Today's Headlines

Bloomberg:

• France's AAA Outlook Cut; Fitch Reviews Others. Fitch Ratings lowered France’s rating outlook and put the grades of nations including Spain and Italy on review for a downgrade, citing Europe’s failure to find a “comprehensive solution” to the debt crisis. Fitch changed its outlook on France to negative, while affirming its AAA rating. It also placed Spain, Italy, Belgium, Slovenia, Ireland and Cyprus on a “Rating Watch Negative” review, which it expects to complete by the end of January, according to a statement released today in London. The move raises pressure on European leaders after Fitch said on Dec. 12 that the lack of a comprehensive solution at a European Union summit this month increased pressure on sovereign ratings. EU heads, in their fifth attempt to end the debt crisis now in its third year, agreed to forge a tighter fiscal union as the main thrust of their efforts, even as the European Central Bank resists investor calls to step up its bond-buying program. “Of particular concern is the absence of a credible financial backstop,” Fitch said in an e-mailed statement. In the company’s opinion, “this requires more active and explicit commitment from the ECB.” Without a full solution, Fitch said the crisis will persist, “punctuated by episodes of severe financial market volatility that is a particular source of risk to the sovereign governments of those countries with levels of public debt.”“It’s justified,” said Vincent Truglia, managing director at New York-based Granite Springs Asset Management LLP and a former head of the sovereign risk unit at Moody’s Investors Service. “A solution to the crisis that maintains the euro as it is is not tenable,” he said. “The euro must be shrunk dramatically.” Fitch said that it changed France’s outlook because of the “heightened risk of contingent liabilities” that may emerge from the escalating euro-region crisis. The country has almost run out of buffers to absorb shocks “without undermining its AAA status,” it said. “The intensification of the euro zone crisis since July constitutes a significant negative shock to the region and to France’s economy and the stability of its financial sector,” the company said.
• Euro Weakens After Fitch Downgrade Warnings. The euro dropped against the majority of its most-traded counterparts as concern increased that the region’s leaders won’t be able to contain the sovereign-debt crisis after Fitch Ratings said it may downgrade France and six other European nations.
• European Banks Insure $25 Billion of Government Debt via Swaps. European banks have sold insurance on a net 18.9 billion euros ($25 billion) of government debt in the region, according to figures from the European Banking Authority analyzed in today’s Bloomberg Risk newsletter. Data gathered by the EBA for its stress tests, combined with figures compiled by the Depository Trust & Clearing Corp., show that European Union banks are responsible for 17 percent of the credit-default swaps issued on euro sovereign bonds. German, French and Italian banks have the most at stake, the data show. German banks have underwritten 8.1 billion euros of government securities, the most for any country surveyed by the EBA. The four largest French banks, which were downgraded by Moody’s Investors Service last week, wrote 4.1 billion euros of protection, while Italian banks sold 3 billion euros of swaps designed to compensate the buyer in the event of a government failing to meet its obligations. The entanglement between banks and their governments may hamper plans by regulators to move settlement of credit-default swap trades to clearing houses by the end of 2012, said Jon Gregory, partner at Solum Financial Partners in London. French banks, for example, have insured a net 1.5 billion euros of their own government debt, according to the EBA.
• UK Lawsuit Risk May Lead EU to Damp Treaty Plan, FTD Says. European Union leaders who agreed to tighten fiscal rules amid the debt crisis last week may water down the plan over fears the U.K. could oppose the step in court, the Financial Times Deutschland reported, without citing anyone. In amending the rules, the states that signed up for the plan may no longer insist on binding commitments to tighter fiscal rules and instead substitute voluntary agreements on some points, the newspaper reported. EU officials will meet on Dec. 20 in Brussels to resume work on the measures, the newspaper said.
• US Consumer Prices Stagnate as Gas Drops. The cost of living in the U.S. was little changed in November as gasoline prices dropped and food expenses cooled, supporting the Federal Reserve’s view that inflation will remain in check. The stable reading for the consumer-price index followed a 0.1 percent decline in October, a report from the Labor Department showed today in Washington. So-called core prices that exclude food and energy rose 0.2 percent, more than forecast, reflecting higher medical care and clothing costs.
• Zynga Declines in Trading Debut After $1B IPO. The shares, listed on the Nasdaq Stock Market under the symbol ZNGA, fell 4.2 percent to $9.58 at 12:53 p.m. New York time. The developer of games such as “CityVille,” “FarmVille” and “Mafia Wars” sold 100 million shares for $10 each, the top end of a proposed range, Zynga said in a statement.
• Prada Poised to Extend Slump as China's Shoppers Cut Bank Spending: Retail. Prada SpA is falling out of fashion six months into its Hong Kong trading debut as investors brace for Chinese shoppers to curb spending. Shares of the maker of $2,000 bags and Miu Miu shoes, which gets more than 42 percent of sales from Asia, have dropped 32 percent from their July peak. The stock has fallen with companies such as jeweler Luk Fook Holdings International Ltd. (590) and Omega retailer Hengdeli Holdings Ltd. (3389) as property and stock- market declines hurt China’s consumers. Luxury-sales growth in the world’s most populous nation will slow in 2012 from a forecast of at least 20 percent this year, said Royal Bank of Scotland analyst Katherine Chan. Coach Inc. (COH) to Gieves & Hawkes seller Trinity Ltd. (891) are already feeling the effects. “The golden time, or the high-growth period, for many luxurious goods retailers is probably over,” said Chan. Sales growth at high-end stores open more than a year may drop by as much as six percentage points in 2012, she said. Consumption leveled off faster than expected this quarter amid a cooling economy and market declines, Citigroup Inc. said Dec. 8, citing retailer and manufacturer projections at a Hong Kong conference.

Wall Street Journal:

• Dell(DELL) Sees Weak PC Demand in India. Dell Inc. is seeing some softness in demand for its personal computers in India as the local currency's sharp fall and a shortage of hard disk drives have pushed up the price of PCs, and consumer sentiment is damped by economic uncertainties. "We are seeing lower offtakes [in PCs] pretty much across" the board, Mahesh Bhalla, executive director and general manager at Dell's India unit, said recently. "We see this trend continuing over the next few months," he added.
• Oil Sector Sites Sights High, Adds More Muscle in Iraq. Oil companies active in the south of Iraq have beefed up security to deal with fears over the security implications of the U.S. troop withdrawal, but they say the pullout hasn't caused them to change plans to significantly ramp up production. "We have to wait and see.…If the security situation deteriorates that means we will hire more security personnel to protect us," said an executive of one of the oil majors.
• Investors Turn Away From Emerging Market Funds On Euro Worries. Investors turned away from emerging-market funds in the latest week, demonstrating their disappointment with the recent summit of European Union leaders and continued risk aversion. In the days following last week's summit, which took steps toward greater fiscal integration within the euro zone, market sentiment reflected concerns that such measures may not be enough to stopgap contagion risks.
• SEC Sues Former Fannie, Freddie Executives. The Securities and Exchange Commission has sued the former chief executives of Fannie Mae and Freddie Mac, accusing them of misleading investors about risks of subprime-mortgage loans. The lawsuits, filed in Manhattan federal court, also accused four other former executives at Freddie Mac and Fannie Mae of making false and misleading statements about the firms' exposure. The government took over Fannie and Freddie in September 2008 as investors pulled back from the firms, which took heavy losses on souring mortgages they guaranteed. Taxpayers have since provided $151 billion of support.
  

CNBC.com:

• Bank Layoffs Far From Over: 150,000 Likely in 2012: Bove.

Business Insider:

• Fitch Threatens Massive Euro Downgrade After Saying Comprehensive Solution To Crisis Is 'Beyond Reach'.
• These Are The 29 Massive Banks That Could Take Down The Global Economy.
• The Sharks Small A Bubble Right In The US Heartland.
• Portuguese Politician: 'We Have An Atomic Bomb That We Can Use In The Face Of The Germans And The French'.
  

Zero Hedge:

• Whitney Tilson Down -.6% in November, Down -25% YTD.
• Charting China's Take Over Of The Banking World... And A Stark Warning.
  

Bespoke:

• Bank and Broker Default Risk Remains Elevated. (graph)
  

IBD:

• New Chinese Microblog Regs Hit Sina(SINA); Stock Down 7%. Among other things, Sina (SINA) said the new rules require that "users of microblogging services register their identities with microblogging service providers." That means users, who may or may not post items that criticize the Chinese government, can't hide behind false names or pseudonyms. Microblogging service providers are required to verify the identities of their users, Sina said. Moreover, Sina said the new regulations "identify 11 categories of content that are restricted from being disseminated. Microblogging service providers are required to implement systems and procedures to ensure the security of user information and that the information disseminated by microblogging users is in compliance with the content restriction policy." In its statement, Sina said its executives are "closely monitoring this new regulatory development" and the impact it might have on its Twitter-like service, Weibo. Investors didn't monitor the news long, as Sina's U.S. shares were down 7% in early trading

Reuters:

• Boyer Allan Shutting China, Asia Hedge Funds - Sources. Boyer Allan Investment Management is shutting two of its hedge funds after losses and a fall in assets this year, four sources familiar with the matter said. The company, which managed about $1.8 billion in three products before the financial crisis, was shutting its pan-Asia Boyer Allan Pacific fund after an 18.7 percent loss up to the end of November, two of the sources said. It is also shutting the Boyer Allan Greater China fund, which has lost 7.8 percent this year.
• Europe's Lenders On Central Bank Life Support. European banks face a 725 billion euro funding crunch in 2012, forcing them deeper into the arms of a European Central Bank which is prepared to prop up banks but not governments. The central bank is throwing European lenders a three-year liquidity lifeline in response to pressure from desperate top executives who have seen interbank lending and funding from wary money market investors come to an abrupt halt. "There's a huge funding issue in Q1 where a lot of banks have to refinance debt so there's a big crunch coming," a senior banker at a European firm told Reuters on Friday. "Couple that with uncertainty about what's going to happen with the euro and it could be a very interesting first quarter."

Telegraph:

• IMF Chief Offers Nothing But Platitudes. Christine Lagarde's blood-curdling warning of a 1930s style depression is all very well as far as it goes, but she fails to provide anything in the way of solutions. After a brief interlude in which the multilateral response to the initial banking crisis seemed to be working, it is now manifestly failing.
• Debt Crisis: Live. UK Deputy Prime Minister tells French PM Francois Fillon 'remarks about British economy simply unacceptable', as draft fiscal document states that all 27 members will have a hand in eurozone reforms and Fitch places six countries on watch for possible downgrade.
• Ireland's Economy Shrinks More Than Expected -1.9%. Ireland's economy contracted by 1.9pc in the third quarter, far worse than expected, as global economic turmoil dented export growth, raising the stakes for its fiscal and debt targets under an EU-IMF bailout.

Die Welt:

• A plan to boost the IMF's resources to help finance euro zone nations faces skepticism from countries such as the U.S., Brazil, China and Japan.