Tuesday, June 9, 2015

Wall Street Breakfast: HSBC Announces Drastic Restructuring


Economy
Traders today will be focusing on JOLTS, or the Job Openings and Labor Turnover Survey, for what it might tell the Fed about the labor market ahead of its June meeting next week. The 10 a.m. report provides color on the labor market that did not show up in last week's strong jobs data. With a potential September rate hike now in focus, stocks were sluggish Monday - the Dow turned negative for the year and the S&P 500 settled below its 100-day moving average for the first time since March.
Greece and its creditors are discussing an extension of the country’s bailout program through March 2016, WSJ reports, in an attempt to break the current impasse over reforms and austerity measures. According to sources, Athens would get access to €10.9B ($12.3B) in aid - originally set aside to prop up Greek banks - to help stay solvent over the proposed extension. Greece's current bailout program ends on June 30.
As China's boom surpasses the headiest days of the U.S. Internet bubble, signs of excess are cropping up everywhere. Mainland speculators have borrowed a record $348B to bet on further gains, price-to-earnings ratios have climbed to the highest levels in five years, while Chinese exchanges have created $6.5T in just 12 months of trading. The economy, meanwhile, is mired in its weakest expansion since 1990. Chinese shares face their next big test later today, when index provider MSCI decides whether mainland securities are eligible for indexes used by $9.5T of funds worldwide.
Meanwhile, China's inflation in May came in lower than expected, offering more evidence that Asia's largest economy is stalling and suggesting more stimulus may be on the way. China's CPI rose 1.2% from the year-earlier period, slightly below the 1.3% forecast and below the 1.5% rise in April. Producer prices fell for the 38th straight month, slumping 4.6% from a year earlier.
Stocks
HSBC will cut costs by as much as $5B within two years, selling its units in Brazil and Turkey and laying off as many as 50K staff, Europe's biggest bank told investors in a much-anticipated update. In a statement to the Hong Kong Stock Exchange, HSBC (NYSE:HSBC) said it would also shrink its risk-weighted assets by about $290B, including cutting its global banking and markets risk-weighted assets to less than a third of the group's assets. The bank will also target an ROE of more than 10% by 2017, down from a previous goal of 12%-15% by 2016. HSBC -1.1% premarket.
When the two executives who lead Deutsche Bank unexpectedly announced their resignations on Sunday, pressure from angry shareholders was widely seen as the chief factor. But regulators also played a role in the departures, NYT reports, stating German financial watchdog BaFin pressed the co-CEOs to resign due to the way they handled an investigation into the alleged manipulation of interest rates by bank employees. A spokesman for Deutsche Bank (NYSE:DB) has strongly denied the claim.


Fiat Chrysler Automobiles' CEO Sergio Marchionne is reaching out to hedge funds and other potential allies to prod General Motors (NYSE:GM) into a merger, sources told WSJ. Marchionne has been emboldened by recent successes of activist investors at GM and sees them as a means to consolidate the fragmented auto industry. So far, GM has resisted all of Fiat Chrysler's (NYSE:FCAU) entreaties, including a merger appeal to Chief Executive Mary Barra earlier this year.
Boeing recently announced it was looking to increase the seating capacity of its 777-300ER commercial aircraft by reducing the size of the lavatories, saying it could add up to 14 extra seats in the aircraft and give airlines room to improve their unit passenger margins. 777 General Manager Elizabeth Lund is confident about the changes and has said that the aircraft was receiving positive responses. Boeing's (NYSE:BA) announcement comes just days before the Paris Air Show, which will be held from June 15 to June 21.
EBay shares fell close to 4% on Monday after it projected sales to grow at a lower rate than expected following a planned split from PayPal (Pending:PYPL). In a filing, eBay (NASDAQ:EBAY) said it anticipated revenue from its marketplace division to remain flat or grow as much as 5% (on a constant currency basis) in 2015 and 2016, while PayPal is expected to see 15%-18% constant currency growth this year and about 15% annual growth in the "medium term."
Apple's much-rumored subscription service has been unveiled, and so has a radio station (Beats 1) featuring live DJs. Apple Music (NASDAQ:AAPL) will launch on June 30 in over 100 countries, and come with a 3-month free trial. Beyond that, it costs $9.99/month for individual plans (similar to rivals), and $14.99/month for family plans (up to 6 members). Android support arrives in the fall. Other announcements: An iOS 9 News app, iPad multitasking and watchOS 2.
Stepping closer to shedding some more non-core assets, P&G (NYSE:PG) has received several binding offers for separate parts of its beauty business. Bidders, including Henkel (OTCPK:HENKY), Coty (NYSE:COTY) and PE firms KKR (NYSE:KKR), Clayton Dubilier & Rice and Warburg Pincus, have made offers in the billions of dollars for P&G's haircare unit, cosmetics division and fragrance business. CEO Lafley said last August he would reverse the company's strategy of aggressive expansion and unload more than half of its brands.
Newmont Mining has agreed to acquire the Cripple Creek & Victor gold mine in Colorado from AngloGold (NYSE:AU) for $820M in cash plus a 2.5% net smelter return royalty for gold production from potential future underground ore. Newmont (NYSE:NEM) believes the deal will add 350K-400K oz./year of gold in 2016 and 2017 at all-in sustaining costs of between $825-$875/oz. To fund the deal, NEM plans to conduct a public offering of 29M common shares, with an underwriters option to purchase up to an additional 4.35M shares. NEM -1.5% AH.
While AT&T waits to close its acquisition of satellite-television operator DirecTV (NASDAQ:DTV), the group's own pay-TV unit has some unfinished business with CBS. Setting the stage for a likely contract dispute, AT&T's (NYSE:T) U-Verse programming agreement for CBS and its cable channels, including Showtime, runs out on June 30. If the stations go dark, 2.5M subscribers (many more in Showtime's case) would lose the programming, primarily in Dallas, Los Angeles and Chicago.
The Obama administration has announced it will forgive federal student loans owed by Americans who can prove their schools broke a state law, such as false advertising, fraudulent recruiting or other deception, to lure them to apply and borrow funds. The move, which could potentially involve billions of dollars, is designed to grant debt relief to former students of now-bankrupt Corinthian Colleges (OTCPK:COCOQ), which lied to prospective students about its graduates' job success. The forgiveness push, though, will likely stretch far beyond the institution.
Monday's notable earnings 
FuelCell (NASDAQ:FCEL) -13.2% AH after missing estimates. (link)
Sears (NASDAQ:SHLD) -4.3% as sales continued to slump. (link)
Triangle Petroleum (NYSEMKT:TPLM) -5.7% AH on an FQ1 miss. (link)

Today's Markets:
In Asia, Japan -1.8% to 20096. Hong Kong -1.2% to 26989. China -0.4% to 5114. India -0.2% to 26481.
In Europe, at midday, London -0.6%. Paris -1%. Frankfurt -1.5%.
Futures at 6:20: Dow -0.3%. S&P -0.4%. Nasdaq -0.6%. Crude +1.2% to $58.82. Gold +0.6% to $1180.30.
Ten-year Treasury Yield -2 bps to 2.36%
Notable earnings before today's open: BURL, CMN, FGP, HDS, HOV, ISLE,LULU, SAIC, ZQK
Notable earnings after today's close: GEF, LMNR, MFRM, SIGM, SURG
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