Late-Night Headlines
Bloomberg:
- Goldman Sachs Group Inc.(GS), JPMorgan Chase & Co.(JPM) and Morgan Stanley(MS) applied to repay the combined $45 billion they received in October from the government’s Troubled Asset Relief Program, said people familiar with the matter. The three New York-based banks need approval from the Federal Reserve, their primary supervisor, to return the money, according to the people, who requested anonymity because the application process isn’t public.
- Abu Dhabi’s Mubadala Development Co. said it owned 65.8 million shares of General Electric Co. through March, bringing the state-owned investment company closer to its goal of becoming a top 10 shareholder.
- VF Corp.(VFC) Chief Executive Officer Eric Wiseman said the world’s largest clothing maker is in “active discussions” on possible acquisitions to increase revenue from outdoors and action-sports brands. “There are lots of really interesting discussions about brands that may be appropriate,” Wiseman, 53, said in a May 15 interview at VF’s headquarters in Greensboro, North Carolina. “I hope we can make an interesting acquisition this year.”
- The cost of protecting Asia-Pacific bonds from default declined, according to traders of credit-default swaps. The Markit iTraxx Japan index fell 20 basis points to 230 at 10 am in Tokyo The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan fell 13 basis points to 211 as of 9 am in Hong Kong , according to ICAP Plc. The Markit iTraxx Australia index was quoted 15 basis points lower at 230 as of 9:33 am in Sydney
- China’s economy is “struggling” and may fall short of the government’s 8 percent growth forecast this year as export demand slumps, said Katherine Lu, director of China equity research at Oppenheimer & Co. “The economy is struggling,” Lu said. “The biggest concern is export demand.” “I’m not as bullish on the economy,” said Hong. “Less than 25 percent of the stimulus package is new spending.”
- American Express Co.(AXP), the largest U.S. credit-card company by purchases, will cut about 6 percent of its workforce as cardholders squeezed by rising unemployment fail to pay debts. American Express rose $1.90, or 7.8 percent, to $26.13 at 4 p.m. on the New York Stock Exchange today, trimming its loss for the past year to 46 percent. The stock dropped 13 cents to $26 in extended trading after the announcement.
Wall Street Journal:
- The squabble between hedge funds and their investors over fees may be heading for a compromise -- just in time for a new round of fund raising. As outflows continue, more hedge funds are beginning to give ground. Some are offering to let investors pull money out of their funds at short notice if they can keep charging their juicy 2% management fees and 20% incentive fees. Others are asking investors to lock up their money for extended periods, and to charge lower fees in return. Heavyweight SAC Capital, run by Steven Cohen, for example, has told its investors that it will allow them to take their money out of the firm's flagship fund every quarter, rather than after three years. But SAC isn't budging on its sky-high management fees of 3% and 50% performance fees, even though the fund lost money last year. SAC is up so far in 2009. Meanwhile, some are willing to give ground on both fronts to get back into the game. Dwight Anderson's Ospraie Management, which closed its main commodity fund last year after deep losses, is launching two new funds that won't have lockups and will charge investors lower management fees of 1%, as well as 10% of any profits. It isn't clear what model will become the new standard.
- The Obama administration plans to order auto makers to increase the fuel economy of automobiles sold in the U.S. to 35.5 miles per gallon by 2016, four years faster than current federal law requires, people familiar with the matter said. The move, part of a broader overhaul of fuel-economy rules aimed at cutting greenhouse-gas emissions, would accelerate the largest government-mandated transformation of vehicles on the American road since the late 1970s and early 1980s, when the first federal fuel-economy standards took effect. A senior administration official said late Monday that the regulations would save 1.8 billion barrels of oil and reduce emissions of greenhouse gases by 900 million metric tons over the lifetime of the more efficient vehicles, equivalent to taking 177 million cars off the road or shutting down 194 coal-fired power plants.
- The Obama administration has decided to accept an appeals-court ruling that could undermine the military's ban on service members found to be gay.
- Gloomy news about Russia's economy -- figures on Monday showed April industrial production plunged 17% year-on-year -- has been mixed with some rare positives in recent weeks. Oil prices are surging, the ruble is up and Russian stocks have taken off. But even the good news has economists worried. "Oil prices now are as awful as they could be -- not low enough to force real reform and not high enough to allow free spending like before," says Vladimir Mau, a prominent economist who heads an advisory panel to a government team dealing with the financial crisis.
MarketWatch.com: Bloom fades on Chinese stocks. Gloomy forecast points to sharp drop for recovering market.
CNBC.com: As Americans grow accustomed during the recession to spending more time at home and living in the same places longer, home-improvement companies are regaining momentum.
- CEOs from several regional banks around the country told CNBC they are seeing some signs of “green shoots” in the housing market.
- A bill to overhaul credit-card practices was on track for approval by the U.S. Senate as early as Tuesday, with President Barack Obama expected to sign it into law before the end of the month. Enactment of the legislation would mark the crest of a political backlash rising for years against the card industry amid sudden interest rate increases, hidden fees and aggressive marketing programs that have angered consumers, analysts said.
NY Times:
- The financial crisis has ravaged many a Wall Street giant, but it has also produced a handful of winners. BlackRock(BLK), a money manager that is much admired but little known outside financial circles, is fast emerging as one of the nation’s financial powerhouses. BlackRock, which started in a one-room office 21 years ago, now manages $1.3 trillion in assets for big private clients, including hedge funds and foreign governments. But it is the company’s highly prized role as a government adviser and contractor that is now drawing attention. By dint of its expertise and track record, it has won contracts to help the government manage the complex rescues of Bear Stearns, the American International Group and Citigroup. It also won a bid to carry out a Federal Reserve program to stimulate the moribund housing market, and it has been hired to help evaluate Fannie Mae and Freddie Mac, the government-created mortgage finance giants.
Business Week: One gaming play that continues to draw crowds is WMS Industries (WMS), a major designer and manufacturer of video and reel spinning slot machines, as well as video lottery terminals. Its machines differ from the traditional slots in that they offer secondary bonus rounds, enhanced colorful graphics, and bang-up digital sounds.
CNNMoney:
- U.S. home prices are their most affordable in at least 18 years, according to a report released Monday. Nearly 73% of all homes sold in the United States during the first three months of 2009 were considered affordable. That was the highest percentage ever reported by the 18-year-old Housing Opportunity Index, an analysis of markets compiled quarterly by the National Association of Homebuilders and Wells Fargo Bank.
- Fannie Mae and Freddie Mac, charged with helping lead the nation out of its housing crisis, are facing "critical" financial problems, federal regulators said Monday. The companies suffer from severe financial, operational and compliance weaknesses, the Federal Housing Finance Agency said a report to Congress detailing its annual examinations of the firms. Taken over by the government in September, Fannie and Freddie are not able to operate without federal assistance.
Seeking Alpha:
- Barron’s Top 100 Ranking Hedge Funds for 2009.
Politico:
- CIA Director Leon Panetta warned Monday against making his agency a pawn in the nation’s partisan political battles, even as House Speaker Nancy Pelosi’s claim that she was lied to by the CIA continues to reverberate in Washington. “If they start to use these issues as political clubs to beat each other up with, that’s when we not only pay a price but this country pays a price,” Panetta said during a question-and-answer session following a lunchtime speech in Los Angeles.
Reuters:
- After 100 years in business and 10 months of frenzied but failed restructuring, General Motors Corp is weeks from the bankruptcy filing experts say will be required to complete the Obama administration's bid to reshape a fallen icon of American industry. Facing a government-imposed June 1 deadline to restructure, GM is scrambling to slash some $27 billion of bond debt, win sweeping cost concessions from the United Auto Workers union and eliminate almost 1,600 U.S. dealers. But with the clock ticking, experts see it as all but certain GM will follow its smaller rival Chrysler into federal bankruptcy court
- U.S. homebuilder sentiment jumped to its highest level in eight months in May, a private survey showed on Monday, supporting views that the three-year housing slump might be close to an end. The National Association of Home Builders/Wells Fargo Housing Market Index rose to 16 from 14 in April, in line with market expectations. The NAHB also said its measure of housing affordability surged 10 points to a record 72.5 in the first quarter of this year.
Financial Times:
- With non-performing loans and investment losses on equities and real estate expected to mount, the industry faces, for the first time, the possibility that Islamic banks could incur significant losses. “I doubt Islamic banks have set up large equalization reserves in the good times, as it would have affected returns on equity,” says Sameer Abdi, head of Ernst & Young’s Islamic practice in the Gulf. “If the downturn means that impairments rise significantly, it could mean that depositors risk losing their money.” If bank losses hit depositors it could spur a run on the entire industry, warns one expert.
- Britain has begun taking soundings with sovereign wealth funds and other investors about selling stakes in its part-nationalized banks as it seeks to tap into a revival of stock market confidence in the financial sector.
- Companies using trillions of dollars of derivatives contracts to hedge interest rate, currency and commodity price risks could face higher costs under the proposed overhaul of US rules on derivatives, industry officials say. Derivatives are widely used by the world’s biggest companies to manage all kinds of financial risks. Most of these hedging activities are done between companies and banks in the over-the-counter market.
- Ospraie Management is launching two funds focusing on commodities and other liquid securities just eight months after it was forced to close its flagship fund amid huge losses on commodities trades. The US hedge fund’s move, announced in a letter to investors, is a sign of growing confidence within the hedge fund industry.
- Barack Obama offered Benjamin Netanyahu a trademark dose of warmth and conciliation on Monday while politely distancing himself from many of the Israeli premier’s hardline positions on the Arab-Israeli conflict. But Mr Obama did not succeed in persuading Mr Netanyahu to sign up to a two-state solution
- US banks are scrambling to be in the first wave of lenders to repay Washington bail-out funds after the authorities told Wall Street executives they would allow five or six big financial groups to return taxpayers’ money before the rest of the industry. Bankers said they expected the Treasury and Federal Reserve – which doled out billions of dollars from the $700bn troubled assets relief programme to lenders last year – to name the first repayers in the next few weeks.
TimesOnline:
- Economists called the end of the credit crunch yesterday as the short-term interest rate that banks charge to borrow from each other fell to a record low on dollar, euro and pound-denominated loans. The continuing decline in the London interbank offered rate (Libor) signalled a return to normality for the credit markets for the first time since May 2007, according to Peter Chatwell, an interest rate strategist at Calyon, the investment banking unit of Crédit Agricole. “This marks a return to normal territory and gives us hope that we can cope with anything that comes now. It indicates that the banks are well capitalised, with no more surprises. It gives us hope that we have a functioning banking system and that we can now go about the job of running the broader economy,” Mr Chatwell said. David Buick, of BGC Partners, said: “The trust is returning. This is very encouraging.”
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (SCHW), target $20.
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Economic Releases
8:30 am EST
- Housing Starts for April are estimated to rise to 520K versus 510K in March.
- Building Permits for April are estimated to rise to 530K versus 516K in March.
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BOTTOM LINE: Asian indices are higher, boosted by automaker and technology stocks in the region. I expect US
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