- Bank execs sorry, sort of. The chiefs of Goldman Sachs (GS), JPMorgan (JPM), Morgan Stanley (MS) and Bank of America (BAC) faced a barrage of questions yesterday while testifying before the Financial Crisis Inquiry Commission. Though they acknowledged their role in the crisis, bank leaders also placed blame on policy makers, regulators and the economy as a whole, while offering a defense of their much-maligned bonus and compensation practices. Commission chairman Phil Angelides said he was "troubled by the inability [of the bankers] to take responsibility because I think it's fundamental." The Commission continues its inquiries today with testimony from federal officials, including the FDIC's Sheila Bair and the SEC's Mary Schapiro.
- Government watchdog warns on TARP. In a new report, the Congressional Oversight Panel warns TARP will leave a legacy in financial markets, with expectations that the government will always step in to rescue institutions that are "too big to fail." The report also criticized the Treasury for failing to set clear guidelines for when and how it will dispose of billions of dollars in assets. Though the $700B bailout officially ends in October, "TARP will live on for years," said panel chairwoman Elizabeth Warren, so the "Treasury must learn from the mistakes it made over the past year."
- China holds firm on internet censorship. China is calling Google's (GOOG) bluff, and has shown no signs of altering its censorship policy despite Google's threat to pull out of the country. U.S. government officials have been wary of taking sides because of concerns the case could further damage already-tense U.S.-China relations, and tech rivals, despite some growing disillusionment about doing business in China, have largely failed to line up behind Google. Microsoft (MSFT) CEO Steve Ballmer even described the affair as "the Google problem," noting that all large firms get hacked and this case isn't fundamentally different.
- Foreclosures hit new record. More than 2.8M U.S. homeowners received a foreclosure notice in 2009, representing one in 45 households and setting a new record. According to RealtyTrac's year-end report, 2009 saw 21% more foreclosures than there were in 2008, and more than double those from 2007. Despite the jump in foreclosures, home repossessions rose just 1.1% from 2008.
- Geithner to testify on AIG. After issuing a subpoena to the New York Federal Reserve in connection to the AIG (AIG) bailout, Rep. Edolphus Towns has invited Tim Geithner, president of the New York Fed at the time, to testify in Congress later this month. Towns has also subpoenaed Geithner's emails, phone logs and meeting notes related to the public disclosure decision on AIG's counterparty payments.
- Hershey readies Cadbury bid. Hershey (HSY) is reportedly on track to move forward with a solo bid for Cadbury (CBY), after potential joint bidder Ferrero decided to withdraw. Sources said Hershey hopes to avoid a bidding war by waiting until Cadbury shareholders make a decision on Kraft's (KFT) $16.5B hostile offer.
- Beige Book sees modest improvements. The Federal Reserve's Beige Book, released yesterday, noted that the economy is weak but is improving, and those improvements are getting geographically broader. Ten districts reported better conditions and two others (Philadelphia and Richmond) were mixed. Consumer spending was up, though still far below 2007 levels. The labor market remained generally weak and non-residential real estate was soft in all districts.
- Obama to unveil bank fees. Obama is set to announce his bank fee proposal today, outlining his plan to recoup up to $120B from bailed-out banks over the next ten years. However, given the size and timeline of the tax, it seems likely that the proposal is meant to score political points rather than actually punish the banks.
- California downgraded again. S&P downgraded California to A-minus with a negative outlook, as the state is facing another multibillion-dollar budget gap and federal help seems increasingly unlikely. However, even though it now costs more to insure California municipal debt against default than to insure bonds issued by Kazakhstan, there's a compelling case to be made that California is doing better than the headline numbers suggest.
- SEC may end "naked access." The SEC has proposed to ban "naked access," a trading practice in which high-speed traders buy and sell stocks directly on exchanges using a broker's computer code, making it difficult for regulators to know who is making the trades. The SEC is concerned this practice could create market-destabilizing losses. "If a broker-dealer is going to loan his keys [to a naked-access trader]," said SEC Chairman Mary Schapiro, "he not only must remain in the car, but he must also see to it that the person driving observes the rules before the car is ever put into drive."
- CFTC targets currencies, energy markets. The Commodity Futures Trading Commission proposed rules yesterday that would make it easier to fight fraud in foreign currency trading that takes place outside of regulated futures exchanges. The CFTC is also set to propose limits today on the positions energy traders can take, a response to heavy criticism the agency faced in 2008 when crude oil reached $145 a barrel.
- FPL halts capex. FPL Group (FPL) is halting $10B of capital expenditures in Florida because of a deteriorating regulatory environment. FPL, owner of the largest utility in Florida, said the immediate suspension was in response to the state rejecting a proposal to raise its base rates.
- Slim wants to bulk up. Carlos Slim launched a $21B plan yesterday to consolidate his Latin American telephone companies to better compete with rivals. Slim plans to use his America Movil (AMX) mobile operator to create one large telecom firm that will provide fixed-line telephone, mobile and internet services across Latin America.
- Greece outlines deficit plan. Greece will submit a three-year stability and growth plan to the European Commission tomorrow, outlining how it will bring its deficit below the EU-mandated 3% ceiling. Based on the expectation that Greece will remain in recession this year, the plan includes reducing the deficit to 8.7% of GDP this year and 5.6% next year, and then to 2.8% by 2012. Not included in the plan is how the country intends to convince skeptical investors that Greece is capable of resolving its own crisis.
- Worries about a Chinese bubble. Data released earlier today raises new questions about the health of China's property markets and banks. Property prices in Chinese cities rose 7.8% in December vs. the previous year, the fastest pace in 17 months, adding to worries that inflating house prices are creating a bubble. Meanwhile, Fitch called China's credit and investment growth "unsustainable," with concerns about "an eventual deterioration in banks' asset quality." China also surprised the market this morning by leaving the yield on its three-month bills unchanged, slowing down a recent tightening campaign.
- Mounting debt risks dollar crisis. Having completed its two-year study, the Committee on the Fiscal Future of the United States has warned a dollar crisis is likely unless the government raises taxes or cuts spending to drastically rein in its debt. "In the next year or two, large deficits and more borrowing are unavoidable given the severity of the economic downturn. However, action ought to begin soon thereafter."
- 2010 could see sovereign defaults. The U.S. isn't the only country with a debt problem. According to a report by the World Economic Forum, one of the top threats facing the world in 2010 is the risk that deteriorating government finances could push economies into full-fledged debt crises. Economies that are already fragile, especially those in the developed world, could overextend themselves, leaving some 'tough choices' ahead.
Earnings: Wednesday After Close
Today's Markets
- In Asia, Nikkei +1.6% to 10,908. Hang Seng -0.15% to 21,717. Shanghai +1.35% to 3,216. BSE +0.4% to 17,585.
- In Europe at midday, London +0.4%. Paris +0.3%. Frankfurt +0.4%.
- Futures: Dow flat. S&P -0.05%. Nasdaq -0.2%. Crude +0.2% to $79.81. Gold +0.2% to $1,138.50.
Thursday's Economic Calendar
- 7:45 ECB Announcement
8:30 Retail Sales
8:30 Jobless Claims
8:30 Import/Export Prices
9:00 RBC CASH Index
10:00 Day 2 of FCIC Testimony
10:00 Business Inventories
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet - Notable earnings before Thursday's open: SEED
- Notable earnings after Thursday's close: INTC
Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.
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