- More pain for Goldman Sachs. After the SEC charged Goldman Sachs (GS) with fraud on Friday, saying the firm created and sold a mortgage investment designed for failure, the U.K. said it would launch its own probe into Goldman's "morally bankrupt" actions. Germany may follow suit, and has requested information from the SEC. Meanwhile, the EU has launched an investigation into Goldman's role in providing swaps to the Greek government. As for the SEC suit, Goldman learned in July 2009 that it might face a suit but said it was blindsided by Friday's announcement; the SEC usually notifies firms in advance to allow for last-minute settlements, and the SEC's failure to do so signals the agency is trying to take a particularly aggressive stance, suggesting the move may be more about politics than financial villainy. On the other hand, though only one Goldman employee, Fabrice Tourre, was named in the suit, sources said senior bank executives, including CEO Lloyd Blankfein, played a pivotal role in overseeing the mortgage unit. John Paulson, the hedge fund investor who made billions betting against the housing market and who was short on some of the underlying securities at issue here, was not named in the SEC's complaint (which raised some eyebrows), but may face lawsuits from investors who lost more than $1B on the deal. GS -0.1% premarket (7:00 ET) after falling nearly 13% on Friday. (For more reading: the SEC's complaint (.pdf) against Goldman, Goldman's response, Goldman's pitchbook for the Abacus deal, and a blogosphere take on why the scandal is not so scandalous)
- SEC looks into other soured mortgage deals. Following its civil fraud charge against Goldman Sachs (GS), the SEC is investigating whether other Wall Street firms misled investors over mortgage investments. It's not yet known which firms the SEC is looking into, but there were similarly troubled mortgage deals created at Deutsche Bank (DB), UBS (UBS) and Merrill Lynch (BAC), among others. The SEC is using this opportunity to raise its sights and send a warning to Wall Street, but by doing so it faces the risk of further damaging its reputation if it loses the Goldman case or similar cases against other Wall Street firms. Premarket: DB +0.2%, UBS -2.3%, BAC -0.6% (7:00 ET).
- Toyota likely to agree to $16.4M fine. Toyota (TM) is expected to agree today to pay a record $16.4M fine for failing to alert regulators about potential safety issues related to sticky gas pedals. Though the fine is less than 2% of Toyota's projected net income for the fiscal year, the company's acquiescence could make a stronger case for plaintiffs seeking compensation from the carmaker, unless the agreement doesn't require Toyota to admit wrongdoing. To date, Toyota has recalled more than 8M vehicles worldwide because of safety issues related to sticky gas pedals and unintended acceleration.
- United mulls alliance with Continental, US Airways. With Continental (CAL) and United Airlines (UAUA) reportedly in merger talks, and US Airways (LCC) and United Airlines reportedly in merger talks, sources said United is now discussing the possibility of forgoing a merger with either airline and instead deepening an existing three-way alliance. United has raised the topic with each airline, but the three have yet to sit down together. A strengthened alliance could raise antitrust concerns and face objections from labor unions.
- Glaxo's Avandia under FDA scrutiny. The FDA is deciding whether to halt a safety study involving thousands of patients taking GlaxoSmithKline's (GSK) diabetes drug Avandia. Studies during the past three years have suggested a connection between the drug and an increased risk of heart attack, and a decision to halt the study could influence whether the drug stays on the U.S. market.
- Citic, Agricole may create global brokerage. Citic Securities, China's largest brokerage, and France's Credit Agricole (OTCPK:CRARY) are reportedly close to an agreement to create a global brokerage venture. The alliance would contain assets worth more than $4B, and would help Credit Agricole push past rivals like Goldman Sachs (GS) in the world's fastest-growing major economy. An announcement could come as soon as today.
- Aussies reject NAB bid for Axa Asia Pacific. Australian regulators rejected National Australia Bank's A$13.3B ($12.3B) bid for Axa Asia Pacific Holdings (which belongs to parent company AXA). Analysts had expected the deal to be approved with conditions such as asset sales, and the surprise ruling may create an opportunity for rival AMP to renew its offer for Axa Asia Pacific.
- Tune in for RadioShack sale? RadioShack (RSH) is reportedly drawing closer to a possible sale, with a list of potential acquirers that includes private-equity groups and rival Best Buy (BBY). Both RadioShack and Best Buy declined to comment, but sources said JPMorgan (JPM) has already been selected to lead the sale process and there are several indications that the process is moving quietly forward. Premarket: RSH +1.8% (7:00 ET).
- Airlines, travelers frustrated by Iceland's volcano. Iceland's volcano continues to cause mayhem for travelers, giving hotels a boost on both sides of the Atlantic as stranded fliers look for places to stay. Airlines, which are now losing close to $300M per day, are putting pressure on authorities to ease no-fly directives, pointing to several test flights that didn't experience any problems, but forecasters suggest airports in northern and central Europe may remain closed for at least another three days, if not longer. More than 63,000 flights have been canceled so far, and an extended disruption could pose a threat to Europe's shaky economic recovery.
- Countrywide case picks up steam. A federal probe into the collapse of Countrywide Financial appears to be gaining momentum, as sources said investigators have been calling witnesses before a grand jury. Though few details are available since grand jury proceedings are generally kept secret, and the calling of witnesses doesn't guarantee charges will be filed, the progress is notable; the former mortgage giant, which was bought by Bank of America (BAC) in 2008, has been the subject of a slow-moving investigation for around two years. An SEC civil trial against the company and three former top Countrywide executives is scheduled for October.
- Obama pushes for financial reform. Obama is taking a hands-on approach to financial regulatory reform, and is putting pressure on Republicans to get on board. The White House has been drafting legislative language to pass on to Congress, is pushing for the bill to be brought to the Senate floor ahead of schedule and is expected to have Obama makes a high-stakes appearance on Wall Street, as both Democrats and Republicans try to leverage the Goldman Sachs (GS) scandal to their legislative advantage.
- Lockheed, Sikorsky join up on helicopter bid. Lockheed Martin (LMT) and Sikorsky Aircraft (UTX) are expected to announce today that they're teaming up to bid on a new contract for a fleet of Marine One helicopters. Other bidders may include Boeing (BA), Bell Helicopters (TXT) and AgustaWestland, the European firm that teamed with Lockheed five years ago to beat out Sikorsky on the previous Marine One bid. Sikorsky, which built every presidential helicopter since 1957 except for the 2005 contract, is hoping a successful bid, even one that requires Lockheed's help, will show that the company has rebuilt itself.
- Mortgage delinquencies show improvements. Mortgage delinquencies fell in March for the second month in a row, dropping 8.6%. The largest slide was among loans that were 30 days past due; these loans fell a record 342,000 to around 1.45M, a level last seen in spring 2008. Though the data is encouraging, delinquencies generally fall in February and March as borrowers get their tax refunds, so it's too soon to suggest that a turnaround has begun.
- Friday's failures. Regulators shut down eight banks on Friday, bringing this year's total closures to 50. The failures in Michigan, Massachusetts, Florida, California (I, II) and Washington are estimated to cost the FDIC's insurance fund nearly $1B.
Earnings: Monday Before Open
- Eli Lilly (LLY): Q1 EPS of $1.18 beats by $0.08. Revenue of $5.5B (+8.7%) in-line. (PR)
- Halliburton (HAL): Q1 EPS of $0.28 beats by $0.03. Revenue of $3.8B (-3.7%) in-line. (PR)
- Hasbro (HAS): Q1 EPS of $0.26 beats by $0.10. Revenue of $672.4M (+8.2%) vs. $642.7M. (PR)
- Philips Electronics (PHG): Q1 EPS of €0.22. Revenue of €5.7B (+11.8%). Shares +1.1% premarket. (PR)
- Standard Pacific (SPF): Q1 EPS of -$0.02 misses by $0.02. Revenue of $175.4M (-16.3%) vs. $279.4M. (PR)
- In Asia, Nikkei -1.7% to 10909. Hang Seng -2.1% to 21405. Shanghai -4.8% to 2980. BSE -1.1% to 17401.
- In Europe at midday, London -0.6% to 5710. Paris -0.7% to 3959. Frankfurt -0.5% to 6153.
- Futures: Dow -0.4%. S&P -0.5%. Nasdaq -0.5%. Crude -2.4% to $81.25. Gold -0.8% to $1128.
Monday's Economic Calendar
- 10:00 Financial Literacy and Education Summit
10:00 Leading Indicators
3:00 PM International Economic Development Council Federal Forum
- Notable earnings before Monday's open: ACI, AMLN, C, HAL, HAS, LLY, MMR, MTB, PHG, SPF
- Notable earnings after Monday's close: ATHR, CCK, IBM, STLD, ZION
Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.
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