- Fannie/Freddie bailout could hit $363B. New stress tests by the Federal Housing Finance Agency show that Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) may end up drawing $363B from the government to absorb mortgage losses. In that worst-case scenario, the cost to taxpayers would be $259B, because almost 30% of the funds would come back to the Treasury in the form of dividend payments. A best-case scenario would see the two mortgage giants take a total of $221B, costing taxpayers $142B after dividends. So far, Fannie and Freddie have drawn $148B, which means that even if the economy sees a strong near-term recovery, regulators expect to pay out at least another $70B.
- AIA gets its IPO. At long last, AIG's (AIG) Asian unit, AIA, has had its initial public offering. The IPO raised around HK$138.3B ($17.8B) for AIG, which sold a 58% stake at HK$19.68 per share, the top end of its marketing range. The move puts AIG "well within striking distance" of repaying the Federal Reserve, especially if AIG chooses to exercise an option to sell an additional 1.05B shares after AIA starts trading, lifting its sale proceeds to $20.57B. Premarket: AIG +0.3% (7:00 ET).
- Ventas buys Atria properties. Ventas (VTR) is set to announce today a deal to buy the real estate assets of Atria Senior Living Group for $1.5B in stock and cash, plus the assumption or repayment of $1.6B of net debt. The deal will mark Ventas' sixth major acquisition in as many years as it builds a real estate portfolio focused on health-care and senior living communities; the sector has seen fairly "recession-resistant cash flows" as senior housing is "need driven," and demand for senior living facilities is expected to grow briskly in the coming years. Shares of Ventas are up 25% year-to-date.
- Caterpillar buys 3i's MWM. Caterpillar (CAT) will acquire MWM Holding, a German engine manufacturer, from private-equity firm 3i for €580M ($810M) in cash. The deal will significantly increase the options Caterpillar can offer to customers of its electric power division, and comes a day after the company reported strong Q3 profits and raised its 2010 outlook.
- CNOOC, GNPC team up to bid for Jubilee stake. CNOOC (CEO) and Ghana National Petroleum Corp. have reportedly made a $5B bid to buy Kosmos Energy's Ghana assets, including its 23.5% stake in the Jubilee field. The all-cash fully-financed offer tops an earlier failed bid by Exxon Mobil (XOM) for more than $4B. State-owned GNPC is also said to be talking with Statoil (STO) to come on board as a third partner in the bid. The Jubilee field holds an estimated 1.8B barrels of crude, enough to supply all U.S. East Coast refineries for more than four years.
- Fed officials massage QE2 expectations. By now, a second round of quantitative easing almost seems like a given, but comments from two Federal Reserve officials may be aimed at slightly tempering markets' expectations. Kansas City Fed's Thomas Hoenig said he was "very unhappy" with the high level of unemployment, but warned the Fed should refrain from easing its monetary policy further or else risk another economic bubble that could threaten the country's recovery. James Bullard, president of the St. Louis Fed, favors an open-ended program of bond purchases but said the Fed hasn't made any decisions yet on QE2 and that there's internal disagreement over the size of a potential plan. Bullard also pushed back on sentiment that QE2 is a given because markets expect it, saying the Fed is "not here to ratify what the markets think."
- BBVA in talks for GE's Garanti stake. BBVA (BBVA) confirmed it's in talks to buy GE's (GE) 21% stake in Turkey's fast-growing Garanti Bank (OTCPK:TKGBF) for around €3.5B ($4.9B). The move would help BBVA reduce its dependence on the weak Spanish domestic market while giving it a rare chance to buy into Turkey's relatively resilient banking sector.
- General Growth cleared for bankruptcy exit. General Growth Properties' (GGP) reorganization plan was approved yesterday, paving the way for the company to exit bankruptcy protection after a year and a half. The plan provides $7B in new capital, pays creditors in full and provides recovery for shareholders. GGP expects to exit bankruptcy around Nov. 8 and will then focus on a $2.25B share sale to raise capital. It will also emerge as two publicly traded companies tickered as GGP, which will be the main company, and HHC (The Howard Hughes Corp.), which will include certain community business, land and shopping centers in development and other non-income-producing properties.
- Office Depot faces SEC action. The SEC has launched enforcement actions against Office Depot (ODP), CEO Stephen Odland and former CFO Patricia McKay, alleging violations of disclosure regulations. The SEC said the company provided an unfair advantage by selectively sharing information with analysts and its largest shareholders. Odland and McKay also allegedly directed investor relations officials to manage down their guidance for the second quarter of 2007.
- KKR hires Goldman trading team. KKR (KKR) took another step away from its roots as a leveraged buyout firm, announcing it was hiring a group of nine traders from Goldman Sachs (GS) who had worked on Goldman's proprietary trading desk. The financial reform law which has brought an end to major prop trading desks at firms like Goldman is presenting a new opportunity for hedge funds and money managers, and KKR's move will help it better compete against rival BlackRock (BLK).
- Icahn fights MGM's Spyglass deal. Carl Icahn offered to buy debt from Metro-Goldwyn-Mayer holders if they agree to vote down a "recipe for disaster" deal with Spyglass Entertainment. The Spyglass deal gets in the way of Icahn's plan to combine debt-laden MGM with Lions Gate Entertainment (LGF) instead. A vote on prepackaged bankruptcy at MGM is due Oct. 29.
- Lenders discuss foreclosure probe resolution. Major U.S. lenders, including JPMorgan (JPM) and Bank of America (BAC), are said to be in talks with state attorneys general to resolve a nationwide investigation into foreclosure practices. JPMorgan and BofA couldn't be reached for comment.
- Saskatchewan rejects BHP bid. As expected, Saskatchewan formally rejected BHP Billiton's (BHP) bid to buy Potash (POT) and will urge the federal government to block it. Under Canadian law, the federal government can only allow a takeover bid by a foreign company to proceed if it deems that a deal would bring a "net benefit" to Canada. Potash applauded the decision and urged shareholders to reject BHP's advances.
Earnings: Thursday After Close
- Amazon.com (AMZN): Q3 EPS of $0.51 beats by $0.03. Revenue of $7.56B vs. $7.35B. Shares -3.3% AH. (PR, earnings call transcript)
- American Express (AXP): Q3 EPS of $0.90 beats by $0.04. Revenue of $7B (+16.9%) vs. $6.8B. Shares -0.8% AH. (PR)
- Baidu.com (BIDU): Q3 EPS of $0.45 beats by $0.03. Revenue of $337M (+76.4%) vs. $333M. Sees Q4 revenue of $354-364M vs. $349M. Shares -4.4% AH. (PR, earnings call transcript)
- Bucyrus (BUCY): Q3 EPS of $0.94 misses by $0.17. Revenue of $937M (+38.7%) vs. $1.03B. Shares -4.7% AH. (PR)
- CA Inc. (CA): FQ2 EPS of $0.49 beats by $0.02. Revenue of $1.1B (+4%) in-line. Shares +3.4% AH. (PR, earnings call transcript)
- Cheesecake Factory (CAKE): Q3 EPS of $0.37 beats by $0.03. Revenue of $418M (+4.4%) vs. $414M. Shares -0.3% AH. (PR)
- Chubb (CB): Q3 EPS of $1.69 beats by $0.26. Revenue of $2.8B (-1.3%) vs. $2.7B. Shares +0.2% AH. (PR)
- Citrix Systems (CTXS): Q3 EPS of $0.62 beats by $0.13. Revenue of $472M (+17.7%) vs. $458M. Shares -2.4% AH. (PR, earnings call transcript)
- Compuware (CPWR): FQ2 EPS of $0.12 beats by $0.03. Revenue of $225M (+3.7%) vs. $221M. Shares +5.3% AH. (PR, earnings call transcript)
- Informatica (INFA): Q3 EPS of $0.28 beats by $0.02. Revenue of $161M (+31%) vs. $158M. Shares -2.7% AH. (PR, earnings call transcript)
- Leggett & Platt (LEG): Q3 EPS of $0.31 misses by $0.06. Revenue of $866M (+7%) vs. $888M. Shares -8.8% AH. (PR)
- NCR (NCR): Q3 EPS of $0.46 beats by $0.13. Revenue of $1.2B (+6.3%) in-line. Shares +1.8% AH. (PR, earnings call transcript)
- People's Bank (PBCT): Q3 EPS of $0.08 misses by $0.02. Shares -1.5% AH. (PR)
- PMC - Sierra (PMCS): Q3 EPS of $0.18 in-line. Revenue of $162M (+24%) in-line. Shares +0.6% AH. (PR, earnings call transcript)
- Polycom (PLCM): Q3 EPS of $0.38 beats by $0.02. Revenue of $308M (+26.8%) vs. $301M. Shares +4.3% AH. (PR)
- QLogic (QLGC): FQ2 EPS of $0.34 beats by $0.02. Revenue of $147M (+11.4%) in-line. Shares -1.6% AH. (PR, earnings call transcript)
- Rambus (RMBS): Q3 EPS of -$0.18 beats by $0.03. Revenue of $31.7M (+13.6%) vs. $34.1M. Shares -1.6% AH. (PR, earnings call transcript)
- Riverbed Technology (RVBD): Q3 EPS of $0.34 beats by $0.06. Revenue of $147.8M (+44.9%) vs. $135.7M. Shares +10.8% AH. (PR, earnings call transcript)
- SanDisk (SNDK): Q3 EPS of $1.30 beats by $0.25. Revenue of $1.2B (+32%) in-line. Shares +5.1% AH. (PR, earnings call transcript)
- In Asia, Japan +0.5% to 9427. Hong Kong -0.6% to 23518. China -0.3% to 2975. India -0.5% to 20166.
- In Europe, at midday, London -0.5%. Paris -0.1%. Frankfurt -0.1%.
- Futures at 7:00: Dow flat. S&P flat. Nasdaq +0.1%. Crude +0.6% to $81.06. Gold -0.45% to $1319.70.
Friday's Economic Calendar
- 10:00 Mass Layoffs
10:00 Regional and State Employment
10:30 ECRI Leading Index
- Notable earnings before Friday's open: AAI, BPOP, DOV, ERIC, EXC, HON, IR, KEY, SLB, TROW, VZ
Seeking Alpha's Market Currents team contributed to this post.
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