- SEC seeks to widen BofA suit. The SEC requested court permission to expand its lawsuit against Bank of America (BAC), arguing that in addition to misleading shareholders on bonus payments at Merrill Lynch, BofA also failed to disclose Merrill's 'extraordinary losses.' Jed Rakoff, the presiding judge, denied the request, but left the door open for the SEC to bring the charge in a separate case. While the bank prepares for a March 1 trial, it's also working to settle a state inquiry over similar charges. Unlike the SEC, New York Attorney General Andrew Cuomo has indicated he would like to see individual BofA executives held responsible and forced to pay personal fines, providing greater incentive for BoA to reach a quick settlement. Shares -0.8% premarket (7:00 ET).
- Banks may face clawback fees. Obama may propose a fee on banks to help reduce the deficit and assuage public outrage. Details are not yet finalized, but the proposal will likely be included with Obama's budget plans, which are due to be released next month. The new fees could bring in as much as $120B from financial institutions that received a government bailout, though there's also the risk that the move could hurt bank customers if the fees are passed along.
- Cuomo targets bank bonuses. New York Attorney General Andrew Cuomo requested information on 2009 bonus plans from eight major TARP recipients, including Bank of America (BAC), Bank of New York Mellon (BK), Citigroup (C), Goldman Sachs (GS), JPMorgan Chase (JPM), Morgan Stanley (MS), State Street (STT) and Wells Fargo (WFC). Cuomo noted that pay should be "based on incentives that build strong institutions, not built on incentives that bring the nation to its knees economically and are based on short-term, fictional profits."
- Banks may get special bankruptcy court. Lawmakers are considering the creation of a special bankruptcy court for financial firms. Members of the Senate Banking Committee are said to be looking at a two-stage process that would create a preferential option for bankruptcy and, if bankruptcy fails, there would be a regulator-managed resolution of the troubled firm. The draft bill for overhauling financial supervision also empowers the FDIC to wind down large financial firms and to guarantee the debt of firms in receivership.
- JAL falls as bankruptcy looms. Japan Airlines saw its shares plummet 45%, the daily limit, on speculation of an imminent bankruptcy. Prime Minister Yukio Hatoyama said today shareholders should take responsibility for JAL, which has been bailed out three times in the last nine years. Even as JAL sinks under the weight of its debt, Delta (DAL) and American Airlines (AMR) continue to court the airline. American said today that it had sweetened its offer, and along with three other carriers would provide JAL with $2B over three years. However, news reports suggest Japan's turnaround czar favors a JAL tie-up with Delta, with no capital injected.
- China raises reserve ratio. The People's Bank of China increased bank reserve ratios this morning by half a percentage point, effective January 18. The bank also raised its interbank interest rate for the second time in a week. The moves are a further sign that officials are trying to rein in rapid growth, and add to speculation of an increase in the benchmark interest rate during the first half of the year.
- Profit rises at Cadbury. Cadbury (CBY) posted strong 2009 results, with operating profit up 27% to £808M ($1.3B) and sales up 11% to £6B. Cadbury management once again urged investors to reject Kraft's (KFT) 'wholly inadequate' hostile bid, noting that shareholders face a choice between the excellent track record of Cadbury's management and Kraft's management which has over-promised and under-delivered.
- Pension fund sues over Novartis/Alcon deal. A Massachusetts pension fund is suing Alcon (ACL), Novartis (NVS) and Nestle (OTCPK:NSRGY) over their recent deal, saying the terms discriminate against minority shareholders. Novartis had agreed to buy the rest of eye-care giant Alcon from Nestle and minority shareholders for around $39.3B, but Nestle would receive around $180/share while minority shareholders would receive approximately $153/share. The pension fund is seeking to block the proposed merger, or, if it goes through, to recover damages.
- New primary dealer rules. The New York Federal Reserve announced a tighter set of standards for primary dealers, including a much higher minimum net capital level and a year's worth of operating experience for new applicants for primary dealer status.
- Record profit for Fed. According to calculations by The Washington Post, the Federal Reserve booked a $45B profit last year, the highest earnings in its 96-year history. Much of the profit came from Fed bond purchases aimed at driving down interest rates.
- Telefonica, Colgate hurt by Venezuelan devaluation. Telefonica SA (TEF) reiterated its 2010 earnings guidance after Venezuela's currency devaluation wiped out over $1B in profits the company had locked in the country. Analysts were skeptical Telefonica would still be able to meet its target, and shares closed down 2.15% yesterday. Colgate (CL) expects a charge of up to $0.06/share for each quarter this year because of the devaluation.
- Alcoa posts Q4 loss. Alcoa (AA) reported earnings yesterday (see below), kicking off the Q4 earnings season with a $277M loss. The company saw lower sales in the construction, aerospace, commercial-building and gas-turbine markets, but said most of the loss stems from restructuring special items and tax charges. Larger rivals, including Rio Tinto (RTP), are expected to post better results since they are lower-cost producers than Alcoa.
- Older Boeing planes need safety inspection. The Federal Aviation Administration has ordered enhanced inspections of over 130 of Boeing's (BA) older 737 jetliners, looking for possible cracks in the fuselage skin that could "result in sudden fracture and failure of the fuselage skin panels, and consequent rapid decompression."
- Employment trends up. Conference Board's Employment Trends Index rose 1.7% in December to 91.8, the sixth straight month of increase. "Given the sharp and widespread improvement in the Employment Trends Index in recent months, it is very likely that we will see at least some job growth during the first quarter," said Conference Board's Gad Levanon.
Earnings: Tuesday Before Open
- Infosys Technologies (INFY): FQ3 EPS of $0.59 beats by $0.08. Revenue of $1.23B (+5%) vs. $1.17B. Issues upside guidance for Q4: EPS of $0.56 vs. $0.51 consensus; revenue of $1.24-1.25B vs. $1.19B consensus. Issues upside guidance for FY10: EPS of $2.26 vs. $2.14 consensus; revenue of $4.75-4.76B vs. $4.66B consensus. (PR)
Earnings: Monday After Close
- Alcoa (AA): Q4 EPS of $0.01 misses by $0.05. Results exclude net charges for restructuring, special items and discrete tax items of $0.28/share. Revenue of $5.4B (-5%) vs. $4.8B. “We reshaped our cost structure and portfolio for profitable growth. And, we built the cash reserves to weather current economic uncertainties and invest in opportunities for future growth." Shares -5.4% AH. (PR)
- In Asia, Nikkei +0.75% to 10,879. Hang Seng -0.4% to 22,327. Shanghai +1.9% to 3,274. BSE -0.6% to 17,423.
- In Europe at midday, London -1.1%. Paris -1.1%. Frankfurt -1.2%.
- Futures: Dow -0.6%. S&P -0.6%. Nasdaq -0.7%. Crude -0.9% to $81.77. Gold -0.2% to $1,148.40.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
8:30 International Trade
10:00 FDIC meets on bank employee compensation
10:00 Job Openings and Labor Turnover
5:00 PM ABC Consumer Confidence Index
5:30 PM CFTC's Gensler speaks on financial reforms
6:50 PM Fed's Fisher speaks on the role of the Fed
7:00 PM Fed's Plosser speaks on the economic outlook
- Notable earnings before Tuesday's open: INFY, KBH, SVU
Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.
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