keyword searches. Luxury good maker LVMH and others have fought such advertising, which they say allows makers of cheap imitations to piggyback on their brand power by appearing on the same search page. A ruling against Google could have severely impacted its business in the EU. (read the CVRIA's statement (.pdf))
• Cadbury softens opposition to Kraft bid. Cadbury (CBY) CEO Todd Stitzer struck a more conciliatory tone about Kraft's (KFT) unsolicited $16.9B takeover bid, saying a combination makes "some strategic sense," but noting shareholders would not agree unless the deal were sweetened. In an open letter to Kraft on Sept. 12, Stitzer called Kraft's proposal "an unappealing prospect which contrasts sharply with our strategy to be a pure play confectionery company." Sources say Cadbury has asked the U.K. Panel on Takeovers and Mergers to issue an order demanding Kraft make a formal bid with committed financing.
• Asia rebounding rapidly. Asian economies slumped steeply when exports plunged, but most of the region is already recovering, the Asian Development Bank said in a report today. The group now sees China growth at 8.2% this year, 1.2 points above its previous outlook, and 8.9% next year. It also raised its India growth outlook to 6% from 5%, and developing Asian countries to 3.9% from 3.4%. "Developing Asia is proving to be more resilient to the global downturn than was initially thought."
• AIG jumps on hopes of rescue restructure. Shares of AIG (AIG) gained 21% Monday after Rep. Edolphus Towns, leader of the House Oversight and Government Reform Committee, said he's seriously considering a proposal from former AIG head Hank Greenberg to ease the terms of AIG's bailout package. Greenberg suggests cutting the government's stake in AIG from 80% to about 20%, and giving it more time to repay its debt while trimming interest rates. Meanwhile, in a report Monday, the U.S. Government Accountability Office said federal assistance has helped stabilize AIG's financial condition, but that its ability to restructure its business and repay the government remains unclear.
• To out or not to out. Sources say Finra - in the midst of lobbying Congress to expand its power beyond brokerages to investment advisers - is debating whether to release an internal report of its examinations of Madoff and Stanford. Earlier this month, the SEC was embarrassed when its inspector general released a detailed report on missed opportunities to catch Madoff.
• Singapore's GIC shrinks Citigroup stake. Government of Singapore Investment Corp. (GIC) pared its stake in Citigroup (C) to below 5% - from an estimated peak of 11.1% in February - through open-market sales, turning a profit of $1.6B. GIC said in a statement that a "stake below 5% reflects GIC's goals and desire to be a portfolio investor, and that, "GIC will continue its investment in Citigroup as we are confident of its long-term prospects."
• Deutsche Bank plot thickens. Then-Deutsche Bank (DB) chairman Clemens Börsig had detailed knowledge of the bank's 2006 effort to spy on a litigious shareholder, according to a confidential report, which seems inconsistent with the bank's July 28 statement that "questionable methods used were not authorized by members of the supervisory board."
• Squeezing more out of life. Life insurers, hit hard by soured real-estate investments, are trying to recoup their losses by boosting prices on life insurance while selling less of it, and by charging higher premiums for risk factors like obesity and hypertension. The moves, along with a more frugal consumer, contributed to a 23% drop in sales in H1, the largest drop in nearly 70 years.
• Leading Indicators rise for fifth month. Conference Board's Leading Indicators rose 0.6% in August, just short of the Street consensus of 0.7%, the fifth straight positive month. July's index was revised to +0.9% from +0.6%. "These numbers are consistent with the view that after a very severe downturn, a recovery is very near," Conference Board said in a statement. "But, the intensity and pattern of that recovery is more uncertain."

Earnings: Before Open

• FactSet Research Systems (FDS): FQ4 EPS of $0.74 in-line. Revenue of $155M (+1.1%) vs. $154M. (PR)
• Lowe's (LOW): Sees full-year EPS of $1.13-1.21 vs. consensus of $1.20, and 2010 EPS of $1.24-1.34 vs. $1.34. Sees full-year sales down 3%, and same-store sales down 7-9%. (PR)

Today's Markets

China was hit with a wave of selling, but markets elsewhere in Asia were up. Europe bourses are broadly higher at midday, and futures are firmly in the green.

• Asia: Hang Seng +1.06% to 21,701. BSE +0.87% to 16,886. Shanghai -2.34% to 2,898. Nikkei closed.
• Europe at midday: London +0.9%. Paris +0.9%. Frankfurt +1.3%.
• Futures: Dow +0.7% to 9782. S&P +0.7% to 1068. Nasdaq +0.7%.
  Crude +1.5% to $71. Gold +1.3% at $1,018. Treasurys are flat.
  Euro +0.9% vs. dollar. Yen +0.6%. Pound +0.8%.

Tuesday's Economic Calendar

• 7:45 ICSC Retail Store Sales
  8:55 Redbook Chain Store Sales
  10:00 FHFA Housing Price Index
  10:00 Richmond Fed Mfg.
  10:00 $75B, 28-Day TAF Auction
  10:30 Analytic Chapters of IMF's World Economic Outlook
  12:00 PM FOMC begins two-day meeting
  1:00 PM $43B 2-Year Note Auction
  5:00 PM ABC Consumer Confidence Index
  5:00 PM Richmond Fed hosts panel on Moving Forward in the New Economy
• Notable earnings before Tuesday's open: CAG, CCL, FDS, KMX, RAIL
• Notable earnings after Tuesday's close: AIR, FUL

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Comments

[markfl:]

"Conference Board's Leading Indicators rose 0.6% in August, just short of the Street consensus of 0.7%, the fifth straight positive month. July's index was revised to +0.9% from +0.6%. 'These numbers are consistent with the view that after a very severe downturn, a recovery is very near," Conference Board said in a statement. "But, the intensity and pattern of that recovery is more uncertain.' "

That last sentence I interpret as yet another metaphor for "weak," a theme that seems to echo recent Bernanke and Obama speeches. I see articles where some still anticipate 3.5% economic growth, but with the central tendency of private forecasts at 3% (within a 2-4% range) it makes me wonder how long it will be before the central forecasts are adjusted down to a more earthly 2.5% . . . or is this just another round in the tug o' war of lowered expectations.

If a "recovery is very near," when is it supposed to arrive? Q3 ends next week. Santa is bringing it?

Sep 22 07:45 AM

[hanson001:]

"The question remains whether BofA executives willfully chose to violate securities laws, or received advice from outside counsel" to do so.

Yes the devil made me do it.

Sep 22 08:33 AM

[TommyG:]

Paulson and others threatened BofA within an inch of thier lives to do the deal no matter what. But we'll never know. The Devil indeed!

Sep 22 08:45 AM

[Old Trader:]

" "The question remains whether BofA executives willfully chose to violate securities laws, or received advice from outside counsel" to do so."

The point in time is rapidly approaching where the decision needs to be made as to who's gonna get tossed under the bus. My money's on the lawyer(s), if management can at all manage it.

Sep 22 08:50 AM

[robert.b.fe...:]

Uncle Sugar is going to have a devil of a time sweeping their roll under the rug. Already this year we have seen government officials lying to each other about who directed whom to do what. I seriously doubt that we will ever get to the bottom of this. I also doubt that it will present much opportunity to make money so it's value is strictly entertainment.

Sep 22 09:12 AM

[doubleguns:]

Lawyers, banksters, govt, money and scandal . There's an entertaining best seller in the making here. Now if there was just some sex to toss in for a little more spice.

Wonder how many souls the devil will collect or has collected on this one.

Sep 22 09:30 AM

[CoffeeRampage:]

Because of this $700 billion plus bailout bill over the next two years you can expect to see the value of the dollar drop, bonds drop, and gold skyrocket. The question we need to ask ourselves now is how bad will the inflation get? Will it turn into a hyperinflationary explosion that will totally destroy the value of the dollar and wipe out the savings of millions of Americans? Will the Fed one day say we must fight inflation by raising interest rates to 20% or beyond like the Fed did in 1980 or will the Fed let the value of the dollar literally go to zero. These are the end game scenarios we are now headed to. I don't know what will happen in the end, but am going to be prepare myself for either possibility.

Well none of this is true. There are alternatives to simply buying all of the bad debt off the balance sheets of all of these banks. Not every bank in the country is bankrupt, but the problem is that so many of the largest banks are saddled with bad debts - and losses that are hidden due to accounting tricks - that banks have ceased to lend to one another. That is the essence of a credit crisis. There is a problem of confidence, but this is not the only way to solve it.
----------------------...
Money without intelligence is like a car without a road.
www.intelligentinvesti...

Sep 22 09:50 AM

[notsosmart:]

all just scoundrels & liars.a decent honest person would have a short job career.whistleblowers have to have laws to protect them.the stadiums are filled to capacity with the beer swillers.& the band played on.

Sep 22 10:05 AM

[Joseph L. S...:]

"Rep. Edolphus Towns, leader of the House Oversight and Government Reform Committee, said he's seriously considering a proposal from former AIG head Hank Greenberg to ease the terms of AIG's bailout package. Greenberg suggests cutting the government's stake in AIG from 80% to about 20%, and giving it more time to repay its debt while trimming interest rates."

The GOVERNMENT doesn't have an 80% stake in AIG. The government has no money other than that which it prints or gains from taxation. The PEOPLE currently own 80% of AIG. And with a sweep of the magic wand, the government may "negotiate" (read: surrender) that stake down to 20%. Ah, politics...

Sep 22 11:15 AM

[Buckoux:]

We can only hope.


On Sep 22 08:50 AM Old Trader wrote:

"...who's gonna get tossed under the bus. My money's on the lawyer(s), if management can at all manage it."

Sep 22 11:44 AM

[AndrewBaker:]

The soundbites are still working, whether they come from the banks, politicians or talking heads. I have been busy the past week or so, looking at what is happening to individual stocks, commodities and industry groupings and the broader market. There is a topping out going on such that even good stocks are marking time. Several commodities have been yo-yoing in a narrow-ish range for a month or two. Overall, we have peaked: the next step is down, and the slightest bad news will make that downward move very steep and very fast.

Some, not me (yet), have hinted or suggested that we may have a big, possibly one-day, sell-off soon, similar to 1987. October is just around the corner ...

The recovery will be long and hard and cost us and the younger generations a lot, but a big market fall right now after the past six months' rise will be a

Sep 22 12:42 PM

[AndrewBaker:]

massive hit for all to take.

(Sorry: computer glitch published prematurely!)

Sep 22 12:43 PM

[ebworthen:]

Headline this morning:

"Rebound in commodities carries stocks higher"

Wha? Oil and gold are up and that is good for stocks? That's not exactly a long term bull market indicator, but rather a "where will my money not lose value when things go to hell again" indicator.

Hopefully the individual investor and fund managers are not jumping into financials and corporate stock at this point.

Sep 22 12:48 PM

[Michael Clark:]

It is good for commodities stocks. commodities stocks are carrying the market remember, because they signal a recovering global economy.


On Sep 22 12:48 PM ebworthen wrote:

> Headline this morning:
>
> "Rebound in commodities carries stocks higher"
>
> Wha? Oil and gold are up and that is good for stocks? That's not
> exactly a long term bull market indicator, but rather a "where will
> my money not lose value when things go to hell again" indicator.
>
>
> Hopefully the individual investor and fund managers are not jumping
> into financials and corporate stock at this point.

Sep 22 01:23 PM

[Michael Clark:]

Eli: remind me again, which are the healthy banks?

Sep 22 01:27 PM

[bbowen7:]

One has to love Sheila Bair's posture. the FDIC has a choice:
A. Be reticent to take over more banks; minimize the loss to the government when a take-over is necessary; handle the increased costs through assessments on the banks - within the private sector; seek funding from a source that does not put the taxpayers more at risk; or
B. Ask Tim Geithner for part of the additional $100 billion that he is holding for her.

If there is a hero/heroine in this whole mess, it is Sheila Bair. One would hope that her views on the new regulatory structure would be heard - but she's a Republican Bush carry-over.

Sep 22 03:27 PM