Today's Headlines

Bloomberg:

• European Stocks Slide for Third Day; Dexia, Air France Tumble. European stocks dropped for a third day, the longest losing streak in four weeks, as policy makers signaled they may renegotiate terms of Greece’s bailout, deepening concern about the impact of the debt crisis. Dexia SA (DEXB) tumbled to a record low as the board asked Belgium’s biggest bank by assets to solve its “structural problems.” Deutsche Bank AG (DBK) slid 4.3 percent after abandoning its 2011 earnings forecast. National Bank of Greece SA (ETE) sank to the lowest since 1996. Air France-KLM (AF) Group retreated to a 20- year low after the head of the IATA industry association said profit projections may be unsustainable. The benchmark Stoxx Europe 600 Index fell 2.8 percent to 217.46 at the 4:30 p.m. close in London.
• Bank Default Swaps Surge as Bigger Losses on Greek Debt Loom. Credit-default swaps insuring bank debt surged after European lawmakers signaled lenders may have to take bigger losses on holdings of Greek debt. The Markit iTraxx Financial Index of swaps on the senior debt of 25 banks and insurers jumped 16.5 basis points to 305.5 and the subordinated index climbed 25 to a record 567, according to JPMorgan Chase & Co. at 1:30 p.m. in London. Credit-default swaps on Germany rose four basis points to an all-time high of 122 and France increased nine to 199, approaching the record closing price of 202.5 on Sept. 22, according to CMA. Deutsche Bank AG swaps jumped 19 basis points to 210 after saying the planned operating pretax profit target of 10 billion euros from its core businesses for 2011 is no longer achievable. Swaps on France's three biggest banks also rose, with Societe Generale SA up 26 basis points at 378, Credit Agricole SA 19 higher at 282 and BNP Paribas SA up 18 to 281, according to CMA. “Currently the tensions are such that we could see forced sellers, with some banks needing to de-risk sharply,” said Alberto Gallo, head of European credit strategy at Royal Bank of Scotland Group Plc in London. Swaps on Belgium jumped 22 basis points to 293.5, Italy rose nine to 480 and Portugal climbed 24 to 1,134, while Spain was seven higher at 387, all nearing records set last month. Ireland rose 21 basis points to 717, CMA prices show. The Markit iTraxx SovX Western Europe Index of swaps on 15 governments rose 11 basis points to 353. The cost of insuring corporate debt also increased. The Markit iTraxx Europe Index of 125 companies with investment- grade ratings jumping as much as nine basis points to 215.5, surpassing the December 2008 record closing price of 215, before trading at 215, JPMorgan prices show. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings increased 34.5 basis points to 892.5, the highest since April 2009.
• Deutsche Bank Scraps Profit Goal, Will Cut 500 Jobs on 'Unabated' Slowdown. Deutsche Bank AG (DBK) scrapped its profit forecast and announced 500 job cuts and further writedowns of Greek bond holdings amid a “significant and unabated slowdown in client activity” in the wake of Europe’s debt crisis. The bank also said “costs relating to an indirect tax position” weighed on third-quarter results. Deutsche Bank, which had targeted 10 billion euros ($13.2 billion) in operating pretax earnings this year, still expects a profit for the quarter ended Sept. 30 and “robust” earnings for the full year, according to a statement today. Deutsche Bank shares slid as much as 9.1 percent, the most since July 2009. The stock was down 7.4 percent to 23.85 euros at 4 p.m. in Frankfurt, where the bank is based.
• Goldman, Morgan Stanley(MS) Lead Rise in U.S. Bank Default Swaps. Goldman Sachs Group Inc. and Morgan Stanley led gains in the cost to protect the debt of the biggest U.S. banks as concern intensified that Europe’s sovereign financial crisis will infect lender balance sheets. Credit-default swaps on Goldman Sachs Group Inc. increased 48.9 basis points to 444.5 basis points at 9:50 a.m. in New York, according to data provider CMA. Contracts on Morgan Stanley, the New York-based owner of the world’s largest retail brokerage, climbed 40.7 to 623.4 and those on Citigroup Inc. added 30.6 to 382, the data show. “When you get stuff blowing out a couple of hundred basis points in the span of two days, it causes a lot of people to seize up,” said Michael Donelan, who oversees $4 billion of bonds at Ryan Labs Inc. “If you see equities continue to be under pressure, it just leads to a further contagion-type spreading to credit spreads, credit-default spreads, cash bonds you name it everything’s interlinked.” The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or speculate on creditworthiness, added 1.4 basis points to a mid-price of 151.5 basis points as of 11:18 a.m. in New York, according to Markit Group Ltd. Five-year credit-default swaps tied to Charlotte, North Carolina-based Bank of America Corp.’s senior debt climbed 27.9 basis points to 484.5, according to CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market. Contracts on New York-based JPMorgan Chase & Co. added 18.8 to 198.6, and those on Wells Fargo & Co. increased 19 to 195, the data show. Swaps on American International Group Inc. climbed to 598.4, the highest since May 2010. “What you’ve got right now is bear raiders making a bet that in the event of a sovereign crisis in Europe coming to a head, what you’re going to have is a freezing in the debt markets,” Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York, said on Bloomberg Television’s “InsideTrack.” That “will lead to funding problems and all the capital markets firms will be hurt,” he said.
• Commodities Drop to 10-Month Low as Debt Crisis May Limit Demand. Commodities declined to the lowest level in 10 months as European policy makers were still to reach an agreement on the region’s rescue fund, deepening concern that slower economic growth may curb demand for raw materials. The Standard & Poor’s GSCI Spot Index fell as much as 2.2 percent to 572.92, the lowest level since Nov. 26, and was at 578.59 at 3:42 p.m. in London. Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France. “We are seeing continuing pressure across the commodities complex from these concerns about the global growth prospects,” said Michael McCarthy, a chief market strategist at CMC Markets Asia Pacific Pty Ltd. in Sydney. “The markets are universally bearish.” The S&P GSCI Index has shed 24 percent since reaching an almost three-year high in April, meeting the common definition of a bear market, as investors cut holdings of commodities amid slower economic expansion.
• Copper Substitution May Reduce Usage by 500,000 Tons, CRU Says. Replacement of copper with other materials may reduce demand for the metal by about 500,000 metric tons this year, according to researcher CRU. Use of plastic for tube production, aluminum for high- voltage energy cables and fiber optics for communications cabling is driving substitution, Paul Robinson, non-ferrous metals group manager at London-based CRU, said by e-mail yesterday.
• China Says U.S. Risks Trade War With Bill. China said the U.S. risks triggering a trade war through legislation before the Senate that would punish the Asian nation for what lawmakers say is the undervaluation of its currency, the yuan. The People’s Bank of China said it “regrets” the Senate vote yesterday to consider the bill, and the Foreign Ministry said the measure would violate World Trade Organization rules, in statements today on their websites. The bill is aimed at letting American businesses seek duties on Chinese imports to make up for the weak currency.
• Apple(AAPL) Debuts iPhone 4S With Faster Chip. Apple Inc. (AAPL), in its first product unveiling since Steve Jobs resigned as chief executive officer, introduced an iPhone with a speedier processor and a higher- resolution camera to help it vie with Google Inc. (GOOG)’s Android. The A5 chip in the iPhone 4S will be seven times faster than the processor in the old model, Apple said today at a press conference at its headquarters in Cupertino, California.

Wall Street Journal:

• Germany Debating Rules for Sovereign Default. Germany's Deputy Economics Minister Stefan Kapferer has called for creating guidelines to regulate an orderly insolvency of a euro-zone member, in a letter to Joerg Asmussen, his counterpart at the Finance Ministry. The letter highlights how the debate over resolving the euro-zone debt crisis is increasingly moving towards establishing a proper framework for sovereign default, despite being short on detail about the specific rules that may be needed.
  

Business Insider:

• Hacker Group 'Anonymous' Doing Securities Analysis, Attempting to Blow Up Chinese Frauds. Hacktivist group Anonymous's new securities research branch, dubbed Anon Analytics, recently published a damning report about Chaoda Modern Agriculture, a Chinese vegetable and fruit supplier.
• Some Anecdotes About Chinese Real Estate, As Told By Deutsche Bank.
• Bernanke on US Banks: No More Bailouts... Technically.
• T2 Partners Plummets 9% in September, Whitney Tilson Says Big Losers Will Be Big Gainers.
  

Zero Hedge:

• Bank of America(BAC) Charts The Four "Crash Landing" Systemic Endgames For China.
• S&P Warns "Prospect Of European Double Dip Looking More Likely".
  

NY Post:

• BofA(BAC) Loses Leverage. Could take $150M hit in PE misadventures. Bank of America, the biggest player in the leveraged-loan market, is pulling back from the business after getting pinched in the credit squeeze, The Post has learned. BofA has retreated in the pitched battle for leveraged loans -- a source of funding for private-equity acquisitions -- until it can unload its loan backlog, according to two private-equity managers at different firms. “They’ve unequivocally become more conservative than others,” a PE manager said. BofA is in a jam after taking the lead in underwriting several leveraged financing deals in July and August, at levels that have proved hard to resell in the tightening credit market.

Detroit News:

• Treasury Will Be 'Patient' Before Selling GM(GM) Stake. The Treasury Department, holding onto a 26.5 percent stake in General Motors Co., plans to be "patient" before selling its remaining 500 million shares in the Detroit automaker. The Treasury's declaration came Monday as GM fell to another all-time low: $19.65 a share, a decline of 2.63 percent. GM is down 40 percent since its initial public offering last year. Monday was the first time GM has closed below $20 a share since going public in November. "We have to balance the goal of divesting these stakes — because the government should not be in the business of owning stakes in private companies — with the goal of maximizing taxpayer returns," Assistant Secretary for Financial Stability Tim Massad told CNBC in an interview Monday. That's a shift from the government's previous statements that it would sell its shares as soon as "practicable." It's an acknowledgement that the sharp fall in GM's stock price has made it impossible to sell its shares. The government has had the ability to sell additional shares in GM since a lock-up period expired in May, but has declined to do so.

Institutional Investor:

• Ken Griffin's Citadel Made Money in September. Ken Griffin’s Kensington and Wellington hedge funds were able to make a little money in September when most of the global markets extended their slide to five straight months. The Citadel founder’s main hedge funds were up 0.25 percent in September, putting them up by about 15.10 percent for the year, according to sources, making them among the best performers this year.

Reuters:

• No Dexia Capital Injection in Works - French Source. Tuesday's pledge of state support for troubled Franco-Belgian bank Dexia does not mean a capital injection or capital increase is in the works, a French source close to the matter told Reuters on Tuesday. The source said that Dexia debt currently guaranteed by the French and Belgian governments would mature in the months ahead, although any of that debt that is refinanced would also be backed up by the governments.
• EU to Object to D. Boerse/NYSE Deal: Sources. EU regulators will formally object this week to the planned merger of Deutsche Boerse and NYSE Euronext (NYX.N), two sources with knowledge of the case said, which may force the companies to offer concessions to ease competition concerns. The Commission opened an in-depth investigation into the $9 billion deal on August 4, citing concerns about the deal's impact on derivatives and equities. It has set a December 13 deadline to decide whether to clear or block the merger, which would create the world's largest stock operator. "The European Commission is expected to send a statement of objections to the parties this week," one of the sources said on Tuesday, declining to provide more details because of the sensitivity of the subject.
• Hedge Funds Suffer Through Worst Quarter Since '08. Hedge funds posted their worst returns in three years in the third quarter, and the fourth quarter appears to be off to an equally rocky start. For hedge funds around the world, the average loss was 5.02 percent in the three months ended Sept. 28, according to Hedge Fund Monitor, a report compiled by analysts with Bank of America. Not since the third quarter of 2008, when the global financial system ground to a halt and hedge funds posted an average decline of 9.48 percent, has the $2 trillion industry performed so poorly. Many savvy money managers were badly bruised by August's vicious market sell-off, and September brought no reprieve. The report said the average hedge fund loss was 2.31 percent last month as concern mounted about the European debt crisis and commodities from gold to corn nose-dived. The selling in the stock markets has continued into October, something that could bode poorly for many fund managers heading into the end of the year. Last month, managers who specialize in going long and short on stocks were hit particularly hard, with those hedge funds registering an average decline of 4.76 percent. John Paulson, manager of the $32.8 billion Paulson & Co, who earned billions with prescient bets on the sub-prime mortgage crisis and gold, miscalculated the timing of a U.S economic recovery and has paid dearly for it. His flagship Advantage fund has lost about 35 percent this year, investors say.

Financial Times:

• The propinquity of U.S. and French presidential elections and a Chinese leadership change next year, with a German election due in 2013, threatens to complicate economic policy-making at a crucial time, said Kenneth Rogoff, a professor of economics at Harvard. While circumstances that shut down the political business cycle might sometimes be seen as positive for long-term stability and growth, that's far from the case when political paralysis threatens to cause a euro crash, Rogoff said.
• CDS Numbers Count Against Banking System. The iTraxx credit defaults swaps index, which measures the risk of default for eurozone banks, has leapt above levels seen around the time of the collapse of Lehman Brothers in 2008. This highlights worries that many banks are struggling to fund themselves as Europe’s debt crisis deepens. But it has also reopened a debate over whether CDS, a form of insurance against bond defaults, is in effect the “tail wagging the dog” as its ability to often move faster than most other securities allows it to influence the much bigger and slower equity and bond markets, say analysts.

Bild:

• Opposition among Germany's coalition parties against Greece's second aid package is rising. If observers from the European Commission, the European Central Bank and the IMF questioned the feasibility of a second bailout plan, the same would hold true for Germany's lower house of parliament, Michael Fuchs, the Christian Democratic Union's deputy leader in the Bundestag, was quoted as saying.

Handelsblatt:

• The European Central Bank should cut interest rates immediately to counter growing economic risks, citing a majority of members of the so-called shadow ECB council.

De Tijd:

• The Belgian government may consider a full nationalization of Dexia Bank Belgium NV pending a sale of the retail bank. Dexia may need tens of billion euros of debt guarantees, according to De Tijd.

National Post:

• Mike Brock: The Hidden Canadian Housing Bubble.