Frontrunning: December 20

  • China cash injection fails to calm lenders (AFP)

  • European Union Stripped of AAA Credit Rating at S&P (BBG)

  • Last-Minute Health-Site Enrollment Proves a Hard Sell (WSJ)

  • Bernanke’s Recession-Fighting Weapon Developed by 1900s Banker (BBG)

  • Asia Stocks Are Little Changed Amid China Funding Concern (BBG)

  • BlackBerry reports huge loss on writedown, impairment charges (Reuters)

  • Regulators' Guidance on Volcker Rule Gives Banks Little Relief on Debt Sales (WSJ)

  • On one hand: Man Who Said No to Soros Builds BlueCrest Into Empire (BBG); on the other: Michael Platt's BlueCrest Capital Poised for Rough Close to 2013 (WSJ)

  • BOJ Keeps Record Easing as Fed Taper Helps Weaken Yen (BBG)

  • Bank of England becomes more cautious on economic predictions (FT)

  • Gold Climbs From Lowest Close Since 2010 as Goldman Sees Losses (BBG)

  • Fed's Mortgage Role Expands (WSJ)

  • Wall Street Unlocks Profits From Distress With Rental Revolution  (BBG)

  • Cities Try to Lure Young Professionals With Cheap 'Micro' Units (WSJ)

  • Obama Issues Rare Veto Threat on Iran Bill (WSJ)

Overnight Media Summary

WSJ

* The Senate has delayed until January a vote on confirming Janet Yellen as chairman of the Federal Reserve. Senate Majority Leader Harry Reid proposed the new schedule late Thursday and got no objections. The vote will now occur on Jan. 6, when the Senate returns, instead of by Saturday.

* The Obama administration said Thursday it would allow some of the millions of Americans whose insurance policies had been canceled to purchase bare-bones plans next year, in another 11th-hour tweak to the law likely to cause consternation among health insurers.

* Gold prices slid to three-year lows, effectively closing the book on a historic rally that lured investors on both Wall Street and Main Street. Barring a rebound of unprecedented scale, the price of gold is set to notch its first annual decline in 13 years and its biggest drop since 1981. Gold is down 29 percent year-to-date.

* The Securities and Exchange Commission on Thursday charged a former senior portfolio manager at Microsoft Corp, along with his friend and business partner, with insider trading.

* Steve Forbes and members of his family are enmeshed in a tax dispute with the Internal Revenue Service tied to their publishing company's former New York headquarters, documents filed in U.S. Tax Court reveal.

* Fighting a battle with Amazon.com Inc to be the preferred entry point for Internet shopping, Google Inc last year retooled its lucrative search page. Its strategy is showing signs of progress.

* Telstra Corp agreed to sell its Hong Kong-based mobile business to HKT Ltd in a deal worth US$2.43 billion, exiting a highly saturated smartphone market that is facing regulatory changes to increase competition.

* FedEx Corp on Thursday disclosed that it had deferred by two years options to buy 11 more Boeing Co 777 freighter jets earmarked to fly goods between Asia and the United States, a market that's borne the brunt of the global slowdown in air cargo.

* Mark Zuckerberg will likely pocket about $1 billion from his first stock sale since Facebook Inc's initial public offering, part of a complex transaction in which the founder and chief executive also plans to donate stock valued at roughly $1 billion to charity.

* Like clockwork, WhatsApp announced another milestone Thursday, claiming 400 million monthly active users. In April, the company said 200 million people were using its smartphone-messaging app. Every two months since, it has said another 50 million people were on board.

FT

BAE Systems suffered a bruising setback after Britain's negotiations to supply 60 Typhoon fighter jets to the UAE collapsed and pricing talks on a separate deal with Saudi Arabia stalled.

The Bank of England has become more pessimistic about Britain's growth and export performance after publishing its first detailed analysis of its forecasting errors.

Markets soured on the day after the US Federal Reserve's dramatic tapering of its asset purchases from $85bn to $75bn per month as the dollar climbed and vulnerable emerging markets came under pressure.

Overstock plans to become the first big U.S. online retailer to accept Bitcoin, as Patrick Byrne, the company's libertarian chief executive, warms to the virtual currency as a refuge from government control.

Bidders for JPMorgan Chase's physical commodities business have complained that the bank is refusing to release enough information for them to value the assets. The sale has presented a challenge for bankers running the process as they are negotiating with some of their fiercest trading rivals.

Businesses will be paid to cut their energy use on winter evenings next year, highlighting the rising threat of blackouts as the UK's ageing coal plants are closed.

NYT

* Millions of people facing the cancellation of health insurance policies will be allowed to buy catastrophic coverage and will be exempt from penalties if they go without insurance next year, the White House said Thursday night.

* The International Monetary Fund issued on Thursday a scathing report on Ukraine's financial situation, saying that the government of President Viktor F Yanukovich had largely abandoned much-needed economic reforms that it had agreed to undertake as part of a deal in 2010 that provided more than $15 billion in loans.

* The Wolf of Wall Street is about to have his day. The Martin Scorsese film about the Wolf - Jordan Belfort in real life, played by Leonardo DiCaprio - tells how Belfort swindled thousands of investors out of more than $100 million as head of a penny-stock boiler room in the 1990s.

* If President Obama adopts the most far-reaching recommendations of the advisory group he set up to rein in the National Security Agency, much would change underneath the giant antennas that sprout over Fort Meade, Md., where America's electronic spies and cyberwarriors have operated with an unprecedented amount of freedom since the Sept. 11, 2001, attacks.

* Governments, led by the United States, are increasingly demanding that Google remove information from the Web. The company received 3,846 such requests to remove 24,737 items in the first half of 2013, an increase of 68 percent over the second half of 2012, according to an update to Google's transparency report released on Thursday. Google complied with more than a third of all requests.

* Despite what has been a buoyant market for Chinese companies' share offerings in Hong Kong in recent weeks, shares in China Everbright Bank sank on their trading debut on Friday. Everbright Bank raised around $3 billion last week in an initial public offering - Hong Kong's biggest of the year - after pricing its shares at 3.98 Hong Kong dollars, or 51 U.S. cents, apiece, near the lower end of their marketed range.

* The battle for Telecom Italia's future heats up Friday when shareholders vote on whether to oust the company's board. Minority investors are seeking to combat a threat from the Spanish giant Telefonica, which has increased its stake in a holding company that owns around 22 percent of Telecom Italia.

* Following in the footsteps of companies like Google and Facebook, Verizon Communications is going to reveal more about what customer information it shares with the government. On Thursday, the company announced plans to publish its first transparency report, which will provide data on the number of law enforcement requests for customer information it received this year.

Canada

 

THE GLOBE AND MAIL

* An armored-vehicle

program, once deemed essential to protect soldiers from roadside bombs,

is being ditched by the Conservative government, defense and government

sources say. The $2.1 billion, close-combat vehicle acquisition joins a

long list of troubled and failed military procurements.

*

The National Energy Board has given a conditional green light to the

Northern Gateway pipeline project, handing off to Prime Minister Stephen

Harper a crucial decision that threatens to intensify aboriginal

opposition and become a political flashpoint in the next federal

election.

In a report Thursday, an NEB review panel recommended

that Ottawa approve the $6.5 billion pipeline and crude supertanker

terminal in Kitimat, British Columbia once the government and Enbridge

Inc have addressed the 209 environmental, safety and financial

conditions set down by the panel.

Reports in the business section:

*

Canadian regulators alleged on Thursday that a Silvercorp Metals Inc

short-seller committed fraud when he wrote negative reports about the

mining company in order to profit from a drop in the miner's stock.

*

A move by the Canadian government to block Pizza Pizza Ltd and other

Canadian restaurant chains from importing low-cost U.S. mozzarella is

stoking trade tensions with the United States.

A senior U.S. trade

official has bluntly warned Ottawa that the decision could harm its

exporters and was made without proper notice or justification.

*

Canada is once again delaying emissions regulations in the oil and gas

sector, despite major pipeline projects that continue to put intense

scrutiny on the energy industry's environmental track record.

NATIONAL POST

*

Gregory Logan, an Alberta ex-Mountie who for 10 years orchestrated the

most pervasive narwhal tusk-smuggling ring of modern times, is now set

to face U.S. prosecutors only two months after a New Brunswick court

handed him Canada's largest-ever wildlife penalty.

*

Prime Minister Stephen Harper says he felt betrayed and deceived at

being left in the dark over the secret $90,000 check his former chief of

staff gave to senator Mike Duffy.

FINANCIAL POST

*

Canada's broadcast regulator, Canadian Radio-television and

Telecommunications Commission, offered a preview of a television system

based on individual choices in a decision on Thursday that also

highlighted its willingness to intervene in the marketplace to promote

news programming.

* Canadians will ramp up their record levels of debt in 2014, says one of the country's leading rating agencies.

Credit-monitoring

agency TransUnion predicts in its first such annual forecast that the

average consumer's total non-mortgage debt will hit an all-time high of

$28,853 by the end of 2014.

* It's been a busy week for

Canadian regulators as they roll out new rules designed to meet global

regulatory reform in the area of derivatives trading.

On Thursday,

the Canadian Securities Administrators proposed a model for central

counterparty clearing of over-the-counter derivatives. The new system,

if implemented in its current form, will determine which derivatives are

subject to central clearing.

China

CHINA SECURITIES JOURNAL

- Jiang Yang, vice-chairman of the China Securities Regulatory Commission, said the commission will push forward with the opening up of capital markets in the Shanghai pilot Free Trade Zone. It will reveal detailed rules for cross-border bilateral investments for companies and individuals, he added.

- The manufacture and sales of automobiles from January to November this year stood at 19.99 million and 19.86 million units respectively, a gain of 14.34 percent and 13.53 percent from a year earlier, according to data from the China Association of Automobile Manufacturers. Insiders expect the automobile market growth to reach 15 percent.

SHANGHAI SECURITIES NEWS

- The Shanghai Stock Exchange said it will improve corporate governance for listed companies and regulate the operations of their audit committees under the board.

CHINA DAILY

- Max Baucus, who is expected to be nominated as the next US ambassador to China, will have to play a balancing act between implementing Washington's policies and addressing Beijing's concerns over its strategic interests, observers said.

SHANGHAI DAILY

- China will quicken reforms of its massive state-owned enterprises, according to the SOE regulator. The focus is to transform the SOEs, especially parent companies, quickly into joint-stock companies where public shareholders can have a bigger voice, said Huang Shuhe, vice-chairman of the State-owned Assets Supervision and Administration Commission.

Britain

The Telegraph

BLOW FOR BRITAIN AND BAE SYSTEMS AS UAE RULES OUT EUROFIGHTER DEAL

Defence contractor BAE Systems has been hit by a double-blow from the Gulf over its Typhoon fighter jet programme, damaging its export ambitions and forcing the company to warn on profits.

(http://link.reuters.com/mex55v)

BRUSSELS CHIEF MICHEL BARNIER BANS BANKER MEETINGS

The European Commission has banned all meetings with bankers and bank lobbyists as it prepares new rules to deal with failed financial institutions.

(http://link.reuters.com/nex55v)

The Guardian

INTEREST RATE RISE WITH NO WAGE INCREASE 'WILL PUSH HEAVILY-INDEBTED TO EDGE'

Heavily indebted homeowners will be hit hard if interest rates start to rise before wages have picked up, according to research by the Bank of England that underlines the dilemma facing policymakers as the economy recovers.

(http://link.reuters.com/pex55v)

SERCO'S £68.5M FINE DISGUISES WHAT LOOKS TO BE A BRIGHT FUTURE

Serco's reputation seems to have escaped relatively unscathed compared to G4S and may soon be bidding for government contracts

(http://link.reuters.com/qex55v)

The Times

RETAIL SALES BREAK THE ICE BUT CHRISTMAS FEARS REMAIN

Retail sales rallied last month after a decline in October as the colder weather brought shoppers out for winter clothes - but the rise was not enough to dispel fears that Christmas trading will be weak.

(http://link.reuters.com/gex55v)

SWAPS SCANDAL MAY WIDEN, WATCHDOG WARNS

Banks may be exploiting the powerlessness of regulators to continue selling unsuitable hedging products to small firms, the chief City regulator has warned.

(http://link.reuters.com/hex55v)

The Independent

SERCO TO PAY BACK £69M OVER FRAUDULENT TAGGING CONTRACTS

More than two-thirds of Government contracts held by the controversial outsourcing giants Serco and G4S are open to fraud and error, ministers have admitted.

(http://link.reuters.com/jex55v)

BT BLASTS OFCOM OVER 'UNFAIR' NEW RULES BENEFITING RIVALS

BT has hit out at industry regulator Ofcom for imposing what it described as "unfair" rules on Britain's biggest telecom company, claiming that they benefit rivals such as BSkyB and TalkTalk who gain wholesale access to its network at "artificially low prices".

(http://link.reuters.com/kex55v)

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

3M Company (MMM) upgraded to Neutral from Underweight at JPMorgan
ARRIS (ARRS) upgraded to Buy from Hold at Jefferies
Carnival (CCL) upgraded to Outperform from Neutral at Credit Suisse
Empresas ICA (ICA) upgraded to Buy from Neutral at Citigroup
Lexmark (LXK) upgraded to Equal Weight from Underweight at Barclays
Mobile TeleSystems (MBT) upgraded to Buy from Hold at Deutsche Bank
Red Hat (RHT) upgraded to Buy from Neutral at UBS
Red Hat (RHT) upgraded to Outperform from Market Perform at Raymond James

Downgrades

BRE Properties (BRE) downgraded to Hold from Buy at Deutsche Bank
First Niagara (FNFG) downgraded to Sell from Neutral at Citigroup
TIBCO (TIBX) downgraded to Neutral from Buy at UBS

Initiations

Advent Software (ADVS) initiated with a Hold at Jefferies
Brookfield Residential (BRP) initiated with an Outperform at Credit Suisse
Criteo (CRTO) initiated with a Buy at Societe Generale
FireEye (FEYE) initiated with a Neutral at Wedbush
Himax Technologies (HIMX) initiated with a Buy at Topeka
Imperva (IMPV) initiated with a Hold at Topeka
Infinera (INFN) initiated with an Outperform at FBR Capital
Montage Technology (MONT) initiated with a Buy at Topeka
Nimble Storage (NMBL) initiated with an Outperform at RBC Capital
Prospect Capital (PSEC) initiated with a Buy at Deutsche Bank
Ruckus Wireless (RKUS) initiated with a Market Perform at JMP Securities
Semiconductor Manufacturing (SMI) initiated with a Buy at Topeka
Spansion (CODE) initiated with a Hold at Jefferies
Surgical Care Affiliates (SCAI) initiated with an Equal Weight at Morgan Stanley
TriMas (TRS) initiated with an Outperform at Wells Fargo
eHealth (EHTH) initiated with a Buy at SunTrust
lululemon (LULU) initiated with a Buy at Topeka

HOT STOCKS

Telstra (TLSYY) entered into agreement to sell CSL in Hong Kong for $2.43B
Alcatel-Lucent (ALU) to sell LGS Innovations to Madison Dearborn Partners, CoVant
Jazz Pharmaceuticals (JAZZ) to acquire Gentium (GENT) for $57 per share
Jones Group (JNY) to be acquired by Sycamore Partners for $15.00 per share in cash, or about $1.2B
TowerJazz (TSEM) to acquire three Panasonic (PCRFY) semiconductor factories in Japan
Caesar's (CZR, CACQ) announced partnership with Live Nation (LYV)
DealerTrack (TRAK) acquired Dealer.com for 8.7M shares, $620M in cash
Xerox (XRX) acquired German-based Invoco

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
Cintas (CTAS), Nike (NKE), TIBCO (TIBX), Red Hat (RHT)

NEWSPAPERS/WEBSITES


  • The Federal Reserve's role in the mortgage market has expanded over the past three months and could remain large for now, even as the central bank attempts to shrink its bond-buying program, the Wall Street Journal reports

  • At least half a dozen banks are working on proposals for financing a bid by Sprint (S) for T-Mobile (TMUS), sources say, another sign that Sprint is laying the groundwork for a potential offer for its smaller rival, the Wall Street Journal reports

  • This year has been the biggest for equity fundraising globally since 2010, thanks to improving confidence among companies on the back of the strong investor demand for stocks, according to Thomson Reuters data. A total of $774B has been raised worldwide from equity capital market offerings as of December 18, a rise of 24% on 2012, Reuters reports

  • Lloyds Bank (LYG) is poised for a return to private ownership within 18 months, while part-nationalized rival Royal Bank of Scotland (RBS) faces some major hurdles before it can regain independence, Reuters reports

  • The Fed will probably reduce its bond purchases in $10B increments over the next seven meetings before ending the program in December 2014, economists said, Bloomberg reports

  • Investment bankers have said a recovery was around the corner throughout the current slump, awaiting a stronger U.S. economy, rising stock markets or an end to the European debt crisis. All those conditions have been satisfied, yet dealmaking has remained stagnant as CEO’s continue to worry about the viability of the economic recovery, Bloomberg reports

SYNDICATE

BPZ Resources (BPZ) files $500M mixed securities shelf
Biostar Pharmaceuticals (BSPM) files $35M mixed securities shelf
DHT Holdings (DHT) files to sell 28.13M shares of common stock for holders
Verastem (VSTM) files $150M mixed securities shelf

Sign Up

Get the InvestingChannel
Free e-Letter Today

Learn More

Independent market opinion, analysis and ideas - delivered every business day

Premium market opinions, analysis, and ideas - delivered every business day

Editor's Picks