Frontrunning: May 20

  • Obama's Counsel Was Told of IRS Audit Findings Weeks Ago (WSJ)
  • North Korea fires sixth missile in three days (Reuters)
  • Enron No Lesson to Traders as EU Probes Oil-Price Manipulation (BBG)
  • Don't cry for me, Eurozone: Thinking the Unthinkable - Quitting a Currency (WSJ)
  • H-1B Models Strut Into U.S. as Programmers Pray for Help (BBG)
  • Gold Bear Bets Reach Record as Soros Cuts Holdings (BBG)
  • Yahoo has agreed to pay $1.1 billion for Tumblr (WSJ)
  • JPMorgan Holders Led by Chairmen-CEOs to Vote on Dimon (BBG)
  • Apple faces grilling over US tax rate (FT)
  • Nissan to Sell First Joint Minicar to Expand in Japan Market (BBG)
  • Fierce battle for corporate loans sparks US bank risk concerns (FT)
  • Microsoft Updates Xbox as Apple to Facebook Gain in Games (BBG)

Overnight Media Digest


* New York's top financial regulator subpoenaed a handful of Wall Street investment firms about their entries into a corner of the insurance industry that guarantees steady payments to hundreds of thousands of retirees and other consumers.

The New York Department of Financial Services on Sunday sent subpoenas to Apollo Global Management LLC, Guggenheim Partners and Harbinger Group Inc as part of an investigation seeking more information on investments that back so-called fixed annuities, according to people familiar with the inquiry. ()

* Chesapeake Energy Corp has picked 46-year-old executive Robert Douglas Lawler from rival Anadarko Petroleum Corp to succeed its co-founder, Aubrey McClendon, as chief executive of the nation's second-largest natural-gas producer.

* As 787 Dreamliner commercial flights resume after a lengthy grounding for battery problems, Boeing Co and its customers are refocusing on fixing the host of other technical and mechanical issues that affect the reliability of the cutting-edge aircraft.

* DirecTV is weighing a potential bid for Hulu, the latest company to show interest in the six year-old video site, according to a person familiar with the matter.

Other firms that have bid or expressed interest in Hulu include cable operator Time Warner Cable Inc, Guggenheim Partners, Yahoo Inc and former News Corp president Peter Chernin's investment group.

* Roger Carr, chairman of U.K. gas utility Centrica Plc , is the front runner to replace Dick Olver as chairman of Britain's defense contractor BAE Systems Plc, a person familiar with the matter said.



Hennes & Mauritz is looking at sourcing clothes from Latin America and Africa for the first time with the retailer rethinking its sourcing strategy following the Bangladesh factory collapse.

Apple Inc Chief Executive Tim Cook will appear before the U.S. Senate's permanent investigations subcommittee on Tuesday where he is likely to face questions over Apple's tax planning.

U.S. hedge fund Monarch Capital plans to open an office in London as it looks to ramp up its European business at a time when financial institutions are increasingly selling troubled assets and undervalued loans.

Barry Sternlicht's Starwood Capital is in talks with the developers of London's Heron Tower to provide a 250 million pound loan to refinance the tallest skyscraper in the City.

Tesco Plc is looking at setting up a joint venture in China so it can keep expanding in the market but in way that will help it contain capital expenditure.

Yahoo Inc has agreed a deal to buy blogging and social networking site Tumblr for about $1 billion.

Bank of England Governor Mervyn King has warned finance minister George Osborne that his scheme to boost mortgage lending could cause future problems.



* Yahoo's move to purchase Tumblr aims to make up for years of missing out on the growth of social networks and mobile devices.

* Three months after hackers working for a cyber unit of China's People's Liberation Army went silent amid evidence that they had stolen data from scores of American companies and government agencies, they appear to have resumed their attacks using different techniques, according to computer industry security experts and American officials.

* The Swedish retail giant H&M faced public pressure to accelerate its efforts to improve garment factory conditions, though it had no ties to a disaster in Bangladesh.

* Executives from Silicon Valley say that the Senate immigration bill imposes too much regulatory control over a company's hiring of temporary foreign workers or laying off an American worker.

* At JPMorgan Chase, the move to split the jobs of chairman and chief executive, now held by Jamie Dimon, comes as the bank is actually prospering.

* Gary Pruitt, the head of The Associated Press, said the Obama administration's handling of a leak investigation had already diminished journalists' capacity to report on the government.

* Given the more generous subsidies offered in other states and countries, major studios including NBCUniversal, Paramount and Disney all have large-scale, long-term expansion plans.




* Prime Minister Stephen Harper's chief of staff has resigned over his role in the C$90,000 ($87,600) bailout of former Conservative Senator Mike Duffy's expense account. Nigel Wright issued a statement Sunday morning to announce his resignation, which Harper has accepted.

* The federal government is spending hundreds of thousands of dollars advertising a program that does not yet exist. Prime-time ads began airing this week during NHL playoff games - currently the priciest advertising real estate on the dial - that tout a new Canada Jobs Grant for training workers. The trouble is, the freshly announced program is at present little more than a concept that has yet to be negotiated with provincial governments, and requires buy-in from employers as well.

Reports in the business section:

* PBF Energy Inc is making a big bet to bring Alberta crude by train to its refinery near Philadelphia. The company is already receiving 40,000 barrels per day of Alberta's oil sands bitumen by rail at its Delaware City refinery on the U.S. East Coast, and is working to double that capacity to 80,000 barrels each day. But the rail strategy of PBF and other energy players took a knock this week from Prime Minister Stephen Harper, who questioned the environmental impacts of crude by rail.


* A group that includes some prominent Canadian actors, writers and politicians is calling on Prime Minister Stephen Harper to change the name of Victoria Day. Author Margaret Atwood, Green Party leader Elizabeth May and actor Gordon Pinsent are among those behind an online petition to rename the public holiday, which is celebrated on Monday, as "Victoria and First Peoples Day."


* In 2008, Ottawa took bold steps explicitly designed to shake up a wireless communications sector dominated by three big players, determined to give consumers more choice and a break on pricing. Five years later, competition may have has cropped up in some regions, but new entrants serving Ontario, Alberta and British Columbia are floundering and the federal government's strategy looks to have failed, leaving many wondering what went wrong and whether there's any hope for a viable fourth competitor in those markets.

* Canada's Competition Bureau is gearing up to launch a formal inquiry into the business practices of Google Inc's Canadian operations. Google was recently notified by the Competition Bureau of the watchdog organization's intentions to investigate the Silicon Valley giant's business in Canada.




- More cities are expected to be included in a property tax pilot scheme, which now involves only Shanghai and Chongqing, sources said.

- The price of newly built commercial homes rose 0.95 percent in April in 70 large and medium cities, 0.14 percentage points slower than the pace of growth between February and March, which is the first such decline in seven months.


- Investment in the real estate industry in Shanghai surged 50.4 percent to 21.27 billion yuan ($3.46 billion) in April.


- A higher court in Hunan province has accepted the appeal of a woman sentenced to "re-education through labour" and who is now seeking an apology and compensation from the government. The woman was sentenced after repeatedly petitioning the government for justice for her daughter, who was kidnapped, raped and forced into prostitution.


- A draft amendment of the consumer rights law will mandate a minimum compensation of 500 yuan for consumers if they are found to be victims of fraud, said a senior official at Shanghai's market watchdog. The existing regulation stipulates compensation equal to the price of the product.


- The situation in the China-India border areas is much better than that on Diaoyu Islands and other disputed islands in South China Sea, an editorial said. India and China have both been trying to divert the focus of their relationship from border disputes to other areas and share a common will in terms of preventing border problems.

Corporate Finance

* Greece's second-largest lender Piraeus Bank SA has hired four international investment banks as advisers on its 7.33-billion-euro ($9.4 billion) share issue, two bankers close to the procedure told Reuters on Saturday.

* Yahoo Inc's board has approved a deal to buy blogging and social networking site Tumblr for $1.1 billion in cash, the Wall Street Journal cited people familiar with the matter as saying on Sunday.

* The offer for miner Eurasian Natural Resources Corp made by its founding shareholders and the Kazakh government included shares in rival miner Kazakhmys Plc, a British newspaper reported on Sunday.

* Bus and rail operator FirstGroup Plc plans to announce a 600-million-pound ($918.48 million) rights issue in the coming days to help pay off debt, British media reported on Sunday.

* The French stock market authority has found LVMH Moet Hennessey Louis Vuitton secretly bought shares in rival Hermes International SCA to build a stake, and not merely make a financial investment as the luxury group has claimed, a newspaper reported.

* Qatar Holding and an Italian state-controlled investment fund are interested in investing in Italian fashion house Versace, Il Sole 24 Ore said on Saturday.


Fly On The Wall 7:00 AM Market Snapshot



Abbott (ABT) upgraded to Buy from Neutral at Goldman
Accenture (ACN) upgraded to Buy from Neutral at Goldman (NTES) upgraded to Buy from Neutral at Citigroup
Northrop Grumman (NOC) upgraded to Fair Value from Sell at CRT Capital
Pandora (P) upgraded to Equal Weight from Underweight at Barclays (PCLN) upgraded to Buy from Hold at Deutsche Bank
Realogy (RLGY) upgraded to Buy from Fair Value at CRT Capital
T-Mobile (TMUS) upgraded to Buy from Hold at Deutsche Bank
Vectren (VVC) upgraded to Outperform from Neutral at RW Baird
WNS Holdings (WNS) upgraded to Buy from Neutral at Goldman


Artisan Partners (APAM) downgraded to Market Perform from Outperform at Keefe Bruyette
Bank of America (BAC) downgraded to Market Perform from Outperform at Keefe Bruyette
Bed Bath & Beyond (BBBY) downgraded to Hold from Buy at Jefferies
BlackRock (BLK) downgraded to Market Perform from Outperform at Keefe Bruyette
Cavium (CAVM) downgraded to Market Perform from Outperform at JMP Securities
Charles Schwab (SCHW) downgraded to Underperform from Market Perform at Keefe Bruyette
Dunkin' Brands (DNKN) downgraded to Neutral from Buy at Longbow
Equifax (EFX) downgraded to Neutral from Buy at Goldman
Leap Wireless (LEAP) downgraded to Sell from Hold at Deutsche Bank
Lowe's (LOW) downgraded to Perform from Outperform at Oppenheimer
MicroStrategy (MSTR) downgraded to Market Perform from Outperform at JMP Securities
NetApp (NTAP) downgraded to Underperform from Neutral at RW Baird
NeuStar (NSR) downgraded to Neutral from Buy at Goldman
Red Hat (RHT) downgraded to Market Perform from Outperform at BMO Capital
Ruby Tuesday (RT) downgraded to Market Perform from Outperform at Wells Fargo
Synovus (SNV) downgraded to Sell from Neutral at Goldman
TD Ameritrade (AMTD) downgraded to Underperform from Market Perform at Keefe Bruyette
Thoratec (THOR) downgraded to Neutral from Buy at Goldman


M/I Homes (MHO) initiated with an Overweight at JPMorgan
Michael Kors (KORS) initiated with a Buy at Canaccord
MusclePharm (MSLP) initiated with a Strong Buy at Ascendiant Capital
Taylor Morrison (TMHC) initiated with a Buy at Citigroup
Taylor Morrison (TMHC) initiated with an Outperform at Credit Suisse
Taylor Morrison (TMHC) initiated with an Overweight at JPMorgan


GE Capital board to pay $6.5B of dividends to parent GE (GE) in 2013
Accenture (ACN) acquired Acquity Group (AQ) for $316M
Fitch affirmed Verizon's (VZ) IDR at 'A', outlook stable
Elan (ELN) announced transactions to transform company, $200M share repurchase plan
Live Nation (LYV) formed JV with Lushington Entertainments in Asia


Companies that beat consensus earnings expectations last night and today include:
JA Solar (JASO)

Companies that matched consensus earnings expectations include:
Qihoo 360 (QIHU)


  • The New York Department of Financial Services yesterday sent subpoenas to Apollo Global Management (APO), Guggenheim Partners and Harbinger Group (HRG) as part of an investigation seeking more information on investments that back so-called fixed annuities, sources say, the Wall Street Journal reports
  • As Home Depot (HD) and Lowe’s (LOW) report fiscal Q1 results this week, the reconstruction phase from last year's superstorm Sandy will be looming large as cooler-than-normal temperatures delay spring selling, the Wall Street Journal reports.
  • Danone Group (DANOY) will invest $417M in two deals with China Mengniu Dairy Co., marking a comeback for the French group in China where scandals have hurt confidence in food safety, Reuters reports
  • The Nikkei share average surged to a new 5 1/2 year high today, boosted by further weakness in the yen and optimism over the growth outlook after the Japanese government raised its assessment of the economy for the first time in two months, Reuters reports
  • The longest decline in Treasuries this year has left U.S. government debt the cheapest since March 2011 when measured by real yields and the best relative value compared with German bunds in more than two decades, Bloomberg reports
  • As JPMorgan Chase’s (JPM) Jamie Dimon prepares for a vote Tuesday on whether he should keep his chairman and CEO titles, he may take comfort knowing that seven of the bank’s 10 largest owners are run by CEOs who are also chairmen, Bloomberg reports


Cisco (CSCO) looks the best of tech comeback stocks (MSFT, INTC)
Walter Energy (WLT) executives bought shares near lows
Ryder (R) shares could see $75
Tencent Holdings (TCEHY) stock could rise 20%
France Telecom (FTE) could provide investors with short-term gains but Telefonica (TEF),   Deutsche Telekom (DTEGY) are better long-term options
ING U.S. (VOYA) could see 30% or more jump in share price as ING Groep (ING) must fully divest by December 31, 2016
Northfield Bancorp (NFBK) looks attractive
Time to ring the cash register in Big 5 Sporting (BGFV)
Bears' arguments for Orbitz (OWW) are more convincing
Six Flags (SIX) may eventually disappoint


CombiMatrix (CBMX) files to sell 1.06M shares for holders
PLX Technology (PLXT) files to sell $30M of common stock, depositary shares
Saul Centers (BFS) files to sell 15.5M shares for holders
Ubiquiti Networks (UBNT) files to sell 7.7M shares for holders