Wall Street Breakfast: Must-Know News

Treasury has Citi locked in TARP. With Bank of America (BAC) exiting TARP, Citigroup (C) is getting restless, but sources say the Treasury's refusal to sell its 34% stake in the bank is stopping Citi from selling shares to repay the $20B it still owes, because investors may be reluctant to buy shares if a Treasury sale could drive down the price. Executives have been trying to convince the Treasury to move for three months; it's currently carrying a paper gain of $6B on a $25B stake. In a report, CreditSights said Citi could repay the $20B by selling $10B of common stock and $10B or more of junior debt securities. Even if the Treasury does sells its shares, and the bank paid off the remaining $20B, it could still be subject to compensation oversight due to $301B in government asset guarantees.
Bernanke defends Fed leadership. Fed Chairman Ben Bernanke defended his leadership of the Fed and urged the Senate Banking Committee to preserve the central bank's independence during his reconfirmation hearing (webcast, testimony). Next week, the House could vote on legislation that could put the Fed's monetary policy decision-making under a congressional watchdog agency. Bernanke said the Fed's credibility "depends on the market's perception that we are independent in making monetary policy decisions." On other key topics, he said he did not see any asset bubbles emerging in the U.S.
Cisco falls short, takes Tandberg anyway. Cisco Systems (CSCO) is pressing ahead to buy Norway's Tandberg ASA for 19B Norwegian crown ($3.4B), despite falling short of its self-imposed 90% threshold for acceptances; 89% of shareholders said yes to the offer. Cisco, which raised its bid by 10% after shareholders rejected its first offer, wants to create the world's leader in video conferencing equipment. Cisco said it may try to squeeze above the 90% level - which would force a sale by the holdouts - through open market purchases. Cisco CEO John Chambers has pegged the total value of collaboration tools at around $34B.
Recycling TARP for jobs. House Speaker Nancy Pelosi suggested recycling leftover funds from the $700B TARP fund to create jobs and boost some salaries. Pelosi floated the idea at a press conference Thursday, the same day President Obama met with business and labor leaders to examine job-creating options. Banks have now repaid much of what they borrowed, with Bank of America (BAC) the latest to do so on Wednesday after it said it will repay the $45B it borrowed.
Kraft hastens Cadbury bid. Kraft (KFT) plans to launch its £9.8B ($16.4B) hostile bid for Britain's Cadbury (CBY) on Friday, one business day earlier than the Monday deadline, sources say. Kraft will stick to the same cash and share offer it made in early September, which Cadbury's board spurned. Under U.K. takeover rules, Kraft has until day 46, or the middle of January, to raise its bid for the world's largest confectionery group, while Cadbury will have until day 14 to publish its defense. Hershey (HSY), meanwhile, is thought to be mulling a $17B bid for Cadbury - an offer the U.K. confectioner has indicated it would prefer.
Goldman on bonuses: give them stock. Suggesting some sensitivity to public wrath over its huge compensation packages, Goldman Sachs (GS) is reportedly weighing plans to hike the equity portion of its pay packages, including awarding all annual bonuses to senior executives, including CEO Lloyd Blankfein, in company stock. The firm has been meeting with major investors to explain why it deserves the record pay-packs it's awarding itself after accepting TARP funds. Goldman's board appears hesitant to grant shareholders a non-binding, advisory vote on pay policy as it could lead to investors pushing for a bigger say on other policies.
Hearst to go digital. Publisher Hearst Corp. plans to compete head-on with Amazon.com's (AMZN) Kindle store with a new digital service called Skiff, which will sell digital versions of newspapers and magazines for electronic readers and other devices. Hearst says Skiff publications will more closely resemble their print counterparts, including advertising, which could make them more lucrative for media companies. "The platforms and devices that other people are building are not really appropriate for newspapers and magazines," Hearst Interactive president Kenneth Bronfin said. "We are going to create an entity by publishers, for publishers."
Whitacre begins GM shakeout. Interim GM Chairman Ed Whitacre will announce new responsibilities for Vice Chairman Bob Lutz as part of an overhaul of the management team this morning, sources say. Whitacre is building a team to run the company until a replacement is hired, in a push to make GM more nimble and to hold employees accountable.
AIG hopes to raise up to $10B in AIA IPO. AIG (AIG) selected Hong Kong's stock exchange to list its Asian life insurance unit, AIA Group, an apparent sign the troubled insurer will go ahead with an IPO in the hopes of raising up to $10B. Preparations for the IPO had stalled since Robert Benmosche took the helm in August; Benmosche has repeatedly said AIG is in no hurry to sell assets at unfavorable prices. "The planned listing is in the best interests of policyholders, distribution partners, AIG shareholders and U.S. taxpayers," Benmosche said. "AIA's roots are in Asia, and a listing in Hong Kong is a natural choice." AIA left the date open.
Banks back CME CDS clearing house. CME Group (CME), the world's dominant derivatives exchange, said it will have a clearing house for the $26T credit default swap market up and running by December 15, after securing commitments from 8 of the largest credit derivative dealers: Barclays Capital (BCS), Citigroup (C), Credit Suisse , Deutsche Bank (DB), Goldman (GS), JPMorgan (JPM), Morgan Stanley (MS) and UBS (UBS). The launch coincides with legislative efforts to put the $450T derivative markets on a tighter regulatory leash and elevate the role of central clearing houses to reduce risks posed by the default of a major swaps dealer, and the web of exposure the contracts create among large financial companies.
Google gets into the DNS business. Google (GOOG) unveiled Google Public DNS, a new service that will allow web surfers to use Google as their DNS (Domain Name System) provider. DNS is what translates understandable domain names into the binary identifiers network routers require. The benefits to users are a theoretically faster and more stable browsing experience, and more security against malware type sites. The benefit to Google appears to be a huge store of data to mine, and potential new revenue streams. The service competes directly with OpenDNS, backed by private-equity firms Sequoia and Greylock.
GM to expand in India. As it struggles to shed brands and find a new CEO, General Motors plans to expand its presence in the lucrative Indian market through a JV with China's SAIC Motor; sources say a deal will be announced Friday. Together, the two companies, which already make and sell vehicles in China, plan to produce passenger vehicles already made by GM in India, including the Chevrolet Spark. The expected move is significant because it provides GM, which already has a foothold in India, with additional resources through the cash-rich, state-owned Chinese auto maker.
Banks may get capital reprieve. U.S. banks such as Citigroup (C) and JPMorgan (JPM) may get much-sought breathing room to phase in capital requirements, rather than be forced to raise capital immediately when new rules take effect next month, according to FDIC chief Sheila Bair. The rule, which the Financial Accounting Standards Board approved in May, eliminates off-balance-sheet trusts known as Qualifying Special Purpose Entities and will force banks to move billions of dollars of assets and liabilities onto their books. Banks have argued the rule would force them to cut financing for securitizations that would directly impact consumers through credit-card lending, residential mortgages and student loans. "Giving some breathing room in terms of when they can transition in is acceptable to us," Bair said in an interview yesterday.
Delay for GE, Comcast marriage? While GE (GE) and Comcast (CMCSA) prepare for their nuptials, industry sources warn it may take up to a year to tie the knot because they first must pass a potentially tough regulatory review. The process could force Comcast to give cable and satellite competitors like Verizon (VZ) and DISH Network (DISH) access to NBCU's TV shows and movies. Herb Kohl, chair of the Senate's antitrust and competition policy subcommittee, called on regulators to "ensure that all content providers are treated fairly on the Comcast platform." Experts expect the deal will ultimately get the green light.
Biogen ups offer for Facet. Aiming to force the hand of Facet Biotech (FACT), Biogen Idec (BIIB) - the world's largest maker of MS drugs - said it would pay $493M, or $17.50/share for the company, and that this was its "best and final" offer. The bid represents a 98% premium over the company's closing share price of $8.82 the day before the bid was initially announced in September. Facet and Biogen have been jointly developing daclizumab for MS and volociximab for cancer since 2005. Biogen CEO James Mullen took the bid directly to shareholders after the board rebuffed him previously. He warned failure to complete a transaction could cause Facet shares to "decline significantly toward pre-offer levels." The offer expires Dec. 16.
Service sector shrinks. Signs of recovery in the service sector continued to lag manufacturing, as ISM's index of non- manufacturing businesses unexpectedly fell to a reading of 48.7 from 50.6 in October and short of consensus estimates of 51.5 (below 50 indicates contraction). Service businesses make up almost 90% of the U.S. economy. On Friday, the Labor Department is expected to report that the U.S. economy lost 125,000 jobs in November, following a 190,000 decline the month earlier, though some economists say the drop could be as low as 50,000, or even a small rise. The jobless rate probably stayed at 10.2%, the highest level in 26 years.
Wealthy may forfeit tax exemption. America's wealthy will not be able to benefit from a tax exemption that was slated for next year, and will continue to be subject to a tax rate as high as 45%. The House voted 225-200 to indefinitely extend the current tax, to prevent the federal estate tax from expiring on Dec. 31, and to permanently exempt couples' fortunes of up to $7M. The estate tax was slated to disappear in 2010 and be reinstated in 2011 at the previous higher top rate of 55% for estates valued at more than $1M. The measure now goes to the Senate, which plans to consider its own version.
Luxury homebuilder loss widens. Luxury homebuilder Toll Brothers said its Q4 loss widened to $111.4M from a year-earlier loss of $78.8M, blaming rising unemployment and other factors. Even so, it said conditions were brightening somewhat as the cancellation rate declined and contract signings picked up. Last month, Toll said new contracts jumped 42% for the latest quarter. Pulte Homes (PHM) and D.R. Horton (DHI), the nation's No. 1 and No. 2 home builders, also said orders jumped last month, even though all have been hurt by land-related charges as land and home values have fallen. Most homebuilders remain under pressure due to rising foreclosures, unemployment and inventory levels.

Earnings: Fri. Before Open

Big Lots (BIG): Q3 EPS of $0.27 beats by $0.09. Revenue of $1.04B (+1.3%) in-line. Sees 2010 EPS of $2.15-2.20 vs. $2.01 consensus. Authorizes $150M share buyback. (PR)

Earnings: Thur. After Close

Marvell Technology Group (MRVL): Q3 EPS of $0.35 beats by $0.08. Revenue of $803M (+2%) vs. $770M. Shares +0.9% AH. (PR)
Novell (NOVL): FQ4 EPS of $0.11 beats by $0.04. Revenue of $216M (-12%) in-line. Sees FQ1 revenue of $200M-210M vs. $214M. Shares -3.4% AH. (PR)
Smith & Wesson (SWHC): FQ2 EPS of $0.10 beats by $0.01. Revenue of $109M (+49%) vs. $105M. Sees FQ3 revenue of $90M-95M vs. $105M. Shares -9.9% AH. (PR)

Today's Markets

Shanghai moved higher in an otherwise mixed day in Asia. Europe stocks are lower at midday, reflecting Thursday's late-day selloff in the U.S. Futures are flat ahead of the much-awaited payroll data.

Asia: Nikkei +0.5% to 10023. Hang Seng -0.3% to 22498. Shanghai +1.6% to 3317. BSE -0.5% to 17102.
Europe at midday: FTSE -0.7% to 5278. CAC -0.6% to 3777. DAX -0.5% to 5743.
Futures: Dow +0.1% to 10364. S&P +0.1% to 1099.50. Nasdaq flat. Jan. crude -0.9% to $75.75. Feb. gold -1% to $1,205.50. Treasurys are flat. Dollar is flat vs. euro, yen and loonie, but -0.5% vs. the pound.