Frontrunning: October 11

  • Global easing deluge resumes: Bank of Korea Slashes Policy Rate (WSJ)
  • And Brazil: Brazil cuts Selic rate to new record low of 7.25 pct (Reuters)
  • With Tapes, Authorities Build Criminal Cases Over JPMorgan Loss (NYT) Just don't hold your breath
  • IMF snub reveals China’s political priorities (FT)
  • Add a dash of trade wars: Revised Duties Imposed by U.S. on Chinese Solar Equipment (Bloomberg)
  • IMF calls for action as euro zone crisis festers (Reuters)
  • Dubai Losing Billions as Insecure Expats Send Money Abroad (BBG)
  • Softbank in Advanced Talks to Acquire Sprint Nextel (WSJ)
  • Lagarde calls for brake on austerity (FT)
  • EU lambasts Turkey over freedoms (FT)
  • Race Tightens in Two States (WSJ)
  • Polls see comfortable win for Netanyahu (FT)
  • Fed's Fisher says U.S. must tackle fiscal cliff to spur hiring (Reuters)
  • Tarullo Calls for Cap on Bank Size (WSJ) - "it's only fair"
  • Fed Says Economy Grows ‘Modestly’ on Housing, Autos (BBG)

Overnight Media Digest


* BAE Systems Plc and EADS called off their merger after the UK, France and Germany failed to agree on how much influence they should have over the combined entity.

* JPMorgan Chase and Co's chief financial officer is expected to step down over the next two quarters and is likely to move into a different job at the bank, people close to the company say.

* Mitt Romney is deadlocked with President Barack Obama in two key battlegrounds - Florida and Virginia - while still behind in Ohio, according to new polls taken after the Republican's strong performance in the first presidential debate.

* Standard & Poor's Ratings Services cut its rating on Spain and maintained a negative outlook, citing the mounting pressures from the country's economic recession.

* Eastman Kodak Co said it would terminate its health-care and survivor-benefits program, resolving a $1.2 billion retiree-benefits liability.

* A top Federal Reserve official Wednesday called on Congress to consider capping the size of the nation's financial firms, marking one of the most high-profile challenges to the way Wall Street does business.

* H&R Block Inc is exploring how to escape the burden of being regulated by the Federal Reserve without giving up on financial services.

* Regulators are closely watching how much of a boost U.S. banks give their third-quarter profits by trimming their cushions against bad loans, highlighting an issue that will be in the forefront in coming days as banks report earnings.

* European Union Transport Commissioner Siim Kallas is preparing legal action against EU member countries to force faster action on a delayed program to unify the bloc's airspace, according to a speech he will deliver Thursday.




Attempts to create a European giant to rival Boeing of the U.S. collapsed on Wednesday, amid investor anger at the handling of a multibillion-euro merger.


Goldman Sachs has told its board of directors that an internal investigation found little substance to allegations that bankers refer to clients as "muppets".


Retail shareholders are to invest a greater sum in Direct Line's initial public offering than any other UK flotation in at least the past five years.


The huge and rising government bond holdings of Japanese banks leave them vulnerable, the International Monetary Fund has warned.


Big fashion brands are fretting over whether to offer their wares on Amazon as its move into clothing forces them to make a decision.


Downing St was caught in the crossfire from the collapse of the BAE-EADS talks as MPs questioned why the government were keen to back the deal.


British Prime Minister David Cameron warned voters to brace for "painful decisions" on the economy on Wednesday but offered little new to alter a grim growth outlook.


A drop in shares of Apple in recent weeks has driven a rotation out of technology shares and reinforced the standing of financials as the best performing sector.



* The European aerospace giants, EADS and BAE Systems Plc, said Wednesday they had failed to win government support for a merger that would have created an entity with a combined market value of about $50 billion.

* Federal authorities are using taped phone conversations to build criminal cases related to the multibillion-dollar trading loss at JPMorgan Chase and Co, focusing on calls in which employees openly discussed how to value the troubled bets in a favorable way.

* The private equity giants Blackstone Group and Kohlberg Kravis Roberts and Co are longtime rivals that compete for multibillion-dollar deals. But during last decade's buyout boom, according to newly released e-mails in a civil lawsuit accusing them of collusion, the two firms appeared to be on much cozier terms.

* Toyota Motor Corp announced on Wednesday that it was recalling 7.4 million vehicles worldwide, including 2.5 million in the United States, to repair power-window switches that can break down and pose a fire risk.

* GlaxoSmithKline Plc plans to open up much of its drug research in an apparent effort to deflect criticism that important information gathered in clinical trials often does not see the light of day.

* The Commerce Department issued its final ruling Wednesday in a long-simmering trade dispute with China, imposing tariffs ranging from about 24 to nearly 36 percent on most solar panels imported from the country.

* Costco Wholesale Corp continues to draw more shoppers and sign up new members, giving the wholesale club operator higher net income and revenue in its fiscal fourth quarter. The company's performance beat Wall Street's expectations, and its shares touched a record high on Wednesday before easing a bit.

* The European Union's transport commissioner intends on Thursday to threaten legal action against member governments that do not soon take serious steps toward integrating their air traffic control operations.

* Two top Chinese officials will not attend international financial meetings in Tokyo this week, in an apparent snub aimed at showing China's displeasure with Japan's handling of a dispute over islands claimed by both Asian nations.

* U.S. Internal Revenue Service commissioner Douglas Shulman announced Wednesday that he will leave his post next month, ending a four-and-a-half year term during which he modernized some of the agency's infrastructure while cracking down on tax dodging by corporations and offshore tax evasion by individuals.




* Flaws in a national databank that helps determine the value of houses across Canada have helped fuel inflation in home prices, putting mortgage lenders and borrowers at greater risk, key players in the housing sector have warned.

* A Canadian naval intelligence officer pleaded guilty to spying for Russia, a public admission of an embarrassing espionage scandal that has damaged Canada's reputation among allies and will likely reverberate for years.

Reports in the business section:

* British Columbia is attacking Enbridge Inc for its failure to detect most recent leaks on its U.S. pipelines, raising questions about the company's ability to spot oil spills in remote stretches of its proposed $6-billion Northern Gateway project.


* Rocked by allegations of illegal financing, the Quebec Liberals mounted a counter-attack in defence of their party's reputation Wednesday.

* Five weeks after its election, Pauline Marois' minority Parti Québécois government abandoned one of its central election promises Wednesday but still failed to win the opposition support it needs.

Finance Minister Nicolas Marceau announced that the government would maintain a health tax introduced by the Liberals and scale back a plan to significantly increase taxes on the wealthy.


* As the debate intensifies over whether Ottawa should open the floodgates to Chinese investment in the Canadian oil and gas sector, some argue that Nexen Inc, the Calgary-based oil and gas producer targeted by CNOOC Ltd, isn't worth protecting because its assets are predominantly based overseas.

* The province of Ontario has gone from criticizing the oil sands to increasing its efforts to capture their economic benefits.

Brad Duguid, Ontario's minister for economic development, says he plans to increase his department's attention to Alberta by adding more staff to deal with trade issues.




--Kevin Gallagher, chief executive of construction and engineering contractor Clough, yesterday said that some of the problems in the industry had been created by excessively ambitious tenders from engineering firms that should have been more prepared for the current market downturn. "I do think, across the sector, the risk and reward equation has got a little bit out of balance, with certain companies perhaps taking on more than they can handle  the minute you go one project too many and you're hiring off the street to fill all your key slots, your risk profile changes dramatically," he said. Pg 25.

--Virgin Australia and Qantas Airways are limiting frequencies on the "golden triangle" routes between Brisbane, Sydney and Melbourne before both airlines absorb too much damage to their profit margins in a bid to take market share from the other, observers say. Scheduling data showed a rise in flight cancellations by Virgin in August and September, a trend corroborated by figures from Qantas. "We have always said we would increase or decrease capacity as our competitors do to protect our position in the market," Qantas chief executive Alan Joyce said. Page 25.

--Guy Elliott, chief financial officer of Rio Tinto , yesterday declared that the mining giant was unlikely to launch a share buyback program, saying that the company lacked the capital to invest in all of its value-adding growth projects. "Right now we don't think we have surplus capital. We are making choices between organic and external investment opportunities and cash returns for shareholders," Mr Elliott said. Page 27.

--Biotechnology group QRxPharma yesterday announced a licensing agreement with speciality pharmacology firm Paladin Labs Inc that will generate double-digit royalties, milestone payments and a A$500,000 upfront fee. John Holaday, managing director of QRx, said the tie-up with Paladin was "our best choice for the Canadian market" because of the company's "sector experience, consistent record of growth in branded pain products, and strong balance sheet". Page 27.


--Oaktree Global Management and Apollo Capital are considering a scenario where Nine Entertainment Co, the free-to-air television broadcaster which owes around A$1 billion in senior debt to the two hedge funds, falls into receivership, observers say. The move comes after investment bank Goldman Sachs accepted a restructuring proposal from Nine management that would see its ownership in Nine fall to 7.5 percent from the 30 percent it is currently demanding. Page 19.

--Proxy advisory and governance consultants will be closely assessing any changes in Leighton Holdings' management after the chief operating officer of Hochtief, Leighton's parent company in Germany, was appointed to the contractor's board. Marcelino Fernandez Verdes was announced as a non-executive director, sparking speculation that ACS, the Spanish parent majority shareholder in Hochtief, is controlling Leighton. Page 19.

--A senior executive at Royal Dutch Shell yesterday refused to rule out using the oil and gas multinational's floating liquefied natural gas technology as a development path for the troubled US$45 billion Browse venture in Western Australia. "All the various opportunities in Australia, they should be illuminated through different lenses. That's all I can say at this moment," Matthias Bichsel, director of projects and technology at Shell, said. He added that the technology allowed the production of liquefied natural gas "without disturbing coastlines or building a big facility in some pristine environment". Page 19.

--Greg Medcraft, chief executive of the Australian Securities and Investments Commission, yesterday told the Financial Services Institute of Australasia forum in Sydney that the regulator would increase its monitoring of share sales and high-frequency trading in "dark pools". Mr Medcraft noted there was a rising concern around the world about the effect of high-frequency trading in unregulated markets and added that the regulator was looking at proposals to introduce a mandatory "kill switch" to shut down "rogue" algorithms used to make high-frequency trades. Page 19.


--Wealth management giant AMP yesterday warned that the Federal Government's proposed changes to superannuation, which would force billions of dollars in taxpayer savings to be transferred to commission-free accounts, may be in violation of the constitution. AMP added that it did not accept the government's premise that a gradual "transition" would take place after the introduction of the laws was delayed until 2017. "It is an overt taking away of the existing entitlement to the remuneration that the advisers currently receive through existing contractual agreements," AMP said. Page B1.

--Fund manager Fidelity yesterday forecast that healthcare groups would become more successful as the world's population increases and generates more wealth, with sales of hearing aids, eyecare, generic treatments and coronary stents expected to increase. "Ageing populations will clearly drive demand for healthcare across areas like hearing aids and eye care  the young will also take with them pretty bad habits, so bad dietary habits means higher incidences of chronic diseases, like diabetes and heart disease," Nicola Stafford from Fidelity Global Demographics Fund said. Page B2.

--KordaMentha, the insolvency specialists appointed as receivers for Gunns, yesterday announced that there was "significant stakeholder support" for continuing with the collapsed forestry's group's A$2.2 billion pulp mill venture in Tasmania. Daniel Bryant from PPB Advisory, the current administrator of Gunns, said he expected a report into the failure of the business to be presented to creditors next month. Page B3.

--Scott Berriman, director of office leasing at real estate group Knight Frank, yesterday said that there was a rise in available office space in good quality properties in central business districts. "The threat of emerging subleases is felt more in Melbourne, where [Australia and New Zealand Banking Group] is dumping 27,000 square metres and [National Australia Bank] is looking to offload 7100 square metres," Mr Berriman stated. He added that "in most cases the subleases provide inadequate tenure to present a genuine competitive threat to the direct lease market". Page B3.


--Peter Meurs, former managing director of engineering group WorleyParsons and a current director at iron ore producer Fortescue Metals Group, lost more than A$35 million in the 2011-12 financial year after buying into an executive share program created by Fortescue non-executive chairman and founder Andrew Forrest. According to Fortescue's annual report, which was released yesterday, Mr Meurs received A$8.1 million in the 2012 financial year, although he invested nearly A$100 million to acquire 16.6 million shares under Mr Forrest's plan. Page B3.

--Beach Energy yesterday revealed another oil find that could generate around 444,000 barrels of recoverable oil. The South Australian-based gas and oil producer said the resource was uncovered in central Australia's Cooper Basin region. "The pre-drill upside gross estimate for the Namur target of 440,000 barrels of recoverable oil is supported by wireline log data," the company said. Page B3.

--The decision by the Reserve Bank of Australia to lower interest rates this month has improved consumer sentiment but the forecast for consumer expectations has also fallen, according to a new survey. The Westpac-Melbourne Institute Index, which measures consumer confidence, climbed by 1 percent in October to 99.2, after jumping by 1.6 percent the month prior. Page B3.

--An energy company in South Australia yesterday claimed that it will be able to help solar and wind power generators better store energy after making a breakthrough in battery technology. Richard Turner, chief executive officer at ZEN, said utility companies in Australia had expressed interest in a trial of the technology, which is already being shipped to customers in the United States. Mr Turner forecast that ZEN's yearly revenue could rise to A$500 million from approximately A$60 million now over the next four years. Page B3.


Fly On The Wall 7:00 AM Market Snapshot



American Campus (ACC) upgraded to Buy from Neutral at Janney Capital
Banner Corp. (BANR) upgraded to Outperform from Market Perform at Keefe Bruyette
Heartland Payment (HPY) upgraded to Outperform from Market Perform at Raymond James
New York Times (NYT) upgraded to Overweight from Equal Weight at Barclays
Total System (TSS) upgraded to Market Perform from Underperform at Raymond James


Alliance Data (ADS) downgraded to Market Perform from Strong Buy at Raymond James
Analog Devices (ADI) downgraded to Equal Weight from Overweight at Morgan Stanley
Caterpillar (CAT) downgraded to Sector Perform from Outperform at RBC Capital
Celgene (CELG) downgraded to Neutral from Overweight at Piper Jaffray
Check Point (CHKP) downgraded to Hold from Buy at Needham
Greenhill & Co. (GHL) downgraded to Neutral from Positive at Susquehanna
Higher One (ONE) downgraded to Underweight from Overweight at Piper Jaffray
HomeAway (AWAY) downgraded to Equal Weight from Overweight at Morgan Stanley
Host Hotels (HST) downgraded to Neutral from Buy at Goldman
Johnson Controls (JCI) downgraded to Market Perform from Outperform at Wells Fargo
Marriott (MAR) downgraded to Neutral from Buy at Goldman
QIAGEN (QGEN) downgraded to Underweight from Neutral at HSBC
Siemens (SI) downgraded to Hold from Buy at Deutsche Bank
Texas Instruments (TXN) downgraded to Neutral from Outperform at Credit Suisse


Activision Blizzard (ATVI) initiated with an Outperform at Credit Suisse
Cott Corp. (COT) initiated with a Buy at Citigroup
Crown Castle (CCI) initiated with a Buy at Nomura
Ecolab (ECL) initiated with an Overweight at Piper Jaffray
Electronic Arts (EA) initiated with a Neutral at Credit Suisse
Exxon Mobil (XOM) initiated with a Buy at Dahlman Rose
Genomic Health (GHDX) initiated with a Neutral at Goldman
H.B. Fuller (FUL) initiated with an Overweight at Piper Jaffray
HCA Holdings (HCA) initiated with an Overweight at Barclays
Life Time Fitness (LTM) initiated with an Outperform at Wedbush
LifePoint Hospitals (LPNT) initiated with an Underweight at Barclays
Rite Aid (RAD) initiated with a Buy at BTIG
SBA Communications (SBAC) initiated with a Buy at Nomura
Take-Two (TTWO) initiated with a Neutral at Credit Suisse
Town Sports (CLUB) initiated with a Neutral at Wedbush
Universal Health (UHS) initiated with an Overweight at Barclays
W.R. Grace (GRA) initiated with an Overweight at Piper Jaffray
Zynga (ZNGA) initiated with an Underperform at Credit Suisse


ING Group (ING) to sell Malaysia insurance operations to AIA for EUR1.3B
Lenovo (LNVGY) becomes No. 1 PC maker for first time, beating out Hewlett-Packard (HPQ)
Cliffs Natural (CLF) reached tentative agreement with United Steelworkers
Alaska Air (ALK) entered purchase agreement with Boeing (BA), initial order 50 737s
Quad/Graphics (QUAD) to acquire Vertis for $258.5M
Emulex (ELX) opened subsidiary in Beijing, and invests further in the region
Ruby Tuesday (RT) sees FY13 margin improvement of 150-200 basis points
Mueller Water (MWA) division acquired North Alabama Pipe Corporation
Huaneng Power Int'l (HNP) Suzhou gas-fired co-generation project approved


Companies that beat consensus earnings expectations last night and today include:
Pacific Premier Bancorp (PPBI), DragonWave (DRWI), PrivateBancorp (PVTB)

Companies that missed consensus earnings expectations include:
API Technologies (ATNY), Richardson Electronics (RELL), VOXX International (VOXX), Ruby Tuesday (RT)


Fed governor Daniel Tarullo called on Congress to consider capping the size of the nation's financial firms, marking one of the most high-profile challenges to the way Wall Street does business.Tarullo recommended curbing banks' growth by putting a limit on their nondeposit liabilities, which are sources of funding for operations that go beyond consumer deposits, the Wall Street Journal reports
U.S. telecommunications equipment makers are watching the Chinese technology market for what they see as Beijing's possible response to a rebuff by U.S. lawmakers: retaliation, the Wall Street Journal reports
JPMorgan Chase (JPM) CEO Jamie Dimon lashed out at the government for a lawsuit alleging misdeeds at Bear Stearns, over four years after JPMorgan was asked to rescue the failing financial firm. Dimon said the company is still paying the price for doing the Fed "a favor" by buying Bear Stearns in early 2008, Reuters reports
The IMF prodded Europe and the U.S. to move quicker to resolve their debt troubles, blaming slow progress for creating economic uncertainty and slowing global growth, Reuters reports
A Seoul court granted Apple’s (AAPL) request to delay a sales ban imposed on some iPhones and iPads after an August ruling that they infringed on Samsung Electronics Co.’s (SSNLF) patents, Bloomberg reports
Pratt & Whitney (UTX), building an engine for Airbus SAS’s A320neo, said orders for the new geared turbo-fan powerplant may double as airlines seek more fuel-efficient aircraft, Bloomberg reports


CombiMatrix (CBMX) files to sell 4.67M shares of common stock for holders
Corporate Office Properties (OFC) files to sell 6M shares of common stock
InnerWorkings (INWK) files to sell 459,629 shares of common stock for holders
Intercept (ICPT) 5M share IPO priced at $15.00
Kythera Biopharmaceuticals (KYTH) 4.4M share IPO priced at $16.00
Northstar Realty (NRF) files to sell 13.7M shares of common stock for holders
PrivateBancorp (PVTB) announces offering of $75M of common stock
Realogy Holding (RLGY) 40M share IPO priced at $27.00
Royal Gold (RGLD) announces 5.25M share common stock offering
Shutterstock (SSTK) 4.5M share IPO priced at $17.00


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