Monday, March 16, 2009

Wall Street Breakfast: Must-Know News

Wall Street Breakfast: Must-Know News

by SA Editor Rachael Granby

  • G-20 finance ministers press reform, vow unity. Finance ministers from the G-20 met over the weekend and vowed to work together to clean up toxic assets, but failed to come to a consensus on the timing or size of a coordinated economic stimulus. The G-20 outlined a dozen principles for governments to follow when ridding banks of distressed securities, including that shareholders should be exposed by the 'maximum possible' to losses or risks prior to government intervention. The group pledged to take 'whatever action is necessary' to address the global economic crisis, promised to commit more money to help developing countries and the emerging markets of Eastern Europe and reaffirmed a commitment to tighten financial regulation and oversight. Participants put pressure on the U.S. to fix its weak banking sector. The full G-20 meeting will take place April 2.
  • U.S. preps financial overhaul. The Obama administration wants to "accelerate the pace of change on the reform agenda," and sources say Treasury's Geithner will soon propose an overhaul of the financial regulatory system that gives the Fed powers to monitor broad economic risks. The proposed changes are also expected to include tougher capital standards for banks, authority for regulators to take over large financial firms that are failing and a consolidation of consumer-protection enforcement. A few elements remain unclear, including whether the changes will allow state attorneys general to prosecute national banks and whether there will be compensation restrictions for bank executives. Most of the plans will need Congressional approval, but the administration is already working with lawmakers on its proposed list of reforms.
  • Bernanke's TV interview. Bernanke gave an interview on 60 Minutes last night, the first time in 20 years that a sitting Fed chair has given a mass media interview. He warned that the country's 8.1% unemployment rate will continue to rise but said the recession will end 'probably this year.' He also said the country's largest banks are solvent, he doesn't expect any of them to fail and concerted government efforts likely averted a 1930s-style depression. At the same time, Bernanke warned a sustained economic recovery requires the nation to address a financial system in crisis and lack of political will could be the biggest obstacle to shoring up the financial system. (Watch Bernanke's interview)
  • AIG payouts come under fire. AIG (AIG) is under fire for both internal and external payouts. The insurer, which has accepted $173.3B in federal aid and is now 80% owned by U.S. taxpayers, will spend around $450M on bonus payments for employees at a business unit that lost $40.5B last year. CEO Edward Liddy said the firm's 'hands are tied' on the issue as the payments are 'legal, binding obligations of AIG,' but White House economic adviser Lawrence Summers lambasted the bonuses as 'outrageous.' After calls for increased transparency, the insurer disclosed yesterday that roughly two-thirds of the federal aid it received has been paid out to trading partners in the U.S. and abroad (including Goldman Sachs (GS), Societe Generale (SCGLY.PK) and Deutsche Bank (DB)). The disclosure indicates that taxpayer dollars are passing through AIG to make whole private businesses and foreign banks. Shares +16% premarket (7:00 ET).
  • Goldman's almost-deal with Wachovia. Goldman Sachs (GS) was in talks to buy Wachovia (WB) during the weekend after Lehman Brothers collapsed in September. Sources say the potential takeover was abandoned just before the Fed allowed Goldman to turn into a bank holding company and access government funds. The talks reportedly failed largely because the government was unwilling to use taxpayer money to protect Goldman against losses on Wachovia's giant loan portfolio. During the same weekend, a deal was considered for Morgan Stanley (MS) to merge with either JPMorgan Chase (JPM) or Citigroup (C).
  • OPEC holds steady. OPEC members agreed on Sunday to leave existing output targets unchanged for at least another 11 weeks, worried higher energy prices could worsen the global recession. The group will focus on completing cuts agreed upon last year, trimming an additional 800,000 barrels per day. Oil futures -4.0% to $44.41 (7:00 ET).
  • More cuts at UBS. Media reports say UBS (UBS) will cut up to 5,000 additional senior and management jobs in the next few weeks. Of those cuts, as many as 2,500 could be in UBS' wealth management division. Last week the beleaguered bank said it plans to trim top management but that the changes would be included as part of previously-announced job cuts. A UBS spokesman declined to comment. Shares +8.2% premarket (7:00 ET).
  • Barclays eyes ETF sale. Barclays (BCS) is reportedly exploring the sale of its ETF unit to shore up its capital cushion. The sale of its iShares business could pull in as much as £4B ($5.6B). Barclays is one of the mostly thinly capitalized U.K. banks and is trying to avoid taking money from the government. A Barclays spokesman declined to comment on the possibility of asset sales. Shares -14.7% premarket (7:00 ET).
  • Chinalco deal under increased scrutiny. Australia is extending its probe of Chinalco's (ACH) $19.5B investment in Rio Tinto (RTP) as major Rio shareholders voice growing concern over the deal. The decision to extend the review through June was widely expected. Meanwhile, according to media reports Rio shareholders are trying to overturn the controversial deal and are seeking legal advice as to whether they can get a special resolution tabled to block the investment. A Rio spokesman said "we are aware of the concerns of some shareholders... but we believe it's the best way forward."
  • Cisco takes on H-P. Cisco Systems (CSCO) plans to announce it will start building its own servers, placing the firm in direct competition with long-time partner Hewlett-Packard (HPQ). The move comes as industry growth slows, forcing giant firms that once cooperated profitably to being invading each other's territories. Cisco CEO John Chambers says the company plans to use its store of cash to expand further into areas where it hasn't historically competed.
  • Monaco accepts tax haven rules. Monaco became the latest country to adopt international standards for banking openness and information-sharing as officials in the U.S., Germany, U.K. and France have put pressure on tax havens to become more transparent. Monaco joins several other nations that agreed to comply to the international standards, including Switzerland, Austria, Belgium, Luxembourg, Andorra, Liechtenstein, Singapore and Hong Kong. The tax authorities of these countries will be required to exchange information on request if there is probable cause to suspect tax evasion.

Earnings: Monday Before Open

  • Fortress Investment Group LLC (FIG): Q4 EPS of -$1.50 misses by $1.49. Revenue of $158M vs. $131M. (PR)

Today's Markets

  • Asia markets kicked the week off on a positive note, led by a big move in Hong Kong - its fifth straight day of gains. Nikkei +1.78% to 7,704. Hang Seng +3.6% to 12,977. Shanghai +1.15% to 2,153. BSE +2.13% to 8,944.
  • Europe stocks are strongly higher at midday. London +1.9%. Paris +2.4%. Frankfurt +2.3%.
  • Stock futures point to a positive open. Dow +1% to 7306. S&P +1.2% to 767. Nasdaq +0.7%. Crude -4.0% to $44.41. Gold -0.7% to $924. 30-year bond futures -0.48% to 125-10.

Monday's Economic Calendar

Seeking Alpha editor Eli Hoffmann contributed to this post.

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