- Financial reforms snag non-banks. Obama wants industrial loan companies [ILCs], firms which face less scrutiny than banks but can still offer credit cards, make loans, etc., to register as bank-holding companies and be subject to stricter regulation. For ILCs like Target (TGT), Harley-Davidson (HOG), Pitney Bowes (PBI) and dozens of others that routinely pitch loans and other financial products, bank-holding status could potentially be so restrictive that the firms will opt instead to give up their ILC status altogether, closing down another source of consumer credit. Also facing a regulatory problem is General Electric (GE), whose GE Capital will almost certainly be classed as systemically important. Since tighter regulations would be applied to GE as a whole, the shift could potentially force a spin off of the capital unit.
- SEC dives into dark pools. SEC's Schapiro is concerned trading on private electronic markets could present 'emerging risks,' and may require firms to disclose more information about their transactions. The lack of transparency in these so-called 'dark pools' could promote price fluctuations and give some traders an unfair advantage, said Schapiro, and "the commission will be taking a serious look at what regulatory actions may be warranted."
- EU leaders agree on supervision. Wrapping up a summit, EU leaders agreed to tighten financial supervision, create three pan-European watchdogs to help prevent another global economic crisis and to establish a new European Systemic Risk Board to monitor risks to stability. Lawmakers stopped short of giving the new regulators the power to force national governments to bail out companies. Jose Manuel Barroso's bid for a second five-year term as president of the EU's executive European Commission received unanimous support.
- Merrill trio discussed buyback. Three former Merrill Lynch executives approached Bank of America (BAC) CEO Ken Lewis to discuss buying back some or all of their old company, but were turned down. The trio - made up of Dan Tully, former Merrill CEO; Launny Steffens, former head of Merrill’s private client business; and Winthrop Smith Jr., son of one of Merrill’s co-founders - met with Lewis two months ago to float the idea.
- Switzerland mulls bank shrinkage. Switzerland's central bank is examining whether to force banks like UBS (UBS) and Credit Suisse (CS) to shrink down in order to limit risks imposed by their size. "There can be no more taboos, given our experiences of the last two years," said one official, and the bank could impose "direct and indirect measures to limit [large banks’] size."
- FDA approves Novartis genetic drug. The FDA approved the sale of a Novartis (NVS) drug called Ilaris, the company's first drug in its push to focus on the genetic triggers of disease. As opposed to blockbuster drugs marketed to millions of patients, Ilaris treats a rare disorder affecting only a few thousand people worldwide, and represents a shift in the industry towards developing drugs for niche diseases through genetics-focused research.
- Scrushy slammed with $2.88B fine. A judge ordered Richard Scrushy, former chairman and CEO of HealthSouth Corp. (HLS), to pay a staggering $2.88B in damages for helping to artificially inflate HealthSouth's earnings for at least six years through an accounting scam uncovered in 2003. The civil suit was brought by shareholders and the judgment against Scrushy appears to be the largest financial penalty ever levied against a single executive.
- Alcatel-Lucent, H-P team up. Alcatel-Lucent (ALU) and Hewlett-Packard (HPQ) signed a ten-year partnership to develop and market communications and computing products. As part of the deal, Alcatel-Lucent will outsource its IT infrastructure to Hewlett-Packard, saving the company about €750M ($1.05B) and transferring around 1,000 employees to Hewlett-Packard in the process.
- FCC reviews cellphone exclusivity deals. The FCC has begun to investigate wireless handset exclusivity arrangements such as AT&T's (T) deal with the iPhone (AAPL) or Sprint's (S) deal to offer the Pre (PALM). The investigation comes in response to lawmakers' concerns that the deals may be hurting consumers and distorting industry competition.
- New iPhone and more competition. Apple (AAPL) releases a new iPhone today, hoping to lure customers with the promise of faster speed and more features as the smartphone market grows increasingly crowded with offerings from Research in Motion (RIMM - see earnings below), Palm (PALM) and others. An older version of the iPhone is now selling for $99, half the original price, which could boost iPhone sales to 18M this year and 28M next year.
- Tweaking Libor. In order to keep Libor as representative of borrowing costs as possible, the British Bankers' Association has started letting banks outside London contribute quotes. The change could increase the number of lower-rated institutions included in the Libor panel, potentially driving up the average cost of borrowing money. Libor is used as a price reference on around $350T of financial contracts worldwide.
- Jobless claims. Initial Jobless Claims came in at 608K vs. consensus of 604K. Claims from the prior week were revised to 605K from 601K. Continuing claims fell by 130K to 6.69M.
- Leading indicators improve. Conference Board's Leading Indicators rose 1.2% in May, vs. +1% consensus, the second increase in as many months. Vendor performance, interest rate spread, real money supply, stock prices, consumer expectations, and building permits all made positive contributions to the index.
- Philly Fed outlook surges up. Philly Fed's Business Outlook came in at -2.2 in June, up from -22.6 in May and the highest since Sep. 08, which was the only month out of the last 19 that the index was positive. The six-month outlook surged by 12.6 points to 60.1 - close to a 15-year high. The survey noted "declines in the region's manufacturing sector diminished significantly this month. Indicators for general activity, new orders, and shipments are suggesting steadier levels of activity, in contrast with the series of continuous large declines suggested in previous surveys."
Earnings: Thursday After Close
- Research In Motion (RIMM): FQ1 EPS of $0.98 beats by $0.04. Revenue of $3.42B (+52.7%) in line. Sees FQ2 EPS of $0.94-1.03, in line, and revenue of $3.45-$3.7B. (PR)
Overseas markets moved higher Friday and futures are up in tandem as stocks try to stage a late-week comeback - but there's still a ways to go.
- Asia: Nikkei +0.85% to 9,786. Hang Seng +0.81% to 17,921. Shanghai +0.93% to 2,880. BSE +1.8% to 14,522.
- Europe at midday: London +1.8%. Paris +1.05%. Frankfurt +0.3%.
- Futures at 7:00: Dow +0.5% to 8540. S&P +0.7% to 919. Nasdaq +0.8%.
Crude +1.15% to $72.74. Gold +0.1% to $935.50.
Friday's Economic Calendar
- No events scheduled.
- Notable earnings before Friday's open: KMX
- Notable earnings after Friday's close: FMCN
Seeking Alpha editor Eli Hoffmann contributed to this post.
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