- Geithner pressured to resign over AIG. Loud calls for Treasury Secretary Timothy Geithner's resignation continued on Thursday, over his handling of the AIG (AIG) bailout in particular, and for his management of the financial crisis in general. Geithner, then chairman of the New York Fed, was blamed in a special inspector's report [.pdf] for not being tough enough with AIG's creditors. During hearings in the House Financial Services Committee on Thursday, several Republican Congressmen claimed that Geithner was too "cozy with big banks." Geithner defended his position, saying, "The U.S. ... came into this crisis without anything like the basic tools countries need to contain financial panics. Coming into AIG, we had basically duct tape and string."
- House panel gives green light to Fed audit. The House Financial Services Committee gave the Fed a slap in the face on Thursday when it approved an amendment to the financial services reform bill that would allow the General Accounting Office to audit the bank. Many lawmakers don't approve of the Fed's role in and handling of the financial crisis. Rep. Ron Paul, who has been trying for decades to obtain greater congressional control over the Fed, sponsored the provision. Former Fed Chairman Alan Greenspan and Paul Volcker voiced opposition to the provision in a letter (.pdf) to the House Financial Services Committee early this month and made public yesterday, saying that the measure would destroy the central bank's independence. Fed chief Ben Bernanke told Congress in June that Paul's provision "would effectively be a takeover of policy by the Congress and would be highly destructive to the stability of the financial system, the dollar and our national economic situation."
- Goldman shareholders nix big bonuses. Some of the largest shareholders in Goldman Sachs (GS) are peeved about the $717,000-average bonuses that the bank's staff are to get this year, sources say. Shareholders believe more earnings should go to investors, especially since, despite record net income, analysts expect Goldman's 2009 earnings per share to be 22% lower than in 2007. A spokesman for the bank pointed out that, since going public in 1999, the company has generated a total return of 159%, and Goldman shares have more than doubled this year.
- BOJ keeps rates on hold. The Bank of Japan kept its key interest rate at 0.1% on Friday, despite pressure from the Japanese government to take action on deflation. Finance Minister Hirohisa Fujii said there’s a sense of crisis about falling prices - deflation was one of the causes of Japan's 'lost decade' in the 1990s. The government would like the BOJ to cut rates further and to step up its support of debt markets with asset purchases. Governor Masaaki Shirakawa warned that increasing liquidity would not help to push prices higher. The BOJ is expected to maintain the key interest rate at its current level well into 2010.
- Fed has biggest balance sheet since December. The Fed's balance sheet swelled to its largest point since December as its holdings in agency and mortgage-backed securities increased, data released Thursday showed. Balance sheet liabilities had expanded to $2.19T as of Nov. 19, the highest point recorded since liabilities hit $2.25T on Dec. 31, 2008. The Fed's holdings of mortgage-backed securities increased to $847B, from $776B a week earlier, while its agency debt ownership rose to $153B from $150B. The Fed has said it will continue its support for markets with ongoing purchases of securities, buying $1.25T worth of mortgage-backed securities and $175B in bonds issued by Fannie Mae (FNM), Freddie Mac (FRE) and the Federal Home Loan Bank System.
- Treasury frees banks from TARP. The Treasury announced Thursday that it will auction warrants that the government received from banks as part of the Troubled Asset Relief Program, meaning that JPMorgan Chase (JPM), Capital One Financial (COF) and TCF Financial (TCB) will no longer have obligations under TARP, and will no longer be subject to any restrictions linked to it. The warrants are expected to fetch about $2.75B for the Treasury, and will include a tidy profit, according to professor Linus Wilson. Goldman Sachs (GS) bought back its warrants from the Treasury for $1.1B in July to avoid share dilution, but the Treasury could have earned $1.24B by auctioning the warrants instead. In the auctions, which will be run by Deutsche Bank (DB), banks provide determinations of market value for the warrants, and then the Treasury fixes the prices using independent appraisers.
- Deutsche Telekom seeks U.S. partner. Deutsche Telekom (DT) is reportedly seeking a partner for T-Mobile, its U.S. mobile communications business, one that could help it finance investments in networks with fast data transfers. MetroPCS (PCS), Clearwire (CLWR) and AT&T (T) are all potential candidates, but the company might also look for a purely financial investor from outside the sector. T-Mobile has been losing market share to competitors. Other plans for growing T-Mobile that the company had been considering, including a share sale and a takeover of rival Sprint-Nextel (S), have been abandoned, according to media reports.
- FDIC wants performance-linked pay for rating agencies. The FDIC wants the underwriters of securitized instruments and the agencies that rate them to be paid based on how those issues perform, a key adviser says. "The underwriters get all their cash upfront, the ratings agencies get all their cash upfront, and nobody really has a strong incentive to make sure the loan performs in the long term," FDIC adviser Michael Krimminger said in an interview Thursday. Securitization was at the heart of the credit crunch, as packages of securitized loans with high ratings turned out to be unsound. Other FDIC proposals include requirements for greater disclosure on debt rolled up in securitizations, limits to the amount of debt that can be bought from other companies and a demand that asset-backed issuers retain a certain amount of the credit risk from the pools, Krimminger added.
- Fed's Fisher wants action on "too-big-to-fail" companies. Action must be taken on companies deemed "too-big-to-fail," Dallas Fed President Richard Fisher said on Thursday, but he stopped short of calling for them to be broken up. Fisher wants to force banks to spin off some of their high-risk operations, as the "basic pathology" of these companies must be "treated," if the Fed is to return to traditional policy making. Operations such as proprietary trading, that place the deposit and lending function at risk and otherwise present conflicts of interest, should be stripped away. Fisher also wants to change the regulatory structure so that such firms can no longer come into existence, and to do that he would remove parts of the government safety net to end the moral hazard threat.
- Ferrero, Hershey would break up Cadbury. Ferrero and Hershey (HSY) would probably break up Cadbury (CBY) into separate businesses if the takeover bid that the two companies are mulling for the U.K. candy maker should succeed, an Italian newspaper reported on Friday. Ferrero is reportedly interested in Cadbury's lucrative candy and gum business. The pair would have to beat out U.S. rival bidder Kraft (KFT), whose 9.9B pound ($16.5B) bid has been decisively rejected by Cadbury's board.
- Google unveils Chrome OS. Google (GOOG) aired its new Chrome operating system on Wednesday in a move calculated to compete directly with market-leader Microsoft (MSFT). The new system, which will be available on netbooks for the 2010 holidays, acts more like a web browser than a traditional operating system, which will enable Google to push through advertising to application users. Netbooks running Chrome OS will only be able to run web applications and the user's data will automatically be stored in Google's cloud of internet servers. Google claims the system can boot up in seven seconds, almost as fast as a TV.
- Foreclosures keep rising. Home foreclosures hit a record at the end of September, with one out of seven home loans going bad, and the number is likely to keep growing through next year, the Mortgage Bankers Association said in its Q3 Delinquency Survey Thursday. The record number of foreclosures, up from 1/10 homes at the beginning of the year, shows the housing market isn't close to recovery, the association said. Applications for mortgages to buy homes have declined for six straight weeks despite interest rates below 5% on 30-year fixed-rate loans. And housing starts were down 10% in October, from the previous month, the Commerce Department said on Wednesday. The association blames high unemployment for the trend, but analysts said adjustable-rate mortgages, which cost owners much more now than they did when they were taken out, are equally at fault.
- Dell sees increasing demand. Even though third-quarter results were down 54% - with shipments tumbling 6.7% to 10.3M units year-on-year - Dell (DELL) said on Thursday that demand for its PCs picked up "pretty substantially" following the launch of Microsoft's (MSFT) new Windows 7 operating system in October. Dell CEO Michael Dell said that the company will see increased benefits from the launch of Windows 7 in Q4. Dell also expects its Asia business to return to revenue growth in the near future.
- China to tighten monetary policy. Chinese officials said on Friday that moves to cautiously tighten the country's loose-money policy would begin at the end of the year. Chinese legislator Wu Xiaoling said hikes in the reserve ratio may begin next year. But Wu said that the changes would be small, and the overall accomodative stance of the central bank would not change, noting the government is also concerned about the dangers of an asset bubble. Separately, the government cited progress in stimulating economic growth. Beijing is also closely monitoring surging housing demand. Separately, Senator Charles Schumer asked the Commerce Department to launch an investigation on whether the yuan's peg to the dollar constitutes currency manipulation.
Earnings: Fri. Before Open
- D.R. Horton (DHI): FQ4 EPS of -$0.73 misses by $0.43. Revenue of $1.01B (-34.6%) vs. $1.11B. Backlog of 5,628 homes vs. 5,297 last year. Net sales of 5,008 homes vs. 3,977 last year. (PR)
- J.M. Smucker Company (SJM): FQ2 EPS of $1.22 beats by $0.18. Revenue of $1.28B in-line. Sees full-year EPS of $3.95-4.05 vs. $3.83 consensus. (PR)
Earnings: Thur. After Close
- Dell (DELL): Q3 EPS of $0.23 misses by $0.05. Revenue of $12.9B (-15%) vs. $13.2B. "We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter. The same is true with momentum in Dell's business, specifically in our Large Enterprise and SMB segments." Shares -6.1% AH. (PR)
- Dress Barn (DBRN): FQ1 EPS of $0.38 beats by $0.05. Revenue of $404M (+7%) vs. $390M. Same-store sales up 4%. Shares +6% AH. (PR)
- Foot Locker (FL): Q3 adjusted EPS of $0.10 misses by $0.03. Revenue of $1.2B (-7%) in-line. Same-store sales down 8.2%. Sales in U.S. lower than anticipated; sales trend improvement in Europe and continuing sales gains in Asia/Pacific. Shares -4.6% AH. (PR)
- Gap (GPS): Q3 EPS of $0.44 in-line. Revenue of $3.6B (+1%) in-line. Same-store sales flat. Announces stock buyback of up to $500M. Shares -1.2% AH. (PR)
- Intuit (INTU): FQ1 EPS of -$0.10 beats by $0.06. Revenue of $493M (+2%) vs. $488M. Sees Q2 EPS of $0.29-0.32 vs. $0.37. Reaffirms full-year guidance. Shares -2.5% AH. (PR)
- Wet Seal (WTSLA): Q3 EPS of $0.04 in-line. Revenue of $141.5M (-3%) vs. $140.6M. Sees Q4 EPS of $0.03-0.07 vs. $0.08, on revenue of $149M-155M vs. $156M. Shares -6.1% AH. (PR)
Asian markets were mixed Friday, but Europe stocks and U.S. futures have moved lower.
- Asia: Nikkei -0.5% to 9498. Hang Seng -0.8% to 22456. Shanghai -0.4% to 3308. BSE +1.4% to 17022.
- Europe at midday: FTSE -0.1% to 5263. CAC -0.2% to 3752. DAX -flat at 5700.
- Futures: Dow -0.5% to 10280. S&P -0.5% at 1089. Nasdaq -0.4%. Jan. crude -0.6% to $77.57. Gold -0.2% to $1,139.80. Treasurys are moderately higher. Euro -0.4% vs. dollar. Yen +0.4%. Pound -1%.
Friday's Economic Calendar
- 12:05 BoJ Rate Decision
10:00 Mass Layoffs
10:00 Markup: Financial Regulatory Reform
- Notable premarket earnings: ANN, DHI, SJM
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.