- Government and AIG lower sale expectations. The Treasury and AIG (AIG) hope to sell about $9B worth of shares in the insurer's upcoming offering, near the bottom end of a range envisioned at $7B-$25B, sources said. The low expectations follow a slump in AIG's share price to $29.62 yesterday from $50 in January. The government's break-even price is $28.70 a share, and if shares fall too low, the plans could be changed. The issue is due to be priced and sold around May 24, with more sales over time. The offer is likely to consist of up to 300M shares, of which the government will sell two thirds and the company the rest. AIG is due to hold its annual meeting today and begin its "roadshow" soon afterwards.
- HSBC to cut costs by up to $3.5B. HSBC (HBC) intends to reduce expenses by $2.5B-$3.5B by 2013, to direct investment in faster-growing markets and businesses, and to close or sell non-strategic or underperforming businesses, new CEO Stuart Gulliver said today. The plans are part of a strategic review, and the bank is also now assessing its U.S. credit card business - which a Barclays Capital analyst has said could free $25B if sold - and part of its branch network in the country. HSBC reiterated that it seeks a return on common equity of 12%-15%.
- Earthquake hits Toyota Q4. Toyota's (TM) profit collapsed by over 75% to ¥25.4B ($314M) in FQ4 2011 as sales dropped 12% to ¥4.6T, with earnings hurt by the massive disruption following the earthquake in Japan in March. However, a doubling in annual profit to ¥408.1B suggests that Toyota was on the way to recovery from its recall crisis when the earthquake struck. The automaker said efforts to ramp up production, including using other plants and finding replacement parts, were going better than initially expected, and reiterated that output would be back at pre-disaster levels by November or December at the latest.
- 'Mars' movie flop hurts Disney's earnings. Walt Disney's (DIS) FQ2 earnings came in below expectations as net income slid to $942M from $953M a year earlier. Although revenue grew 6% to $9.08B, earnings were hit by the poor box-office performance of the film 'Mars Needs Moms,' charges related to Disney's acquisition of social game maker Playdom, and the temporary closure of theme parks in Japan following the earthquake and tsunami. ESPN and ABC grew due to higher advertising revenue, and the TV networks continue to account for the vast majority of Disney's operating earnings. Shares slipped 2.4% in after-hours trading. (Earnings call transcript)
- Google earmarks $500M for government probe. According to regulatory filings, Google (GOOG) has set aside $500M related to a "potential resolution of an investigation" by the Justice Department into the company's online advertising business. The company expects no material adverse effect, whatever the resolution. Separately, in a congressional hearing yesterday, Google defended its collection of personal location information from mobile phones, saying users are told about the data collection and offered ways to disable it. Apple (AAPL) was also a target of the hearing.
- Banks open to $5B robo-signing settlement. The country's biggest banks are reportedly willing to pay as much as $5B to settle allegations of improper mortgage-servicing practices, though that's still considerably less than the $20B-plus in penalties being sought by some state and federal officials. Negotiations continued yesterday between bank representatives and officials, and included such topics as recent revisions to proposed changes in mortgage servicing, and revisions to how penalties would be allocated for past offenses.
- Buyers circle RBC Bank, warts and all. Potential buyers are lining up for RBC Bank, Royal Bank of Canada's (RY) U.S. operations, even though the bank has several unattractive features, including lots of bad loans and a tendency to lose money. Sources say that despite its defects, the unit is expected to fetch around $3B, because interest in buying U.S. banks is high but there aren't many banks for the taking at the moment. RBC declined to comment on the auction, which represents a significant retreat from RBC's decade-long goal of building a significant U.S. presence. BB&T (BBT) is seen as the most logical buyer.
- Mississippi deluge could cost billions. The historic flooding along the Mississippi River is expected to cause billions of dollars in damages, with one economist putting the figure at up to $4B. Another said jobless claims may rise if flooding prevents people from working, while disrupted shipping lanes could hurt manufacturing. The farming, casino and hotel sectors are also among those affected. The waters crested in Memphis yesterday just inches below its all-time record, and forecasters said that the worst of the flooding is headed towards the Gulf Coast, where many of the U.S.'s biggest refineries are located. The flooding has sent gasoline futures soaring and is hastening the return of $4-a-gallon pump prices.
- China inflation eases to 5.3% as tightening starts to take effect. China's CPI fell to 5.3% in April from 5.4% in March, which, along with other data, suggests that the central bank's increased interest rates and additional tightening measures are beginning to cool the economy. Growth in industrial output slipped to 13.4% year-on-year in April from 14.8% in March, outstanding bank loans and the expansion of the M2 money supply hit 29-month lows, and the growth in retail sales weakened as well. The figures indicate that inflation, which usually lags money supply trends, may continue to moderate.
- China to ease trade rules, allow U.S. fund sales. China has pledged to remove barriers for U.S. companies in its huge market for government contracts, and to provide foreign firms with greater access to its financial sector by letting them sell mutual funds and provide custodial services. The promises come after two days of high-level talks between the U.S. and China in Washington, although some commentators were skeptical that the undertakings would bring concrete benefits. "They let you in the market under conditions where you cannot be a real competitor," said one at the conservative Heritage Foundation. "That's what they've done every single time."
Earnings: Wednesday Before Open
- ArcelorMittal (MT): Q1 EPS of $0.69 beats by $0.21. Revenue of $22.2B (+27% Y/Y) in-line. (PR)
- Teva Pharma (TEVA): Q1 EPS of $1.04 beats by $0.01. Revenue of $4.1B (+12% Y/Y) misses by $0.2B. (PR)
Earnings: Tuesday After Close
- Arena Pharmaceuticals (ARNA): Q1 EPS of -$0.35 misses by $0.14. Shares +0.7% AH. (PR)
- Disney (DIS): FQ2 EPS of $0.49 misses by $0.07. Revenue of $9.1B (+6% Y/Y) in-line. Shares -2.6% AH. (PR, earnings call transcript)
- General Maritime (GMR): Q1 EPS of -$0.31 in-line. Revenue of $59M (-11% Y/Y) beats by $1M. (PR)
- MBIA (MBI): Q1 EPS of -$5.68 vs consensus of $0.21. Shares +3.2% AH. (PR)
- McDermott International (MDR): Q1 EPS of $0.29 beats by $0.01. Revenue of $899M (+78% Y/Y) beats by $160M. Shares +0.5% AH. (PR)
- Molycorp (MCP): Q1 EPS of $0.01 misses by $0.09. Revenue of $26.3M (+768% Y/Y) misses by $15.4M. Shares +0.3% AH. (PR)
- Nuance Communications (NUAN): FQ2 EPS of $0.31 beats by $0.01. Revenue of $332M (+13% Y/Y) beats by $5M. Shares -4% AH. (PR, earnings call transcript)
- Rovi Corporation (ROVI): Q1 EPS of $0.61 beats by $0.10. Revenue of $195M (+12% Y/Y) beats by $7M. Shares +8.5% AH. (PR)
- SRA International (SRX): Q1 EPS of $0.43 beats by $0.06. Revenue of $437M (+10% Y/Y) misses by $21M. (PR)
- STEC (STEC): Q1 EPS of $0.32 in-line. Revenue of $95M (+145% Y/Y) beats by $3M. (PR)
- Zagg (ZAGG): Q1 EPS of $0.13 beats by $0.03. Revenue of $27M (+207% Y/Y) beats by $6.4M. Shares +2.6% AH. (PR)
- In Asia, Japan +0.5% to 9864. Hong Kong -0.2% to 23292. China -0.2% to 2884. India +0.4% to 18585.
- In Europe, at midday, London +0.1%. Paris +0.4%. Frankfurt +0.7%.
- Futures at 7:00: Dow +0.2%. S&P +0.15%. Nasdaq +0.1%. Crude -0.3% to $103.58. Gold +0.4% to $1523.30.
Wednesday's Economic Calendar
- 7:00 MBA Mortgage Applications
8:30 Trade Balance
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 10-Year Note Auction
2:00 PM Treasury Budget
- Notable earnings before Wednesday's open: M, MT, TEVA
- Notable earnings after Wednesday's close: CSCO, IAG, PSEC, SINA, SYMC
The SA Currents team contributed to this post.
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