Evening Headlines
Bloomberg:
- Greek President Told Banks Anxious as Deposits Pulled. Greek President Karolos Papoulias was told by the central bank chief this week that financial institutions are becoming anxious about their prospects as Greeks pull out cash after the inconclusive May 6 elections. Central bank head George Provopoulos told Papoulias that Greeks have withdrawn as much as 700 million euros ($891 million) and the situation could worsen, according to the transcript of the president’s meeting with party leaders on May 14 that was published yesterday. “Provopoulos told me that of course there’s no panic but there’s great fear which can evolve into panic,” he said. Greece’s future in the euro has been thrown into doubt by the political standoff, forcing the president to call for new elections yesterday. German Finance Minister Wolfgang Schaeuble called the next vote a referendum on whether Greece exits the euro, a move that would leave lenders to its government, businesses and households unsure of recouping their money. The risk of a run on Greek banks is “a very serious problem,” Yannis Ioannides, professor of economics at Tufts University in Massachusetts, told Bloomberg Television. He said the European Central Bank needs to guarantee deposits held by the region’s lenders to guard against contagion. “That’s the only way to kill a bank run: not words but deeds.”
- Europe Must Face Ugly Reality of Greek Exit from Euro. A Greek exit from the euro area has the potential to be the European Union’s most economically and politically destructive event of a generation. Unfortunately, Europe has reached the point where it must prepare for such an outcome. Whether Greeks want it or not, circumstances could soon force their country to return to the drachma. Europe’s leaders, as Luxembourg Prime Minister Jean-Claude Juncker hinted, might extend Greece’s deadlines to meet the budget targets required for rescue money, but they won’t provide emergency financing to a government that refuses austerity measures. Without Europe’s help, Greece’s government (whoever ends up leading it) faces a dilemma: Cut spending even more than under the austerity program, or default on its debts and print a new currency to pay its bills.
- Germany Demands That ECB Pays Back EFSF Guarantee, FTD Reports. Germany and the European Financial Stability Facility has demanded that the European Central Bank pay back a 35 billion-euro ($45 billion) guarantee to the EFSF, Financial Times Deutschland said in a preview of a story that will run tomorrow, without saying where it got the information. The ECB received the guarantee from the EFSF to cover risks during the Greek government debt swap in March and wants to keep it for as long as 10 months because of outstanding so-called selective default bonds, the newspaper reported.
- Brazil Builders Plunge as PDG Profit Tumble Deepens Slump. MRV Engenharia (MRVE3) & Participacoes and PDG Realty (PDGR3) SA Empreendimentos & Participacoes led a plunge among Brazilian real-estate companies after reporting first-quarter profit that fell more than forecast. MRV lost 15 percent to 9.43 reais at the close in Sao Paulo, the biggest decline on the BM&FBovespa Real Estate Index, which retreated 4 percent. PDG, the country’s largest homebuilder by sales, fell 9.8 percent to 3.67 reais, making it the worst performer this year on the benchmark Bovespa index. PDG and MRV joined Rossi Residencial SA (RSID3), Brookfield Incorporacoes SA (BISA3) and Gafisa SA (GFSA3) in reporting lower profit or net losses last quarter. Homebuilders overextended themselves after 7.5 percent economic growth in 2010 spurred construction, creating a property glut as expansion slowed, said Luiz Roberto Calado, a vice president at the Brazilian Finance Managers Association. “They basically overestimated demand,” Calado, who published a book in 2010 on Brazilian real estate, said by phone from Sao Paulo. “They started buying land and creating lots of projects, but family income just hasn’t risen as much as housing prices. Even with credit, houses and apartments don’t seem affordable anymore.”
- Goldman(GS), Merrill E-Mails Show Naked Shorting, Filing Says. Goldman Sachs Group Inc. (GS) and Merrill Lynch & Co. employees discussed helping naked short-sales by market-maker clients in e-mails the banks sought to keep secret, including one in which a Merrill official told another to ignore compliance rules, Overstock.com Inc. (OSTK) said in a court filing. The online retailer accused Merrill, now part of Bank of America Corp., and Goldman Sachs of manipulating its stock from 2005 to 2007, causing its shares to fall. Clearing operations at the banks intentionally failed to locate and deliver borrowed shares for clients shorting stocks, including two traders who were fined and suspended from the industry, Overstock’s attorneys said in court filings earlier this year.
- JC Penney(JCP) Reports First-Quarter Loss Amid Sales Slump. J.C. Penney Co. (JCP), the department-store chain led by Apple Inc.’s (AAPL) former stores chief, reported a first- quarter loss and said it will discontinue its quarterly dividend after sales fell more than anticipated. The shares declined. The loss of $163 million, or 75 cents a share, compared with profit of $64 million, or 28 cents, a year earlier, the Plano, Texas-based company said today in a statement. Sales slumped 20 percent to $3.15 billion, missing the $3.43 billion average of 16 estimates compiled by Bloomberg. The shares fell 13 percent to $29 at 5:53 p.m. in New York. At the close, J.C. Penney had dropped 5.2 percent this year.
- Romney Focuses on U.S. Debt in Attacking Obama for Slow Recovery. Mitt Romney decried the ballooning of the federal debt and said it “threatens what it means to be an American,” as he argued that government deficits are hurting the nation’s economic recovery and President Barack Obama has made the situation worse. “America counted on President Obama to rescue the economy, tame the deficit and help create jobs,” the presumed Republican presidential nominee told supporters today in Des Moines, Iowa. Criticizing the $831 billion stimulus package enacted shortly into Obama’s term and other administration actions, Romney said the president “bailed out the public sector, gave billions of your dollars to companies of his friends and added almost as much debt to the country as all the prior presidents combined.” As a consequence, “we are now enduring the most tepid recovery in modern history,” Romney said.
- China Power Output Shows Deeper Economic Slump: Chart of the Day. China's economic slowdown may be worse than forecast as growth in electricity generation, a leading indicator of gdp, was almost non-existent last month. Power generation rose .7% in April from a year earlier, down from 7.2% in March, the National Bureau of Statistics said on its website. Industrial production in the world's second-largest economy, which accounts for more than 70% of electricity use, rose at the slowest pace in about three years last month. "Power production is one of the coincident indicators of the economy," said Michael Parker, an analyst in Hong Kong at Sanford C. Bernstein & Co. "To see the number so sharply down, I think the problem of macro issues comes into question."
- JPMorgan’s Specific Trades Weren’t Monitored, Regulator Says. JPMorgan Chase & Co. (JPM)’s individual trades that led to a $2 billion loss weren’t monitored by the Office of the Comptroller of the Currency, which said it didn’t expect to be notified about the positions. The job of the OCC, which oversees U.S. national banks including JPMorgan Chase Bank N.A., is to oversee wider risk- management policies and limits and to alert company management when it sees activities that range far from expectations, said Bryan Hubbard, an OCC spokesman.
- China's Hong Kong Home-Buying Influx Wanes, Midland Says. Mainland Chinese investors accounted for a smaller percentage of Hong Kong’s new home sales for a second quarter as the country’s economy slowed and local buyers returned to the market, according to Midland Holdings Ltd. (1200) Mainland purchasers made up 36.8 percent of all new home sales by value in the first quarter, from 37.9 percent in the previous three months, Hong Kong’s biggest publicly traded realtor said in an e-mail yesterday. The figure reached 53.9 percent in the third quarter last year, Midland said.
- More Real-Estate Loans Default in Europe. European commercial-real-estate markets are struggling with a sharp increase in problem mortgages just as more European countries slip back into recession. A growing number of landlords, hit with falling rents and occupancies, are defaulting on loans, and it is happening not just in the most-troubled parts of Europe but in big centers like London and Frankfurt. Values already are down nearly 20% since their 2007 peak across Europe, according to CBRE Group Inc. Meantime, billions of euros of commercial mortgages are coming due, but little capital is available for refinancing.
- China Big Four Banks Barely Issue New Yuan Loans In 1H May - Report. China's biggest four banks barely issued any new yuan loans in the first two weeks of May, extending the country's weak credit growth last month, the state-run Shanghai Securities News reported Wednesday, citing an unnamed source. The four banks--Industrial & Commercial Bank of China Ltd. 1398.HK -2.08% (601398.SH), China Construction Bank Corp. 0939.HK -2.20% (601939.SH), Bank of China Ltd. 3988.HK -2.35% (601988.SH) and Agricultural Bank of China Ltd. 1288.HK -0.60% (601288.SH)--usually account for 30% of new yuan loans issued by China's whole banking system. The rare and unusually dismal performance by the banks is expected to fuel concerns that despite Beijing's efforts to step up credit easing, corporate demand for loans remains too weak to reverse the trend.
- Regulator Laments Role of Largest Mortgage Lenders. The U.S. mortgage industry has become too concentrated in the hands of a few large players, a leading housing regulator said Tuesday, expressing a concern many small lenders are voicing as regulators consider how to overhaul the nation’s mortgage system.
- JPMorgan's(JPM) $2 Billion-Plus Loss Came On Three-Legged Trade. The complex web of trades that saddled J.P. Morgan Chase & Co. (JPM) with at least $2 billion in losses had three key components, according to people familiar with the bank's strategy. Now, rival traders, seeking to reap gains from J.P. Morgan's losses, are scurrying to guess which parts the bank is unwinding, and how.
- Loeb's Third Point Reveals Apple(AAPL), Google(GOOG), Cisco(CSCO) Stakes. Third Point LLC, the hedge fund that recently won a proxy battle for further control of embattled Internet firm Yahoo Inc., has turned its attention to other large tech firms recently.
- Tom Frost: The Big Danger With Big Banks. Taxpayer safety nets such as the FDIC should be available only to banks that are in the loan business, not those in the investment business.
MarketWatch:
- Asia Stocks Dive as Greek Political Crisis Deepens. Asia’s stock markets fell sharply Wednesday, with commodity firms among those hardest hit after news that Greece’s political impasse would force new elections in the country. Hong Kong’s Hang Seng Index was among the region’s worst performers Wednesday, tumbling 2.4%, with Sullivan citing the Hong Kong market’s relatively high liquidity. Australia’s S&P/ASX 200 wasn’t far behind with a 1.8% drop, as weak commodity prices sent major mining names lower.
- Filings Show 45% of China Companies See Slowdown.
- Elizabeth Warren Is Getting Destroyed More For Calling Herself A Native American.
- 3 Reasons Why You Should Expect France's Wealthy Elite To Move To London.
- Attention Facebook(FB) Investors: This (GM) Ad Cancellation Is Big, Bad News.
- Of Whitney Tilson's $345MM In AUM, $104MM Is In Call Options, $24MM Is In Warrants.
- Majority of Neo-Normal Greek Cops Vote Neo-Nazi. In a somewhat stunning revelation, especially after our earlier note on the Golden Dawn leader's 'position' on the issues of the day, GreekReporter notes via the news paper To Vima, that more than half of all police officers in Greece voted for pro-Nazi party Golden Dawn in the elections of May 6th. It's not really for us to judge (well maybe it is) but when some polling stations report Golden Dawn receiving 19-24% of the votes, things are going from the dismal to the horrific (and potentially chaotic) very fast.
- Market Deja Deja Deja... Oh Forget It! (graphs)
- Facebook(FB) to Increase IPO Deal Size by 25%: Source.
- High-Speed Trading: Profit - and Danger - in Milliseconds.
IBD:
NY Times:
- Needy States Use Housing Aid Cash to Plug Budgets. Hundreds of millions of dollars meant to provide a little relief to the nation’s struggling homeowners is being diverted to plug state budget gaps.
- Obama Lists Millions in Assets in 2011. The White House released documents Tuesday that show President Barack Obama and the first family hold assets valued at between $2.6 million and $8.3 million. The disclosure forms, required by the Ethics in Government Act, show the president's largest asset, by far, is U.S. debt in the form of Treasury notes and bills. In total, the president has between $1.6 million and $6.3 million invested in Treasury debt.
Reuters:
- Chicago braces for violence at NATO summit. Chicago police, who have a reputation for dealing toughly with protesters, will be prepared for the worst with new riot gear, including "sound cannon", if demonstrators at the NATO summit get out of line this weekend. America's third-largest city and President Barack Obama's hometown has never hosted anything like the meeting starting on Sunday, which will draw representatives from some 50 countries, including leaders of the 28 members of the military alliance.
- PIMCO: Euro zone to 'evolve into smaller' entity. Pacific Investment Management Co., which manages the world's largest bond fund, sees a high probability that the euro zone "will evolve into a smaller and less imperfect entity." "Simply put, the status quo is no longer an option for Europe over the three- to five-year horizon," PIMCO Chief Executive Officer Mohamed El-Erian wrote in a report outlining the Newport Beach, California-based company's medium-term economic outlook. "The higher probability outcome is that the eurozone will evolve into a smaller and less imperfect entity - namely, a closer political union of countries with more similar conditions."
- Sina Corp(SINA) Could See Further Losses Due to Weibo - CEO. Sina Corp could post further losses due to its investment in microblogging platform, Weibo, its Chief Executive Officer Charles Chao said on Wednesday. Sina Corp reported quarterly results that beat Wall Street's targets after advertising revenue shot up 9 percent despite a weak Chinese market, propelling its shares up 7 percent in after hours.
- Bankers' Talks On Curbing Rating Agencies. Up to 20 of Europe’s top banks will on Wednesday discuss a plan to foil the dominance of the much criticised big three credit agencies at a private meeting of finance directors in Frankfurt. Some of the banks want to change the culture of information disclosure to the likes of Standard & Poor’s, Moody’s and Fitch to level the playing field for potential new entrants.
- JPMorgan(JPM) loss exposes derivatives dangers. As JPMorgan reels from a complicated hedging strategy, one that misfired to the tune of at least $2.3bn in losses, derivatives-market participants worried about new rules on trading fear it will be harder to argue for more lenient treatment.
- US Bank CDS Hit Fresh 2012 Highs. Credit default swaps on major US banks, including JPMorgan Chase, hit fresh highs for the year on Tuesday as problems in Greece intensified. The cost of default protection on JPMorgan debt rose 8 basis points to 147, the highest level this year.
- Italy's Banks Shaken as Economic Slump Deepens. As Greece erupts, Italy is moving into the eye of the storm. Its economy is contracting at speeds not seen since the depths of the slump in 2009 as draconian austerity bites, greatly increasing the risk of social revolt and a banking crisis. With the world's third largest debt after the US and Japan at €1.9 trillion (£1.18 trillion), it is big enough to bring the global financial system to its knees. It is also in the front line of contagion as the Greek crisis metastasizes. Yields on 10-year Italian debt jumped 16 points to 5.86pc on Tuesday after Italy's data agency said the country is sliding even into deeper recession, with GDP shrinking 0.8pc in the first quarter. Output is now 6pc below its peak in 2008. Italy has been trapped in perma-slump for a decade, the only major state to suffer a fall in real per capita income since 2000. Rising anger has led to a spate of violent attacks by terrorist groups over recent weeks, all too like the traumatic 'years of lead' in the late 1970s. The government is mulling use of troops to protect targets after anarchists shot the head of Ansaldo Nucleare last week and hurled petrol bombs at tax offices.
- Global Lenders Face 'Killer Losses' on Greek Debt. Foreign holders of €422bn of Greek debt were warned to brace themselves for "killer losses" as coalition talks in Athens collapsed, threatening Greece's future in the eurozone.
The Australian:
- IMF Jets In For Stress Tests On Australia's Big Four Banks. THE big four banks face increasing scrutiny from both the International Monetary Fund and the credit rating agencies as Europe's financial problems drive up offshore funding costs, just as domestic growth stutters. IMF officials arrived in Sydney this week for meetings with ANZ, Commonwealth Bank, National Australia Bank and Westpac.
- None of note
- Asian equity indices are -2.50% to -1.0% on average.
- Asia Ex-Japan Investment Grade CDS Index 192.5 +2.5 basis points.
- Asia Pacific Sovereign CDS Index 149.50 -1.0 basis point.
- FTSE-100 futures -.75%.
- S&P 500 futures -.14%.
- NASDAQ 100 futures -.20%.
Earnings of Note
Company/Estimate
- (TGT)/1.00
- (DE)/2.53
- (SPLS)/.30
- (ANF)/.01
- (LTD)/.40
- (JACK)/.31
- (RRGB)/.66
- (CHS)/.30
8:30 am EST
- Housing Starts for April are estimated to rise to 685K versus 654K in March.
- Building Permits for April are estimated to fall to 730K versus 747K in March.
9:15 am EST
- Industrial Production for April is estimated to rise +.6% versus unch. in March.
- Capacity Utilization for April is estimated to rise to 79.0% versus 78.6% in March.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +1,750,000 barrels versus a +3,652,000 barrel gain the prior week. Distillate supplies are estimated to rise by +150,000 barrels versus a -3,251,000 barrel decline the prior week. Gasoline supplies are expected to fall by -100,000 barrels versus a -2,613,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise +.5% versus a +.4% gain the prior week.
2:00 pm EST
- Minutes of FOMC Meeting
Upcoming Splits
- None of note
Other Potential Market Movers
- The France/Germany Bond/Bund Auctions, Fed's Bullard speaking, 1Q Mortgage Delinquencies, 1Q MBA Mortgage Foreclosures, weekly MBA mortgage applications report, (NCR) investor day could also impact trading today.
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