- Paulson fibbed to clinch TARP. Then-Treasury Secretary Henry Paulson misled the public about the health of U.S. banks in order to seal the $700B TARP rescue package, according to TARP Inspector General Neil Barofsky. On Oct. 14, Paulson said TARP recipient banks were healthy, and that they took the money for "the good of the U.S. economy," in order to boost lending. In truth, regulators were already concerned that some banks were teetering. Barofsky's report, to be released today, also implies Bank of America (NYSE:BAC) should have qualified for more aid earlier, but funds were withheld pending its merger with Merrill. In response to the report, TARP director Herb Allison said any review of the government's actions "must be considered in light of the unprecedented circumstances in which they were made."
- PPIP to swell to $12.27B. The Treasury will announce today that AllianceBernstein (NYSE:AB), BlackRock (NYSE:BLK) and Wellington Management have raised a combined $1.94B to participate in government's scheme to soak up toxic assets from banks, known as PPIP. For their efforts, the Treasury will match the $1.94B dollar for dollar, and provide debt financing to double that, bringing their total purchasing power to $7.74B. Last week Invesco (NYSE:IVZ) and TCW became the first two PPIP investors with a combined $1.13B.
- CIT failure would benefit Goldman, hurt taxpayers. Sources say Goldman Sachs (NYSE:GS) stands to earn a $1B 'make-whole payment' from CIT Group (NYSE:CIT) if it files for Chapter 11 or otherwise terminates a $3B financing facility extended by Goldman last June. On the other hand, U.S. taxpayers stand to lose the $2.3B the Treasury paid to purchase preferred shares in CIT. In a statement this morning, Goldman Sachs insisted the $1B was not a 'windfall payment' but rather represents "the present value of the spread to be earned over the life of the facility."
- IMF's new role as G-20 admin. The cloudy relationship between the IMF and its shareholders took shape over the weekend. While managing director Dominique Strauss-Kahn would have liked the IMF to emerge as a global central bank, G-7 leaders in Istanbul - with broad support from other world leaders - moved to convert the IMF into the administrative arm of the G-20, which is emerging as the board of directors of the global economy. On Sunday, G-7 leaders instructed the IMF to prepare the framework for an "orderly and cooperative exit" from global fiscal and monetary stimulus.
- Brocade puts itself on the block. Brocade Communications (NASDAQ:BRCD), which makes equipment that links computer networks to data-storage centers, has quietly put itself up for sale. H-P (NYSE:HPQ), whose mounting rivalry with Cisco Systems (NASDAQ:CSCO) has it scrambling to source parts for its ProCurve networking division, is a lead candidate to acquire Brocade. Other tire-kickers include Oracle (NASDAQ:ORCL). Brocade's market cap as of Friday was $3.2B.
- BofA readies for sudden departure. Sources say Bank of America's (BAC) board will settle this week on an emergency CEO in case legal turmoil forces Ken Lewis to step down before year-end. The TARP IG report due out today (see above) will also say that while government officials didn't pressure BofA to hide Merrill's losses from shareholders, it was under pressure to finish the deal, and that its lawyers decided the bank did not need to disclose losses mid-stream.
- Euro-zone service sector moves back to growth. The euro-zone services sector returned to growth for the first time in 16 months, with Markit's PMI index climbing to a surprisingly strong 50.9 (consensus: 50.6) from 49.9 in August. France's growth was most pronounced, climbing to 52.2 from 49.3. Business sentiment regarding activity in one year's time hit a 44-month high. "Although the rise was only very modest," Markit chief economist Chris Williamson said, "signs that the recovery has spread from manufacturing to services add to hopes that the upturn can become self-sustaining." Meanwhile, euro area retail sales (.pdf) dropped 0.2% in August from July, the 15th straight month of decline, and 2.6% weaker than a year ago.
- Finra concedes partial blame for Ponzi schemes. Finra, the U.S. brokerage industry’s main regulator, is inadequately trained to investigate fraud allegations, according to an internal probe (.pdf) of the Madoff and Stanford scandals. Finra's report concedes regulatory lapses that allowed the giant Ponzi schemes to proliferate undetected weren't confined to the SEC (which earlier issued its own damning findings (.pdf)), noting it received credible tips from at least five sources, including the SEC. Somewhat troubling is the notion that current SEC chief Mary Schapiro was head honcho at Finra during the period in question.
- HSBC chief fires warning shot. HSBC (HBC) CEO Michael Geoghegan is convinced we're headed for a W-shaped recovery and a second downturn, and says he's in no rush to expand. "I'm not as convinced we're through the worst as others are," he told the FT in an interview. Meanwhile, HSBC's head of global private banking said this morning the bank has mulled ING's (NYSE:ING) private banking assets for sale in Asia and Switzerland, noting such businesses almost never come up for sale. On Sunday, HSBC sold its NYC headquarters for $330M in cash to Israeli businessman Nochi Dankner.
- U.S. group enters race for Volvo. A U.S.-led consortium is pitting itself against China's Geely Automotive to buy Ford's (NYSE:F) Swedish car maker, Volvo (OTCPK:VOLVY). The group is led by former Ford director and turnaround specialist Michael Dingman and former Ford and Chrysler executive Shamel Rushwin, who have lined up financing. While the U.S. consortium is reportedly offering much less than Geely, both involve similar plans to invest more than $3B in Volvo.
- Greenspan sees more job losses. Calling Friday's September job report "pretty awful," former Fed chairman Alan Greenspan warned that the U.S. unemployment rate could "penetrate the 10% barrier and stay there for a while before we start down." Greenspan said he was especially worried that Friday's report, which put unemployment at 9.8%, showed an increasing number of Americans unemployed for more than six months – up by 450,000 at 5.4M.
Asia markets were mixed Monday, Europe is marginally higher, and futures are up about half a point from Friday's close.
- Asia: Nikkei -0.59% to 9,674. Hang Seng +0.26% to 20,429. BSE -1.56% to 16,866.
- Europe at midday: London +0.05%. Paris +0.2%. Frankfurt +0.3%.
- Futures: Dow +0.45% to 9477. S&P +0.6% to 1027.50. Nasdaq +0.6%. Crude -0.9% to $69.30. Gold +0.1% at $1,005. Euro +0.3% vs. dollar. Yen -0.7%. 30-year Tsy +0.28%. 10-year +0.10%.
Monday's Economic Calendar
10:00 ISM Non-Manufacturing Index
10:00 Employment Trends Index
10:00 $50B, 70-Day TAF Auction
1:00 PM Results of $7B, 10-year TIPS auction
6:30 PM Fed's Dudley speaks
6:30 PM Fed's Fisher speaks
- Notable earnings before Monday's open: RPM
- Notable earnings after Monday's close: MOS
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