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Opening Bell: 07.14.11

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JPMorgan Beats Estimates as Net Rises 13% (Bloomberg)
The bank said net income rose 13 percent, higher than analysts estimated, as more borrowers paid on time and the bank reduced credit-card loan-loss reserves by $1 billion. Second-quarter net income climbed to $5.43 billion, or $1.27 a share, from $4.8 billion, or $1.09, in the same period a year earlier and compared with a record $5.56 billion, or $1.28, in the first quarter, the New York-based company said today in a statement. The average per-share estimate for earnings was $1.21, projected by 28 analysts surveyed by Bloomberg.

President Obama abruptly walks out of talks (Politico)
When Cantor said the two sides were too far apart to get a deal that could pass the House by the Treasury Department’s Aug. 2 deadline — and that he would consider moving a short-term debt-limit increase alongside smaller spending cuts — Obama began to lecture him. “Eric, don’t call my bluff,” the president said, warning Cantor that he would take his case “to the American people.” He told Cantor that no other president — not Ronald Reagan, the president said — would sit through such negotiations. Democratic sources dispute Cantor’s version of Obama’s walk out, but all sides agree that the two had a blow up. The sources described Obama as “impassioned” but said he didn’t exactly storm out of the room. “Cantor’s account of tonight’s meeting is completely overblown. For someone who knows how to walk out of a meeting, you’d think he’d know it when he saw it,” a Democratic aide said. “Cantor rudely interrupted the president three times to advocate for short-term debt ceiling increases while the president was wrapping the meeting...”

Top Republicans clash over debt-limit plan (WaPo)
Senate Minority Leader Mitch McConnell (Ky.), who offered a proposal this week that would allow President Obama to raise the federal debt limit without guaranteed spending cuts, warned that the Republican Party could “destroy” its brand with voters if Congress allows the government to default…But House Majority Leader Eric Cantor (Va.) rejected McConnell’s plan for resolving the debt stalemate, instead vowing to press ahead with the campaign to roll back government spending.

Bill Gross's Warning to Washington: Don’t mess with the debt ceiling (WaPo)
"I say unbiased because my credentials have become very public over the past several months. Pimco owns very few Treasury securities, and its clients would theoretically benefit if yields rose on an under-owned asset class that was technically in default. But default would still be a huge negative for the U.S. and global financial markets, introducing fear and unnecessary volatility into the economy and global trade. The market situation might resemble what happened after Lehman Brothers collapsed in 2008."

China Urges U.S. to Take Responsible Action on Debt (NYT)
“We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors,” Reuters quoted a foreign ministry spokesman, Hong Lei, as saying…China holds more than $1 trillion in U.S. Treasury securities, more than any other country, making it highly sensitive to any developments that could lower the value of those holdings.

Raters Put U.S. on Notice (WSJ)
Moody's Investors Service said it was reviewing the government's top Aaa bond rating for a possible downgrade, citing the "rising possibility" that the government's $14.29 trillion borrowing limit won't be raised soon enough to prevent the U.S. from running out of money to pay its bills. In addition, ratings agency Standard & Poor's privately has told lawmakers and top business groups it might cut the U.S. credit rating if the government fails to make any of its expected payments—including Social Security checks—even if it makes all its debt payments, people familiar with the matter said.

California May Sell Notes Before Federal Debt-Limit Deadline, Lockyer Says (Bloomberg)
Moody’s Investors Service placed 7,000 municipal ratings on review for possible downgrade after it warned the U.S. may lose its Aaa investment grade. The ratings company said in a note that potential downgrades would affect $130 billion in municipal debt including mortgage-backed bonds secured by the U.S. or agencies such as Fannie Mae and Freddie Mac.

Italy's austerity budget enters final stretch (Reuters)
Italy's austerity budget gets its first parliamentary nod on Thursday after a successful bond auction which offered some reassurance to financial markets worried about the threat of a debt crisis.

Banks, Regulators Still Jostling Over EU Stress Tests (WSJ)
The European Union's banking "stress tests," designed to bolster confidence in the Continent's financial system, are facing a last-minute scramble as regulators adjust the exam's terms and bankers and politicians criticize the process and lobby for changes. The European Banking Authority, the pan-EU regulator that is conducting the exercise, plans to announce the test results on Friday. The tests measure the abilities of 91 major banks in 21 European countries to withstand a sharply deteriorating economic environment.

In Shift, Municipalities Turn to Banks for Loans (WSJ)
Such deals are cropping up in many cities and states across the U.S. Teams of bankers are blanketing the country pitching transactions like the one in Orange County, as well as traditional loans, to government officials, people in the industry say. While big banks still are tight-fisted with many homeowners and small businesses, they see cities, states and schools as one of their least-risky ways to put to work some of the piles of cash that have amassed on their balance sheets.

Citigroup moves closer to credit card U-turn (FT)
Citigroup is leaning toward keeping its private-label credit card arm, reversing course on a $41bn business the bank had marked for disposal in the wake of the financial crisis, people familiar with the matter said… Improving credit conditions and uncertainty shrouding the outlook for other consumer businesses, such as retail banking and mortgages, have prompted Citi executives to weigh shifting the private-label cards arm from Holdings to a place alongside the bank’s core credit-card operations, the people said.

High-frequency traders slowed by headwinds (FT)
Yet, while new and cheaper technology has enabled ultra-fast traders to grab greater market share, the cost of being the very fastest has been rising, to such a degree that only very big or highly specialised firms can afford to compete in the race to cut trading times by ever-smaller fractions of a second.

Google’s Challenge to Facebook Seen Eroding Quarterly Profit (Bloomberg)
Google Inc. (GOOG)’s challenge to Facebook Inc. in social networking, an effort analysts said will cost more than $200 million, probably slowed second-quarter profit growth for the world’s largest Web search engine.

Tea party members tackle a new issue: manatees (TB)
A Citrus County tea party group has announced that it's fighting new restrictions on boating and other human activities in Kings Bay that have been proposed by the U.S. Fish and Wildlife Service. "We cannot elevate nature above people," explained Edna Mattos, 63, leader of the Citrus County Tea Party Patriots, in an interview. "That's against the Bible and the Bill of Rights."...Mattos said she enjoys showing off the manatees to her grandchildren, but she had little use for the Save the Manatee Club, explaining, "If some of these environmental movements had been around in the days of the dinosaurs, we'd be living in Jurassic Park now."