Wall Street Breakfast: Must-Know News

by: Wall Street Breakfast
Wall Street Breakfast
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

Obtaining a mortgage may be about to get a lot easier as FHFA chief Mel Watt - in his first public speech since taking over as regulator of Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) in January - says the mortgage giants should focus on making credit more readily available to homeowners. The call is a U-turn from the policy of previous FHFA boss Ed DeMarco. "I don't think it's FHFA's role to contract the footprint of Fannie and Freddie," said Watt. Winding down the companies without clear proof that private investors are willing to step back in "would be irresponsible."

The U.K.'s unemployment rate fell to a 5-year low of 6.8% in Q1, said the Office for National Statistics today, giving more fuel to those calling on the Bank of England to hike rates. "Record low interest rates are increasingly unnecessary,” said Rob Wood, an economist at Berenberg Bank and a former BOE official. The BOE, however - in its May inflation report released after the unemployment print - acknowledged the rebounding economy, but said more slack needs to be absorbed and reiterated its low-rate pledge.

China charged Mark Reilly - the former Chinese head of GlaxoSmithKline (NYSE:GSK) - and two Chinese colleagues with corruption following a probe finding the company made billions in yuan bribing doctors and hospitals. The charges - which carry a maximum sentence of life in prison - were harsher than many industry insiders and China-based foreign executives had expected. Most troubling to the business community is the bill against Reilly as GSK had previously said it believed the alleged bribery involved senior Chinese staff only. Reilly had exited China last year after the scandal broke, but voluntarily returned to cooperate with the investigation. "I don't think that anyone had been lulled back into complacency, but if anybody had this will wake them up," said Kenneth Jarrett, president of the American Chamber of Commerce Shanghai.

Investors betting on a potential deal between Reynolds American (NYSE:RAI) and Lorillard (NYSE:LO) might want to change their thinking after RAI chief Susan Cameron downplayed such speculation at a Goldman Sachs conference yesterday. Cameron also brushed off chatter British American Tobacco (NYSEMKT:BTI) might boost its 42% stake in RAI after a 10-year standstill agreement preventing a hostile takeover expires in July. "I don’t see BAT as a stealth predator. I see them as a partner."

Coca-Cola raised its stake in Keurig Green Mountain to 16% from 10%, making Coca-Cola (NYSE:KO) the largest Keurig (NASDAQ:GMCR) shareholder. The move also maxes out the position it can take pursuant to previous deal terms with Keurig. Canaccord said the move illustrates the value in single-serve, and with Coke as a 16% holder, "the strongest potential partner in cold beverages is fully engaged" with a significant material interest in the upcoming Keurig Cold launch.

The big rally in AerCap means billions for AIG which last year agreed to sell ILFC to AerCap (NYSE:AER) for 97.6M shares plus $3B in cash. Since the deal's announcement, AerCap has soared in price, raising the stock value of the sale to $4.6B from $2.4B. "This was an asset that no one thought they could sell,” said Bernstein's Josh Stirling. “They did sell it. They’re making $2 billion more.” BMO's Charles Sebaski reminded the size of AIG's stake will be such that the insurer can't just unload its shares at the market price. AIG also must wait until nine months after the deal closes before selling any of its AerCap. What to do with the cash? Buybacks mostly, says Sebaski, unless AIG rallies so much as to make dividends more attractive than repurchasing shares. AIG rose 1.1% yesterday to more than a 3-year high.

Sony predicted another year without profits, guiding to a net loss of $489M for the twelve months ending next March. It's less red ink than the previous year, but weaker than analyst hopes for the company to be profitable to the tune of about $500M. Among the culprits are restructuring charges stemming from the sale of its PC business and "other strategic initiatives," said Sony (NYSE:SNE). There are some bright spots to the outlook: The company expects to sell 50M smartphones this year, up from 39M the previous year. PS4 game console sales are forecast to reach 17M, up from 14.6M.

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Today's Markets:
In Asia, Japan -0.1% to 14406. Hong Kong +1.0% to 22583. China -0.1% to 2048. India flat at 23867.
In Europe, at midday, London flat. Paris flat. Frankfurt -0.1%.
Futures at 6:20: Dow flat. S&P flat. Nasdaq flat. Crude +0.3% to $101.97. Gold +0.5% to $1301.30.
Ten-year Treasury Yield -4 bps to 2.57%.

Today's economic calendar:
7:00 MBA Mortgage Applications
8:30 Producer Price Index
10:00 Atlanta Fed's Business Inflation Expectations
10:00 NAHB Housing Market Index
10:30 EIA Petroleum Inventories

Notable earnings before today’s open: COTY, DE, DSX, EGRX, ELOS, ENZY, EZCH, GLOG, IOC, KATE, M, OTIV, PF, PLUG, RTRX, SNE, SODA, VLP

Notable earnings after today’s close: A, ACXM, CSCO, CVT, EXP, GEVO, JACK, NTES, PRSS, SEAS, TCX, VIPS, VOXX, WX, XONE

See full real-time earnings coverage »

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