SEC accused of destroying thousands of investigation documents. The failure of authorities to put Wall Street executives in jail for actions related to the financial crisis has taken on an explosive turn with the accusation that the SEC destroyed documents related to at least 9,000 preliminary investigations into banks and hedge funds, erasing valuable information that would have assisted other inquiries. The allegations were made in a letter to Senator Charles Grassley - which was released yesterday - from the attorney of SEC whistleblower Darcy Flynn. The eliminated data included information about Goldman Sachs (GS), Deutsche Bank (DB), Lehman Brothers (OTC:LEHMQ), Citigroup (C), Bernard Madoff, and SAC Capital Advisors.
DOJ probes S&P for inproper ratings. The Justice Department is reportedly investigating whether S&P (MHP) improperly rated dozens of mortgage securities in the lead-up to the financial crisis. In the probe, which began before S&P downgraded the U.S., the DOJ has been asking about instances in which S&P analysts wanted to give lower ratings on mortgage bonds but may have been overruled by business managers. The SEC is also investigating S&P for any wrongdoing, and possibly Moody's (MCO) and Fitch (GM:FMLCF) as well.
Sears' losses significantly worse than expected. Sears' (SHLD) Q2 losses widened by far more than forecast as weak sales and large discounts harmed margins. Adjusted EPS came in at a loss of $1.13 vs. $0.19 a year earlier and Street predictions of $0.64. Revenue slipped 1% to $10.33B but was above estimates. The company is attempting to effect a turnaround by cutting costs, closing underperforming stores, and launching exclusive lines such as the Kardashian Kollection.
Core inflation estimated at +0.2%. Inflation figures are due out this morning, with economists predicting that core CPI rose 0.2%, the smallest gain in three months. Headline CPI is forecast at +0.2% vs. an unexpected fall of 0.2% in June. Figures that meet estimates or come in lower would strengthen the Fed's projections that inflation will stabilize, and give the central bank more room for further monetary easing. However, earlier this week, reports showed that July PPI rose more than expected while the cost of imported goods also increased.
Exxon and government battle over massive oil discovery. Exxon (XOM) has sued the government to retain leases to one of its biggest oil discoveries ever, the Julia field in the Gulf of Mexico, which contains an estimated 1B barrels of recoverable oil. The Interior Department says Exxon's leases have expired and the company didn't fulfill the requirements for an extension. If Exxon loses the case, the leases could revert to the government, although giving the permits to another company could cause further delays in the collection of tax royalties.
U.S. regulators step up oversight of EU banks. The NY Fed is reportedly demanding more information from big European banks about whether their U.S. units have the ability to fund themselves. Regulators are worried that the eurozone debt crisis could harm the banks' ability to finance loans and meet other obligations in the U.S. Morgan Stanley estimates that leading European banks still need to raise roughly €80B ($115B) by the end of the year to meet their total funding requirements.
NetApp plunges on weak revenue. Shares in NetApp (NTAP) plummeted 12.5% in post-market trading after the data-storage systems company said it saw a "fairly dramatic slowdown" in the final three weeks of July and gave FQ2 revenue guidance below analyst expectations. FQ1 sales grew 26% to $1.46B but were also below Street predictions, while EPS dropped as expected to $0.34 from $0.40. Although NetApp has enjoyed generally strong corporate demand, the firm has been hit by a slump in the federal and financial-services markets. The company also announced the retirement of CFO Steve Gomo.
China Mobile meets Jobs over introducing iPhone. China Mobile (CHL) has met Steve Jobs several times about introducing an iPhone based on the carrier's own network standard, which Apple (AAPL) doesn't support. China Mobile already has 7.44M iPhone customers on its network even though users can't surf the Web at 3G speeds because of the reduced compatibility. The disclosure came after China Mobile announced H1 earnings that beat forecasts, with net profit rising 6.3% to 61.28B yuan (US$9.59B) and operating revenue climbing 8.8% to 250.08B yuan. The carrier also declared an H1 dividend of HK$1.58 ($0.20).
Coke to plough $4B into China. Coca-Cola (KO) intends to invest $4B in China over the next three years, adding to the $3B it has spent since 2009, as it looks to build on "double-digit" growth in its third-largest market. However, there won't be acquisitions, "because we're seeing so much potential for organic growth," said CEO Muhtar Kent. Instead, the company will put the money into new factories, expanding existing plants, marketing, and product development. Coca-Cola's new spending is greater than that of PepsiCo (PEP), which last year embarked on a three-year $2.5B program.
Foster's again snubs SABMiller. Foster's (OTC:FBRWY) has rejected for a second time SABMiller's (OTCPK:SBMRY) A$9.51B ($9.97B) takeover offer as being too low after the U.K. brewer yesterday took its bid directly to shareholders. The A$4.90 a share proposal is below Foster's close today of A$5, and analysts reckon SABMiller might have to increase its bid to up to A$5.20 to win over investors. Foster's rejection came on the same day Japan's Asahi Group said it will buy New Zealand's Independent Liquor for ¥97.6B ($1.27B).
Ex-NOTW Hollywood reporter arrested. News Corp.'s (NWS) problems in the U.S. may have become exacerbated following the arrest of former News of the World showbusiness reporter James Desborough over phone-hacking. Desborough worked in Los Angeles from April 2009 covering the U.S. celebrity scene.
Court OKs Lehman CLO deal. In an indication of the recovery of the market for esoteric financial instruments, a bankruptcy court yesterday authorized an agreement to securitize loans from a $5.3B Lehman Brothers (OTC:LEHMQ) portfolio. WCAS Fraser Sullivan will take over the management of the assets and will earn money for creditors by selling collateralized loan obligations, with the management firm expecting to securitize at least $1B of loans within the next year. In each sale, the Lehman estate will retain the equity tranche, the riskiest element of a CLO.
In Asia, Japan -1.3% to 8944. Hong Kong -1.3% to 20016. China -1.6% to 2559. India -2.2% to 16470.
In Europe, at midday, London -2.1%. Paris -2.5%. Frankfurt -3.6%.
Futures at 7:00: Dow -1.8%. S&P -2.1%. Nasdaq -2.2%. Crude -1.5% to $86.23. Gold +0.7% to $1806.30.
Thursday's economic calendar:
8:30 Consumer Price Index
8:30 Initial Jobless Claims
8:30 Real Earnings
8:30 Fed's Dudley: Economic Outlook
10:00 Existing Home Sales
10:00 Leading Indicators
10:00 Philly Fed Business Outlook
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
Earnings Results: Companies that beat EPS expectations last night and today include PetSmart (shares -0.9%), Synopsys (+3.8%), Limited Brands (+3.5%), CACI International (+6.7%). Those in line include NetApp (-12.5%), JDS Uniphase (-2.1%). Those that missed forecasts include Sears. Full real-time earnings coverage here.