- Citigroup, Merill Lynch buy back $17B in ARSs; UBS may be next. As part of a settlement with state and federal regulators, Citigroup (C) agreed Thursday to buy back $7.3B of illiquid auction-rate securities that it marketed to clients as being as safe as cash. Hours later, Merill Lynch (MER) announced a buy-back plan for up to $10B in similar securities. Other banks are likely to follow suit as more than 20 banks and brokerage firms are under investigation by the SEC over auction-rate securities, including Bank of America (BAC), Goldman Sachs (GS), Lehman Brothers (LEH), JPMorgan Chase (JPM), Morgan Stanley (MS), Wachovia (WB), and UBS (UBS). UBS may be close to reaching a settlement that could cover as much as $25B in ARS. Update: Boston Globe reports UBS has agreed to repurchase $19.4B in ARS, and will pay $150M in fines.
- DreamWorks nears deal to leave Viacom. Amid rising tensions between Steven Spielberg's DreamWorks (DWA) and Viacom's (VIA) Paramount, DreamWorks is nearing a deal with an outside investor that would allow it to split from Paramount as early as November. The $550M investment deal with Indian billionaire Anil Ambani could be reached as soon as next week. The studio would then borrow $400M, and will not need any more outside equity. A new distributor, possibly General Electric's (GE) Universal Pictures, would release DreamWorks films.
- MBIA posts gain on CDS hedges. MBIA returns to profitability, pulling in $3.32B in unrealized hedging gains. MBIA also restarted a $340M share-repurchase program it suspended a year ago. CEO Jay Brown said that while "the rest of this year, and perhaps next, will be bumpy" until credit markets stabilize, "MBIA has the resources to meet whatever challenges may lie ahead." Shares are up 8.4% premarket.
- Downgrade threat socks Amex. Shares of American Express (AXP) fell 4.2% after Moody's placed the company's long-term debt rating under review for a possible downgrade. Losses from soured credit-card loans could see its A1 rating drop one level, Moody's said, affecting $89B in securities and deposits. It noted AXP is particularly prone to loan losses in U.S. areas hardest hit by home price declines. Shares are off 30% YTD.
- Airplane problem can't be taken sitting down. Having battled with complex assembly issues that have delayed their upcoming jets, Airbus and Boeing (BA) are now being saddled by a shortage of mundane items like as seats, toilets and galleys, WSJ says. The two say that companies manufacturing such equipment are frequently small, and unable to quickly ramp up production as demand picks up as it did over the past two years.
- July retail sales disappoint. Discounters were the bright spot in July same-store sales that generally fell short of expectations. Sales were hurt by weak consumer confidence as stimulus-check spending winds down. Teen retailers' sales were notably weak. "The July results and the August outlook indicate that most kids will be returning to school in last year's duds," Lazard's Todd Slater says. (Table: how retailers fared)
- DB's gamble. Deutsche Bank (DB) foreclosed on Ian Bruce Eichner's $3.5B Vegas casino. MGM (MGM) or Hilton may help run it. "No doubt the banks will take on more homes, casinos and even ski resorts before this is over," KBW's Matthew Clark says.
- Ethanol mandate stays. The EPA refused the State of Texas's request to rescind the federal mandate for ethanol use in gasoline, driving crude down and corn prices up. Ethanol producer Pacific Ethanol (PEIX) gained 12.2%, while Pilgrim's Pride (PPC), a major force behind the move to defeat the mandate, fell 8.4%.
- The euro fell through critical support at $1.52, and is now down 1.3% to $1.5096. Nybot's dollar index +1.19% in overnight trade. Evidence is mounting that non-U.S. economies are in equally bad shape - giving the greenback a boost. Also, the yen carry trade continues to unwind.
- Jobless Claims climbed to 455,000 vs. 425,000 consensus. Last week: 448K. 4-week moving average jumps 26,750 to 419,500. One factor that may be distorting jobless claims, S&P economist David Wyss says, is the extended benefits program that caused many to drop out and then reapply. Of course, they would have previously skewed jobless claims the other way.
- Pending Home Sales rose 5.3% from May to June, the biggest jump since last October, but remain 12.3% lower than a year ago. "With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009," NAR's Lawrence Yun says. The downside of stronger-than-expected pending home sales: "I think a lot of the increase has to do with foreclosure sales, which are selling at quicker pace and have a faster turnaround time," Lehman economist Michelle Meyer says.
- EIA Natural Gas storage was up 56 billion cubic feet (Bcf) to 2,517 Bcf, less than the +62 Bcf consensus. Stocks are down 353 Bcf from a year ago.
- China's Shanghai Composite dove 4.5% to 2,606 on Friday. Investors had expected Beijing would do something to prop up markets - down 50% YTD - ahead of the Games. Disappointed, they seem to have taken their money and go home.
Earnings: Friday Before Open
- AES (AES): Q2 EPS of $0.27 misses by $0.03. Revenue of $4.15B (+24.1%) vs. $3.38B. [PR]
- Beazer (BZH): FQ3 EPS of -$2.85 misses by $0.51. Revenue of $456M (-39.5%) vs. $430M. [PR]
- Fannie Mae (FNM): Q2 EPS of -$2.54 vs. consensus of -$0.69. Revenue of $3.96B (+45.8%) vs. $3.4B. Shares -18%. [PR]
- MBIA (MBI): Q2 EPS of $0.96 vs. consensus of -$1.37. Revenue of $3.29B vs. $389M. [PR]
Earnings: Thursday After Close
- CROCS (CROX): Q2 EPS of $0.06 beats by $0.01. Revenue of $223M (-0.7%) vs. $219M. [PR]
- Clearwire (CLWR): Q2 EPS of -$1.21 misses by $0.20. Revenue of $58.6M (+65.1%) vs. $54.2M. [PR]
- Heelys (HLYS): Q2 EPS of -$0.01 misses by $0.03. Revenue of $18.2M (-75.5%) vs. $24.5M. [PR]
- Jones Soda (JSDA): Q2 EPS of -$0.10 misses by $0.03. Revenue of $14M (+5.6%) vs. $14.4M. [PR]
- Live Nation (LYV): Q2 EPS of $0.02 beats by $0.22. Revenue of $1.16B vs. $1.05B. [PR]
- Spectrum Brands (SPC): FQ3 EPS of $0.06 vs. consensus of $0.25. Revenue of $730M (+10.5%) vs. $694M. [PR]
- Asia markets were mixed Friday, while Shanghai dropped sharply (see above). Nikkei +0.33% to 13,168. Hang Seng -0.99% to 21,885. Shanghai -4.47% to 2,606. BSE +0.33% to 15,168.
- Europe: London is flat at midday. Paris +0.6%. Frankfurt +0.2%.
- U.S. equity futures are higher at 7:00. Dow +0.29%. S&P +0.32%. Nasdaq +0.33%.
- Crude -2.03% to $117.58. Gold -1.09% to $868.20.
- Friday's economic calendar:
8:30 Productivity and Costs
10:00 Wholesale Inventories
- Notable earnings before Friday's open: AYR, CCOI, CDE, EIX, FNM, IAG, LPNT, MBI, UFS, WIN, WR
Seeking Alpha editor Rachael Granby contributed to this post.
Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.