Frontrunning: October 21
- FHFA Is Said to Seek at Least $6 Billion From BofA for MBS Sales (BBG)
- Record Pact Is on the Table, But J.P. Morgan Faces Fight (WSJ)
- Magnetar Goes Long Ohio Town While Shorting Its Tax Base (BBG)
- Mini-Wall Street' Rises in Hamptons (WSJ)
- Obama to call healthcare website glitches 'unacceptable' as fix sought (Reuters)
- Starbucks Charges Higher Prices in China, State Media Says (WSJ)
- Cruz Is Unapologetic as Republicans Criticize Shutdown (BBG)
- Berlusconi struggles to keep party united after revolt (Reuters)
- SAC Defections Accelerate as Cohen Approaches Settlement (BBG)
- Some Liberal Groups, Lawmakers Worry About Cuts to Social Security, Other Entitlements (WSJ)
- McConnell: Shutdown Bad Idea, Won’t Happen Again (WSJ)
- US asks top court not to take case on NSA cyber-snooping (AP)
Overnight Media Digest
* JPMorgan Chase & Co reached a tentative deal this weekend to pay $13 billion to end a number of civil investigations into its sale of mortgage securities before the 2008 financial crisis, but a separate and potentially more serious criminal probe into the bank and its executives will continue.
* Cracks are showing in the Democratic coalition as the next round of budget talks gets under way, hurting the chances for progress toward a broad deal that changes the tax code and significantly narrows future deficits.
* U.S. candy makers are expanding production in other countries as federal price supports and a global glut of the sweet stuff give an ever-greater advantage to foreign rivals.
* Sotheby's and Christie's are invading the turf of high-end art galleries, as a boom in the contemporary art market and pressures in the auction business disrupt what had long been a symbiotic relationship.
* Despite the market disruptions Washington's mess caused over the past few weeks, analysts who have studied past market behavior say that the current backdrop - moderate economic growth with low inflation and strong central bank backing - is excellent for stocks.
* As rivals scale back their research-and-development spending to appease investors, Chief Executive John Lechleiter says Eli Lilly & Co is staying the course, despite the drug maker's relatively large R&D budget.
* Raoul Weill, the former No. 3 official at UBS, has been arrested in Italy based on an Interpol notice requested by U.S. authorities, according to a U.S. official. The United States plans to seek his extradition from Italy to face charges of helping conceal billions of dollars from U.S. tax authorities.
* Manufacturing of new business jets isn't likely to recover to pre-recession levels for at least another decade, according to a closely watched forecast that trimmed the number of aircraft deliveries over the next 10 years by about 8 percent from the year-earlier projection.
* In the next few weeks, the Chinese government is expected to release the results of an ambitious effort to calculate a seemingly simple figure: just how much the country's local governments have borrowed from banks and investors in the past few years.
* The planned merger of Office Depot Inc and OfficeMax Inc is on track to receive antitrust clearance from the Federal Trade Commission after a lengthy government review, according to people familiar with the matter.
* AT&T Inc plans to lease a portfolio of cell towers, and sell some others, to Crown Castle International Corp for about $4.85 billion as the telecom giant cashes in on consolidation among tower operators and seeks to spend its money elsewhere.
* Level 3 Communications Inc said it fixed an Internet service outage that left users from Brooklyn to Philadelphia with slow to nonexistent service for nearly 24 hours Saturday after equipment at a New York-area network hub broke down.
U.S. housing regulators are looking to fine Bank of America more than $6 billion for its role in misleading mortgage agencies during the housing boom, compared with the $4 billion to be paid by JPMorgan Chase & Co.
Opinions are divided in the U.S. regarding the $13 billion settlement JPMorgan Chase has agreed to pay to state and federal authorities.
Aluminum producer Alcoa has attacked the London Metal Exchange as "short-sighted and misguided" and called on the UK Financial Conduct Authority and the U.S. Commodity Futures Trading Commission to intervene in a row about metals warehousing.
AT&T said it would lease the rights to about 9,100 of its wireless network towers to Crown Castle International and sell another 600 towers to the tower operator for about $4.9 billion.
Terra Firma, the buyout group run by dealmaker Guy Hands, is set to launch a 1 billion pound ($1.62 billion) float of Infinis, a British wind power company, on Monday in a comeback signal to prospective new investors.
* A tentative $13 billion settlement between JPMorgan and the Justice Department was a result of extensive personal negotiations involving Attorney General Eric Holder and Jamie Dimon, the bank's chief executive.
* Mounting legal problems have so far left Jamie Dimon unscathed at the helm of JPMorgan Chase. On Sunday, several JPMorgan executives said, as they have for months, that the bank's board remains firmly behind Dimon, who is both chairman and chief executive.
* Norway's sovereign wealth fund is preparing to raise its voice on a sensitive topic: the increasing computerization of the stock markets and the costs it has imposed on big long-term investors. "The U.S. market has gone through a lot of changes and has become quite complicated - and this complexity of the market creates a lot of challenges for a large investor like us," said Oyvind Schanke, the global head of stock trading for the fund, Norges Bank Investment Management.
* Crown Castle International Co will buy the rights to run 9,100 towers for an average lease of 28 years, with the right to acquire the towers outright from AT&T Inc in the future for about $4.2 billion. Crown Castle will also buy about 600 towers outright.
* The producer Jason Blum's winning movie formula relies on profit-sharing, and he's thinking about applying it to television. Over the last five years, for production costs totaling a mere $27 million, his company, Blumhouse Productions, has churned out eight hit horror films - including "Paranormal Activity", "Sinister" and "The Purge" - that have taken in $1.1 billion at the worldwide box office.
* Genetic engineering to produce products that now come from rare plants holds great promise, but critics warn of harm to small farmers, among others.
* Experts involved in fixing the online health insurance marketplace say the technological problems are extensive.
* The intense competition in the market for tablets will be highlighted on Tuesday, as Apple Inc, Nokia and Microsoft Corp each introduce new devices.
* Ignazio Angeloni, a top European Central Bank official, has a leading role in reviewing euro zone banks to determine which are sound and which are not.
* Music industry's total digital sales are down almost 1 percent so far this year, and some in the industry cite the rise of streaming music services like Spotify and Pandora Media Inc .
THE GLOBE AND MAIL
* Native leaders are warning that the violent clash between Royal Canadian Mounted Police and the Elsipogtog First Nation - which last week saw police vehicles torched, rubber bullets fired and rocks thrown - is just the tip of the iceberg.
The protest against shale-gas exploration near the village of Rexton, New Brunswick, took place as some aboriginal groups across the country are expressing frustration over being excluded from consultations, especially when it comes to resource development.
* The Conservative government is seeking to give victims of crime a more active role in the legal process. A bill will be put forward this fall that extends victim involvement "from the time of the offence to the final disposition of the sentence," Justice Minister Peter MacKay told The Globe and Mail.
* The Canadian Food Inspection Agency has issued an alert over another beef product because of possible E. coli contamination. The federal food safety watchdog is warning the public not to consume uncooked lean ground beef from Belmont Meats of Toronto, distributed at Loblaw stores.
Reports in the business section:
* Corporate Canada is expected to raise spending in 2014 to take advantage of a global economic recovery. CIBC World Markets Inc Deputy Chief Economist Benjamin Tal said Canadian companies are well-positioned to increase capital expenditures, particularly if the U.S. economy gets rolling.
* Canadian National Railway Co and Canadian Pacific Railway Ltd both experienced weak grain shipments in the third quarter, although shipments are expected to rise in the fourth quarter due to a bumper crop in Canada.
* A free trade deal linking Canada and Europe, even in the absence of a final text, is a historic win for the federal Conservative party and for Prime Minister Stephen Harper personally. It could not have come at a better time, from a Tory political perspective.
* A probe by the auditor general into spending in the Senate has prompted senators and the chamber's administration to start creating paper trails for decisions that previously weren't documented.
* Even amid a slowdown in hiring across Canada, small businesses continue to face difficulties recruiting and keeping the best employees.
* Northwest Territories village Inuvik's untapped resources, and non-existent infrastructure to develop or deliver them is becoming a metaphor for Canada itself. The latest, most egregious example of this problem revolves around the lack of strategy, politics and recurring media flashpoints concerning pipelines and, to a lesser extent, power generation infrastructure.
CHINA SECURITIES JOURNAL
- The People's Bank of China is likely to keep monetary policy neutral or even make it slightly tighter in the fourth quarter, Song Guoqing, an adviser to the Chinese central bank forecast.
- The China Securities Regulatory Commission recently said that it will support the Shanghai Pilot Free Trade Zone in launching an international crude oil futures trading platform, heralding a new stage for the rapid expansion of China's commodity futures market.
SHANGHAI SECURITIES NEWS
- E-Fund 120 ETF, the first exchange-traded fund (ETF) to invest in stocks dual listed on mainland Chinese and Hong Kong bourses, will be listed on the Hong Kong stock exchange on Monday.
- The slowdown of China's growth due to the country's efforts to adjust and improve its economic structure will help end a decade-long bull run in global commodity prices, economists participating in a seminar in the eastern Chinese city of Wuxi on Sunday forecast.
- A report citing a senior security official said China sees an extradition treaty with the United States as "essential to capture and repatriate economic fugitives," including corrupt officials. The official blamed U.S. lack of understanding of Chinese human rights protections as a barrier to progress.
- China will continue to use Marxist theory as the key guideline to boost efforts to build a socialist society with Chinese characteristics, the newspaper, the mouthpiece of the Chinese Communist Party, said in a commentary.
Fly On The Wall 7:00 AM Market Snapshot
Apple (AAPL) upgraded to Buy from Hold at Societe Generale
ArcelorMittal (MT) upgraded to Buy from Hold at Deutsche Bank
Archer Daniels (ADM) upgraded to Buy from Underperform at BofA/Merrill
Bunge (BG) upgraded to Buy from Neutral at BofA/Merrill
Dean Foods (DF) upgraded to Outperform from Market Perform at BMO Capital
Delek US (DK) upgraded to Buy from Neutral at Goldman
Horizon Pharma (HZNP) upgraded to Overweight from Neutral at Piper Jaffray
Mead Johnson (MJN) upgraded to Buy from Neutral at Citigroup
ProAssurance (PRA) upgraded to Buy from Neutral at Janney Capital
Salesforce.com (CRM) upgraded to Strong Buy from Outperform at Raymond James
ARIAD (ARIA) downgraded to Perform from Outperform at Oppenheimer
Capital Bank (CBF) downgraded to Neutral from Buy at Compass Point
Celestica (CLS) downgraded to Hold from Buy at Canaccord
Empresas ICA (ICA) downgraded to Neutral from Buy at BofA/Merrill
First Horizon (FHN) downgraded to Neutral from Overweight at JPMorgan
First Horizon (FHN) downgraded to Sector Perform from Outperform at RBC Capital
General Mills (GIS) downgraded to Neutral from Buy at BofA/Merrill
Goodyear Tire (GT) downgraded to Hold from Buy at Deutsche Bank
Kaiser Aluminum (KALU) downgraded to Hold from Buy at KeyBanc
Kellogg (K) downgraded to Underperform from Buy at BofA/Merrill
Luxottica (LUX) downgraded to Sell from Neutral at Goldman
Magna (MGA) downgraded to Hold from Buy at Canaccord
Myriad Genetics (MYGN) downgraded to Underperform from Neutral at Credit Suisse
Reinsurance Group (RGA) downgraded to Market Perform at Keefe Bruyette
Senomyx (SNMX) downgraded to Neutral from Buy at Roth Capital
U.S. Silica (SLCA) downgraded to Market Perform from Outperform at Wells Fargo
VimpelCom (VIP) downgraded to Hold from Buy at Deutsche Bank
Activision Blizzard (ATVI) initiated with an Overweight at Barclays
Applied Optoelectronics (AAOI) initiated with an Outperform at Cowen
Applied Optoelectronics (AAOI) initiated with an Overweight at Piper Jaffray
ArrowHead Research (ARWR) initiated with an Overweight at Piper Jaffray
Capitala Finance (CPTA) initiated with a Buy at Deutsche Bank
Capitala Finance (CPTA) initiated with an Overweight at Barclays
Covisint (COVS) initiated with an Outperform at Credit Suisse
Foundation Medicine (FMI) initiated with a Neutral at Goldman
Foundation Medicine (FMI) initiated with a Neutral at JPMorgan
Foundation Medicine (FMI) initiated with an Outperform at Leerink
Montage Technology (MONT) initiated with a Buy at Deutsche Bank
Montage Technology (MONT) initiated with an Outperform at Wells Fargo
Montage Technology (MONT) initiated with an Overweight at Barclays
Norwegian Cruise Line (NCLH) initiated with an Outperform at Credit Suisse
Ophthotech (OPHT) initiated with an Outperform at Leerink
Premier (PINC) initiated with a Buy at BofA/Merrill
Premier (PINC) initiated with a Neutral at Piper Jaffray
Premier (PINC) initiated with an Outperform at Raymond James
Premier (PINC) initiated with an Overweight at JPMorgan
Xoom (XOOM) initiated with a Buy at SunTrust
Goldman Sachs Asset Management (GS) to acquire RBS' (RBS) money market funds
NTS, Inc. (NTS) to be acquired by Tower Three Partners for $2.00 per share
Crown Castle (CCI) announced $4.85B AT&T (T) tower transaction
Prudential (PRU) won’t seek to rescind designation as non-bank systemically important financial institution by Financial Stability Oversight Council
U.S. Steel (X) to take $1.8B goodwill impairment charge in Q3
Teradata (TDC) signed multi-year agreement with Procter & Gamble (PG)
Hasbro (HAS) targets $100M in annual savings by 2015
Companies that beat consensus earnings expectations last night and today include:
Hasbro (HAS), Check Point (CHKP), Celanese (CE), MetroCorp (MCBI)
Companies that missed consensus earnings expectations include:
Crown Castle (CCI), Republic First Bancorp (FRBK)
- The five largest U.S. defense contractors (LMT, GD, RTN, COL, UTX) release Q3 earnings this week, in what's likely to be an even more pivotal period for sector sentiment than a year ago, the Wall Street Journal reports
- As his competitors scale back their R&D spending to appease investors, Eli Lilly (LLY) CEO John Lechleiter says the company is staying the course, despite the drug maker's relatively hefty R&D budget, the Wall Street Journal reports
- Global shares hovered at five-year highs this morning while the dollar edged up against the yen as investors looked to U.S. data for clues on when the Fed will begin scaling back its stimulus. Many in the markets think the Fed will be wary of trimming its bond-buying program until the economic impact of a 16-day partial U.S. government shutdown becomes clearer, Reuters reports
- Starbucks (SBUX) has been charging customers in China higher prices than other markets, helping the company realize thick profit margins, a report by the official China Central Television said, Reuters reports
- JPMorgan Chase’s (JPM) tentative agreement to pay a record $13B to end civil claims over its sales of mortgage bonds, a deal that won’t absolve the bank of potential criminal liaability, hasn’t shaken some investors’ faith in Chairman and CEO Jamie Dimon, Bloomberg reports
- Netflix (NFLX) is poised to pass HBO (TWX) in paid U.S. subscribers, showing CEO Reed Hastings is making progress toward a goal of transforming the streaming service to a Web-based television network, Bloomberg reports
AT&T (T) could rise to around $40
Accenture (ACN), Aetna (AET), Western Union (WU), Raytheon (RTN) have regular buybacks
Jana Partners could bring more capital returns to Outerwall's (OUTR) holders
Questcor (QCOR) could be trouble for investors
Uncertainty about Amazon's (AMZN) Kindle sales a risk to investors
Amazon's (AMZN) new Kindle Paperwhite is nearly perfect for reader
Luna Innovations (LUNA) files to sell 2.64M shares for holders
Mazor Robotics (MZOR) offers to sell 2M American depositary shares