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Bellwethers Report Disappointing Earnings; Morgan Stanley on the Hunt for Regional Banks; NYT Reports Loss; Pentagon Computers Hacked; FDIC Ready to Replace Pandit; TARP Faces Fraud; Financial Institutions Lost $4.1 trillion; India Cuts Rates;
- A parade of bellwether U.S. companies reported disappointing earnings results yesterday (Tuesday) and cut their outlook for the future. Caterpillar Inc. (CAT) reported its first loss since 1992 and cut its projection for the full year by 50%. Pharmaceutical giant Merck & Co, Inc. (MRK) and chemical maker E.I. du Pont de Nemours & Company (DD) said profits fell 57% and 59% respectively, as both cut forecasts for the full year.
- After acquiring Citigroup Inc.'s (C) Smith Barney retail brokerage unit, Morgan Stanley (MS) is considering buying U.S. regional banks in a move to boost the company's retail brokerage operations, MarketWatchreported, citing an article in the Nikkei newspaper. "We are looking for potential opportunities to buy a bank that has a presence in an important market in the United States," Morgan Stanley's Chief Executive Offer John Mack said in an exclusive interview.
- Continuing to reel from the shift of advertising to the internet, the New York Times Co. (NYT) reported a first-quarter loss of $74.5 million, or 52 cents a share, MarketWatch reported. Excluding special items, the company reported a loss of 34 cents a share as first-quarter revenue tumbled 19% to $609 million. The Times, like many newspapers and magazines, is having a difficult time coping with an advertising downturn.
- Computer spies were able to copy and siphon data related to the design and electronics systems of the $300 billion Joint Strike Fighter project, The Wall Street Journal reported yesterday (Tuesday). The newspaper quoted current and former government officials as saying the intruders have repeatedly breached the Pentagon's computer networks, making it potentially easier to defend against the plane. The spies could not access the most sensitive material, which is kept on computers that are not connected to the Internet. Lockheed Martin Corp. (LMT) is the lead contractor on the Defense Department's costliest weapons program.
- Senior officials at the Federal Deposit Insurance Corp. (FDIC) have privately discussed who might replace Citigroup Inc. (C) Chief Executive Officer Vikram S. Pandit if the embattled banking giant needs additional federal capital infusions, The Financial Times and MarketWatch both reported. The FDIC identified Chief Financial Officer Edward J. "Ned" Kelly III and ex-CFO Gary Crittenden as possible successors. However, the published reports also state that any initiatives to change Citigroup's top management will be initiated by the U.S. Treasury Department.
- The U.S. Treasury Department's plan to excise $1 billion of so-called "toxic" assets from the balance sheets of U.S. banks is vulnerable to all types of abuse and fraud and needs the protection of tough conflict-of-interest rules, government bailout watchdog Neil Barofsky said in a report released yesterday (Tuesday). Barofsky, the special inspector general for the $700 billion Troubled Asset Relief Program (TARP), said subsidies for public-private investment partnerships (PPIP) to buy assets could expose taxpayers to higher losses – without offering accompanying increases in the profit opportunities this program is supposed to create, Reutersreported. During the rest of this week, the Treasury Department is accepting applications from asset managers to manage public-private investment funds to buy the hard-to-value, illiquid securities that are backed by troubled mortgages still owned by banks.
- In a report released yesterday (Tuesday), The International Monetary Fund (IMF) says banks and other financial institutions face aggregate losses of $4.1 trillion in the value of their holdings because of a global financial crisis that is "likely to be deep and long lasting." In that Global Financial Stability Report – which has become a closely watched barometer of the severity of the crisis – the IMF estimated that financial institutions around the world will have to write down about $2.7 trillion worth of loans and securities that originated in the U.S. financial markets between 2007 and 2010. That estimate is up from $2.2 trillion in the fund's report in January, and is way up from its October estimate of $1.4 trillion, according to The New York Times. Conditions have especially worsened in the emerging markets – and particularly in Europe – where banks face more write-downs and may require fresh equity, even as companies attempt to refinance existing debt. The IMF said banks will endure two-thirds of the write-downs, but noted that pension funds and insurance companies also face steep losses.
- The Reserve Bank of India yesterday (Tuesday) lowered its key borrowing rate by 25 basis points to 3.25% and its lending rate by 25 basis points to 4.75%."The further policy rate cuts affected as part of this policy should be a definite signal for banks to reduce lending rates," RBI Governor Duvvuri Subbarao said at a press briefing.