- Lehman shops 50% stake, comes up empty-handed. Sources say Lehman (LEH) held secret talks to sell a 50% stake to South Korean Korea Development Bank or Chinese Citic Securities at the beginning of August. They balked after concluding Lehman's price - 50% higher than its book value - was too high. Citic denies having had any formal talks with Lehman; KDB was mute.
- Shhh... The Fed is listening. The Fed quietly called Credit Suisse (NYSE:CS) last month to ask if there was truth to rumors it pulled a major credit line from Lehman (LEH), sources say. CS told Fed officials it didn't, and had no plans to. The Fed appears to be growing more active in its policing of groundless speculation and rumor-mongering, after cascading rumors helped nail Bear Stearns in March. "You don't want to upset the Fed," a senior banker says.
- Citigroup takes revenge on rivals. Citigroup says Lehman Brothers (LEH), Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) may incur further writedowns on mortgage-backed assets. Analyst Prashant Bhatia expects Lehman to take fresh asset-related writedowns of $2.9B, GS to writedown $1.8B, and MS to writedown $1.7B. However, he notes Lehman can absorb over $3B in after-tax losses without needing to raise capital, making a much-touted asset sale "lower probability." Bhatia also slashed EPS estimates on LEH and GS.
- GSE backstop misfire? "U.S. Treasury Secretary Henry Paulson's 'bazooka' may be intimidating the same investors he intended to reassure," Bloomberg says. Last month Congress granted Paulson the power to backstop government-sponsored Fannie Mae (FNM) and Freddie Mac (FRE) in the 'unlikely' scenario it proved necessary. It now appears the threat of the government stepping in has created additional uncertainty that has raised the GSEs' borrowing costs and pummeled their shares. "It is the lack of clarity of what exactly the government is going to do, and what Congress is going to do, that is sending shivers" through the markets, portfolio manager Axel Merk says.
- More big losses for high flyers. The head of the International Air Transport Association says airlines could lose more than $6.1B in 2008 due to high oil prices and geopolitical instability. "We are bracing for more situations of airlines collapsing" IATA CEO Giovanni Bisignani says. "We are a fragile industry in a crisis." He thinks further industry consolidation is likely, but hopes the crisis will spur a much-needed overhaul to airlines' broken business frameworks.
- ARS probe moves to brokers. Regulators will broaden their probe of brokers who sold clients illiquid auction-rate securities next week, sources say. Yesterday, NY AG Andrew Cuomo said he subpoenaed more firms, including Fidelity, Schwab (NYSE:SCHW) and Oppenheimer. The move marks the next step in the government's probe, which initially focus on the underwriting banks rather than the retail brokers. "If downstream brokerages deliberately stuck their heads in the sand but continued to actively market these products to unknowing investors, that will certainly be relevant to our calculus of our firms' culpability," Cuomo said yesterday.
- OECD growth is slowest in 7 years. Battered by the credit crunch and inflation, developed economies grew at the slowest pace in almost seven years during Q2. Combined GDP growth for the 30 OECD countries was a meager 0.2% on the previous quarter, vs. 0.5% in Q1, and +1.9% on the previous year. The OECD cuts its 2008 and 2009 growth forecasts for its member countries to 1.8% this year and 1.7% next vs. an earlier forecast of 2.3% and 2.4% respectively.
- Mizuho injects $120M into Evercore. Evercore Partners (NYSE:EVR) will get a $120M cash infusion from Japan's Mizuho (NYSE:MFG), the latest in a series of U.S. I-banks seeking capital from abroad. Evercore will use the funds to shore up its struggling private-equity arm.
- Temasek may bet on Merrill rebound. Temasek Holdings, the biggest shareholder in Merrill Lynch (MER), may buy a larger stake in a bet the firm will rebound. Temasek, Singapore's sovereign wealth fund, paid $5B in December for around 5% of Merrill's stock, and last month committed to an additional $900M. Merrill's shares are down 55% since Temasek's December stake. The new purchase will require regulatory approval since it would push Temasek's stake beyond the 10% limit for foreign investors.
- MBA Mortgage Applications fell 1.5% from last week. The 30-yr. fixed mortgage rate fell to 6.47% from 6.57%.
- EIA inventories. Crude +9.39M vs. consensus of +0.9M. Gasoline -6.2M vs. -3M. Distillate +0.5M vs. +0.3M. Crude futures, which had been trading higher, dropped sharply, but rallied to finish the day up 1.37% to $116.11. In overnight trading, futures are up 1.38% to $117.16. Bullish factors include Goldman reasserting $149 oil by year-end, Russia kicking up a fuss over the U.S.-Poland missile shield, and increased tensions in the Russia/Georgia conflict.
- Europe manufacturing, service sectors shrink. Europe's manufacturing and service sectors contracted for the third consecutive month, though slightly less than expected, as July's record high oil prices hit consumer and business demand. "There are simply too many headwinds," ING economist Martin Van Vliet says. "There remains a risk that the region's economy will contract in the third quarter." (ETF: IEV)
- U.K. retail sales bounce. A small bright spot in the U.K. among grim economic indicators: retail sales rose an unexpected 0.8% in July on strong sales at discounters, as shoppers shunned department stores. Still, economist Vicky Redwood warned the cheer may be short-lived. "Retail sales figures will get worse later in the year" as housing-market weakness and high inflation trickle through to consumer spending. Meanwhile, the BoE cut its growth outlook amid increasingly poor economic indicators. A U.S.-style stimulus package is unlikely due to already-high government borrowing, leaving the BoE with few options. (ETF: EWU)
Earnings: Thursday Before Open
- Burger King (BKC): FQ4 EPS of $0.37 beats by $0.03. Revenue of $646M (+9.5%) vs. $635M. [PR]
- Cato (CTR): Q2 EPS of $0.41 in-line. Revenue of $234M (+5.4%) in-line. [PR]
- Dick's Sporting Goods (NYSE:DKS): Q2 EPS of $0.39 beats by $0.03. Revenue of $1.09B (+7.2%) in-line. [PR]
- Frontline (NYSE:FRO): Q2 EPS of $2.18 misses by $0.15. Revenue of $547.5M (+57.8%) vs. $402M. [PR]
- Heinz (HNZ): FQ1 EPS of $0.72 beats by $0.06. Revenue of $2.58B (+14.9%) vs. $2.46B. [PR]
- Hormel Foods (NYSE:HRL): FQ3 EPS of $0.38 misses by $0.01. Revenue of $1.68B (+10.4%) vs. $1.62B. [PR]
- Stage Stores (NYSE:SSI): Q2 EPS of $0.25 beats by $0.02. Revenue of $373M (+3.8%) in-line. [PR]
- The Children's Place (NASDAQ:PLCE): Q2 EPS of -$0.03 beats by $0.40. Revenue of $338M (+16.4%) in-line. [PR]
Earnings: Wednesday After Close
- Bally Technologies (NYSE:BYI): FQ4 EPS of $0.54 beats by $0.01. Revenue of $247M (+22%) in-line. Shares +6.6%. [PR]
- Gymboree (NASDAQ:GYMB): Q2 EPS of $0.27 beats by $0.03. Revenue of $203M (+12.7%) in-line. Shares +0.8%. [PR]
- Hot Topic (NASDAQ:HOTT): Q2 EPS of -$0.01 beats by $0.01. Revenue of $167M (+3.2%) in-line. Shares -9.75%. [PR]
- JDS Uniphase (JDSU): FQ4 EPS of $0.07 misses by $0.03. Revenue of $390M vs. $396M. Sees FQ1 revenue of $378-394M vs. $399.5M. Shares -1.8%. [PR]
- Limited Brands (LTD): Q2 EPS of $0.27 beats by $0.07. Revenue of $2.28B in-line. Sees 2008 EPS of $1.45-1.60 vs. $1.48. Shares +6.3%. [PR]
- Longs Drug Stores (LDG): Q2 EPS of $0.78 beats by $0.02. Revenue of $1.33B (+4.6%) in-line. [PR]
- Phillips-Van Heusen (NYSE:PVH): Q2 EPS of $0.66 beats by $0.01. Revenue of $561M (+1.6%) vs. $580M. Sees Q3 EPS of $1.07-1.13 vs. $1.21. Shares -3%. [PR]
- Salesforce.com (NYSE:CRM): Q2 EPS of $0.08 in-line. Revenue of $263M (+48.9%) in-line. Shares -9.3%. [PR]
- Semtech (NASDAQ:SMTC): Q2 EPS of $0.25 beats by $0.02. Revenue of $78M (+16.4%) in-line. Shares -1.3%. [PR]
- Asia markets closed broadly lower Thursday. Nikkei -0.77% to 12,752. Hang Seng -2.58% to 20,392. Shanghai -3.63% to 2,432. BSE -2.96% to 14,244.
- Europe is lower at midday. London -0.43%. Paris -1%. Frankfurt -0.82%.
- U.S. futures drifted lower in overnight trading. Dow -0.34%. S&P -0.35%. Nasdaq -0.43%. Crude +1.33% to $117.10. Gold +1.73% to $830.40.
Thursday's Economic Calendar
8:30 Jobless Claims
10:00 Leading Indicators
10:00 Philadelphia Fed Survey
10:35 EIA Natural Gas Report
4:30 PM Money Supply
- Notable earnings before Thursday's open: BKC, BKS, DKS, FRO, GME, HNZ, PDCO, PLCE
- Notable earnings after Thursday's close: ARO, BCSI, DRYS, FL, FMD, GPS, HIBB, INTU, PSUN, WTSLA
Seeking Alpha editor Rachael Granby contributed to this post.
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