August 29, 2011
US futures continue to trade above fair value and are little changed from earlier updates on what is expected to be a lighter than normal trading session. Flooding from Hurricane Irene left many NYC suburbs with limited transportation intoManhattan with some initial loss estimates from the storm in the $7B range.
October WTI crude +$0.72 at $86.09
Natural gas ($0.040) at $3.872
Gold Spot ($9.09) at $1818.06
10-year yield 2.225%
30-year yield 3.563%
Asian Markets
Most Asian markets rose today, encouraged by Fed Chair Ben Bernanke’s remarks on August 26th. Shipbuilders and energy stocks led South Korea up.
Cement and rubber companies paced Taiwan to a gain even as a typhoon hit the southern part of the island. Small and medium-sized Chinese banks fell 3-5%. Investors in Japan stayed on the sidelines in the morning as they awaited results from the DPJ’s leadership elections to choose a new Prime Minister; the market didn’t really react after results were announced about 30 minutes before the close. A strong yen caused exporters to fall, and carmakers were hurt by a report that they may face parts shortages as they try to ramp up production in H2. Banks led Chinadown on worries about liquidity after the People’s Bank of China essentially raised their reserve requirements. The yen is trading at 76.61 to the US dollar.
European Markets
While London is closed today, the remainder of Europe is trading higher following gains in the US and Asia after Fed Chairman Bernanke's comments Friday that left the door open for further monetary stimulus suggesting he has a "range of tools" to use as needed to reinvigorate the economy. European equity markets are trading higher yet well off the best levels of the day as investors take advantage of some of the cheapest valuations in two years following two days of losses. July Spain Retail Sales (3.9%) y/y vs consensus (5.5%) and prior (7.4%), August Italian Consumer Confidence 100.3 vs consensus 102.0 and prior 103.7. The pound and the euro are trading at $1.6381 and $1.4510 respectively.
Today's Economic Releases (Eastern Time)
02:45 France PPI (Y-o-Y) (Jul); consensus n/a
03:00 Spain Retail Sales (Y-o-Y) (Jul); consensus n/a
04:00 Italy Consumer Confidence Index (Aug); consensus n/a
05:00 Greece PPI (Jul); consensus n/a
08:00 Germany CPI (Y-o-Y) (preliminary) (Aug P); consensus n/a
08:30 US Personal Income (Jul); consensus +0.3%
08:30 US Personal Consumption (Jul); consensus +0.5%
08:30 US PCE Core (Jul); consensus +0.2%
10:00 US Pending Home Sales (Jul); consensus (1.5%)
Today's Key Events (Eastern Time)
09:00 Roche discusses two CETP modulator dalcetrapib Phase IIb Studies, updates CardioMetabolism franchise @ ESC Congress: 866.291.4166 begin_of_the_skype_highlighting 866.291.4166 end_of_the_skype_highlighting/ UK +44 203 059 58 62 begin_of_the_skype_highlighting +44 203 059 58 62 end_of_the_skype_highlighting
—:— European Society of Cardiology Congress
—:— FDA PDUFA: NuPathe’s NDA for Zelrix, transdermal patch for the treatment of migraine
—:— Global Hunter Securities with Symmetricom
—:— Inovio Pharmaceuticals Investor Conference
—:— International Epilepsy Congress ~ IEC
—:— Southern California Investor Conference
—:— Virtusa (VRTU) will replace SFN Group (SFN) in the S&P 600 - after the close
Company Specific News
Earnings
LDK (LDK Solar reports Q2 EPADS ($0.62) including inventory write-down; Reuters consensus is ($0.25); Reports Q2: Revenues $499.4M vs Reuters $525.4M)
Positive News
PFE (FDA approves Pfizer's Xalkori (crizotinib) with companion diagnostic for a type of late-stage lung cancer)
Corporate Actions
DRC (Dresser-Rand's board authorized $150M accelerated share buyback program; updates booking guidance)
SOHU (Sohu.com announces $100M stock purchase program)
Offerings
DOR (Dynamic Offshore Resources files $400M IPO through Citi, Credit Suisse, Deutsche, Tudor, Pickering, and UBS)
EPCT (EpiCept files $25M equity shelf)
Other News
(Facebook says it is ending its Facebook Deals product in coming weeks)
Federal Reserve Bank of Kansas City Economic Policy Symposium in Jackson Hole
- Central bankers urge governments to keep expansion intact: Bloomberg said that central bankers gathered at the annual retreat in Jackson Hole last weekend urged political leaders to understand that monetary policy alone cannot keep the global expansion going. The article noted that Fed Chairman Bernanke called for the adoption of “good, proactive housing policies” in the US, while the ECB's Ewald Nowotny said Eurozone governments should expand the powers of the EFSF. In addition IMF managing director Lagarde argued that risks have been aggravated by “a growing sense that policy makers do not have the conviction, or simply are not willing, to take the decisions that are needed".
- Gloom settles on central bankers: The WSJ said that after years fighting crises and pumping money into the financial system, global central bankers are coming to grips with the realization that the global economy is still a very dangerous place. The paper added that the problem is exacerbated by the fact that for some - including the Fed - there is not much left they can do to bolster the economy. The article also noted that officials at the conference were particularly concerned about a number of difficult negotiations in Europe.
- Bernanke buys time: Reuters reported that Fed Chairman Bernanke used his speech in Jackson Hole to buy time to play the strongest hand possible when he is ready. The article noted that the expansion of the September meeting highlights the extent to which Bernanke is worried about high unemployment, weak manufacturing data, stock market volatility and funding constraints in the European banking system. Reuters also said that a twist operation is one idea that is likely to be on the agenda at next month's meeting.
- Speech hints at options for Fed: The WSJ's Jon Hilsenrath said that the key takeaway from Fed Chairman Bernanke's speech was that while the Fed will do what it can to boost the economy in the short-term, it will take a broader effort to get the economy on a better long-term growth path. The article also noted that among the central bankers at the conference, there was a noticeable sense of concern behind the scenes about the headwinds facing the global economy.
- Bernanke may seek consensus on easing: Bloomberg reported that Fed Chairman Bernanke's decision to extend September's policy meeting to two days has triggered speculation that the extra time may help him forge a consensus on monetary easing. The article noted that previous two-day meetings have seen a higher probability of steps for further policy accommodation.
- ECB's Nowotny downplays European inflation expectations: Bloomberg noted that ECB Governing Council member Ewald Nowtony said he sees no upward pressure on inflation expectations in the Eurozone, suggesting that policy makers may keep rates on hold following two increases this year. Nowotny also urged Eurozone governments to ratify changes to the EFSF. In addition, he downplayed funding concerns in the Eurozone banking system, noting that “We are away from a situation like that after Lehman. It is something to be observed, but not an immediate challenge.”
- IMF's Lagarde warns on global economy: The WSJ reported that IMF managing director warned that risks to the global economy are rising and countries must quickly adopt the right policy mix to ensure a continued recovery. She argued that "developments this summer have indicated we are in a dangerous new phase," adding that "the stakes are clear: we risk seeing the fragile recovery derailed. So we must act now." According to the article, Lagarde's remarks appeared targeted at, among others, ECB President Trichet.
- European officials round on Lagarde: The FT said that European officials rounded on IMF managing director Lagarde on Sunday, accusing her of making a "confused" and misguided attack on the health of Europe's banks. The article noted that Lagarde used her address in Jackson Hole to call for an "urgent" recapitalization ofEurope's weakest banks. The paper said that officials are concerned that Lagarde's comments missed the point of banks' current difficulties, which revolve around funding and not capital
- Trichet takes a different tact: Bloomberg noted that ECB President Trichet's speech in Jackson Hole contained no commentary on near-term monetary policy or economics other than to say that the ECB's efforts to end the credit and debt crises “do not in any way impinge” on its ability to deliver price stability. According to the article, Trichet noted that regional economic diversity in the US is similar to the Eurozone's. He urged countries to pursue structural reforms to make themselves more competitive and efficient as Germany did in the 1990s.
- Trichet gives master class in saying nothing: CNBC reported that ECB President Trichet did not talk about anything that investors were interested in hearing in his speech last weekend in Jackson Hole.
- Trichet delivers a largely academic speech: The WSJ noted that ECB President Trichet gave no indication that the central bank is ready to reverse course on monetary policy. The paper said that in a largely academic speech in which he compared growth rates in Europe and the US, Trichet argued that reforming over-regulated Eurozone economies would go a long way to boosting growth.
Newspaper Articles / Headlines
Barron's
- The Trader: Highlights last week's first weekly gain in five weeks, Hurricane Irene and discusses the future of department-store stocks
- International Trader (Europe): Positive on Rentokil (RTO.LN)
- International Trader (Asia): Discusses how Bernanke's Jackson Hole speech will affect the commodity market, especially BHP Billiton(BHP)
- Current Yield: Discusses Bernanke's Jackson Hole speech
- The Striking Price: Highlights Berkshire Hathaway's (BRK.A) $5B investment in Bank of America (BAC) and why nervous investors should consider the half-and-half and risk reversal options strategies
- Commodities Corner: Live-cattle futures will get a big boost next year
- Up and Down Wall Street: Highlights Ben Bernanke's uneventful speech and what to expect from the Fed's Open Market Committee meets on Sept. 20 and 21.
- StreetWise: Discusses Bernanke's speech and its affect on the markets and why some companies, including Tiffany's (TIF), do better in a weak economy
- D.C. Current: August was a difficult month for fundraising and produced several bears
- Technology Trader: Highlights Steve Jobs' (APPL) decision to step down and what might be next for Apple post-Jobs
- Plugged In: Discusses Steve Job's retirement and who will be the next technologist of silicon valley in the decades to come
- ETF Focus: ETFs make a comeback
- Fund of Information: Highlights Currency funds
- Electronic Investor: Discusses TD Ameritrade's (AMTD) thinkorswim clearing conversion
- Follow- up: Discusses Berkshire Hathaway's $5B investment in Bank ofAmerica; Remains positive on Helmerich & Payne (HP)
- Barron's interviews Steven Romick, the manager of the $6.7B FPA CrescentFund (FPACX). Romick discusses his concerns about the economy, the U.S.government and tells Barron's that his fund's portfolio is tilted toward bigger companies that have more international exposure, less dollar exposure. Romick tells Barron's that his top 5 picks include: Microsoft (MSFT), CVS (CVS), Wal-Mart (WMT), Tesco (TSCO.LN), Lowe's (LOW).
- Barron's feature positive Jones Group. Barron's argues Jones Group could rally to $20, from its current $10, as margins widen and earnings improve. According to Barron's, Jones Group has a portfolio of strong brands, including Anne Klein, Evan-Picone, Kasper, Nine West, Easy Spirit and Joan & David, which all occupy prime real estate in department stores such as Macy's (M) and Lord & Taylor. The article cites Mike Roach, manager of the Dreman Small Cap Value Fund, who thinks the stock, down about 70% in the past five years, is a good value. Barron's notes that, according to Roach, Jones could earn up to $1.50 a share by 2012 and if you apply the company's historic price/earnings ratio of 12 to that estimate, Roach gets a stock price of $18.
- Barron's feature positive on bank preferreds. Barron's highlights Berkshire Hathaway's (BRK.A) $5B Bank of America (BAC) investment and notes this move indicates that Warren Buffet believes preferreds are safe and may deserve a closer look from yield-oriented investors. The article notes that preferreds from JPMorgan (JPM), Citigroup (C), and Wells Fargo (WFC) yield closer to 7% and look reasonably attractive due to improved capital levels since the 2008 financial crisis and low yields on U.S. Treasuries.Barron's points out that Bank of America is the leading issuer of preferred shares, with $38B outstanding, and carries the highest yield among those of major banks, on concerns about the bank's mortgage exposure and capital adequacy. Barron's provides a list of preferreds, trust preferreds and related securities to consider from a group of big financial companies, including: Bank of America's Preferred L, Bank of America'sTrust preferred Y, Wells Fargo's Preferred L, JP Morgan's Trust preferred J, Citigroup's Trust preferred Q, AIG's (AIG) Sub Debt (AVF), Ally Financial's (ALLY) Preferred A, Morgan Stanley's (MS) Trust preferred (MSK)
- Barron's feature cautious Dunkin’ Brands. Barron's argues that Dunkin' Brands, which became public last month at $19 a share and now trades for $26, may have a fair value closer to $17. The article highlights Morning Star analyst Joscelyn MacKay, who believes in Dunkin's growth potential but doesn't think it justifies the company's high valuation. Barron's notes that bulls expect Dunkin' Donuts to expand westward in the U.S. and overseas, using its franchise-oriented business model. The article points out that Dunkin' is mainly a breakfast-oriented regional chain, which can make growth outside the home territory difficult.
Bloomberg
- Roche Holding announced that dalcetrapib has no effect on blood pressure at European Society of Cardiology meeting in Paris. Bloomberg reports that Roche Holding AG (ROG.VX) hopes to have eased safety concerns by announcing that their experimental drug, dalcetrapib, increased so-called good cholesterol without having an effect on blood pressure. The article notes that researched announced the European Society of Cardiology meeting in Paris that dalcetrapib raised good cholesterol, or HDL cholesterol, by 31%. Bloomberg notes that it wont be certain until full data from a much bigger study is available in 2013 whether or not the drug actually helps fight heart disease. The article reports that the 36 week and 476 person study, called dal-Vessel, recorded 11 cardiovascular events in patients taking dalcetrapib, compared with 12 events among patients who took a placebo
Business Spectator
- BHP Billiton moving coking-coal customers from quarterly to monthly contracts, says Australian Financial Review.
Detroit Free Press
- GM and UAW talks could lead to an early deal. The article notes that, according to a person familiar with the process, General Motors' negotiations with the UAW are progressing very quickly into contract talks and some people are starting to believe an agreement could beat the Sept. 14 deadline. The Detroit Free Press notes that topics include finding a way to restore lost benefits for retirees, adding jobs at U.S. plants and creating a better profit-sharing formula.
Financial Times
- Google in talks with major UK broadcasters about Google TV. Chairman Eric Schmidt tells the FT that Logitech (LOGN.VX) and Sony (6758.JP) will remain partners, and an announcement to be made soon will reveal others to join them.
- European wind industry trembles at rise of Chinese competitors. The article is a summary, breaking no news. The FT notes that in only five years, China has gone from having zero to four of the world's top ten wind turbine manufacturers, and a consultant says that the quality of the Chinese companies is rapidly approaching that offered by western ones.
- Oil industry seeks faster Gulf of Mexico drilling permits. Without breaking any news that is the least bit surprising, the FT reports that industry figures will meet with regulators 30-Aug to ask about speeding up the process. A government spokeswoman tells the FT that people are already working overtime on permits.
- Piramal to invest at least $1.5B to expand its overseas pharmaceuticals business. Chairman Ajay Piramal tells the FT that the company will buy some medium-sized companies and enter JVs with large groups. Without indicating who he is talking with, Piramal says he hopes to announce the first deal in 6-12 months. He adds that the company will only keep its 5.5% of Vodafone Essar for a short time. People close to the matter tell the FT that Piramal has options to sell its stake to Vodafone (VOD.LN) for $900M in two years.
- Some German banks, agencies have yet to decide if they will join bond swap to help Greece. The FT reports that: Greece says the swap may not proceed if less than 90% of investors go for it FMS Wertmanagement and Erste Abwicklungsanstalt together hold €8.5B of debt; the swap plan is for €135B DZ Bank and Landesbank Baden-Württemberg have also not said if they're willing to join the plan Commerzbank (CBK.GR), Deutsche Bank (DBK.GR), BayernLB, Munich Re (MUV2.GR), Allianz (ALV.GR), and DekaBank all support the plan
- Healthcare Locums rebel investors say they have the votes to block company's relisting. The FT reports that the investors say a proposed refinancing for the company will force them to take a 91% haircut. In a letter, a minority investor tells the chairman that 21.6% of shareholders are prepared to vote against a plan that includes a £60M placing and a debt-for-equity swap; the idea requires 75% approval to pass. Sources familiar with the situation tell the FT that rebel investors have an alternative plan, and while private equity may be interested in buying the company, a deal may not go through until the shares are relisted.
- FT interviews VMware CEO Paul Maritz. Maritz says nothing surprising, and is less than complimentary about his former employer, Microsoft (MSFT).
Globes
- Salesforce.com acquires Navajo Systems. According to Globes, media sources report that Salesforce.com (CRM) has acquired Navajo Systems, a Jerusalem-based cloud security encryption start-up. The article notes that Navajo Systems' technology locally encrypts and decrypts corporate data through its VPS platform before it leaves the enterprise and enters the cloud. The Globes reports that Salesforce spokesperson, Rochelle Garner, told "eWEEK" that the company would announce the acquisition and more details on its product plans at the Dreamforce conference in San Francisco next week.
Investor Business Daily
- The following changes were noted in the latest IBD 50 List. Added: LULU, ULTA, EZPW, NFLX, HS, TSCO, SLH, SOHU, THOR, AVGO. Deleted: ACTG, BEXP, DG, TJX, RES, NEM, OTEX, BVN, EDU, GFI
Kommersant
- Sistema ready to invest RUB6.5B on construction, merger. Seemingly without citing sources, Kommersant reports that the company wants to arrange a merger with the studio Lenfilm
London Times
- Gulf Keystone Petroleum considers selling all or part of its fields in northernIraq. The article differs slightly from the report in the Sunday Times, saying, without citing sources, that executives think its probably too soon to sell the entire company. But a sale is not out of the question if bankers drum up a big enough offer. The article notes that few oil majors have been willing to venture into Kurdish Iraq. Hess (HES) has a JV there with Petroceltic (PCI.ID), and Afren (AFR.LN) is buying interests in the region.
New York Post
- Don't hold your breath for Zynga listing. Sources with knowledge of the company's plans tell the NY Post that the jittery stock market is causing the company to delay its plans, and its IPO could now be delayed to November from initial hopes to list by early next month. One source says that the SEC remains unhappy with Zynga's most recent filing and wants to know how many paying customers the company has for its virtual goods; Zynga does not want to disclose the information.
The Sunday Times
- Sony said to be loosing interest in All3Media. The Sunday Times reports that the auction of All3Media is in doubt after Sony (SNE), indicated it was losing interest. The article notes that it is understood that Sony has not formally pulled out of the process but is reluctant to proceed if the price goes higher. The Sunday Times notes that bids are said to have come in at between £600M and £700M, short of the £750M that the company was said to be valued at. If Sony looses interest in the deal, Apollo Management will become the most likely buyer although advisers admit that it is not a seller’s market. The article reports that, according to sources, there is still a pool of bidders, with executives being flown to view All3Media bases round the world.
- Gulf Keystone Petroleum for sale; valued up to £1.4B. The Sunday Times reports that Gulf Keystone Petroleum (GKP.LN) has put itself up for sale for up to £1.4B. The article notes that Gulf Keystone was the first foreign company to sign a post-Iraq war oil exploration agreement in Kurdistan, a semi-autonomous region ofIraq where the company has made two discoveries, which it is claiming are among the largest in the region. According to The Sunday Times, the discoveries increased the company's shares from 10p two years ago to its most recent 130p, valuing the company at £1B. The article notes that Todd Kozel, Gulf Keystone's CEO, is said to have told investment banks that he plans to launch a beauty parade for advisors next month in order to help him assess the company's strategic options.
Wall Street Journal
- How to kill Hewlett-Packard in 12 short months. The WSJ concisely describes the actions the company has taken over the last 12 months.
- Wal-Mart's digital movie downloads performing well. Citing IHS research, the WSJ reports that H1 figures showed the following market shares: iTunes (AAPL) 65.8% vs year-ago 64.9%, Zune (MSFT) 16.2% vs year-ago 18.5%, Vudu 5.3% vs year-ago 1.0%, PlayStation (6758.JP) 4.4% vs year-ago 8.2%, Amazon (AMZN) 4.2% vs year-ago 4.0%.
The article notes that Wal-Mart is not famous for online successes.
- Monsanto's bug-resistant corn isn't anymore. The WSJ reports that rootworms have evolved and can now resist the pesticide made by Monsanto's corn plant. TheIowa State scientist who discovered the evolution says that it is isolated, but it calls into question the practices that farmers use.
- WSJ is extremely cautious on European car stocks. A "Heard on the Street" column says that given the general economic malaise that the carmakers face, VOlkswagen (VOW.GR) and Daimler(DAI.GR) are the only two worth considering.
- WSJ is grudgingly positive on Dish Network (DISH), cautious on DirecTV (DTV). A "Heard on the Street" column says that DISH's diversification is risky, but it's cheap enough to buy. DTV, on the other hand, is on an attractive share buyback, but in embarking on it, the company has limited its options for the future.
- Anglo Irish Bank chooses bidders for its $9.5B portfolio of U.S. commercial real-estate loans. People familiar with the matter tell the WSJ that private equity giant Lone Star Funds, Wells Fargo (WFC) and J.P. Morgan Chase (JPM) are the winning bidders for Anglo Irish Bank Corp's $9.5B portfolio of U.S. commercial real-estate loans.
- WSJ looks at LivingSocial. In an interview, CEO Tim O'Shaughnessy declines to discuss the possibility of listing.
Research
Bank of America: downgraded RY
BB&T: upgraded B, GVA
CLSA: upgraded ICE
ISI Group: upgraded ORLY; downgraded SPLS
Janney Capital: upgraded INSU
Macquarie: downgraded BWEN
Stephens: upgraded CALM
Ticonderoga: upgraded AMR
Options
So What Makes Sense Here?
Here’s our view:
1) For upside/short protection, we agree w/ Barrons’ Striking Price and like risk reversals for upside leverage (sell puts to buy calls). However, we want to note that this is a trade for those that have a higher appetite for risk. One more conservative trade we like is out-of-the-money 1x2 Call Spreads. This trade involves buying an out of the money call and selling twice as many higher strike calls. This is a short-vol trade (expect vol to come in if market rallies) that gets the investor short at a higher level. Take a look at the SPY October 123/130 1x2 Call Spread for ~$1.55 (3.5x1 max net payout). The risk w/ this trade is getting short SPYs at the equivalent of $135.35 should it close above $130 on Oct expiration.
2) For protection/downside, we continue to like put spreads. SPX 2nd month 25/50 delta skew remains extremely elevated (at its 99th percentile over a 3yr time horizon, yes this includes Fall ’08). Buying a put spread takes ‘advantage’ of the steep skew as the strategy involves buying one put and selling a lower-strike put at an significantly higher implied vol. Take a look at the SPY October 115/105 Put Spread for $2.40 (3.2x1 max net payout)
KOG – Implied volatility in KOG remains extremely elevated despite a pretty strong week for the stock/market. Specifically, KOG Oct ATM Vol is currently ~85% bid vs. 50-day realized vol of ~80.4% (a ratio of 1.06). This compares to the XOP Oct ATM Vol bid 48.5% vs. 50-day realized of 57.2% (a ratio of 0.85). Given the elevated level of implied volatility in options of KOG, the option market is suggesting that the name will continue to experience significant volatility in the coming weeks.
To express a bullish view on the name could take ‘advantage’ of the high implied vol and sell the KOG October $5 Puts at ~45c. The trade provides the investor w/ an 8.1% yield through October expiration (8 weeks). In the event that KOG trades below $5 and the stock is put to the investor, KOG would be ‘acquired’ at the equivalent of $4.55. Note that $5 appears to be a significant area of support for the name
Merkel faces trouble over EU rescue fund. The EU bailout fund faces further problems, with the German media reporting that over 20 members of Angela Merkel's coalition plan to vote against a bill to strengthen the rescue package, including those in her own Christian Democrat party. This could force the government to rely on opposition support and so risk its collapse. The vote is due on September 7. Meanwhile, the FT reports that German "bad bank" agencies holding Greek debt haven't yet decided whether to join the country's bond swap. Greece has set a minimum 90% participation rate for private investors.
Bristol-Myers, Pfizer stroke treatment has high prospects. Eliquis, a drug from Bristol-Myers (BMY) and Pfizer (PFE), significantly outperformed half-century-old warfarin in a stroke-prevention study of 18,201 patients. Eliquis reduced the risk of stroke in patients with atrial fibrillation 21%, lowered the incidence of bleeding 31%, and cut the risk of death 11%. Eliquis could generate $4.2B by 2017, analyst Seamus Fernandez estimated, although competitors include Xarelto from Bayer (BAYRY.PK) and Johnson & Johnson (JNJ), which is due for regulatory review in the U.S. next month. Pfizer was +4.3% premarket.
FDA OKs Pfizer's Crizotinib for lung cancer. The FDA has approved Pfizer's (PFE) Crizotinib, which shrinks tumors in lung-cancer patients with a rare genetic abnormality. Crizotinib is the latest treatment using molecular targeting to win rapid approval from the agency, and patients will be identified with a test made by Abbott Laboratories (ABT). Like Eliquis, Crizotinib is expected to prove lucrative, with Pfizer needing new revenue sources given that top-selling product Lipitor is due to lose patent protection in November.
Yoshihiko Noda to be Japan's new prime minister. Finance Minister and fiscal conservative Yoshihiko Noda will replace Naoto Kan as Japan's next prime minister after beating Trade Minister Banri Kaieda in a run-off vote for the leadership of the ruling Democratic Party. With Noda favoring a tax increase to help pay for Japan's post-earthquake reconstruction, Noda was the preferred candidate among investors. However, S&P told Reuters that the impact of his election on the country's credit rating was unclear, due to its chronic political instability.
Obama to choose Alan Krueger to top economic post. Barack Obama today plans to nominate Princeton University's Alan Krueger to replace Austan Goolsbee as Chairman of the White House Council of Economic Advisers. Krueger is a labor economist, and, if confirmed by the Senate, is expected to urge for more-aggressive action to bring down unemployment and long-term joblessness in particular. Krueger already has government experience, including serving as assistant Treasury secretary for economic policy during the first two years of Obama's presidency.
AuRico to buy Northgate for 1.48B. AuRico Gold (AUQ) has agreed to buy Northgate Minerals (NXG) for C$1.46B ($1.48B) in a deal that will create an intermediate gold company. Northgate had a market capitalization of $920M at Friday's close and shares jumped 57% premarket. The combined entity will have five operating gold mines, a sixth that is due to start production in 2012, and three gold development projects in Mexico, Canada, and Australia.
Boeing to decide on new 737. Boeing's (BA) board could decide today to upgrade the 737 with more fuel-efficient engines rather than wait to develop an all-new single-aisle jet, which wouldn’t be ready until the end of the decade. Instead, the refurbished version would enter service mid-decade and around the same time as Airbus' (EADSF.PK) successful A320neo, with Boeing believing that demand for its plane would be similar. The 737 is slated to use the Leap-X engine from CFM, a JV of Safran (SAFRY.PK) and GE (GE).
Greek banks poised to merge. Greece's Eurobank (EGFEF.PK) and Alpha Bank (ALBKY.PK) are set to today announce a merger and a joint capital raising of €1.75B ($2.54B). The deal would create Greece's largest lender with assets of €150B but a market cap of just €2B. EU and Greek officials have pressed for such alliances, believing pairing struggling entities can create one strong institution. Trading in the shares of the companies has been suspended until an announcement is made.
WFC, JPM, Lone Star win AIB portfolio Wells Fargo (WFC), JPMorgan (JPM) and Lone Star have reportedly won final bids for Anglo Irish Bank's $9.65B portfolio of U.S. commercial real-estate loans, with the winning offers averaging about $0.80 on the dollar. JPMorgan and Wells will buy mostly performing debt, and Lone Star subperforming and nonperforming portfolio. However, Blackstone (BX) lost out despite being a final bidder for some of the loans. The auction demonstrates the demand for property in higher-quality locations by private-equity firms and banks looking to increase their assets.
China widens reserve requirements for banks. In a move to further tighten credit and bring down inflation of 6.5%, the People's Bank of China is widening the asset base banks must keep in reserve to include customers’ margin deposits. With reserve requirements at 21.5%, economists estimate the action could drain up to 900B yuan ($140B) from the system over a six-month period.
Sino-Forest CEO quits. Following the drama on Friday in which Canadian regulators published and later rescinded an order for the resignation of Sino-Forest's (SNOFF.PK) senior management, company CEO Allen Chan has stepped down and three other employees have been temporarily suspended. Judson Martin, the board's vice chairman, was named CEO. Trading in Sino-Forest's shares was halted in Toronto on Friday but lost 71% on the pink sheets. Canada's regulators are investigating the company for fraud following Muddy Waters' allegations it exaggerated the size of its forest holdings in China.
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