Capital One to buy HSBC's U.S. card unit for $2.6B. As expected, Capital One (NYSE:COF) is to acquire HSBC's (HBC) U.S. credit-card business for a premium of about $2.6B. At the close of the deal, Capital One may raise up to $1.25B in equity to maintain a Tier 1 capital ratio of about 9.5%. The transaction includes HSBC’s store-branded cards but excludes HSBC Bank USA’s $1.1B credit card operations. The acquisition will complement Capital One's $9B purchase of ING's U.S. online-banking business, while for HSBC, the sale is a further step in its strategy of exiting non-core operations.
Fed gets gloomier, again. The Fed again gave a more pessimistic economic outlook after its latest FOMC meeting, as it had done at previous get togethers, and said it expects to maintain interest rates at a record low of zero-to-0.25% for another two years instead of for "an extended period." With the economy expanding "considerably slower" than expected, the FOMC discussed a "range of policy tools" it is "prepared to employ," fuelling speculation it may consider QE3. Policy makers were unusually divided in their statement, with the three dissenters the most since 1992.
Fed sends markets on a rollercoaster. Stocks ended higher following the Fed's statement but not before suffering some stomach-churning see-sawing. The lack of new initiatives and the Fed's gloomy economic outlook sent the Dow falling over 200 points within minutes, but speculation about QE3 helped it to finish +4%. The Nasdaq ended +5.3%, while the S&P 500 closed +4.8 for its best day in more than two years following a plunge of almost 17% over the past weeks. The market reversed direction six times after the Fed statement.
Report: S&P violated SEC rules over U.S. downgrade. Naked Capitalism reports "compelling evidence" that S&P leaked its pending downgrade of the U.S. to a select group of banks and hedge funds prior to its public announcement on Friday last week, which would be a clear violation of SEC rules. The report comes as S&P pushes back against a government proposal that would require credit raters to disclose "significant errors" in how they calculate their ratings. How much sympathy S&P will get following its "$2T error" is another matter.
Goldman's legal headaches mount. The SEC is investigating whether Goldman Sachs (NYSE:GS) broke bribery laws, the company has disclosed, with sources saying the regulator is looking at the banks's dealings with Libya's sovereign-wealth fund. This includes a $50M fee Goldman agreed to pay in order to help the fund recoup its losses. Goldman also said it faces several lawsuits over mortgage-backed securities, including from AIG (NYSE:AIG), Manulife Financial (NYSE:MFC) and Allstate (NYSE:ALL). Separately, the National Credit Union Administration has sued Goldman for $491M over the sale of $1.2B in mortgage bonds.
Moynihan to face investor grilling. Amid a gyrating stock and mounting mortgage liabilities, Bank of America (NYSE:BAC) CEO Brian Moynihan is set to face an investor conference call today with Fairholme Capital, which owns around 92M shares in the bank. The market will be looking for answers on how much BofA will end up having to shell out for the mortgage mess and why the bank is confident it doesn't need to issue stock. For some, there's a difference between the amount of equity a bank needs to run its business and the amount it needs to maintain market confidence.
Harry Reid makes super panel picks. Harry Reid has named Senators John Kerry, Patty Murray and Max Baucus as his picks for the Congressional "super committee" that will be charged with finding $1.5T of budget savings. The three are considered "neither ideological purists nor eager compromisers," according to The Wall Street Journal, while Baucus is the Senate's top tax legislator, prompting hopes of significant tax and entitlement reform. Murray will be co-chair of the committee. Another nine members need to be chosen by the GOP Senate leader and House leaders from both sides.
Nestle H1 profit drops 13%. Nestle's (OTCPK:NSRGY) H1 net profit came in mostly in line with expectations, but fell 13% to 4.7B Swiss francs ($6.52B) because of rising raw-material prices and the surging franc. Overall revenue declined 13% to 41B francs, although underlying sales rose 7.5%, helped by strong demand for its Maggi and Nescafe brands. The company expects full-year growth in this metric at the top end of a 5%-6% range despite "continued challenging conditions, including political and economic instability, volatile raw material prices and subdued consumer confidence" in developed markets.
Yuan hits fresh record as China trade surplus widens. The yuan today rose to a new record of 6.4170 to the dollar vs. 6.4404 on Friday amid speculation the government might allow the currency to appreciate further to offset inflation. While the rise wasn't dramatic, it was larger than usual for the yuan. The fresh high came as data showed that China's trade surplus widened to $31.5B in July from $22.3B in June as exports climbed 20.4% year on year. Economist Brian Jackson said the strong exports "suggests that the yuan has room for further appreciation."
Disney net profit climbs 15%. Disney's FQ3 net profit rose 15% to $0.77 a share as the early booking of revenue at ESPN and growth at its theme parks and consumer products operations overshadowed a disappointing performance at its movie studio and interactive unit. Adjusted EPS of $0.78 beat forecasts but would have missed without the extra ESPN income. Overall revenue grew 7% to $10.7B. Shares fell 1.2% post market.
Wells Fargo to buy $1.4B Bank of Ireland portfolio. Wells Fargo (NYSE:WFC) has reportedly won an auction for Bank of Ireland's (NYSE:IRE) $1.4B U.S. commercial-real-estate loan portfolio, with Wells paying almost face value. BOI said today its H1 underlying loss narrowed to €723M from €1.32B a year earlier. Separately, Anglo Irish Bank's sale of its $9.5B U.S. portfolio attracted first-round bids from over 25 major real-estate investors and banks, including Lone Star Funds, Blackstone (NYSE:BX) and TPG Capital.
Quicksilver subpoenaed over shale gas output. The SEC has subpoenaed Quicksilver Resources (NYSE:KWK) for documents related to its shale gas output forecasts following reports "questioning the projected decline curves and economics of shale-gas wells," the company said. Quicksilver added that the regulator has also sent subpoenas to many other shale gas producers, although Exxon Mobil (NYSE:XOM) and Anadarko Petroleum (NYSE:APC) have said they have not received subpoenas, while Chesapeake Energy (NYSE:CHK) declined to comment.
BOE sees inflation surging to 5%. The Bank of England believes inflation could reach as high as 5% in the short-term vs. 4.2% in June, before dipping to below 2% in late 2012. In its August inflation report, the BOE also said the pace of growth has slowed and "vulnerabilities, especially within the euro area" have increased. However, the bank gave little indication it is poised to further loosen policy through more quantitative easing.
IEA trims outlook for oil demand. The International Energy Agency has trimmed its 2011 global oil demand forecast by 60,000 barrels per day, due to increased oil prices and slowing economic growth, but raised its 2012 estimate by 70,000 bpd on higher expectations for oil-based power generation in Japan. Global oil demand is now expected to average 89.5M bpd in 2011 and 91.1M bpd in 2012.
In Asia, Japan +1.1% to 9039. Hong Kong +2.3% to 19784. China +0.9% to 2549. India +1.6% to 17131.
In Europe, at midday, London +0.9%. Paris +0.1%. Frankfurt +1.7%.
Futures at 7:40: Dow -0.85%. S&P -0.7%. Nasdaq -1%. Crude +4% to $82.47. Gold +1.1% to $1762.80.
Wednesday's economic calendar:
7:00 MBA Mortgage Applications
9:00 Ceridian-UCLA Pulse of Commerce Index
10:00 Wholesale Trade
10:00 Job Openings and Labor Turnover Survey
10:30 EIA Petroleum Inventories
1:00 PM Results of $24B, 10-Year Note Auction
2:00 PM Treasury Budget
Earnings Results: Companies that beat EPS expectations last night and today include Ultra Petroleum, Walt Disney (-1.2%), MBIA (+5.2%), Rovi, Nuance Communications (+4.5%), Cree (+9.4%). Those that missed forecasts include Motricity (-49%). Click here for details.