Evening Headlines
Bloomberg:
- EU Signals Bigger Losses on Greek Bailout. European governments dropped clues that bondholders may have to take bigger losses on Greek debt in a second aid package, as Greece’s deteriorating economic outlook forces bolder steps to quell the fiscal crisis. Finance ministers considered reshaping a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue. That “private sector involvement” includes debt exchanges and rollovers. “As far as PSI is concerned, we have to take into account that we have experienced changes since the decision we have taken on July 21,” Luxembourg Prime Minister Jean-Claude Juncker told reporters early today after chairing a meeting of euro finance chiefs in Luxembourg. “These are technical revisions we are discussing.” Together with plans to get more firepower out of the 440 billion-euro rescue fund, the review of Greece’s aid package was a response to growing international frustration with Europe’s inability to get to grips with the crisis after 18 months of incremental steps. Juncker gave no details about a possible recalibration of the debt exchange. The talks came after seven countries including Germany, Europe’s dominant economy, weighed calling for Greek bond writedowns of as much as 50 percent, two European officials said. The ministers also pushed back a decision on the release of Greece’s next 8 billion-euro loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year. “The endgame for Greece has now begun,” Sony Kapoor, managing director of policy group Re-Define Europe, said in an e-mailed note. “It seems that the ground is being laid to revisit the private sector involvement agreement reached in July.”
- Dexia, BNP Resist Greek Losses Three Times Worse Than Booked. Dexia SA, BNP Paribas SA and Societe Generale SA are resisting pressure from regulators to accept more losses on their holdings of Greek government debt amid criticism they haven’t written down the bonds sufficiently. While most banks have marked their Hellenic debt to market prices, a decline of as much as 51 percent, France’s two biggest lenders and Belgium’s largest cut the value of some holdings by 21 percent. The practice, which doesn’t violate accounting rules, may leave them vulnerable to bigger impairments in the event of a default. The three firms would have about 3 billion euros ($4 billion) of additional losses if they took writedowns of 50 percent, according to data compiled by Bloomberg.
- Dexia Board Asks Chief Mariani to Resolve 'Structural Problems'. Dexia SA, Belgium’s biggest bank by assets, said its board asked Chief Executive Officer Pierre Mariani to take steps to fix the company’s “structural problems” after Europe’s sovereign debt crisis worsened. “In the current environment, the size of the non-strategic asset portfolio impacts the group structurally,” Dexia said in an e-mailed statement today. “This is why the board of directors asked the CEO, in consultation with the relevant governments and the supervisory authorities, to prepare the necessary measures to resolve the structural problems.” The bank didn’t elaborate on its plans.
- Morgan Stanley(MS), Goldman Sachs(GS) Credit Risk Soars to Highest Since 2008. The cost to protect the debt of Morgan Stanley and Goldman Sachs Group Inc. surged to the highest levels since the weeks after Lehman Brothers Holdings Inc.'s bankruptcy as concern intensified that Europe's debt crisis will infect the global banking system. Contracts on Morgan Stanley, the New York-based owner of the world's largest retail brokerage, soared 92 basis points to a mid-price of 583 basis points as of 4:30 p.m. in New York, the highest since October 2008, according to London-based data provider CMA. Those on Goldman Sachs increased 65 basis points to a mid-price of 395. The Markit CDX North America Investment Grade Index, which investors use to hedge against losses or speculate on creditworthiness, climbed to the highest since May 2009, adding 6.7 basis points to a mid-price of 150.9 basis points as of 5:10 p.m. in New York, according to index administrator Markit Group Ltd. Five-year credit-default swaps tied to Charlotte, North Carolina-based Bank of America's senior debt climbed 33 basis points 457, according to CMA, a unit of CME Group Inc. that compiles prices quoted by dealers in the privately negotiated market. Contracts on American International Group Inc. surged 76 to 545, the highest since May 2010, CMA prices show. The cost to protect Morgan Stanley's debt has risen from 305 basis points on Sept. 15 and is at the highest level since October 13 2008, four weeks after Lehman Brothers Holdings Inc. filed for bankruptcy.
- BofA(BAC), JPMorgan(JPM) Face $13.5 Billion in FHA Claim Costs, FBR Says. Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. are among mortgage servicers that may face $13.5 billion in costs if the Federal Housing Administration rejects insurance claims on soured loans, according to FBR Capital Markets Corp. Denials from the FHA, which insures loans made by banks and private lenders for home purchases, could be the latest expense from U.S. housing programs, Paul Miller, an FBR analyst, said today in a note to clients. The government said in May that it could pursue other lenders after suing Deutsche Bank AG for more than $1 billion, accusing the firm of lying to the FHA while arranging mortgage insurance.
- Oil Declines for Third Day on European Debt Crisis, Rising Crude Supplies. Oil dropped a third day in New York as investors speculated that Europe’s debt crisis will slow the economy and curb fuel demand as crude supplies climb. Futures slipped as much as 2.2 percent today after falling to the lowest settlement in more than a year yesterday. Crude for November delivery declined as much as $1.69 to $75.92 a barrel in electronic trading on the New York Mercantile Exchange and was at $76.32 at 11:27 a.m. Sydney time. The contract yesterday fell 2 percent to $77.61, the lowest close since Sept. 28, 2010. Prices are down 16 percent this year. Brent oil for November settlement slid $1.05, or 1 percent, to $100.66 a barrel on the London-based ICE Futures Europe exchange. New York crude may test technical support at around $74 a barrel and $64 a barrel, levels that correspond with the 50 and 62 percent retracement levels on a Fibonacci study from lows in January 2009, said Stephen Schork, president of Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. Brent oil may fall to $84 a barrel after its 50-day moving average fell below the 200-day average last week in a formation known as the “death cross,” according to technical analysis by hedge fund Again Capital LLC.
- BMW Dangles 19% Discounts as China's Luxury Market Cools: Cars. China is turning into a buyer’s market for luxury cars as dealers for Bayerische Motoren Werke AG, Daimler AG and Volkswagen AG’s Audi offer discounts to maintain sales as demand cools. In Beijing, BMW dealerships are giving markdowns of as much as 19 percent on a 3-series car, while some Mercedes dealers are selling the C-Class Elegance model at 20 percent less than the suggested retail price, according to cheshi.com, a pricing guide tracking more than 3,000 dealers in the country. BMW, Daimler and Audi, the three largest luxury carmakers, face slowing sales growth and falling prices in China, the world’s largest automobile market, as some cities impose driving curbs and the central bank tightens lending. “We’re in a cycle of dropping prices,” said Scott Laprise, a Beijing-based analyst at CLSA Asia Pacific Markets. “Dealers are worried about sales slowing and are cutting selectively in the luxury segment. They see where the overall market is going. They want to be preventive and keep their sales going.”
- Budget Office Raised 'Significant Concerns' on Solyndra Loan. White House budget officials raised "significant concerns" about Energy Department oversight of Solyndra LLC last year, months before the collapse of the solar- panel maker backed by a U.S. loan guarantee. Office of Management and Budget officials in 2010 expressed frustration with the Department of Energy's monitoring of Solyndra's cash flow and performance and said the company might default on its $535 million federal loan guarantee, according to a memo released today by staff for Democrats on the House Energy and Commerce Committee.
- U.S-Chinese Progress on Accounting Is Dealt Setback. U.S.-Chinese negotiations to allow American audit-firm inspectors into China suffered a setback Monday, as U.S. regulators indicated that a planned visit to Washington by their Chinese counterparts to continue the talks has been postponed. Regulators previously said the Chinese were slated to visit Washington this month for a second round of the talks, which began in Beijing in July. The two countries are negotiating on whether to allow inspectors from the Public Company Accounting Oversight Board, the U.S.'s auditing regulator, into China to scrutinize the work of Chinese accounting firms which audit U.S.-traded companies.
- Iran Rejects Proposed U.S. Military Hot Line. Iranian military leaders have rebuffed a plan championed by senior Obama administration officials to establish a military-to-military hot line between Washington and Tehran, increasing U.S. fears about the potential for clashes between American and Iranian planes and ships operating in the oil-rich Persian Gulf.
- Report: Fannie Mae, Regulator Missed Foreclosure Abuses. Mortgage titan Fannie Mae and its federal regulator failed to pay enough attention to mounting evidence of abuses at foreclosure-processing law firms until the issue gained broad public attention last year, a federal watchdog says. The inspector general of the Federal Housing Finance Agency, in a report being released Tuesday, questioned Fannie Mae’s oversight of law firms that conduct foreclosures on its behalf.
- Taking Out The Trash. Despite Sales, Unwanted Assets Weigh on Citigroup; Mortgages to Credit Cards.
- Hedge Funds Pay Top Dollar for Washington Intelligence.
- Stimulus Has Been a Washington Job Killer. The political graveyards are full of politicians who thought that temporary, targeted economic policies would get them re-elected.
- Solar-Panel Firms' Outlook Dims, May Remain Darker. Solar-panel company stocks have plunged to multiyear lows as slowing demand and a glut of panels from Asia have squeezed margins, creating a cloud that could hang over the industry for some time.
- Macau Casino Stocks Hit by VIP Revenue Worry. A big drop in Macau-casino stocks reflects concerns China’s biggest gamblers could trim their bets if the economy there loses its growth sparkle. Hong Kong’s biggest casino-operator stocks took heavy, double-digit-percentage hits in Monday trading. And although the sector rebounded somewhat Tuesday, the shares remained well below their levels from the previous week.
- Microsoft's(MSFT) Compensation Committee Has Determined That CEO Steve Ballmer Is UNDERPAID...Really.
- US Closes 2010-2011 Fiscal Year With $14,790,340,328,557.15 In Debt, $95 Billion Jump On The Day, $1.2 Trillion Increase In One Year.
- Goldman(GS) Raises US Recession Odds to 40%; Sees More Fed Easing, Expects Recession in Germany and France.
- Things About to Turn Violent Again - Greece May Mobilize Police Against Striking Students and Teachers.
- Overheard in the Greene Room: Kyle Bass. Hedge-fund manager Kyle Bass, Hayman Capital Management LLC managing partner, spoke exclusively to CNBC about Germany's next move. Here's what he told me: "I believe that Germany and the balance of the Eurocrats will attempt to default Greece within the euro zone first. The frictions associated with such an event will prove to be problematic and the usual benefits of a substantially weakening currency that would historically accrue to the country in default will not be available to Greece. Greece will therefore be forced to go back to the drachma at some point in the near future.
- More Fed Easing Could Do More Harm Hawks Say. Two top Federal Reserve officials known for their hawkish views on inflation reiterated on Monday their opposition to further Fed monetary policy easing, saying it would do more harm than good. But the two, Richmond Fed President Jeffrey Lacker and Dallas Fed President Fisher, sketched somewhat different reasons for their views on the eve of Fed Chairman Ben Bernanke's appearance before Congress on Tuesday. Lacker said he was primarily concerned with the threat of inflation; Fisher said he was mainly worried that the policy would not work as advertised. "We want to rekindle this economy; we don't want, on the other hand, to kindle inflationary embers. I don't think the latter is an issue right now," Fisher said in an interview on Bloomberg Radio. He reiterated his view that U.S. politicians need to lay a sounder base for economic growth, or the Fed's easy monetary policy will simply be "pushing on a string." Fisher told CNBC television he expected the U.S. economy would grow at an annual rate of under 2 percent over the remainder of the year, but he warned: "We could slip." With inflation running above the Fed's target rate of 2 percent, the central bank should be careful of doing anything to exacerbate price rises, which can occur even when unemployment is so high, Lacker said. The Fed's "twist" operation may do just that, he said. "It is more likely to raise inflation than it is to measurably raise growth, that's my assessment," Lacker told reporters. Had he been a voter on the Fed's policy-setting panel this year, he added, "I would not have supported it." "We have a limited amount of ammunition," Fisher told CNBC, adding that there were plenty of studies that suggested the Fed's "Operation Twist" would not have that great an impact spurring stronger economic growth. "I personally did not feel that the benefits ... outweighed the costs," he said. "I think we have done enough at this juncture." Fisher, who has long argued that an uncertain regulatory and budget environment was damping business spirits, said he felt it would do little good to ease monetary policy because the level of interest rates was not the problem facing the economy. Lacker concurred. "There are impediments to growth that somewhat lower, longer-term interest rates will not be the antidote for," he told students.
- Greece Falls Into 'Death Spiral': Rising Debt, No Growth. Drowning in red ink, Greece has nowhere to turn to revive the economic growth that might put its debt on a sustainable trajectory, reassure angry foreign creditors and offer hope to its recession-weary citizens. Instead, the country finds itself in a vicious circle—a death spiral, some would say—in which it is borrowing ever more to keep up on its existing debts, crushing growth in the process and thereby worsening its all-important ratio of debt-to-gross domestic product.
NY Times:
- Anti-Wall Street Protests Spreading to Cities Large and Small. A loose-knit populist campaign that started on Wall Street three weeks ago has spread to dozens of cities across the country, with protesters camped out in Los Angeles near City Hall, assembled before the Federal Reserve Bank in Chicago and marching through downtown Boston to rally against corporate greed, unemployment and the role of financial institutions in the economic crisis.
- Yahoo(YHOO): Report Alibaba, Silver Lake, DST Mull Joint Bid.
- Skype Competitor is Gaining Ground and Fast. Tango was featured as a Forbes ‘Name You Need To Know,’ in May with more than 13 million users. Today, the company touts more than 23 million users in 190 countries, adding between 70,000 to 80,000 new users per day on mobile.
- Credit Card Delinquencies Poised to Rise, FICO Survey Data Suggest. Many bank risk-management executives worry that credit card delinquency rates, which have been declining for more than two years, may begin to rise again soon if the economy does not improve, according to new FICO survey data. The Minneapolis-based credit-scoring firm owned by Fair Isaac Corp. said 40% of 188 bank risk managers it surveyed in August expected credit card delinquencies to rise during the next six months.
Reuters:
- China Says "Deeply Regrets" U.S. Currency Bill. China's central bank said on Tuesday it "deeply regrets" a U.S. currency bill that pressed China to allow its yuan currency to rise in value. The People's Bank of China also said the passage of the bill may seriously affect its currency reform, potentially leading to a trade war between the two sides. "There are multiple reasons for the global trade imbalance, and the trade imbalance between China and the United States is not because of the renminbi's exchange rate," it said in a statement posted on its website.
- Seoul Shares Plummet Led by Banks, Refiners. Seoul shares dropped as much as 6.3 percent on Tuesday as investors dumped stocks amid deepening fears over Greece's debt crisis. Traders said the selloff would likely continue for the next couple of weeks as markets and global leaders seek answers to the persistent debt crisis in Europe. "Investors are cutting their exposure to risk as the most extreme risks -- such as Greek default -- are looming closer than they expected," said Jung Sang-jin, a senior fund manager at Dongbu Asset Management. "The selloff is likely to continue for a couple of weeks, until either shares become really cheap or some sort of resolution is more apparent."
- Hedge Funds Eye Outright Bet Against France. Its bond yields have already broken away from Germany, while its credit default swaps are far higher. French banks are weak; if they do not get bailed out, lending and economic growth is likely to slow further, hurting France’s creditworthiness. If Paris steps in and helps them, the additional debt is again bad for France’s credit standing.
- Brazil CDS Doubles in Five Months. Brazilian five-year credit default swaps were on Monday paying 202.4 basis points, around double their lows of mid-May. This compares with 146.92 bps for Japanese government debt, 112.19 bps for German bunds and 52.24 bps for the US, according to prices from data provider CMA.
- Deutsche Bank CEO Josef Ackermann warned that Europe's debt crisis will extend into the "medium-term," and said European politicians' failure to address the region's debt crisis risked damaging its "social fabric," citing Ackermann speaking in Stockholm. The only solution to the European debt crisis is a return to economic growth, which is "necessary to maintain the social fabric of our societies, to fight deprivation and unemployment," Ackermann said.
- Greece Default Not An Option, Says Jean-Claude Juncker. If Greece doesn't receive the €8bn slice by mid-October, the debt-ridden country will be unable to pay pensions and salaries and eventually go bankrupt. Mr Juncker said after a meeting of eurozone finance ministers that he expected a decision about the loan to come sometime in October. And European Monetary Affairs Commissioner Olli Rehn strongly suggested that Athens would get the loan, saying the country's spending cuts and other efforts "go a very long way to meeting the conditions" set by its creditors.
- Euro-area countries unable to pay their debt should be restructured under procedures that would force them to partially renounce some of their sovereign rights, German Economy Minister Philipp Roesler proposed in a letter to the finance ministry. The newspaper said Roesler, who heads German Chancellor Angela Merkel's Free Democratic coalition ally FDP, wants his proposals included in the draft contract of the European Stability Mechanism, or ESM. According to the FAZ, the ESM would only provide financial aid if creditors agree to "take an appropriate share" in the rescue effort and both parties should face material disadvantages if they fail to reach an agreement.
- Hong Kong Shippers Council Says Vessels Being Idled. Falling rates may cause some shippers to post losses, citing Hong Kong Shippers Council Executive Director Sunny Ho. Bocom International says shipping rates will fall in the fourth quarter as Christmas-related volumes decline from last year. Hong Kong shipping rates plunged 50% in the third quarter, Ho said.
- Hong Kong Toy Exports May Drop Up to 25% on Year. Demand remains very weak in Europe and the U.S., so performance may be worse than during the global financial crisis, citing Toy Manufacturers' Association Executive VP Yeung Chi-Kong. China supplies about 90% of toys on sale in the U.S. Yeung sees up to a 20% drop in exports; Frankie Cheng, a manager at Galey Toys, sees up to a 25% decline. Confidence in the UK, Italy and Ireland has weakened "markedly" in the past three months, Cheng said.
- Economists Say China SME Credit Crisis 'could sweep China'. After a wave of businesses failures in Wenzhou caused by firms forced to borrow at steep rates, economists fear the problem will be contagious. Inner Mongolia could be next area to see small and medium enterprises fold because of its underground lending and rising property market fueled by the region's mining boom, citing Yao Wei, chief Asia-Pacific economist at Societe Generale. SMEs in Guangdong and the Pearl River Delta may face similar problems, citing Joy Yang, Greater China chief economist at Mirae Asset Securities.
Piper Jaffary:
- Rated (ANDE) Overweight, target $45.
- Rated (WRC) Underperform, target $43.
- Rated (ESRX) Outperform, target $54.
- Asian equity indices are -3.0% to -.50% on average.
- Asia Ex-Japan Investment Grade CDS Index 265.0 +10.0 basis points.
- Asia Pacific Sovereign CDS Index 173.50 +1.5 basis points.
- FTSE-100 futures -2.10%.
- S&P 500 futures unch.
- NASDAQ 100 futures -.04%.
Earnings of Note
Company/Estimate
- (GPN)/.74
- (YUM)/.82
10:00 am EST
- Factory Orders for August are estimated unch. versus a +2.4% gain in July.
- None of note
- Bernanke's Congressional Testimony, ECB's Trichet speaking, Fed's Raskin speaking, weekly retail sales reports, (AAPL) iPhone 5 Media Event, RBC Oil & Gas Conference, (SIG) investor day, (VAR) investor meeting and the (BKH) analyst day could also impact trading today.
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