- Goldman links bonuses to risk... Bowing to scathing public criticism, Goldman Sachs (NYSE:GS) announced it will ditch cash bonuses for its top 30 executives for 2009, one of the bank’s most profitable years yet, and instead make all discretionary compensation in the form of "shares at risk." The shares must be held for five years; during that time, if an employee fails to properly account for risk, the shares will be forfeited. Shareholders will also get an advisory vote on the company's compensation policies.
- ...while bonus noose tightens elsewhere. Not to be outdone by the U.K., which is slapping bank executives with a one-time, 50% bonus tax, U.S pay czar Kenneth Feinberg may as soon as today impose more stringent than expected $500,000 salary caps on hundreds of employees at firms that took bailout money. Firms may be allowed to exceed the cap if they can show "good cause." In a WSJ editorial, France’s Nicolas Sarkozy and Britain's PM Gordon Brown backed the bonus tax; Sarkozy is apparently considering an as-yet unspecified tax on 2009 banker bonuses exceeding €27,000.
- Oil outlook brightens. World demand for oil next year is brighter than previously thought, thanks in part to China, which as the world's second biggest oil consumer has been showing economic muscle. IEA's monthly report said it expects 2010 global consumption of 86.3M barrels/day, up 130,000 from its November report, and growth of 1.5M barrels/day from 2008. That's more optimistic than others such as the U.S. EIA, which earlier this week clipped its 2010 outlook. OPEC has said consumption will likely grow by just half of what the IEA is forecasting.
- ING pays up. Dutch insurance firm ING Group (NYSE:ING) said Friday it will return $8.3B in state aid - or half of what it owes - and said it may get renegotiated terms for repaying the other half. ING, which first indicated it will repay the first half in October - at the same time it said it was bowing to EU pressure to carve off some units - will use a €7.5B rights issue to finance the repayment. While ING didn't give a time-frame for repaying the remaining €5B, the firm's CEO said the group expects to use retained earnings and proceeds from sales to do so. ING shares jumped 7% on the news.
- EU joins call for global financial tax. The EU called on the IMF Friday to consider a global tax on financial transactions, saying the tax would be aimed at helping limit the risk of another economic crisis. In a draft statement, the EU said: "The European Council emphasizes the importance of renewing the economic and social contract between financial institutions and the society they serve and of ensuring that the public benefits in good times and is protected from risk."
- Shell nabs major oilfield. Iraq handed Shell (NYSE:RDS.A) and Malaysia's Petronas winning bids to develop one of the world's largest remaining untapped oilfields in the country's second auction of oil contracts since the 2003 U.S. invasion. The deals have the potential to raise Iraqi oil output to levels rivaling that of top oil producers Saudi Arabia and Russia - and could alter the geopolitical power balance in the Middle East. The companies proposed a fee of just $1.39 per barrel, below what Iraq was willing to pay, and pledged to increase output from the supergiant Majnoon field to 1.8M barrels per day, more than double what Iraq had expected. Major Western companies have the rare opportunity to gain access to plentiful and cheap oil reserves as Iraq auctions 10 oilfields over two days.
- China gathers steam. China confirmed its place as one of the leaders of the world recovery, as factory output grew 19.2% in November, vs. expectations of 18.2% - while exports fell the least in 13 months, just 1.2%, and imports surged 26.7%. New loans topped forecasts while money supply expanded by a record amount, extending a credit boom that may fuel asset bubbles and inflation.
- Citi itching to pull trigger. Citigroup (NYSE:C) could soon launch a $15B common stock offering to help pay back its government bailout money, sources say, although it's still not clear a deal will proceed. Citi, which has apparently had a more sympathetic hearing from the Treasury than from the FDIC, is keen to rid itself of the TARP burden so it has a freer hand in executive pay decisions, because it believes pay restrictions make banks less attractive to prospective talent.
- Homeowner aid comes up short. The U.S. government's Home Affordable Modification Program may be falling short of its goals, based on the findings of a report released Thursday. Just 31,382 of 728,408 active loan modifications (4.3%) have moved to permanent status, while another 30,650 were disqualified for reasons including missing payments or bad paperwork. Of 759K mods started, 697K are still in their three-month trial. Banks say that of the 3M delinquent loanholders they contacted, half didn't respond - many of whom didn't live in the houses anymore.
- Funds cash in on sovereign woes. Hedge funds that viewed the safety of euro-zone sovereign debt with skepticism are starting to see their bets pay off, after a welter of warnings this week about government borrowings from Dubai to Greece and the U.K. rattled markets around the world. While such bets were costly over the past year, they're now proving prescient.
- Treasury admits to TARP losses. Timothy Geithner told a Congressional oversight committee Thursday it was essential for the government to extend its $700B bailout program for banks another year to ensure continued stability, while admitting that the government will likely lose money from some of its biggest recipients - AIG (NYSE:AIG), General Motors and Chrysler. "While we work to return taxpayer dollars, this administration will not waver in its commitment to preserve the stability of our financial system," he said.
- Hershey weighs risks of Cadbury bid. Sources say Hershey Foods (NYSE:HSY) has put talks with possible co-bidders for Cadbury (CBY) on ice while it weighs whether to risk possibly forfeiting its investment-grade rating to challenge Kraft (KFT), which formally launched its bid last week. Hershey is reportedly leaning toward a bid but hasn't committed yet. A bid would likely require the company to assume some $10B in debt and the issuance of billions of dollars in new shares, as well as accepting cash infusions from wealthy investors in exchange for equity in a combined Hershey-Cadbury. Hershey shares have tumbled 6.7% over the last month amid reports of a possible bid.
- CVS Caremark lands $1B contract. CVS Caremark (NYSE:CVS) said it landed a pension fund contract worth $1B from the Teacher Retirement System of Texas to provide pharmacy benefits for two years, starting Sept. 1 2010. During the first year, the contract will be worth $480M and another $518M the following. The contract will allow CVS, which is under Texas state investigation over processing of Medicaid and other government agency claims, up to four optional one-year renewals.
- AOL dips at entry. Worried over the advertising slump and stiff competition, investors sent AOL (NYSE:AOL) shares down some 2% before paring losses as the company began its first official day of trading; Time Warner (NYSE:TWX), on the other hand, rose more than 4% after finally kicking itself free. AOL was expected to experience some pressure due to the risk former Time Warner investors might be forced to unload AOL shares over large-cap or dividend-yield requirements. At least one analyst said the dip could create an attractive entry point, with Miller Tabak initiating coverage with a Buy rating and a $32 price target. AOL was added to S&P's MidCap 400 index after the close of trading on Wednesday, replacing Imation (NYSE:IMN).
- BofA takes forced CEO breather. Bank of America (NYSE:BAC) must delay naming a new CEO to replace Ken Lewis at least until next Wednesday, even if it's ready, due to a provision in the securities offering it just completed to repay the $45B it owed under TARP. BofA raised some $19B through a securities offering and, as part of the offering, agreed to refrain from making any material changes during the offering and for five days after it closes.
- JPM opens MBS spigot. JPMorgan (NYSE:JPM) was back in the market with a $500M mortgage-backed-securities offering, the third such issue of commercial MBS it has launched in the past month following a year's absence, sources say. JPM sold the bonds without aid from a Federal Reserve program to jumpstart lending. Real estate companies are taking advantage of investor appetite for the securities to pay down maturing debt. The JPMorgan issue is backed by debt on 55 retail properties.
- Western firms protest China. More than 24 major industry groups from the West fired off a protest letter to China, accusing it of putting them at a competitive disadvantage with new trade laws. The companies say Beijing's new rules could restrict or block foreign vendors from selling high-tech gear to China's government agencies, which would cost them billions of dollars in government spending on their goods.
Earnings: Thur. After Close
- National Semiconductor (NSM): FQ2 EPS of $0.20 beats by $0.06. Revenue of $345M (-18%) vs. $337M. "Now that we have restored our gross margins back over the 65% threshold, we can put even more of our focus on revenue growth going forward." Sees "roughly flat" Q3 revenue. Shares -2.8% AH. (PR)
Asia markets were mostly higher Friday. Europe stocks are up strongly at midday, and futures suggest a strong U.S. start to the week's final session.
- Asia: Nikkei +2.5% to 10108. Hang Seng +0.9% to 21902. Shanghai -0.2% to 3247. BSE -0.4% to 17119.
- Europe at midday: FTSE +0.8% to 5287. CAC +1.7% to 3820. DAX +1% to 5768.
Futures: Dow +0.4% to 10379. S&P +0.4% at 1102. Nasdaq +0.4%.
Crude +0.6% to $70.94. Gold +1.25% to $1,140.
30-year Tsy -0.21% to 118-05. 10-year -0.2%. 5-year -0.13%.
Euro +0.2% vs. dollar. Yen -0.7%. Pound +0.1%.
Friday's Economic Calendar
8:30 Retail Sales
8:30 Import/Export Prices
9:55 Reuters/UofM Consumer Sentiment
10:00 Business Inventories
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.