- Goldman targeted in second CDO probe. Goldman Sachs (NYSE:GS) is reportedly the target of a second SEC probe, this time in connection to its $2B Hudson Mezzanine collateralized debt obligation, sold in 2006. Goldman selected the subprime mortgage assets in the CDO, but was also the only investor buying credit protection on the entire transaction. Separately, an Australian hedge fund is suing Goldman for misrepresenting the value of its Timberwolf CDO, which the hedge fund claims contributed to its 2007 demise. The fund is seeking $1B in punitive damages. Premarket: GS +0.5% (7:00 ET).
- Battered BP faces new penalties. Shares of BP (NYSE:BP) plummeted yesterday, as the bad news continued to pile up: Forty-three House members wrote a joint letter calling on the company to suspend its dividend, stop advertising and spend that money on cleanup instead; the company's 582-page regional spill plan contains numerous errors; BP could potentially face RICO charges for withholding video feeds of the broken riser; doubts are growing about BP's ability to cope with the massive spill; and the government is pushing BP hard over the costs it must cover, with plans to ask BP to cover the salaries of any workers laid off because of the six-month deepwater drilling moratorium enacted after the spill. It was a question of when, not if, but BP is now also facing a class-action shareholder lawsuit for "mislead[ing] investors prior to the Deepwater Horizon oil spill." Shares of BP closed -15.8% yesterday, while BP's bonds and credit-default swaps are trading like the company has already lost its investment-grade credit rating. Premarket: BP +10.3% (7:00 ET).
- Gov't watchdog: Heavy AIG losses ahead. The Congressional Oversight Panel warned taxpayers "remain at risk for severe losses" from AIG's (NYSE:AIG) bailout. The government, which failed to adequately protect taxpayers during the insurer's rescue, is likely to "remain a significant shareholder in AIG through 2012" and it's unclear if the bailout funds "will ever be repaid in full." In contrast, Bernanke expressed his belief yesterday that AIG, like other rescued financial firms, will repay the government in full.
- Germany rejects Opel aid for GM. The German government rejected General Motors' request for €1.1B ($1.3B) in aid to reorganize Opel. Economy Minister Rainer Bruederle said he's "convinced GM has sufficient financial resources" to cover the restructuring costs on its own, and that "the state is not the better entrepreneur." GM must now devise a new strategy for funding the €3.6B reorganization of the money-losing unit.
- CVS strikes back at Walgreen. CVS Caremark (NYSE:CVS) said it has "no choice" but to block up to 53M patients from filling prescriptions at Walgreen (NYSE:WAG) pharmacies as early as next month, escalating the battle between the two companies. CVS is also ending Walgreen's participation in its Medicare prescription-drug plan networks as of Jan. 1, 2011. Walgreen had announced on Monday that it plans to stop filling prescriptions for new CVS Caremark plans starting next year.
- Bernanke points to moderate growth, unsustainable deficit. Testifying before lawmakers yesterday, Bernanke said that while the economy is expanding at a "moderate pace," growth is still "not as fast as we would like" and the recovery continues to be constrained by the real estate market. Many banks have failed to modify their pay practices, so the Federal Reserve and other regulators will release compensation guidelines and push banks to quickly restructure payment schemes. Bernanke also urged lawmakers to come up with a long-term plan to reduce the deficit: "Unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth."
- Modest signs of improvement from Beige Book. The Federal Reserve's Beige Book showed economic activity improved across all 12 Fed districts for the first time since October 2007, though many districts described the pace of growth as "modest." Consumer and business spending picked up, the job market improved slightly, and inflation remained in check. Financial activity was little changed since the last report, published in April.
- AT&T: Data breach for iPad users. In the latest privacy blunder among major corporations, AT&T (NYSE:T) disclosed that a security hole on its website had exposed the private data of iPad (NASDAQ:AAPL) owners, with as many as 114,000 email addresses uncovered. Financial and billing information did not appear to have been part of the breach. AT&T said the security problem has been fixed and affected customers will be notified.
- Buyers scarce for Citi's retail cards portfolio. Citigroup (NYSE:C) is having a hard time finding buyers for its $50B portfolio of retailers' credit card loans, and could end up holding onto the assets for years. Buyers have been generally reluctant to get involved with credit card assets because of ongoing changes in industry regulations. Citigroup's portfolio makes a particularly difficult sell because of its size and the fact that these types of cards are likely to experience higher-than-average losses. Premarket: C +1.55% (7:00 ET).
- In Asia, Japan +1.1% to 9543. Hong Kong +0.1% to 19633. China -0.8% to 2563. India +1.6% to 16922.
- In Europe, at midday, London +0.3%. Paris +1.0%. Frankfurt +0.5%.
- Futures: Dow +0.9%. S&P +1.1%. Nasdaq +0.9%. Crude +0.6% to $74.83. Gold -0.5% to $1224.20.
Thursday's Economic Calendar
- 7:00 BoE Announcement
7:45 ECB Announcement
8:00 Cleveland Fed Conference: Housing Policy
8:30 Initial Jobless Claims
8:30 Trade Balance
10:00 Hearing: U.S.-China Economic Ties (Geithner)
10:00 Quarterly Services Report
10:30 EIA Natural Gas Inventory
1:00 PM 30-Year Bond Auction
2:00 PM Treasury Budget
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
- Notable earnings before Thursday's open: DLM, LULU
- Notable earnings after Thursday's close: FNSR, NSM
Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.
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