Wall Street Breakfast: Viacom Drama Comes To An End
The battle over Sumner Redstone’s $40B media empire is over, according to media reports, bringing to a close a legal fight over whether the 93-year-old had the mental capacity to make decisions and if he was being manipulated by his daughter Shari. Terms of the settlement include the dismissal of Viacom (VIA, VIAB) CEO Philippe Dauman (with a $72M severance package), appointment of COO Thomas Dooley as interim chief executive and the expansion of Viacom’s board (based on the five choices of National Amusements).
Economy
John Williams has become the latest Fed official to offer what some consider a signal of a rate hike in September. The San Francisco Fed President said the central bank should raise rates “sooner rather than later” given domestic economic momentum. Williams isn’t a voter on the FOMC this year, but he’s worth listening to given his close ties with Janet Yellen (his predecessor at the San Francisco Fed).
In a letter to investors, Elliott Management’s Paul Singer wrote that we are experiencing the “biggest bond bubble in world history” as investors continue to rush in despite low and negative yields. The man, known best for suing Argentina over its debt restructuring, called the global bond market “broken” and warned that the end of the current environment will be “surprising, sudden, intense and large.”
The City of London has relinquished hopes the U.K. will retain full access to the European single market for goods and services, according to the FT. Officials from the financial sector have concluded that a Norway-style deal is untenable, and are now looking to imitate and build on Switzerland’s deal with the EU, where only some industries have full access to the single market. Will that mean the relocation of banking staff?
Looking to end an eight-month political stalemate, Spain’s acting Prime Minister Mariano Rajoy is ready to face a confidence vote on forming a new government after agreeing to terms for a pact with centrist rivals. Although the country has been without a working government since December 2015, when national elections ended inconclusively, it’s expected to record annualized growth of 3% this year.
The Obama administration has said its $400M cash payment to Iran in January – for a decades-old failed arms deal – was used as “leverage” to gain the release of American prisoners, fueling criticism that the exchange amounted to the U.S. paying ransom. State Department spokesman John Kirby confirmed that the U.S. refused to allow Iran to take possession of the cash until a plane carrying the freed Americans had taken off from Tehran.
The price of crude is now within striking distance of $50 a barrel, putting the commodity nearly 22% above the $39.51 it touched on Aug. 2. Chatter about an OPEC production freeze makes for a good excuse, but Iran’s plans to raise its output back up to pre-sanction levels calls that into question. Also helping the bulls: Hurricane season is on the way and the U.S. National Oceanic and Atmospheric Administration recently boosted its expectations for storm activity.
Stocks
After all the hoopla around Michael Lewis’ 2014 book Flash Boys, IEX will finally launch as a stock exchange today, offering a solution to a problem not everyone agrees exists: Equity markets are “rigged” in ways that favor high-frequency trading. It will be a “soft” rollout, with only two stocks – Vonage (NYSE:VG) and Windstream (NASDAQ:WIN) – trading at first. Eight more will be added Wednesday, followed by more on the following Monday, with all symbols trading by Sept. 2.
A former Deutsche Bank risk officer has refused an $8.25M reward from the SEC for exposing securities law violations, stating regulators only fined the lender, while top DB executives retired with their multi-million dollar bonuses intact. “I will not join the looting of the very people I was hired to protect,” whistleblower Eric Ben-Artzi said in an op-ed in the FT, entitled “We must protect shareholders from executive wrongdoing.”
Banca Monte dei Paschi di Siena announced it had acted “with complete propriety,” following press reports that CEO Fabrizio Viola was under investigation for allegedly falsifying accounts. The “operations in question were carried out by previous management and ex-managers,” BMPS (OTCPK:BMDPY) said in a statement. The world’s oldest lender is seeking to raise €5B and cut the share of bad loans to bolster its balance sheet and restore investor confidence.
Top shareholders are lobbying to replace Ericsson (NASDAQ:ERIC) Chairman Leif Johansson, sources told Svenska Dagbladet, just weeks after CEO Hans Vestberg was ousted. Shares in the Swedish telecom firm have been under pressure this year due to increased competition from China, but the stock is trading mildly higher this morning as pressure ramps up in the boardroom. ERIC -1.3% premarket.
Pandora Media is aiming to start expanding its internet radio service as soon as next month, offering its hallmark free tier as well as two new monthly subscription options that will mark its foray into on-demand music streaming, WSJ reports. While the agreements haven’t been finalized, Pandora (NYSE:P) is close to inking deals with major record companies that will allow it to do so both in the U.S. and in new overseas markets.
Aiming to drill for crude in Mexico’s deepwater oil areas, Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX) and Hess Corp. (NYSE:HES) have reached an agreement to bid on producing oil in 10 areas up for auction on Dec. 5, Bloomberg reports. Mexico hopes to raise $44B in its first-ever sale of deepwater drilling rights in the Gulf of Mexico, located in the Perdido area near the maritime border with the U.S.
The Justice Department announced plans on Thursday to phase out its use of privately operated prisons, calling them less safe and a poor substitute for government-run facilities. Shares of the two leading U.S. private prison companies plummeted on the announcement: GEO Group (NYSE:GEO) ended down 39%, while Corrections Corp. of America (NYSE:CXW) sank 35%. The greater impact of the DOJ decision may be its trickle-down effect on state prison systems, which house the majority of U.S. prisoners.
According to Danish daily Berlingske, Moeller-Maersk (OTCPK:AMKAF) is likely to split into two. “Maersk Transport” would include the Maersk Line, APM Terminals, Maersk Tankers, Damco and Svitzer units, while “Maersk Energy” would include Maersk Oil, Maersk Drilling and Maersk Supply Service. The shipping group is expected to announce the results of its strategic review in September.
The U.S. has extended a lifting of sanctions against ZTE Corp. (OTCPK:ZTCOY) for the second time as the Chinese maker of telecommunications equipment works to repair its reputation after allegedly violating trade rules with Iran. The Commerce Department said its temporary sanctions relief will be extended to Nov. 28, which will allow ZTE to continue working with American suppliers.
Emerson Electric has agreed to buy Pentair’s (NYSE:PNR) Valves & Controls business for $3.15B. It’s a move in line with Emerson’s (NYSE:EMR) two core verticals, particularly combined with the company’s planned multibillion-dollar divestitures of Network Power, Leroy-Somer and Control Techniques. The deal is expected to close in four to six months. EMR -1.5% premarket.
Citing reasons of national interest, Australian Treasurer Scott Morrison confirmed he will block foreign buyers State Grid Corp. and Cheung Kong Infrastructure Holdings (OTCPK:CKISY) from purchasing a majority stake in Ausgrid, the country’s largest electricity network. The A$10B ($7.7B) decision risks souring relations with Australia’s biggest trading partner, China, which has accused the government in Canberra of protectionism.
The option to hail a ride in a self-driving car will soon be available to Uber (Private:UBER) users in Pittsburgh, marking the first time the service has been offered to the general public. But since the technology has not been perfected, the cars will come with human backup drivers for the time being to handle any unexpected situations. Other announcements: Uber is partnering with Volvo (OTCPK:GELYY) on a $300M self-driving car project and bought startup Otto to develop self-driving trucks.
Canadian Solar (NASDAQ:CSIQ) +17.5% blowing through estimates.
Gap (NYSE:GPS) -1.9% AH giving a weak full-year outlook.
Wal-Mart (NYSE:WMT) +1.9% boosting operating income.
In Asia, Japan +0.4% to 16545. Hong Kong -0.4% to 22937. China +0.1% to 3108. India -0.2% to 28077.
In Europe, at midday, London -0.2%. Paris -0.8%. Frankfurt -0.4%.
Futures at 6:20, Dow -0.2%. S&P -0.3%. Nasdaq -0.3%. Crude -0.1% to $48.83. Gold -0.5% to $1350.40.
Ten-year Treasury Yield +1 bps to 1.54%
Today’s Economic Calendar
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