- Moody's downgrades Portugal. Moody's downgraded Portugal by two notches this morning, to A1 from Aa2, with a stable ratings outlook. The ratings firm noted Portugal's growth prospects are "likely to remain relatively weak unless recent structural reforms bear fruit over the medium to longer term," and said the government's financial strength will "continue to weaken over the medium term, as evidenced by ongoing deterioration in the country's debt metrics." The euro was off 0.4% earlier in the morning, but is down only marginally now; -0.04% to $1.258 (7:00 ET).
- Citigroup to face class-action suit from bondholders. A federal judge rejected Citigroup's (C) request to dismiss a class-action lawsuit against the firm which alleges Citigroup misled bondholders about its exposure to "toxic" mortgages. Bondholders claim their holdings sank in value after Citigroup subsequently revealed its exposure in November 2008, making it apparent the bank was "insolvent" and would need a government bailout. Premarket: C +1.5% (7:00 ET).
- Dozens of banks sued over subprime. Dozens of brokerages and banks, including Morgan Stanley (MS), Goldman Sachs (GS) and Citigroup (C), are being sued by a Boston area-based fund over losses related to subprime loans. Cambridge Place Investment Management Inc. claims it lost more than $1.2B because of the banks’ untrue statements, and says the banks used faulty appraisals, accepted misleading information in loan applications, and violated their own standards for underwriting.
- Subpoenas sent to dozens of MBS issuers. The Federal Housing Finance Agency sent 64 subpoenas yesterday to issuers of mortgage-backed securities and other entities to determine whether the firms misled Fannie Mae (FNM) and Freddie Mac (FRE). The move could be a prelude to major lawsuits against the firms, and may eventually let the government recoup some of the billions of dollars Fannie and Freddie lost on MBS issued during the housing boom. The recipients of the subpoenas weren't identified, but top MBS issuers included Bear Stearns and Washington Mutual, which were taken over by JPMorgan (JPM), and Countrywide Home Loans and Merrill Lynch, which were taken over by Bank of America (BAC), as well as Deutsche Bank (DB) and Morgan Stanley (MS).
- Goldman to ask SEC for more time. Goldman Sachs (GS) is expected to ask for more time to respond to the SEC's fraud lawsuit, said sources. Goldman has already filed for one extension, but is likely to seek an extra 30 days beyond its July 19 deadline, arguing that the SEC has had years to build its case while the firm has had only weeks. An extension would also give the two sides more time to engage in settlement talks, which sources said will begin as soon as the financial reform bill is finalized.
- Bunny bidding war. Penthouse owner FriendFinder Networks said it plans to make its own buyout offer for Playboy Enterprises (PLA), after Hugh Hefner made a $5.50/share offer earlier in the day. The potential bidding war sent the stock up nearly 41% by the close of trading, and another 8% after hours to $6.00, but FriendFinder Networks faces a significant hurdle in Hefner, who already owns 69.5% of Playboy's Class A common stock and 27.7% of its Class B common stock.
- Return of the drilling ban. The Interior Department issued a new offshore drilling moratorium that will be in effect until Nov. 30. Unlike the original moratorium, which the courts had overturned, the new one has a specific end date and the government is "open to modifying" the new suspensions if the oil industry can show it can operate safely in deep waters. Even so, drillers are feeling skittish, and Diamond Offshore (DO) announced that it is suspending a Gulf of Mexico contract and repositioning its deepwater drilling rig to the Republic of Congo. Other drillers are expected to follow suit in relocating idled rigs, prompting some concern that the economic fallout from the drilling moratorium will far exceed the economic damage from the spill.
- Spill to slash BP tax bill. BP (BP) will likely pay around $10B less in taxes over the next four years, as the company believes compensation, clean-up and repair costs related to the Gulf spill can be written off against its tax liabilities. That would be more than a 25% reduction in the revenues that the U.S. and U.K. governments receive from BP, and is particularly bad news for the U.K. government which is trying to cut the country's budget deficit. Separately, BP raised hopes the spill may soon be contained as a new sealing cap that could potentially halt the leak was installed late yesterday; it will be another 48 hours before the company knows whether the cap has entirely sealed the well. BP closed up 8% yesterday, and is +0.7% premarket (7:00 ET).
- Spotlight turns back to AIA's future. AIG's (AIG) board reportedly plans to meet tomorrow to consider AIA's future, with sources saying an IPO is the most likely outcome following Prudential's (PUK) botched bid for the unit. However, speculation is also growing of renewed acquisition interest in AIA, despite execution risks and potential funding issues for a buyer, and four Chinese consortiums have reportedly approached AIG about the unit. Premarket: AIG +0.8% (7:00 ET).
- Avis to outbid Hertz on Dollar Thrifty. Avis (CAR) is said to be planning an offer for Dollar Thrifty (DTG) that would top the $1.2B bid from rival Hertz (HTZ). To finance the deal, Avis is looking to take on more debt, and will likely present an offer in late July or early August, ahead of an Aug. 18 scheduled vote when Dollar shareholders will decide on the Hertz bid.
- Consumer Reports: Skip the iPhone 4. Consumer Reports said it can't recommend the iPhone 4 to buyers after tests confirmed the phone's now notorious reception problems, noting a hardware flaw is to blame and not an easily-fixed software glitch as Apple (AAPL) claims. The report from the influential organization could have an impact on sales of the iPhone 4, which has been selling well but been plagued by complaints of poor reception. Premarket: AAPL +0.9% (7:00 ET).
- Healthy start for Q2 earnings. The Q2 earnings season got off to a healthy start, with earnings beats from Alcoa (AA), CSX (CSX) and Novellus Systems (NVLS) (see details below). At Alcoa, sales rose 18% despite a drop in aluminum prices, and in a vote of confidence in economic growth, it raised projections for aluminum consumption. CSX was less ebullient but noted “volume gains across all major markets.”
- Environmentalists may close down Mosaic mine. Fertilizer firm Mosaic disclosed in a federal filing that it may need to indefinitely close a phosphate rock mine in Florida because of a lawsuit by environmental groups that threatens the mine's license. It is one of 11 sites around the world that Mosaic uses to produce phosphate, a type of fertilizer. Shares closed down nearly 8% in trading yesterday.
- Financial reform finds support. Sen. Scott Brown and Sen. Olympia Snowe, both Republicans, indicated yesterday that they would support the financial reform bill. In conjunction with Sen. Susan Collins (R-Maine), who has already signaled her support for the measure, Democrats appear to have the 60 votes they need to get the legislation approved.
- Florida banks ask for a break. In a letter sent yesterday to the FDIC and Federal Reserve, Florida's top banking lobbyist requested all local banks be granted a 12-month break from higher capital requirements, loan appraisals and new regulatory sanctions. Florida's banks, already weakened from the financial crisis, have been hit again by customers suffering from the BP (BP) oil spill, and "unless we work together in giving our banks more time to work through this oil crisis," more financial institutions will go under, wrote the Florida Bankers Association. The FDIC and Fed declined to comment.
Earnings: Tuesday Before Open
Earnings: Monday After Close
- Alcoa (AA): Q2 EPS of $0.13 beats by $0.01. Revenue of $5.2B (+22.2%) vs. $5B. (PR, earnings call transcript)
- CSX (CSX): Q2 EPS of $1.07 beats by $0.09. Revenue of $2.7B (+22%) vs. $2.6B. Shares +0.4% AH. (PR)
- Novellus Systems (NVLS): Q2 EPS of $0.66 beats by $0.06. Revenue of $321M (+170%) vs. $312M. Shares +2% AH. (PR, earnings call transcript)
- In Asia, Japan -0.1% to 9537. Hong Kong -0.2% to 20431. China -1.6% to 2450. India +0.3% to 17986.
- In Europe, at midday, London +1.4%. Paris +1.5%. Frankfurt +1.4%.
- Futures: Dow +0.5%. S&P +0.65%. Nasdaq +0.8%. Crude +0.6% to $75.41. Gold +0.6% to $1205.60.
Tuesday's Economic Calendar
- 7:45 ICSC Retail Store Sales
8:30 Trade Balance
8:55 Redbook Chain Store Sales
10:00 IBD/TIPP Economic Optimism
10:00 Job Openings and Labor Turnover
1:00 PM Results of $21B, 10-Year Note Auction
2:00 PM Treasury Budget
5:00 PM ABC Consumer Confidence Index
- Notable earnings before Tuesday's open: FAST, INFY
- Notable earnings after Tuesday's close: INTC, YUM
Seeking Alpha's Market Currents team contributed to this post.
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