- Major earthquake hits Japan. An 8.9 magnitude earthquake struck off the coast of Japan at 2:46pm local time today, leaving 4M buildings without power in Tokyo and triggering a tsunami as high as 10 meters. At least 30 people have been killed and many are missing, and tsunami warnings have been issued for several countries, including Russia, and parts of the U.S. West Coast and Hawaii, which has begun to evacuate coastal areas. It remains to be seen to what extent the earthquake and its aftermath might disrupt global economic activity. In the meantime, the Nikkei closed -1.7%, the yen touched a two-year low against the dollar before recovering, global markets and U.S. futures are down, and shares of reinsurers like Swiss Re (SWCEY.PK), Munich Re and Hannover Re are taking an immediate hit.
- AIG offers to repurchase mortgage-backed bonds. AIG (AIG) has offered the NY Fed $15.7B to buy Maiden Lane II, a company created in the 2008 bailout of the insurer to rescue some of its mortgage-backed bonds and stem its cash bleed. If the Fed accepts, it would earn a $1.5B profit and government assistance to AIG would fall to $72B. The company hopes to use cash from its insurance businesses to purchase the bonds, which are yielding relatively attractive returns in today's low-interest-rate environment. Over the past few months, AIG has used the proceeds of asset sales to repay nearly $40B of its bailout. In after-hours trading, AIG +2.2%.
- FDA to monitor J&J plants. The FDA will subject Johnson & Johnson (JNJ) to five years of tight scrutiny at three key factories where manufacturing problems led to massive drug recalls. Under a decree of consent, one plant that is closed for refitting will remain so and the other two will stay open, and J&J will have to hire an outside expert to investigate the problems. And while the FDA didn't fine the company, it will face severe penalties if it violates the decree. The recalls caused J&J's sales to plunge about $900M last year.
- Banks fight robo-signing settlement. Banks are pushing back against a proposed settlement covering mortgage-servicing flaws at some of the nation's largest lenders. Warning of lasting damage to the economy, bank executives are trying to get regulators to soften the terms of penalties. They're also taking issue with several key elements of the settlement, including a pledge to reduce more loan balances; executives say widespread loan reductions could slow down the economic recovery, and could increase the deficit if taxpayers have to pay for writedowns of loans held by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).
- Amazon takes action on sales tax law. Amazon (AMZN) cut ties to its Illinois-based affiliates, as it had threatened to do, in response to a new law that will force online retailers to collect sales tax in the state; consumers in Illinois will be able to continue buying directly from the company. Amazon has strongly opposed all efforts that would force it to collect state sales tax, and called the new law 'unconstitutional and counterproductive.' Amazon's actions in Illinois could set a precedent for other online retailers, and may portend similar moves by Amazon in Hawaii, North Carolina and Rhode Island, which have enacted similar laws, and in California, which is considering legislation. Amazon is also in a court battle with New York over their online sales tax law.
- Blockbuster staves off liquidation. Blockbuster (BLOAQ.PK) is on track to avoid liquidation after movie studios that were owed money agreed to a sale of the video rental chain. A judge has now approved the auction of Blockbuster, which has received an initial bid of $290M from bondholders led by hedge fund Monarch Alternative Capital. The Monarch-led proposal could be topped by competing bidders, with at least seven other suitors interested in Blockbuster. The company filed for Chapter 11 protection in September 2010.
- Pension fund snubs BNY Mellon on forex trades. A large pension fund in California has stopped using Bank of New York Mellon (BK) to execute some of its currency trades, in protest of the way BNY Mellon profits from the transactions. Los Angeles County Employees Retirement Association began the fight last year when it asked BNY Mellon for more information about the way trades were conducted, saying it expected the bank to be a 'fiduciary' and try to generate profit for the pension fund. BNY Mellon denied the claim, and said its role is that of a 'principal' that seeks primarily to generate profit for itself. Several banks, including BNY Mellon, have come under increased scrutiny lately for their handling of currency trades and associated fees, and regulators have begun to investigate the issue.
- Goldman has its own ideas for Lehman assets. Goldman Sachs (GS) said it's part of a creditor group that might present an alternative plan for the fair division of Lehman Brothers' (LEHMQ.PK) assets. Lehman submitted a revised proposal in January, following a proposal submitted by hedge fund Paulson & Co., Calpers and other bondholders in December. Goldman declined to provide details of how its proposal might be different from ones already discussed, but the growing chorus of voices about what to do with the billions of dollars of assets is bad news for Lehman, which needs to get a plan approved in order to exit bankruptcy.
- Households lower debt. Now what? U.S. households cut their debt in Q4 for the eleventh consecutive quarter, though the pace at which they did so was the slowest in two years, according to the Federal Reserve's latest Flow of Funds report. Household debt fell at an annual rate of 0.6% to $13.36T in Q4, bringing the debt-to-income ratio for households to 120.9% from 121.7%. Consumer credit rose 2%, the first increase in more than two years, while mortgage debt declined by 1.3%. Notably, with the stock market on an upward trend, household net worth rose $2.1T to $56.8T. With net worth rising and debt falling, the question now becomes whether consumers will start spending again, and whether rising commodity prices will wipe out these gains.
Earnings: Thursday After Close
- Aeropostale (ARO): Q4 EPS of $0.98 beats by $0.01. Revenue of $839M (+5% Y/Y) beats by $5M. Shares -4.6% AH. (PR)
- Denison Mines (DNN): Q4 EPS of -$0.04 misses by $0.01. (PR)
- National Semiconductor (NSM): FQ3 EPS of $0.24 in-line. Revenue of $344M (-5% Y/Y) misses by $8M. Shares -0.2% AH. (PR, earnings call transcript)
- In Asia, Japan -1.7% to 10254. Hong Kong -1.6% to 23250. China -0.7% to 2936. India -0.8% to 18174.
- In Europe, at midday, London -0.5%. Paris -1.0%. Frankfurt -0.9%.
- Futures at 7:00: Dow -0.4%. S&P -0.4%. Nasdaq -0.4%. Crude -3.1% to $99.54. Gold -0.4% to $1406.80.
Friday's Economic Calendar
- 8:30 Fed's Dudley: Economic Outlook
8:30 Retail Sales
9:55 Reuters/UofM Consumer Sentiment
10:00 Business Inventories
10:30 ECRI Leading Index
11:15 Pres. Obama discusses rising gas prices
- Notable earnings before Friday's open: ANN
The SA Currents team contributed to this post.
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