Wall Street Breakfast: Must-Know News

by: SA Editor Yigal Grayeff
SA Editor Yigal Grayeff
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.

Moody's cuts ratings of a dozen U.K. financial firms. Moody's has downgraded 12 U.K. financial institutions, citing the lowering or removal of government support. The agency cut Lloyds TSB (LYG) and Santander U.K. (STD) by a notch, and RBS (RBS) by two notches. The latter criticized Moody's for not recognizing the bank's progress in boosting its credit profile. RBS also said it is one of the most strongly capitalized banks in Europe after the FT reported that the U.K. government fears the bank might need more aid due to its eurozone exposure.

Jobs picture expected to stay gloomy. September nonfarm payroll data is due out this morning, with economists expecting that employment climbed by 55,000 workers after no change in August but that the jobless rate stayed stuck at 9.1%. The softening economy, political gridlock at home and the debt crisis in Europe are among the factors seen as causing a reluctance to hire. The report is due out a day after President Obama pushed Congress to approve his $447B jobs package, saying at a press conference that he was "comfortable with" a Democrat proposal to pay for the plan with a 5.6% surtax on income above $1M.

France, Germany split over bank recapitalization. Angela Merkel and Nicolas Sarkozy are due to meet on Sunday, when they will attempt to overcome reported divisions about how to use the eurozone's rescue fund to recapitalize banks. Reuters says Germany believes that the fund should only be used as a last resort after banks have exhausted options in the market and "national backstops." France wants to use the European money to shore up its banks, which are vulnerable because of their exposure to Greece.

S&P downgrades core Dexia banks. S&P has downgraded the core components of Dexia (OTC:DXBGF) by a notch to A-/A-2, citing the company's problems in obtaining financing and its need for more collateral. Depending on the impact of a proposed revamp, S&P could further downgrade Dexia's units or even upgrade them. The bank's board is due to meet tomorrow to vote on a break-up plan after Belgium and France pledged to guarantee its financing. The survival of Dexia is critical for Belgium, with Stratfor saying the bank is a major source of financing for the government.

BOJ holds rates at close to zero. As expected, the Bank of Japan kept its key interest rate at 0%-0.1% and said it is committed to maintaining this policy until "price stability is in sight," although the bank held back from expanding its asset-buying scheme. The BOJ expects moderate domestic growth but warned about a slowdown abroad, with the major risks including the EU's debt crisis and the effects of "balance-sheet adjustments" in the U.S.

"Re-shoring" from China could create 3M jobs. While the employment picture remains grim, increasing labor costs in China could lead to the creation of 3M jobs in the U.S. by 2020 due to a "re-shoring" of manufacturing, a study from Boston Consulting predicts. The trend should also cut the soaring trade deficit with China, which hit $273B in 2010, although some are skeptical that re-shoring will grow due to the help the Chinese government gives to its domestic manufacturers, such as through currency manipulation. Yesterday, a vote in the Senate to impose sanctions on China over its yuan practices was delayed until next week.

Geithner comments boost bank shares. Shares in Bank of America (BAC +8.8%), Morgan Stanley (MS +4.8) and other major banks rose yesterday after Timothy Geithner told the Senate Banking Committee that there is "absolutely" no chance that another U.S. financial institution would fail. The Treasury Secretary also played down the exposure of the U.S. financial system to the European debt crisis. Geithner's show of support was in contrast to criticism of the banks and their "deceptive practices" by President Obama in his press conference.

Oracle agrees to $200M settlement for overcharging. Oracle (NYSE:ORCL) has agreed to pay $199.5M to settle a lawsuit accusing it of overcharging the U.S. government for nine years. Oracle may have got off relatively lightly, as it had been speculated that the company could face damages of up to $1B. The case was filed in 2007 by former Oracle employee Paul Frascella under the False Claims Act, which lets citizens sue on behalf of the government and share in any recovery. As a result of the deal, Frascella will get $40M.

Samsung Q3 profit to fall but top predictions. Samsung Electronics (OTC:SSNLF), the world's second-largest maker of mobile phones, has estimated that its Q3 2011 operating profit fell to 4.2T won ($3.6B) from 4.86T won a year earlier but beat forecasts of over 3.7T won. Higher sales of its flagship Galaxy smartphone are expected to have outweighed weak demand for flat panels and computer chips. Samsung has estimated revenue rose 1.9% to 41T won. Detailed earnings will be released later this month.

iPhone 4S available for preorders. An outpouring of emotion following the death of Steve Jobs on Wednesday could shape demand for Apple's (NASDAQ:AAPL) iPhone 4S, which today became available for preorders in the U.S., U.K. and several other major countries. The introduction of the product will represent Tim Cook's first major test since he became permanent CEO in August, especially as the device received a lukewarm reaction from analysts. The iPhone 4S will go on sale in stores next Friday.

Gannett CEO resigns due to health problems. Gannett (NYSE:GCI) Chairman and CEO Craig Dubow has resigned due to health issues, with company President and COO Gracia Martore becoming CEO. Independent director Marjorie Magner was named non-executive chairperson. Dubow's tenure coincided with a steep decline in print advertising that prompted him to carry out large cutbacks, and while the measures kept Gannett profitable, they weren't enough to please Wall Street: the company's stock closed yesterday at $10.45, an 85% decline from when Dubow took over as CEO in July 2005.

Today's Markets:
In Asia, Japan +1.0% to 8606. Hong Kong +3.1% to 17707. China closed. India +2.8% to 16233.
In Europe, at midday, London -0.4%. Paris -0.3%. Frankfurt -0.3%.
Futures at 7:00: Dow -0.2%. S&P -0.2%. Nasdaq -0.2%. Crude -0.6% to $82.11. Gold +0.2% to $1656.10.

Friday's economic calendar:
Monster Employment Index
8:30 Fed's Fisher: Economic Outlook
8:30 Nonfarm Payrolls
10:00 Wholesale Trade
10:45 Fed's Lockhart: 'U.S. economy and financial capability'
3:00 PM Consumer Credit

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