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  • Bank of America agrees $8.5B settlement over mortgage bonds. Bank of America (BAC) has confirmed it will pay $8.5B to large investors who lost money on mortgage-backed securities. The settlement is the largest in U.S. banking history and covers securities issued by Countrywide Financial, which BofA bought in 2008 for $2.5B. The bank will also record an additional $5.5B provision in Q2 2011 for representations and warranties exposure. Bank of America now expects to report a Q2 loss of $0.88-$0.93 a share, including a goodwill impairment charge of $2.6B. The investors include Pacific Investment Management, BlackRock (BLK) and the New York Fed. BofA rose 4.4% in premarket trading after news of the deal, with some estimates having put its liability at much higher than $8.5B. The deal could embolden investors to seek similar settlements with other major U.S. banks such as Wells Fargo (WFC) and JPMorgan (JPM).
  • BJ's Wholesale to be taken private. BJ's Wholesale Club (BJ) announced this morning that it had accepted an offer to be acquired by private-equity firms Leonard Green and CVC Capital for $51.25/share. The all-cash transaction values the company at approximately $2.8B, and marks a 38% premium to the stock's closing price on June 30, 2010, the day before Leonard Green announced its 9.5% ownership stake in the firm. Premarket: BJ +6.1% to $51.
  • Zynga to file for $1.5B-$2B IPO. The zest for Internet IPOs could once again catch fire today, with Zynga widely reported to be on the verge of filing to raise $1.5B-$2B at a value of $15B-$20B. Zynga is also close to finalizing a $1B debt facility with banks. The company provides some of the most popular games on Facebook, including FarmVille and Mafia Wars, and has over 215M monthly active users. Zynga generates revenue by charging users real money to buy virtual goods, and sales hit about $850M last year. The frenzy for Internet IPOs has caught the attention of the SEC on concerns that underwriters may be tempted to revive dubious practices used in the tech bubble.
  • Hopes rise for Greek austerity vote. The chances that Greece's parliament will today vote for an unpopular austerity program have increased after a deputy from the ruling Socialist party who said he wouldn't vote for the plan backtracked and said he would. If Prime Minister George Papandreou prevails today, he will then face the task tomorrow of pushing through more detailed bills on the various elements of the program, such as tax rises or the sale of state assets. The votes are taking place against the background of violent demonstrations and mass strikes. The Greeks need to pass the bills as a condition of receiving €12B ($17B) in EU-IMF aid and so avoid a default.
  • Medtronic Infuse studies failed to reveal risks. Thirteen studies of Medtronic's (MDT) Infuse product for use in spine surgery failed to disclose serious side effects, the North American Spine Society has found. In Spine Journal, NASS said that while the studies reported zero adverse reactions in nearly 800 surgeries, 10%-50% of the patients did actually suffer problems, including inflammation, cancer, infection and occasional life-threatening complications. NASS said Medtronic paid the authors of the reviewed studies millions of dollars, yet some of them failed to disclose the payments or denied they derived benefits from the product's use. Medtronic CEO Omar Ishrak said the NASS findings do not raise questions about the data Medtronic submitted to the FDA.
  • Banks hope for some reprieve on credit card caps. The Fed is due to make a final ruling today on the fees banks can charge retailers when a debit card is used. In December, the Fed proposed limiting the tariffs to $0.12 per transaction, way down from the 2009 average of $0.44. This would cost banks an estimated $14B annually. However, banks hope the Fed will set the ceiling at as much as $0.20 by including the cost of fraud protection and other expenses. The Fed is also due to decide how to enforce a requirement to make the card network market more competitive.
  • Spreadtrum on roller coaster after Muddy Waters report. Shares in Chinese chip designer Spreadtrum (SPRD) plunged as much as 34% before recovering to close just -3.5% after Muddy Waters, the scourge of Chinese-listed U.S. companies, questioned its accounting. Muddy Waters said it had "identified a number of issues in SPRD's filings," and believes "there is a high risk of material misstatement in the reported financials." Spreadtrum denied the allegations, saying "our performance is very solid." The company rebounded after Needham Group and Chardan Capital Markets said the Muddy Waters assertions were overblown. Other Chinese companies targeted by Muddy Waters include Sino-Forest (OTC:SNOFF) and Orient Paper (ONP).
  • Regulators to evaluate banks' risk models. Global banking regulators are preparing to assess how banks set risk weightings amid criticism that the firms' calculations are inconsistent, a source said. The news comes a few days after regulators decided that the world's largest banks will have to hold core Tier 1 capital of as much as 9.5% of their total risk-weighted assets. Banks use internal models to decide how much capital to assign based on their view of their assets defaulting, and regulators are concerned that banks may use these models to mitigate the new rules. "There is no question that the weightings can be manipulated," said Charles Goodhart, a former Bank of England policy maker.
  • Labor union to make $10B available for construction. The AFL-CIO labor union is set to announce today a plan to make $10B in union pension money available over the next five years to fund infrastructure projects. The move is part of an effort to persuade the federal government, banks and money managers to do more to issue bonds or create other mechanisms to fund such projects and so boost jobs in the construction industry, where unemployment is 16%. The union intends to work with Deutsche Bank (DB) and other institutions to come up with funding to retrofit large commercial buildings.
  • Sony shuffles management of games unit. Kazuo Hirai, the frontrunner to succeed Howard Stringer as Sony (SNE) CEO, will relinquish the daily management of the company's video game division just two months after a massive data breach at the unit's PlayStation Network. Sony has appointed Andrew House, the head of the division's European branch to take over. However, analysts did not see the move as a setback for Hirai, who was promoted in April to oversee all of the company's consumer businesses. Separately, Sony said it is cooperating with an antitrust probe by the Justice Department as part of a wider investigation into competition in the rechargeable battery business.
  • Google introduces another social network. After the failures of Wave and Buzz, Google (GOOG) is making another effort to challenge the dominance of Facebook in social networking with the introduction of Google+. The new product, now available for testing, is structured in a similar fashion to Facebook, but in contrast with the common pool of friends typical on Facebook, Google+ users can group their friends or contacts into specific circles. Meanwhile, Microsoft (MSFT) has launched its challenge to Google Docs with the introduction of Office 365, which makes applications such as Word and Excel available over the Internet. However, the move doesn't come without risks, as the new offering could hit the company's highly lucrative traditional Office business.
  • Lagarde becomes first female IMF chief. As expected, the IMF has chosen French Finance Minister Christine Lagarde to become the fund's new Managing Director. Lagarde, who will begin a five-year term next week, is the first woman and first non-economist to hold the role.

Earnings: Wednesday Before Open

  • Family Dollar Stores (FDO): FQ3 EPS of $0.91 misses by $0.04. Revenue of $2.15B (+7.8% Y/Y) misses by $0.02B. Sees FY'11 EPS of $3.08-3.16. (PR)
  • General Mills (GIS): FQ4 EPS of $0.52 in-line. Revenue of $3.63B (+3% Y/Y) misses by $0.04B. Sees FY'12 EPS of $2.60-2.62. (PR)

Earnings: Tuesday After Close

  • Shaw Group (SHAW): FQ3 EPS of $0.39 misses by $0.28. Revenue of $1.5B (-17% Y/Y) misses by $0.2B. Shares -12.9% AH. (PR)

Today's Markets

  • In Asia, Japan +1.5% to 9797. Hong Kong flat at 22061. China -1.1% to 2728. India +1.1% to 18694.
  • In Europe, at midday, London +1.4%. Paris +1.9%. Frankfurt +1.8%.
  • Futures at 7:00: Dow +0.5%. S&P +0.6%. Nasdaq +0.6%. Crude +0.9% to $93.69. Gold +0.6% to $1509.20.

Wednesday's Economic Calendar

  • Notable earnings before Wednesday's open: MON, FDO, GIS, KBH

The SA Currents team contributed to this post.


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Source: Wall Street Breakfast: Must-Know News