Opening Bell: 10.16.08 - Dealbreaker

Opening Bell: 10.16.08

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U.S. Stock Futures Point to Mixed Open (TheStreet.com)
It's probably another turbulent day with earnings underway now. S&P futures are 13 points ahead, at 916, while Nasdaq futures are ahead 18 points, at 1247. Dow futures are also up. Reporting before the bell: Citigroup, Merrill, Bank of New York Mellon (Citi and Merrill results within this Opening Bell edition).
Japan's Nikkei bleeds as recession fears loom (Marketwatch)
Volatile as always, Asian markets sank overnight. The headline above mistakenly implies that the tumble in stock prices was something to do with economic worries: it was, in fact, simply because the Dow plunged nearly 8% yesterday. Either way, the scene in Asia was ugly: the Nikkei dropped 11.4%, to 8,458.45, the Hang Seng tumbled 4.8%, while China fell 4.3%. At one point, Osaka actually halted futures trading in the Nikkei. India held up better after wholesale inflation eased "more than expected" to "just" 11.44%.
Citadel Dispels Rumors But Can't Mask a Bad Year (WSJ)
According to the Journal, yesterday's giant selloff is our fault, sort of. It looks like Ken Griffin got fed up with everyone speculating his hedge fund's demise, and in characteristically aggressive fashion, decided to set the record straight to his investors. Apparently, according to the Journal, those Citadel rumors were "published on a financial website" Tuesday and helped drag down the market yesterday. Anyway, no smoke without fire. The fund is off 26% to 30% after its "worst month ever" in September, but it's far from going under.

Merrill Lynch Posts Fifth Straight Quarterly Loss on Writedowns (Bloomberg)

And things aren't looking up for Merrill either. The bank lost $5.15 billion, or $5.58 a share in the most recent quarter, Bloomberg reports, with its writedowns now totaling $9.5 billion, or double the amount of debt needed to shore up Iceland's banking system.
Switzerland Gives UBS a Bailout; Credit Suisse Raises Funds (Bloomberg)
Now Europe's most invulnerable hub is finding it's having to lend a helping hand to its banks in distress. UBS got a $59.2 billion bailout, while the Swiss National Bank has set up a a fund to absorb UBS's "toxic debt". Credit Suisse gets 10 billion Swiss Francs from Quatari investors and Israeli Koor Industries. You have to hand it to Credit Suisse, raising money from Arabs and Israelis alike. Typically, the investments are in the form of convertible notes.



Weak Conditions Seen Across U.S., Fed Report Shows (WSJ)

Another classic doom and gloom Journal forecast. The beige book report shows consumer spending easing, although it also shows agriculture, mining and energy holding up well. The report implies recession across the country, coinciding with the Commerce Department's findings of a 1.2% drop in retail sales. The beige book report is a colloquial term for the Summary of Commentary on Current Economic Conditions, and comprises the views of economists and bank chiefs from around the U.S. It is published eight times a year.
Oil price hits 15-month low under $68 (AFP)
Crude oil has fallen more than 50% from its high early this summer. Given that demand should be on the increase with the cooler season underway in many parts of the world now, demand quotas are obviously spiraling. This thing will most likely bottom out at $45 a barrel.
Way To Go, Wells Fargo (Forbes.com)
You just know things aren't good when headlines begin congratulating banks for a 27% tumble in profits. But, to be fair, Wells Fargo made $1.6 billion, or 49 cents a share, beating the street's estimates by around 50%, which is pretty outstanding. It increased its loan base by 3% over the second quarter. Morningstar analyst Jamie Peters says that "writing loans in this type of market with Wells' underwriting discipline is likely to turn out to be very profitable for shareholders in the long run." You bet it is.
Coca-Cola Profit Rises 14% on International Sales (Bloomberg)
Amazingly, given the relative strengthening of the dollar recently, Coke is having a ball overseas. Then again, a Coca Cola is perhaps the most recession-proof product there is out there. Sales in China and India accounted for much of the $1.89 billion, or 81 cents a share profit, Coke said. The company beat the street's estimates by 6 cents a share.
Airlines Set To Take Off If Oil Continues Retreat (Forbes.com)
It's hard to know for sure whether spiraling oil prices will be a boon for earnings of airlines, or that given that recessionary conditions are reportedly underfoot, Forbes isn't being a little typically overoptimistic about the prospects for U.S. carriers. Probably budget carriers such as Jet Blue stand the best chance in these conditions. Curiously, American Airlines saw a 9.4% jump in sales during the third quarter. JP Morgan says that because of recent fuel costs, third quarter earnings should be regarded as "irrelevant".
Citigroup Posts Fourth Consecutive Loss on Mortgage Writedowns (Bloomberg)
Citi lost $2.8 billion, or 60 cents a share, last quarter, taking the bank's credit losses to $13.2 billion. There's understandably a little bit of disappointment over Citi's failure to nab Wachovia's deposit base here, too.
Transactions in Decline, eBay Cuts Its Forecast (New York Times)
eBay's supposedly "recession proof" business model may not be quite as resilient to an economic downturn as it previously thought. The company reported third quarter earnings of $492.2 million, or 38 cents a share, but said that it may fall short of the street's revenue expectations for the year by around $300 million.

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Nikkei Enters Bear Market (WSJ) Markets across Asia suffered another bruising day as investors scrambled for the exits, with Japanese stocks falling over 6% and into a bear market, and heavy losses in China and across Southeast Asia. Declines continued in U.S. stock futures and in Europe. ... The most dramatic move was in Japan, with the Nikkei Stock Average falling 6.4% to 12445.38 and putting it 21.9% down from the intraday peak reached on May 23, the day Japan's 6-month rally turned south and begun three weeks of wild trading. The big money bails on Argentina - again (Reuters) The mass exodus, which has been limited only by leftist President Cristina Fernandez's capital controls, is threatening to undermine Latin America's No. 3 economy even further by leaving it short of hard currency and new jobs. The underlying problems range from Fernandez's hostile treatment of the private sector, to severe financial distortions such as a parallel exchange rate, to the general feeling that Argentina is due for one of the periodic spasms that have racked the country every 10 years or so going back to the 1930s. EU Urges U.K. to Probe Currency Rigging in Libor’s Wake (Bloomberg) “They need to get to the bottom of it,” Sharon Bowles, 60, chairwoman of the European Parliament’s economic and monetary affairs committee and a member of the U.K. Liberal Democrat party, said in an interview. “It’s quite upsetting we have got another bad-news story. It’s time we managed to restore the reputation of our banks.” Singapore Regulator Said to Plan Bank Reprimand on Rates (Bloomberg) Singapore’s central bank plans to reprimand banks in the city-state as early as Friday following an 11-month review into how benchmark interest rates are set, five people with knowledge of the matter said. ... The monetary authority isn’t planning to impose criminal sanctions on the banks or any employees, said two of the people. MAS will probably require some of the banks to set aside funds as a deposit with the central bank for a period of time and strengthen their internal controls, two people said. U.K. Committee Says Google Avoids Tax (WSJ) Google Inc. has aggressively avoided paying corporation tax in Britain and its reputation won't be restored until it begins to pay what is due, a U.K. parliamentary committee said Thursday, in the latest sign that governments around the world are stepping up scrutiny of the tax affairs of multinational firms. In a strongly worded 64-page report, the public affairs committee also criticized the U.K. tax authority, Her Majesty's Revenue and Customs, for failing to challenge Google about its "highly contrived" tax arrangement and called on it to fully investigate the Internet giant. ... "It's clear from this report that the public accounts committee wants to see international companies paying more tax where their customers are located, but that's not how the rules operate today. We welcome the call to make the current system simpler and more transparent," the spokesman said. Soccer star Lionel Messi used the same trick as Apple to cut his tax bill (Qz) Lionel Messi, the Argentine soccer sensation who plays for FC Barcelona, has IP worth at least $21 million a year. That’s the value of his endorsement deals, led by his relationship with Adidas. And according to the Spanish government, he has dodged nearly €4.2 million ($5.5 million) in taxes by using that IP in a very Apple-like way. Spain accuses Messi and his father, who manages the player’s finances, of selling the rights to his brand image to shell companies in tax havens like Uruguay and Belize, and then licensing those rights to the companies and products he endorses. Such a move would shift Messi’s income from Spain, where he lives and pays taxes, to those lower-tax states. Girl group bases style on Nikkei ups and downs (Japan Times) “We base our costumes on the price of the Nikkei average of the day. For example, when the index falls below 10,000 points, we go on stage with really long skirts,” Mori explained. The higher stocks rise, the shorter their dresses get. With the Nikkei index ending above 13,000 [in late April], the four went without skirts altogether on the day of their interview with The Japan Times, instead wearing only lacy shorts. ... Machikado Keiki Japan (roughly translated as Economic Conditions on the Streets of Japan) released their debut single, “Abeno Mix,” on April 7. It pays homage to Abe’s ultraloose economic policies that have been dubbed “Abenomics” by the media. Debt Makes Comeback in Buyouts (WSJ) Shareholders in BMC Software Inc. will receive $6.9 billion to sell the corporate-software developer to a group of private-equity firms. But the buyers, led by Bain Capital LLC and Golden Gate Capital, only intend to pay $1.25 billion in cash out of their own pockets. The rest will come from debt raised by BMC to finance its takeover. The little-noticed acquisition is another milestone in the return of cheap debt and higher-risk deals to Wall Street: The cash put down by BMC's private-equity buyers is the lowest as a percentage of the purchase price of any buyout with loans exceeding $500 million since 2008, according to data-provider Thomson Reuters LPC. Apollo Tyres skids 24% on Cooper deal fears (FT) Shares in Apollo Tyres, India’s largest tyre company by sales, plunged by a quarter on Thursday amid investor concerns about higher debt related to the group’s planned $2.5bn acquisition of US-based Cooper Tire and Rubber. The all-cash deal, which would be the largest-ever Indian acquisition of a US company, is also set to increase Apollo’s consolidated net debt to equity ratio from 0.8 to around 3.8, according to Angel Broking, a Mumbai-based brokerage. “The deal will leave the company with a huge debt and that is the biggest concern,” said Yaresh Kothari, an automotive analyst at the broker. Shares in Apollo were down 24 per cent at Rs67 by 2pm in Mumbai on Thursday. The deal was announced after markets closed in Mumbai on Wednesday. Clearwire Endorses Dish’s Sweetened Bid (DealBook) Clearwire on Wednesday switched its allegiance to Dish Network, recommending that shareholders accept its bid of $4.40 a share over a rival offer from Sprint Nextel. Clearwire also postponed a shareholder vote from Thursday to June 24. Meanwhile, Dish extended its tender offer, which had been set to expire on Friday, to July 2. The change in recommendation is a setback for Sprint, which is seeking to buy the roughly 49 percent of Clearwire that it does not already own for about $3.40 a share. Its approach for Clearwire is meant to gain full control of an important affiliate whose wireless spectrum holdings are the cornerstone of a campaign to improve its network and make the company more competitive. Coty Raises About $1 Billion in Its Public Debut (DealBook) The company, whose products include Sally Hansen nail polish and perfumes endorsed by Beyoncé and Katy Perry, priced its initial public offering at $17.50 a share on Wednesday, in the middle of its expected range of $16.50 to $18.50. The stock sale values the company at about $6.7 billion. The offering, which raised just less than $1 billion in proceeds, is one of the three biggest initial offerings in the United States this year, according to data from Renaissance Capital. Washington pushed EU to dilute data protection (FT) The Obama administration successfully lobbied the European Commission to strip its data-privacy legislation of a measure that would have limited the ability of US intelligence agencies to spy on EU citizens, according to three senior EU officials. The measure – which was known within the EU as the “anti-Fisa clause”, after the Foreign Intelligence Surveillance Act that authorises the US government to eavesdrop on international phone calls and emails – would have nullified any US request for technology and telecoms companies to hand over data on EU citizens, according to documents obtained by the Financial Times. However, the safeguard was abandoned by commission officials in January 2012, despite the assertions of Viviane Reding, the EU’s top justice official, that the exemption would have stopped the kind of surveillance recently disclosed as part of the National Security Agency’s Prism programme. Miracle-Gro’s Potty-Mouthed CEO Should Have Known Better (Bloomberg) Responding to the use of rough language during World War II, Norman Vincent Peale, a minister (and author of “The Power of Positive Thinking”), lamented to the New York Times, “The public men of other years may have cussed plenty in private, but they had the good taste to keep it out of public address.” Public expletives have become more common, and executives have moved to leverage, or perhaps weaponize, foul language to their benefit. A San Francisco appeals court has ruled that a werewolf erotica novel must be returned to Andres Martinez, an inmate of Pelican Bay State Prison, after prison guards took it away from him on the grounds that it was pornography. Although the court grants that novel in question, The Silver Crown, by Mathilde Madden, is "less than Shakespearean," it argues that the book nevertheless has literary merit and shouldn't be banned under prison obscenity laws. The court also notes that "the sex appears to be between consenting adults. No minors are involved. No bestiality is portrayed (unless werewolves count)."