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Asian shares hit 6-week low

By Rafael Nam
HONG KONG (Reuters) – Asian shares hit a six-week low on Thursday and safe-haven Japanese bond futures rose to their highest since Lehman Brothers collapsed in September as a U.S. banking crisis deepened, sparking fears of prolonged financial turmoil.
Bank of America Corp and Citigroup Inc shares plunged on Wednesday as investors questioned whether the firms have enough capital to cover losses from toxic assets.
The market turbulence is an another blow to major economies that are facing the toughest conditions in decades as evidenced by the latest data out of the United States, Germany and Japan.
The European Central Bank is expected to slash interest rates later in the day, though uncertainty about how deep a cut to expect helped send the euro to multi-week lows on Wednesday.
“A continued flow of bad economic data is pointing to steeper global recession, worsening concerns about corporate earnings,” said Lee Sun-yeob, a market analyst at Goodmorning Shinhan Securities in Seoul.
“Increasingly bearish prospects for global banks’ results are also pressuring sentiment.”
The MSCI index of Asia-Pacific shares excluding Japan dropped 5 percent as of 0515 GMT (12:15 a.m. EST), heading to its biggest percentage daily fall since mid-November.
The last time worries about Citigroup’s fate undermined global equity markets was in November, when the U.S. government stepped in to prop up the lender with government funds.
The MSCI index on Thursday hit its lowest since December 8, down almost 9 percent for the year. The deep falls over the past week and a half are rapidly denting a rally that still has shares up about 17 percent since hitting five-year lows in November.
Policymakers worldwide have responded since late last year by slashing interest rates and boosting spending, but the actions have yet to fully convince investors.
Among the latest factors worrying investors were data on Wednesday showing December U.S. retail sales tumbled and Germany’s economic growth slipped to a three-year low in 2008.
In Japan, core machinery orders fell by a record amount in November, data showed on Thursday.
“The problems are global and there isn’t any real good news around,” said Martin Angel, a dealer at Patersons Securities Ltd. in Australia. “You are just not going to escape it.”
Japan’s Nikkei average dropped 4.5 percent, with Nissan Motor Co slipping 3.4 percent on news it will post an annual operating loss because of sliding sales and a soaring yen.
Benchmark stock markets in South Korea, Australia and Hong Kong fell 4-5 percent each
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HK Hot Stocks-Standard Chartered, China Southern fall

HONG KONG, Jan 15 (Reuters) – By 0245 GMT the Hang Seng Index .HSI had fallen 4.4 percent to 13,098.05.
Concerns over steep losses this year and signs of a mounting recession beat down stocks across the board, with only 49 of the total 1,097 issues traded higher in Thursday morning trade.
The China Enterprises Index .HSCE of top locally listed mainland firms had fallen 4.4 percent to 6,901.05.
Here are some of the stocks on the move in early trade-
* Shares in London-based lender Standard Chartered (2888.HK) (STAN.L) dived 6.6 percent on Wednesday, underperforming other regional banking stocks after Mervyn Davies stepped down as chairman of the Asia-focused bank.
The stock fell to HK$90.60, recovering slightly from the day’s low of HK$88.5.
Davies, who led the bank as chief executive from 2001 to 2006 and is credited with playing an important role in restructuring the bank following the setbacks it suffered during the Asian financial crises of 1997-1998, will take up a role as British minister for trade and investment.
“…this is nonetheless an unexpected if not unwelcome development, amidst unsettled markets and uncertain macro outlooks for several of Standard Chartered’s key markets,” said Goldman Sachs analyst Roy Ramos.
* China Southern Airlines (600029.SS), the country’s largest carrier by fleet size, sank 6.2 percent after the air carrier said it estimated it would report a loss for 2008.
The airline blamed its poor performance on the slowdowns in the global and Chinese economies, which cut its passenger volume growth to single digits for the first time in five years, as well as high domestic fuel prices during the year.
In 2007, China Southern posted a net profit of 1.85 billion yuan ($271 million). It is due to release its 2008 earnings report in mid-April. (Reporting by Parvathy Ullatil; Editing by Clarence Fernandez) (parvathy.ullatil@thomsonreuters.com; +852 2843-6415))
ASIA-PACIFIC STOCK MARKETS: Pan-Asia……[STXNEWS/AS] Japan……..[.T] S.Korea….[.KS] S.E. Asia…………[.SO] Hong Kong…[.HK] Taiwan…..[.TW] Australia/NZ………[.AX] India…….[.BO] China……[.SS]
OTHER MARKETS: Wall Street………..[.N] Gold………[GOL/] Currency..[FRX/] Eurostocks………..[.EU] Oil………..[O/R] JP bonds…[JP/] ADR Report……….[ADR/] LME metals..[MET/L] US bonds…[US/] Stocks News US…[STXNEWS/US] Stocks News Europe…[STXNEWS/EU]
DIARIES & DATA: IPO diary & data Asia earnings diary [ASIA/EQTY] U.S. earnings diary [RESF/US] European diary
[WEU/EQTY] Taiwan diary [TW/DIARY] Wall Street Week Ahead [.N/O] Eurostocks Week Ahead [.EU/O] World forecasts EQUITYPOLL1
TOP NEWS
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HK shares to open down 4.2 pct at 7-week low

HONG KONG, Jan 15 (Reuters) – Hong Kong shares will open 4.2 percent lower at a seven-week low on Thursday with concerns over earnings at banks slamming heavyweight HSBC (0005.HK) again after the stock hit a seven-year low the previous session.
HSBC is set to open 5 percent lower at HK$66.50, still reeling from a Morgan Stanley report that cut its earnings estimates and target price and warned that the UK-based lender may need $20 billion to $30 billion to shore up its capital.
The Hang Seng Index .HSI will open 568.38 points lower at 13,136.23.
Concerns over steep losses this year and signs of a mounting recession beat down stocks across the board with only 11 of the total 1,097 issues traded set to open higher on Thursday.
China Enterprises Index .HSCE of top locally listed mainland firms is indicated to open down 5 percent at 6,860.98. (Reporting by Parvathy Ullatil; Editing by Nick Macfie) (parvathy.ullatil@thomsonreuters.com; +852 2843-6415))
ASIA-PACIFIC STOCK MARKETS: Pan-Asia……[STXNEWS/AS] Japan……..[.T] S.Korea….[.KS] S.E. Asia…………[.SO] Hong Kong…[.HK] Taiwan…..[.TW] Australia/NZ………[.AX] India…….[.BO] China……[.SS]
OTHER MARKETS: Wall Street………..[.N] Gold………[GOL/] Currency..[FRX/] Eurostocks………..[.EU] Oil………..[O/R] JP bonds…[JP/] ADR Report……….[ADR/] LME metals..[MET/L] US bonds…[US/] Stocks News US…[STXNEWS/US] Stocks News Europe…[STXNEWS/EU]
DIARIES & DATA: IPO diary & data Asia earnings diary [ASIA/EQTY] U.S. earnings diary [RESF/US] European diary
[WEU/EQTY] Taiwan diary [TW/DIARY] Wall Street Week Ahead [.N/O] Eurostocks Week Ahead [.EU/O] World forecasts EQUITYPOLL1
TOP NEWS:
For top Asian company news, double click on: [nTOPEQA] U.S. company news [TOP/EQU] European company news [TOP/EQE] Forex news [TOP/FRX] Global Economy news [TOP/MACRO] Technology news [TOP/TECH] Telecoms news [TOP/TELCO] Media news [TOP/MEDIA] Banking news [TOP/FIN] Politics/General news [TOP/G] Asia Macro data ASIATODAY A multimedia version of Reuters Top News is available at:
LIVE PRICES & DATA: World Stocks <0#.INDEX> Currency rates Dow Jones/NASDAQ .DJI .IXIC Nikkei .N225 FTSE 100 .FTSE Debt <0#USBMK=> EURIBOR Hong Kong Dollar LME price overview
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HK shares seen lower on earnings worries; autos eyed

HONG KONG, Jan 15 (Reuters) - Hong Kong shares are seen
lower on Thursday with concerns over earnings at banks driving
down HSBC (0005.HK) again after the stock hit a seven-year low
in the previous session.

A Morgan Stanley earnings downgrade sent HSBC shares
tumbling 4.1 percent in Hong Kong and 8 percent in London. The
U.S. investment house said the UK-based lender may need $20
billion to $30 billion to shore up its capital.

Worries about steep losses at banks worldwide and poor
retail sales data also sent U.S. stocks to six-week lows on
Wednesday.

Investors will watch refinery stocks after China, in a
surprise move, decided to trim gasoline and diesel prices by a
few percent on Thursday. This is the first adjustment since
bringing in a new fuel price system last month, a reform that
could see pump prices change much more frequently.

The latest change will cut gasoline price ceilings by 140
yuan ($20.48) per tonne and diesel price ceilings by 160 yuan
($23.41) per tonne from midnight on Wednesday.

The Hang Seng Index .HSI ended Wednesday 0.3 percent
higher at 13,704.61, snapping a six-day slide that wiped out
gains made in its year-end rally.

STOCKS TO WATCH

* Chinese automobile stocks will be eyed after China
unveiled a wide-ranging plan to boost the domestic auto
industry, including halving the sales tax on small cars and
subsidies to encourage car owners to trade their old models for
newer, fuel-efficient ones.

The government said it favoured consolidation of the
sprawling industry and would promote mass production of
electric-powered vehicles.

* Pou Sheng International, a sportswear retailing arm of
Yue Yuen Industrial (0551.HK), said on Thursday it planned to
expand its store network in China via a deal worth about HK$793
million ($101.7 million).

Pou Sheng (3813.HK) said it would buy the 70 percent of
Farsighted International Ltd (FIL) not already owned by the
firm for HK$428.6 million in cash and the issue of 393.6
million new shares at HK$0.925 each.

* China Southern Airlines (600029.SS), the country's
largest carrier by fleet size, estimated on Wednesday that it
would report a loss for 2008.

In a brief statement, the airline cited the slowdowns in
the global and Chinese economies, which cut traffic demand, as
well as high domestic fuel prices during the year.

China Southern, which posted net profit of 1.85 billion
yuan ($271 million) in 2007, will release 2008 earnings in
mid-April. -------------MARKET SNAPSHOT @ 00:11 GMT
-----------------------

INSTRUMENT   LAST     PCT CH GNET CHG

S&P 500           .SPX       842.62  -3.35%  -29.170

USD/JPY                  89.16    0.17%   0.150

10-YR US TSY YLD    2.206    --      0.000

SPOT GOLD                $812.45  0.23%   1.900

US CRUDE          CLc1       $37.23  -0.13%  -0.050

DOW JONES         .DJI       8200.14 -2.94%  -248.42

ASIA ADRS         .BKAS      87.99   -3.22%  -2.93
 -------------------------------------------------------------
> Wall Street falls on bank anxiety, Apple down after bell
[.N] > Oil falls on U.S. stock build, weak demand
 [O/R] > TREASURIES-Prices up as weak retail sales send stocks
down[US/] > Euro down on Greece downgrade, risk appetite fades

[USD/] > Gold falls on weak demand, dollar rise; ECB eyed

[GOL/]
 (Reporting by Parvathy Ullatil; Editing by Clarence
Fernandez)
 (parvathy.ullatil@thomsonreuters.com; +852 2843-6415))

ASIA-PACIFIC STOCK MARKETS:
 Pan-Asia......[STXNEWS/AS]  Japan........[.T]
S.Korea....[.KS]
 S.E. Asia............[.SO]  Hong Kong...[.HK]
Taiwan.....[.TW]
 Australia/NZ.........[.AX]  India.......[.BO] China......[.SS]

OTHER MARKETS:
 Wall Street...........[.N] Gold.........[GOL/]
Currency..[FRX/] Eurostocks...........[.EU] Oil...........[O/R]
JP bonds...[JP/]
 ADR Report..........[ADR/] LME metals..[MET/L] US
bonds...[US/] Stocks News US...[STXNEWS/US] Stocks News
Europe...[STXNEWS/EU]

DIARIES & DATA: IPO diary & data    Asia
earnings diary [ASIA/EQTY] U.S. earnings diary  [RESF/US]
 European diary

[WEU/EQTY]
 Taiwan diary        [TW/DIARY]  Wall Street Week Ahead
[.N/O]
 Eurostocks Week Ahead  [.EU/O]  World forecasts  EQUITYPOLL1

TOP NEWS:

For top Asian company news, double click on:
[nTOPEQA]
 U.S. company news    [TOP/EQU]  European company news
[TOP/EQE]
 Forex news           [TOP/FRX]  Global Economy news
[TOP/MACRO]
 Technology news     [TOP/TECH]  Telecoms news
[TOP/TELCO]
 Media news         [TOP/MEDIA]  Banking news
[TOP/FIN]
 Politics/General news  [TOP/G]  Asia Macro data
ASIATODAY

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HK shares snap 6-day slump but HSBC weighs down index

* HK shares turn course after six-day slide
* China banks recover after RBS sells stake in BOC
* HSBC drops after broker cuts profit estimate,target price
(Updates to close)
By Parvathy Ullatil
HONG KONG, Jan 14 (Reuters) – Hong Kong shares pared early gains to finish 0.3 percent higher after a sharply lowered target price and earnings estimates on HSBC Holdings sent shares in Europe’s top bank to their lowest in more than seven years.
Index heavyweight HSBC (0005.HK) tanked 4.1 percent to HK$70, even slipping below that level at one point earlier Wednesday, after Morgan Stanley cut its target price by 31 percent to HK$52.
The U.S. investment bank cut its profit estimate for the British-based lender by 17 percent for 2008 and 39 percent for 2009 and expects the bank to halve its dividend. Morgan Stanley also predicts a $20 billion to $30 billion capital need at HCBC.
“If HSBC cut its dividend by half, its dividend yield will fall to 5 percent from 10 percent and given the bank’s huge exposure to UK and U.S. market, 5 percent yield is not attractive any more,” said Steven Leung, director with UOB Kay Hian.
“If the stock can’t recover to HK$72 or HK$73 by tomorrow the situation can get pretty ugly.”
Slumping HSBC shares offset gains in Chinese banking counters after the third equity selldown in a major lender this year eliminated some of the overhang on the sector. [ID:nHKF079859]
The benchmark Hang Seng Index .HSI closed 36.56 points higher at 13,704.61, snapping a six-day slide, its longest since September 2008.
But the index finished well off its early highs as HSBC extended losses in the afternoon session, dragging down with it shares in local arm Hang Seng Bank (0011.HK) which fell 4 percent.
Mainboard turnover rose to HK$66.2 billion ($8.5 billion) from HK$47.3 billion on Tuesday. The China Enterprises Index .HSCE of top mainland firms outperformed, climbing 2 percent to 7,219.04.
CHINA BANKS OUTPERFORM
(3988.H Beijing-controlled Bank of China K) rose 2.7 percent after Royal Bank of Scotland (RBS.L) sold $2.4 billion worth of shares, its entire holding in China’s No.2 lender
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HK shares snap six days slump; China banks rally

* HK shares turn course after six day slide
* China banks recover after RBS sells stake in BOC
* HSBc drops after broker cuts profit estimate,target price
(Updates to midday)
By Parvathy Ullatil
HONG KONG, Jan 14 (Reuters) – Hong Kong shares were on course to end a six-day losing spell on Wednesday, rising 1.4 percent, with Chinese banks outperforming after an equity selldown in Bank of China (3988.HK) eliminated an overhang on the sector.
However index heavyweight HSBC Holdings (0005.HK) fell 2.3 percent to HK$71.3, its lowest level since after the September 11, 2001 attacks on the United States, following a Morgan Stanley report that slashed its target price to HK$52.
The U.S. investment bank cut its profit estimate for the UK-based lender by 17 percent for 2008 and 39 percent for 2009 and said HSBC may have to raise $20 billion to $30 billion to shore up its capital.
The benchmark Hang Seng Index .HSI ended the morning session 194.99 points higher at 13,863.04 after a six day slide, its longest since September, 2008.
Mainboard turnover rose to HK$43.8 billion ($5.6 billion) as compared with HK$25 billion by midday Tuesday.
“Most markets in Asia Pacific have moved up today on hopes that Tuesday’s mixed performance on Wall Street indicates the market has hit a bottom after a five day fall,” said Andrew To, sales director with Taifook Securities.
“If the HSI can hold above 13,800 points for a few days, it should form a good support and trigger short covering. We may rechallenge 15,000 points around Chinese New Year,” he said.
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Wall Street Breakfast: Must-Know News

• Fake profits shake Satyam. Satyam (SAY) shares are down over 70% in Indian trading after B. Ramalinga Raju, the company’s founder and chairman, resigned and admitted over $1B of Satyam’s balance sheet as of Sept. 30 was inflated non-existing cash and bank balances. In a letter to the board, Raju wrote that the inflated profits had accrued over the last several years and that he was making the announcement "with deep regret, and tremendous burden that I am carrying on my conscience." Managing director B. Rama Raju also resigned. As of 6:40am, U.S. shares were down 76.3% premarket as investors brace for the fallout from "India’s Enron."
• FOMC gloomy on inflation, GDP. Minutes from the Dec. 15-16 FOMC meeting were released yesterday and revealed a Fed worried that recovery won’t come any time soon: "All told, real GDP was expected to fall much more sharply in the first half of 2009 than previously anticipated… [and] projected to decline for 2009 as a whole." Officials expect unemployment to rise significantly into 2010, and for core inflation to slow considerably in 2009 and edge down further in 2010. Notably, Fed officials revived the possibility of setting an explicit target for inflation. FOMC members also discussed increasing emergency loans that have already doubled the Fed’s balance sheet to $2.3T in the past year. (Read the FOMC minutes.)
• Alcoa slashes and sells. Alcoa (AA) will cut over 15,000 jobs, slash capital expenditure by 50% and sell four business divisions as it scales back aluminum production in the face of the global recession. The largest U.S. aluminum producer, Alcoa will also freeze its global salaries and hiring. This is the third cut in as many months as Alcoa struggles to adapt to ‘extraordinary times.’ Alcoa is due to report FQ4 results early next week.
• Europe shivers as Gazprom cuts gas supply. Russian energy giant Gazprom has cut all natural gas supplies to Ukraine, a nat-gas hub, in response to a price dispute. As a result, fuel shipments across Europe have been drastically reduced or stopped altogether for the first time in three years. Shortage fears sent U.K. gas prices up as much as 27% yesterday, while EU leaders called the reduced supplies ‘completely unacceptable’ amid continent-wide cold weather. Romania, Bulgaria, Greece, Macedonia and Turkey were all reporting a complete halt to Russian gas deliveries, while Germany, France and Italy have reported sharp reductions.
• Suing Kuwait. Dow Chemical (DOW) announced it will sue Kuwait for over $2.5B for pulling out of their planned $17.4B petrochemical joint venture, and mentioned that two other parties have since expressed interest in the JV unit. "We will stay on strategy," CEO Andrew Liveris insisted. "The news of our demise is greatly exaggerated." But some wonder if Liveris is right, pointing to Dow’s planned $15B acquisition of Rohm & Haas (ROH); without Kuwait’s cash, Dow will have to take on even more debt (and possibly face a ratings cut), find a new partner or sell non-core assets to make up the difference. Liveris suggested Dow is prepared to pay the penalty for missing next Monday’s deadline for the closure of the strategic Rohm & Haas takeover, but Dow will then have to pay an extra $100M for every month the deal is delayed.
• Lenovo shares suspended. Shares of Lenovo (LNVGY.PK) were suspended from trading today amid market chatter that the PC giant is set to announce a major restructuring plan. The company said its shares were suspended pending the release of price-sensitive information, but didn’t elaborate. Lenovo’s sales are flagging in the face of the global economic downturn, and the world’s No. 4 PC seller is losing market share to aggressive, smaller rivals like Acer, Asustek (AKCPF.PK) and Toshiba (TOSBF.PK).
• BoA cashes in CCB profit. Bank of America (BAC) sold $2.8B of shares in China Construction Bank, or 13% of its stake, at a 12% discount to yesterday’s closing price. BoA is trying to take advantage of almost $14B in paper profits from its CCB stake, after paying around $33B to buy Merrill Lynch. CCB fell 8.8% in Hong Kong.
• Getting tough(er) on financial crimes. The Justice Department is strengthening a task force to counter mortgage-related crimes and ensure federal bailouts amid calls by lawmakers and critics to get more aggressive in fighting financial wrongdoing. Joining the Corporate Fraud Task Force will be officials from the Federal Reserve, the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Department of Housing and Urban Development, and TARP’s special inspector general.
• Non-mfg ticks up slightly. Economic activity in the non-manufacturing sector increased by 3.3% in December to 40.6%, according to ISM, better than the 37.0% consensus. This marked the third month in a row of sector contraction, though the rate slowed slightly.
• Home sales miss consensus. Pending home sales fell a more than expected 4% (vs. -1% consensus), NAR reported, citing mounting job losses and evaporating consumer confidence. NAR chief economist Yun said 2009 will depend heavily on the real-estate weighting of the much-anticipated Obama-boost.
• Retail sales. Retail Chain Store Sales rose 1.4% from last week, ICSC reported, and fell 0.8% Y/Y. "Bargain shoppers were out in force between Christmas and New Year’s taking advantage of retailers’ need to clear out seasonal merchandise." According to Redbook, national chain store sales fell 0.6% in the first five weeks of December vs. the previous month and fell 1.3% vs. a year ago.

Earnings: Wednesday Before Open

• Family Dollar Stores (FDO): FQ1 EPS of $0.42 beats by $0.02. Revenue of $1.75B (+4.2%) in-line. (PR)

Earnings: Tuesday After Close

• Finish Line (FINL): FQ3 EPS of $0.16 misses by $0.03. Revenue of $257M (-4.4%) vs. $269M. (PR)
• Global Payments (GPN): FQ2 EPS of $0.60 beats by $0.03. Revenue of $401M (+401%) vs. $405M. Sees 2009 EPS of $2.14-2.21 vs. $2.39. Shares -4.4%. (PR)

Today’s Markets

• Asia markets closed mostly down. Nikkei +1.7% to 9,239. Hang Seng -3.4% to 14,987. Shanghai -0.7% to 1,924. BSE, pulled down by the Satyam scandal, -7.25% to 9,587.
• In Europe at midday, London -1.4%. Paris +0.06%. Frankfurt -0.9%.
• U.S. futures: Dow -0.6%. S&P -0.7%. Nasdaq -0.4%. Crude -0.04% to $48.56. Gold -0.15% to $864.70.

Wednesday’s Economic Calendar

• 7:00 MBA Mortgage Applications
  7:30 Challenger Job-Cut Report
  8:15 ADP Jobs Report
  10:35 EIA Petroleum Status
  1:00 PM Fed’s Hoenig speaks on U.S. economic outlook
• Notable earnings before Wednesday’s open: FDO, MON, STZ, SVU
• Notable earnings after Wednesday’s close: BBBY

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Wall Street Breakfast: Must-Know News

• Aftershocks from the Satyam scandal. After admitting over $1B of value on its books was fictitious, Satyam (SAY) is dealing with the fallout, as are the accounting industry, investors and Indian markets. In frenzied premarket trading, Satyam shares lost 99.89% yesterday, plummeting from $9.35 to $0.01, and were halted before regular trading hours began. Now that Chairman Ramalinga Raju has lost his credibility with admission of the fraud, some wonder whether even his confession is believable and worry that perhaps the fictitious profits and accounting flaws go far beyond the $1B+ Raju confessed. At least one class action lawsuit has been filed against the company.
• Satyam aftershocks, part II. Investors are worried that more tales of shaky corporate governance in Indian firms will begin to surface, making it extremely difficult for the country to attract back huge institutional investments that have fled the country as the economy slowed. Satyam’s collapse put an end to the BSE’s best start since 2000; the Indian market lost 7.25% yesterday and would likely have continued its downward spiral today if it weren’t closed for a planned market holiday. (On the plus side, JPMorgan raised India’s market rating to Neutral from Underweight, citing the ‘attractive buying opportunity‘ presented by the Satyam dip.) For PricewaterhouseCoopers, Satyam’s auditing firm, this is their second Indian snafu; PWC is already part of a probe for its suspect auditing of the collapsed Global Trust Bank.
• Lenovo loss looms. Lenovo (LNVGY.PK) will cut around 2,500 jobs, or roughly 11% of its workforce, leading to savings of $300M in the year ending March 2010. The latest cuts come in addition to more than 2,000 jobs eliminated in 2006 and 2007, and the company will book a charge of around $150M this fiscal year. Lenovo also forecast its first loss in 11 quarters, citing falling demand for personal computers. The firm will cut executive compensation by 30-50%, and will combine its China and Asia Pacific units as part of its reorganization efforts. In Hong Kong, shares -26%.
• Wyeth in acquisition talks. Wyeth (WYE) is in talks to buy Dutch vaccine maker Crucell (CRXL), part of its efforts to gain market share in one of the fastest growing parts of the industry. Sources say a deal valuing Crucell at more than €1B ($1.35B) could be reached as early as next week. Crucell confirmed the talks, characterizing them as ‘friendly discussions’ in a ‘preliminary stage.’ A deal would underscore the relative health of the pharmaceutical industry amid much financial and economic turmoil elsewhere, and would fall in line with the consolidation many I-bankers expect to see between small biotech firms and large cash-rich pharmaceuticals looking for fast growth.
• Paulson calls for Fannie/Freddie changes. Speaking to the Economic Club of Washington yesterday, Treasury’s Paulson called the government-sponsored enterprise model behind Fannie Mae (FNM) and Freddie Mac (FRE) flawed, citing the dangerous mix of policy and market distortions it creates. Allowing Fannie and Freddie to return to their old operating ways is not an option, he said, and the government needs to start thinking about how to best help home owners and what a post-conservatorship Fannie/Freddie will look like. One option is to break up and privatize the two behemoths, though Paulson expressed skepticism at the viability of that plan. A second option is to replace Fannie and Freddie with one or two private sector entities that would buy and securitize mortgages with a credit guarantee backed by the government. (Read Paulson’s speech)
• MSFT tries to buy its way up. Microsoft (MSFT) beat out Google (GOOG) and Yahoo (YHOO) to provide Verizon Wireless (VZ) customers with mobile web services. Microsoft has one-seventh the internet search traffic of Google, and is paying to cement this deal and ones with Hewlett-Packard (HPQ) and Sun Microsystems (JAVA) to try and narrow the gap. Verizon (VZ) is set to surpass AT&T (T) as the No. 1 U.S. mobile carrier after it closes its purchase of smaller operator Alltel later this week.
• Yahoo TV, coming soon. Yahoo (YHOO) announced a list of partners that will help with its push to bring the internet and television together. Yahoo said it has deals with companies including Samsung, LG Electronics, Sony (SNE) and Vizio, which will produce hi-def TVs that support Yahoo’s online services. The new TVs will be on the market as early as this spring, and will allow users access to an array of web activities, as well as increasing viewer interactivity with the programs they’re watching.
• Profit warning at Time Warner… Time Warner (TWX) now expects a net loss for 2008 vs. its earlier earnings forecast of $1.04-$1.07 a share. It will also take a $25B impairment charge related to goodwill and identifiable intangible assets at its Cable, Publishing and AOL segments. Separately traded Time Warner Cable (TWC) expects to take a $15B impairment charge in Q4 on its cable franchise rights, and another $350M charge related to its investment in Clearwire.
• …and at Intel. Intel (INTC) cut its Q4 revenue outlook again, this time to $8.2B – a 20% drop from Q3 vs. an earlier forecast of a 12% decline and an even earlier guidance of a 3% gain. Q4 results are generally the strongest for the semiconductor industry, and Intel’s warning is a sign of further weakness in the computer sector. The company sees sales down 23% Y/Y on weakness in end demand and inventory reductions by its customers in the global PC supply chain.
• Germany getting crunched by credit shortage. Facing a worsening recession and the first rise in unemployment in nearly three years, Germany is considering an emergency fund to lend up to €100B ($135B) of state-backed loans to companies hurting from the credit crunch. Though far from a done deal, the fact that such a plan is even up for discussion shows how concerned the German government is about the availability of credit despite a €500B bank bailout in October.
• Bad employment numbers, all around. Big companies announced 166,348 layoffs in December, a quarter of them in the financial sector, up 275% from a year ago, Challenger wrote in its monthly report. Still, the number fell 8.4% from November’s mammoth 181,670. For the year, companies announced 1.2M cuts, 59% more than 2007. According to ADP, nonfarm employment fell by 693K from November to December, far worse than consensus of -493K. The service sector fell an estimated 473K in December. Manufacturing -120K, its 27th decline in 28 months. To cap it all off, Monster’s Employment Index fell 12 points to 131 (down 22% from 169 in Dec. ’07). Public administration jobs dipped below year-ago levels for the first time on record as government recruiting eased for the second consecutive month. The best news was that the Y/Y rate of decline didn’t increase.
• BoE rate cut. Bank of England slashed its benchmark rate today by half a percentage point to 1.5%. "The world economy appears to be undergoing an unusually sharp and synchronized downturn" and there’s a "significant risk of undershooting the 2% CPI inflation target." The cut was in-line with consensus and brought BoE’s benchmark rate to its lowest level since the bank was founded in 1694. Economists think February may bring another 50 basis-point cut as policymakers try to prevent the credit squeeze from deepening.
• Mortgage apps drop. Mortgage applications fell 8.2% from a week ago, MBA reported, on a seasonally adjusted basis. The average interest rate on 30-year fixed-rate mortgages increased to 5.07% from 5.03%.

Earnings: Thursday Before Open

• Shaw Group (SGR): FQ1 EPS of $0.75 beats by $0.09. Revenue of $1.9B (+11%) in-line. (PR)

Earnings: Wednesday After Close

• Bed Bath & Beyond (BBBY): FQ3 EPS of $0.34 beats by $0.01. Revenue of $1.78B (-0.6%) in-line. Sees FQ4 EPS of $0.40-0.46 vs. $0.49. (PR)
• Christopher & Banks (CBK): FQ3 EPS of -$0.04 beats by $0.05. Revenue of $143M (-7.9%) vs. $133M. (PR)

Today’s Markets

• Asia markets closed broadly down. Nikkei -3.9% to 8,876. Hang Seng -3.8% to 14,416. Shanghai -2.4% to 1,878. BSE closed.
• In Europe at midday, London -0.9%. Paris -1.0%. Frankfurt -0.9%.
• U.S. futures: Dow -0.2%. S&P unchanged. Nasdaq +0.2%. Crude +1.9% to $43.46. Gold +0.2% to $843.30.

Thursday’s Economic Calendar

• Chain Store Sales
  Monster Employment Index
  8:30 Jobless Claims
  10:35 EIA Natural Gas Report
  3:00 PM Consumer Credit
  4:30 PM Money Supply
• Notable earnings before Thursday’s open: RPM, SGR
• Notable earnings after Thursday’s close: APOL, LWSN, MDRX

Seeking Alpha editor Eli Hoffmann contributed to this post.

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Wall Street Breakfast: Must-Know News

• GMAC a bank, at last. GMAC (GKM), owned by General Motors (GM) and Cerberus, has finally received approval to become a bank holding company, potentially giving it much-needed access to federal lending programs and further entangling the government in areas of the economy it once considered beyond its purview. Some officials worried about GMAC’s low capital levels, but according to the Federal Reserve’s statement, "GMAC Bank is currently well capitalized under applicable federal guidelines." Among the conditions for becoming a bank holding company, GMAC must restructure $38B of debt, GM must reduce its stake to less than 10% in voting shares and total equity, and Cerberus must reduce its interest to 14.9% of voting shares and 33% of total equity. (Read the Fed’s statement.)
• Banks face mixed messages. Banks are confused by the mixed messages they’re getting from federal regulators, simultaneously being urged to lend more to boost the economy and to save more to build up capital against losses. The conflicting messages are especially strong for the roughly 200 institutions estimated to be receiving TARP funds. But with a list just as large of banks at risk of failure, regulators say they are trying to strike the right balance between encouraging lending and keeping banks solvent.
• Focusing on its base, NYT wants out of ball. In an effort to make some much-needed cash, the New York Times (NYT) is actively trying to sell its 17.5% stake in the holding company of the Boston Red Sox. Times has been rumored for months to be open to selling non-core assets as its cash shortage is accelerated by steep industrywide revenue declines. The stake is estimated to be worth around $166M.
• No respite for retail sales. Despite a rush of last-minute shopping and heavy discounts, retail sales (ex-automobiles) fell 5.5% in November Y/Y and 8% in December through Christmas Eve Y/Y, according to MasterCard Inc.’s SpendingPulse unit. Excluding gasoline sales, the declines were more modest: -2.5% in November and -4% in December. Even so, "this will go down as the one of the worst holiday sales seasons on record."
• An inkless USA Today. Thanks to customer demand, Gannett’s (GCI) flagship USA Today becomes the latest paper to be sold through Kindle (AMZN). Some publishers, including the New York Times (NYT), have expressed surprise at the service’s success, although it’s hard to know how meaningful that is. Kindle’s five top-selling newspapers: New York Times, WSJ (NWS), Washington Post (WPO), Financial Times (TRI), Chicago Tribune.
• Coming soon to a Wii near you. Nintendo (NTDOY.PK) said Thursday it will start offering videos through its blockbuster Wii game console. Rival Sony (SNE) is already using is PS3 to push sales of online movies and TV shows.
• In China, profit growth slumps. Chinese industrial companies’ profits increased 4.9% YTD, the slowest pace on record, as the economy cooled and commodity prices plunged. Last year at this time, profits were up 36.7%. Overcapacity in almost all industries and unprecedented drops in commodity prices may hurt profits further, analysts caution. "The double-whammy of cooling demand and plunging prices have caused company profits to worsen seriously," economist Xing Ziqiang says. "Profits may shrink as much 15% over the next six months."
• Japan sinks deeper into recession. Japan’s industrial output plummeted in November, down 8.1% vs. October (vs. -6.8% consensus), as companies cut back on production of cars, machinery etc. amid vanishing demand. The largest drop on record raises fears the country’s recession may stretch longer and be more painful than anticipated. Japan’s weakening industrial production appears to be taking a toll on employment as well. The jobless rate climbed 0.2% to 3.9% in November, and the government warned that 85,000 temporary workers will lose their jobs over the next six months.

Today’s Markets

• Asian markets were mixed in thin trading. Japan’s Nikkei posted a 1.63% gain to 8,740. Profit-taking took Shanghai shares 0.05% lower to 1,852. BSE -2.5% to 9,239. Hong Kong is closed, as is Europe.
• Stock futures were closed overnight, but are now open. Trade looks like it will be anemic. Dow +0.32% to 8450. S&P +0.4% to 868.50. Nasdaq +0.42%.
• Crude futures are +2.4% to $36.20 after the UAE – the world’s fifth-largest oil exporter – joined Saudi Arabia in deepening oil supply curbs to comply with OPEC’s production cut of 2.2M barrels/day. Gold -0.35% to $845.
• Treasurys are higher in light overnight trade. 30-year +0.44%. 10-year +0.22%. 5-year +0.28%. 2-year +0.1%.

Seeking Alpha editor Eli Hoffmann contributed to this post.

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