- Bernanke's Time has come! Ben Bernanke was awarded Time Magazine's prestigious Person of the Year for 2009 award. "A bald man with a gray beard and tired eyes is sitting in his oversize Washington office, talking about the economy... He just happens to be the most powerful nerd on the planet."
- Citi wins big tax break. While Citigroup (C) fends off arbitration claims, it is celebrating an IRS decision to forgo collecting billions of dollars in potential taxes to help the bank repay its TARP loans. Tax law allows companies to offset taxable income with prior losses, but limits the transfer of those losses to new ownership so that profitable companies don't buy losers just to avoid taxes. Under the law, the government's sale of its 34% stake in Citigroup, combined with Citi's share sales, qualify as a change in ownership. The IRS ruling (.pdf) stipulates that the government's share sale does not count toward the definition of an ownership change. "I've been doing taxes for almost 40 years, and I've never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts," a tax expert said.
- Abu Dhabi attacks Citi share sale. Abu Dhabi Investment Authority – one of the world's top two sovereign wealth funds – wants to rescind an agreement that would otherwise force it to buy Citigroup (C) stock for more than 8X its current price. The fund, which is seeking more than $4B in damages if the deal goes ahead, has claimed "fraudulent misrepresentations" tied to an agreement to buy $7.5B of common stock. Citi said in a statement the claims have no merit. On Monday, Citi said it would sell $17B in shares to help repay $20B in bailout funds. That would trigger losses for the Investment Authority, which purchased Citigroup equity units in November 2007; Citi's shares have dropped 89% since then. Analysts were doubtful ADIA could win in court, but said its goal may be to get Citi to renegotiate the terms of their deal.
- EU ends 10-year Microsoft battle. The European Commission settled its ten-year antitrust battle with Microsoft (MSFT) without fining the software giant. Microsoft agreed to provide European Windows users with greater choice among web browsers, which could help increase the market share of rival browsers including Mozilla's Firefox, Google's (GOOG) Chrome, Apple's (AAPL) Safari and Opera's browser. The EC charged that Microsoft illegally abused its dominance by bundling its own IE browsers with Windows.
- Wells Fargo pays $4.5B for JV stake. Just two days after committing to repay $25B in bailout money, Wells Fargo (WFC) said it will pay Prudential Financial (PRU) $4.5B in cash to buy out the insurer's non-controlling stake in their retail brokerage JV. Prudential, which said it planned to divest its stake more than a year ago, said the deal would enhance its capital position and give it greater financial flexibility.
- Banks get more time on capital rules. Banks around the world could get ten years to transition to new capital rules that will take effect in 2012, sources say. The news lifted shares of some banks, with MUFG (MTU) and Sumitomo Mitsui Financial (OTC:SMFJY) surging more than 14% and European banks rising more modestly. This week, the Basel Committee on Banking Supervision is expected to issue new proposals to toughen financial regulations, which had raised concerns about banks scrambling to raise capital quickly. While regulators don't plan to set a specific time frame for the transition period, media reports said it would be at least 10 years, the same period banks were given to transition when Basel II was introduced in 2004. New rules will likely take a broader view on the definition of liquid assets and core capital, while the minimum capital threshold will likely be raised to help buffer against future losses.
- WaMu accuses JPM of "fire sale". Washington Mutual, once the largest savings & loan in the country, wants a federal court to grill the Fed, the Treasury and a dozen others over its seizure and firesale to JPMorgan (JPM) a year ago. WaMu said the alleged misconduct includes JPM, which it accused of disclosing confidential information to government officials and others in an effort to harm WaMu's credit rating and stock price. WaMu said it has been investigating possible claims since mid-2009.
- GE's flat future. Just days after making a similar forecast for its finance arm, GE Capital, GE said Tuesday that its 2010 earnings growth will likely be flat as the world economy continues to stabilize, but CEO Jeff Immelt said GE has positioned itself for "solid earnings growth and cash flow growth in the future." Immelt also suggested that, "The worst is behind us in financial services." Analysts currently expect 2010 EPS of $0.89, vs. forecast EPS of $0.99 in 2009.
- Bernanke downplays inflation risk. High U.S. unemployment and unused manufacturing capacity suggest that there's still plenty of slack in the economy and that inflation will remain low, Fed Chairman Ben Bernanke told a lawmaker in a written statement Tuesday. Bernanke answered 70 questions (.pdf) presented by Senator Jim Bunning, writing, "I continue to expect slack resources, together with the stability of inflation expectations, to contribute to the maintenance of low inflation in the period ahead." The letter was published Tuesday, the same day the FOMC commenced its two-day meeting on monetary policy; most economists expect the Fed to keep rates unchanged. Bunning plans to oppose Bernanke's reappointment when the Senate panel votes Dec. 17.
- GM speeds up debt repayment. GM is accelerating plans to repay the first $8B of what it owes to the U.S. and Canada by June, interim CEO Ed Whitacre said Tuesday. This is the first time GM has committed to repaying its government loans within a year after it filed for bankruptcy in a U.S. government-directed restructuring. Whitacre also said he hasn't set a time for stepping down yet, but suggested that the search for a new CEO may now be focused internally because of pay constraints. Separately, Whitacre expects to announce a new CFO to replace Ray Young, who will head up GM's international ops, within two weeks. Whitacre also detailed some of the reasons why GM's board split with Fritz Henderson, including his plan to sell Opel: "The board looked at that and said 'this is a valuable asset, why should we sell part of it for something that probably wasn't enough money? We can do something with this."
- Japan smokes out tobacco companies. Philip Morris (PM), Japan Tobacco and British American Tobacco (BTI), which have long looked to Japan as a cigarette tax haven, could soon get burned. As soon as Friday or early next week, the government may unveil a tax that could add ¥40-60 in taxes to every pack of cigarettes, a monumental sum in a country where salaries are shrinking. Japan Tobacco, the world's No. 3 tobacco maker, has a 65% share of the Japanese market; Philip Morris, the global market leader, has about 25% and BAT the remaining 10%.
- Credit Suisse to settle with U.S. Credit Suisse (CS) is in advanced settlement discussions to hand over about $536M to the U.S. government to settle claims it helped process payments that gave Iran and other nations access to U.S. financial markets, ignoring country sanctions. Lloyds (LYG) recently paid a $350M settlement along with Credit Suisse and eight other major foreign banks for using a similar technique to disguise illegal money transfers.
- Mortgage applications inch up. MBA's index of mortgage applications rose 0.3% after an 8.5% gain a week ago. Refinancings were up 0.9%. Over the past week, the average 30-year fixed mortgage rate increased to 4.92% from 4.88%.
- BAIC nabs Saab assets. As expected, Beijing Automotive bought key Saab assets from General Motors, paying 1.4B crowns ($197M) for the intellectual property rights and equipment to make Saab’s 9-5 and to purchase some technology rights to the 9-3. The money will be enough to keep Saab, which has been dangerously short of cash, running for three more months. It also gives the company more time to find a buyer for what's left of the unit. Luxury car maker Spyker is seen as the frontrunner.
- Buyers shun foreclosed homes. A new survey suggests that U.S. consumers are no longer jumping at foreclosed homes because of worries about hidden costs, but may be willing to dip back in with the help of the government's expanded tax credit. Currently, those somewhat likely to consider buying a foreclosed home are at 43%, after peaking at 55% in May, according to a survey by Harris Interactive. Further demand for foreclosed homes could come from homeowners looking to trade up to a larger house; 24% of homeowners are somewhat likely to consider a trade-up, and 88% of those are somewhat likely to consider a foreclosure.
- Glass-Steagall under House threat? Glass-Steagall, the 1933 law that separated commercial and investment banks and was repealed in 1999, is up for discussion again in the U.S. House. "As someone who voted to repeal Glass-Steagall, maybe that was a mistake," Majority Leader Steny Hoyer told reporters Tuesday. On Monday, President Obama met with U.S. bank CEOs, urging them to lend more money. Last month, Fed Chairman Ben Bernanke told the Economic Club of New York: "Plenty of firms got into trouble making regular commercial loans, and plenty of firms got into trouble in market-making activities. The separation of those two things per se would not necessarily lead to stability."
- Geithner says banks stronger now. U.S. Treasury Secretary gave the government a self-congratulatory pat, saying Tuesday that confidence in the financial system is coming back and that private capital will start replacing the government's investment in banks. In comments at the Treasury, Tim Geithner said the government expects to get checks totalling more than $185B in repaid TARP, after Wells Fargo (WFC) said Monday it will repay $25B in bailout money. Geithner trumpeted the success of TARP, saying it had earned more than $15B in income from the sector. He also acknowledged that there's still a lot to do to improve access to credit for small business and to jump-start job creation.
Earnings: Before Open
- Joy Global (JOYG): FQ4 EPS of $1.20 beats by $0.19. Revenue of $964M (-6.6%) vs. $931M. "We see 2009 as the cyclical floor for incoming orders... Our customers are increasing their capital expenditure budgets for 2010." (PR)
Earnings: Tue. After Close
- AAR (AIR): FQ2 EPS of $0.34 beats by $0.04. Revenue of $329M (-7%) vs. $346M. (PR)
- Adobe (ADBE): FQ4 EPS of $0.39 beats by $0.02. Revenue of $757M (-17%) vs. $753M. Sees Q1 revenue of $800M-850M vs. $798M. (PR, earnings call transcript)
Asia stocks were mixed Wednesday, but Europe markets and U.S. futures have moved higher.
- Asia: Nikkei +0.9% to 10177. Hang Seng -0.9% to 21612. Shanghai -0.6% to 3255. BSE +0.2% to 16913.
- Europe at midday: FTSE +0.5% to 5312. CAC +0.8% to 3865. DAX +1.2% to 5881.
- Futures at 7:00: Dow +0.4% to 10438. S&P +0.5% to 1109.50. Nasdaq +0.6%.
Treasurys showing modest gains ahead of FOMC rate decision.
Crude +0.8% to $71.26. Gold +1% to $1,134.
Euro +0.2% vs. dollar. Yen flat. Pound +0.5%.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
8:30 Consumer Price Index
8:30 Housing Starts
8:30 Current Account
10:30 EIA Petroleum Inventories
2:15 PM FOMC rate decision
- Notable pre-market earnings: JOYG
- Notable post-market earnings: HOV, PAYX
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