LaSalle Street Journal

FHA Failing? Proprietary information? Cheap China Unicom iPhone Service.

JLM Pacific Epoch reports according to an unnamed insider, China Unicom (CHU) has settled on retail prices for three Apple iPhone packages, reports C114.net: RMB 1,999 ($292) for an 8GB 3G iPhone and two-year service contract at RMB 186/month ($28 per month); RMB 2,999 ($440)for a 16GB 3G iPhone and two-year service contract at RMB 186/month ($28 per month); RMB 6,000 ($879) one-time payment for a 16GB 3G iPhone, including an 18-month contract. The iPhone currently does not support WiFi, but China Unicom is negotiating with supervising government departments, said another unnamed source. ($28 a month for service for an iPhone ….. – rjp).

The Washington Post reports the FHA has been hit so hard by the mortgage crisis that for the first time, the agency’s cash reserves will drop below the minimum level set by Congress, FHA officials said. The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses. “It’s very serious,” FHA Commissioner David H. Stevens said in an interview. “There’s nothing more serious that we’re addressing right now, outside the housing crisis in general, than this issue.” Until now, government officials have warned that the agency could be forced to ask Congress for billions of dollars in emergency aid or charge borrowers more for taking out FHA-insured loans if the reserves fell below the required level, equal to 2% of all loans guaranteed by the agency. Both options are politically unpalatable. Congress and the public are weary of bailouts after the government spent hundreds of billions of dollars rescuing banks; insurance cos; automakers; and the mortgage finance giants, Fannie Mae and Freddie Mac. Raising premiums for borrowers could increase the cost of buying a home just as a wounded housing market is showing signs of life. Stevens said that such drastic actions are not needed. He said he is planning to announce Friday several measures that should help the reserves rebound quickly. (What’s the point of a FHA loan if there are going to be borrower fees ……. oh that’s right, banks don’t write mortgages anymore. – rjp).

WSJ reports the U.K. government again borrowed far more than expected in August as central government tax receipts fell sharply. The borrowing surge plays into an intensifying political battle over public spending plans, which looks set to be the central dividing line in a general election due by mid-2010. Earlier this week, Prime Minister Gordon Brown acknowledged for the first time that his government must make spending cuts once the recession ends. The public sector borrowed a net 16.1 billion pounds ($26.5 billion) in August, the most borrowed for August and the third highest month of borrowing since monthly records began in 1993. The August net borrowing surpassed the 12.5 billion pounds net borrowing expected by economists.

WSJ reports policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. The Fed’s plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks’ corporate boards and executives. Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees — from chief executives, to traders, to loan officers — to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives.

WSJ reports European Union leaders agreed to push for restrictions on bankers’ bonuses at next week’s meeting of the Group of 20 industrial and developing nations in Pittsburgh. The EU leaders said the G-20 should establish binding rules for financial institutions and set penalties for firms that don’t comply. “From our point of view, the bonus bubble burst tonight,” Swedish Prime Minister Fredrik Reinfeldt told a news conference after the EU leaders’ meeting in Brussels. Mr. Reinfeldt chaired the meeting, since Sweden currently holds the bloc’s rotating presidency. The EU leaders also want the G-20 to agree to more coordination of economic policies, with the International Monetary Fund playing a central role.

Reuters.com reports the federal government and states are girding themselves for the next foreclosure crisis in the country’s housing downturn: payment option adjustable rate mortgages that are beginning to reset. “Payment option ARMs are about to explode,” Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama’s administration to discuss ways to combat mortgage scams. “That’s the next round of potential foreclosures in our country,” he said… Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they “threaten a much greater hit to the consumer than the subprimes,” Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis… The mortgages tend to be “jumbo,” or for significantly large amounts, Goddard said, making it even harder for borrowers to sidestep foreclosure. He said he expected to see an increase in scams as distressed homeowners become more desperate to refinance big debts.

Reuters.com reports the U.S. federal government will keep about $1.2 billion in payments collected to backstop money market funds even after its insurance program ends on Friday, a U.S. Treasury official said. The money “will stay with the Treasury,” the official told Reuters on Thursday, speaking on condition of anonymity because the decision has not been officially announced. The payments, from asset managers, were essentially insurance premiums used to fund guarantees the Treasury put in place a year ago to prop up the $3.5 trillion money market fund industry.

Financial Times reports Citigroup is looking to spin off a controversial oil trading unit, according to CEO Vikram Pandit. Mr Pandit indicated that Citi wanted to reduce its ownership in the unit, called Phibro, and get it to manage money from outside investors.

NY Post reports hedge funds are going out of business less quickly this year than last year, according to data released yesterday that offers fresh evidence of a recovery in the $1.4 trillion industry. But at the same time hedge fund managers are earning lower incentive fees and starting new funds at a slightly slower pace, indicating that last year’s disastrous results have not been completely forgotten. According to Hedge Fund Research (HFR), 668 funds liquidated in the first half of this year, marking a slower pace than in 2008 when a record 1,471 funds shut down during the entire year. In the second quarter, 292 funds went out of business.

DJ reports Lloyds TSB said it is continuing discussions with HM Treasury with respect to its possible participation in the Government Asset Protection Scheme, or GAPs. Lloyds and HM Treasury are discussing possible changes to the commercial terms on which Lloyds might enter into GAPS from those announced in March, including the possibility of reducing the amount of assets covered by the scheme. Lloyds also considering possible alternatives to entering into GAPS and is in discussions with HM Treasury, U.K. Financial Investments and the Financial Services Authority in this regard. All possibilities remain open and, as part of this process, Lloyds is focused on ensuring that any potential alternatives to GAPS would be in the interests of shareholders and other stakeholders.

Reuters reports credit agencies will have to disclose more of their ratings history, and creators of financial products will have to share data with all credit raters, under rules adopted by U.S. regulators on Thursday. The SEC approved those rules and proposed others as it took aim at the credit rating industry. SEC Chairman Mary Schapiro said the industry needs to be subjected to stronger regulation because investors frequently consider ratings in making investment decisions. The agency voted to seek comment on whether credit agencies should be categorized as “experts” under securities law, and thus subject to tougher standards of liability. The SEC said it is not proposing such a move yet, but wants feedback on its potential impact. Further, the SEC proposed on Thursday to require banks to disclose all preliminary ratings they receive from credit agencies in an attempt to stop banks from shopping for the best credit rating for their products. Under new rules finalized by the SEC on Thursday, credit rating agencies will have to reveal more information about past ratings so investors can compare their relative performance. The information would be publicly disclosed on a delayed basis, with up to a one- or two-year lag, to protect the rating agencies’ proprietary information. (Proprietary information? What, a Magic 8-Ball and a stack of cash from the debt seeking to be rated? – rjp).

WSJ reports Senate Finance Committee Chairman Max Baucus said Thursday he expects to make adjustments to his health-care plan, in a bid to solidify support for the bill after some Democrats said it would impose big costs on middle-income families. Mr. Baucus’s maneuvering came a day after he unveiled his long-awaited bill, designed to expand insurance coverage to tens of millions of Americans not now covered. The bill includes a requirement that most Americans carry health insurance or pay a fine, and creates a new tax on high-dollar health plans… Mr. Baucus, a Montana Democrat, made clear he was flexible. “We’re going to have to work all that out,” he said. Among the options likely to be considered: further limiting consumers’ out-of-pocket medical expenses; sweetening subsidies to low-income people to defray the cost of insurance; and limiting the scope of the new tax. Mr. Baucus can’t afford more than a few Democratic defections, since the party controls the Finance Committee with a 13-10 majority. But in making accommodations, Mr. Baucus risks pulling the bill too far to the left. That could harden partisan battle lines and make it harder for moderate Democrats to sign on when the measure reaches the Senate floor.

Reuters reports American Airlines will team up with British Airways and Qantas Airways to offer cash-strapped Japan Airlines fresh capital and expanded business ties, two sources said, aiming to fight off a rival offer from Delta Air Lines. The proposal, which will include a capital injection from American Airlines but may not bring money from British Airways or Australia’s Qantas, comes as Delta holds rival talks to invest in Japan Air and woo it to a rival airline alliance.

The Wall Street Journal reports Penn National Gaming is negotiating with the bankrupt Fontainebleau Las Vegas to buy the troubled casino and resort, according to a person with knowledge of the negotiations. The two parties have been in talks for three months and haven’t reached a deal, the person said. Talks could still fall apart at any moment. The $3B, 4,000-room hotel and casino development on the remote northern end of the Las Vegas Strip halted construction last spring when banks cut off around $800MM in funding. Around 3,000 construction workers were laid off when the funding dried up. The project is about 70% complete. On Monday, Fontainebleau owners said in a bankruptcy court filing that it is negotiating with an unidentified party interested in acquiring Fontainebleau’s debt.

Overstock.com announced that it has received a notice dated September 15, 2009 from the Securities and Exchange Commission stating that the Commission is conducting an investigation concerning Overstock’s previously-announced restatements of its financial statements in 2006 and 2008 and other matters. The subpoena accompanying the notice covers documents related to the restatements and also to Overstock’s billings to its partners in the fourth quarter of 2008 and related collections, and Overstock’s accounting for and implementation of software relating to its accounting for customer refunds and credits, including offsets to partners, and related matters. Overstock intends to cooperate fully with the investigation.

Odyssey Marine, pursuant to an agreement reached with the UK Government, has filed a motion to dismiss and vacate the warrant for the arrest which was filed in the U.S. District Court on Admiral Balchin’s HMS Victory, a 100 gun ship of the line lost in 1744 in the English Channel. The UK Government has agreed to pay Odyssey a salvage award of 80% as compensation for the artifacts which have been recovered from the site and submitted to the UK Receiver of Wreck. A valuation of approximately $200,000 has been agreed for the two cannon recovered from the site, providing for a salvage award of approximately $160,000. The company will also be participating in the ongoing process of consultation to determine the approaches that should be adopted towards the wreck. In 2008, in cooperation with the UK Ministry of Defence, Odyssey conducted an extensive archaeological pre-disturbance survey and recovered a 42 pdr and 12 pdr bronze cannon from the site.

Bernstein upgrades Daimler to Outperform. Oppenheimer upgrades Syneron Medical to Outperform; $16 target. Citigroup upgrades Procter & Gamble to Buy; target $66. Piper Jaffray upgrades Allscripts-Misys Healthcare Solutions to Overweight; target $22.50. Credit Suisse upgrades Chevron to Outperform; target $80. Keefe Bruyette upgrades Boston Private to Outperform; target $7.50. JP Morgan upgrades Toll Brothers to Overweight; target $29. JP Morgan upgrades KB Home to Overweight; target $25.50. Wells Fargo upgrades Scana to Outperform. Piper Jaffray upgrades Starbucks to Overweight; target $24. Magma Design upgraded to Buy at Canaccord Adams. Allstate upgraded to Buy at Argus; target $36. Boyd Gaming upgraded to Buy at Argus; target $17. E*TRADE raised to Buy by Goldman. HHGregg upgraded to Overweight at Barclays Capital. SanDisk upgraded to Buy at BofA/Merrill. Deutsche Bank upgraded to Buy by ING Group. Tempur-Pedic upgraded to Outperform at Wedbush Morgan; target $23. Callaway Golf upgraded to Outperform at Wedbush Morgan; target $10. Zumiez upgraded to Neutral at Wedbush Morgan; target raised to $16. Citigroup upgrades Wellpoint to Buy; $70 target.

Occidental Petro downgraded to Outperform at Raymond James. Brinker downgraded to Market Perform at Raymond James. Canadian Pacific downgraded to Sell at Stifel Nicolaus. Phoenix Tech downgraded to Hold at Roth Capital; target $4.50. Covanta downgraded to Equal Weight at Barclays Capital. Charles Schwab cut to Sell by Goldman. Merriman downgrades IMAX to Neutral. Deutsche Bank downgrades Genzyme to Hold. Piper Jaffray downgrades Omniture to Neutral. Morgan Stanley downgrades Logitech to Equal Weight. Credit Suisse downgrades ENI S.p.A to Underperform. Wells Fargo downgrades Westar Energy to Market Perform. SunTrust downgrades Exponent to Neutral. Auriga downgrades athenahealth to Sell; target $33. MDC Holdings downgraded to Underweight at JP Morgan. AMR Corp downgraded to Hold at Jesup & Lamont. Motorola downgraded to Sell at Edward Jones. Citigroup downgrades UnitedHealth to Hold. Citigroup downgrades Coventry Health Care (CVH) to Hold.

Emdeon initiated at Above Average by Caris & Company; target $19. Allscripts-Misys Healthcare initiated at Above Average by Caris & Company; target $19. Walgreen initiated at Buy by FTN Equity. Pinnacle initiated at Hold by Stifel Nicolaus. Momenta Pharma initiated at Buy by Deutsche; target $15. Pegasystems initiated at Outperform by William Blair. Morgan Stanley initiates InterOil at Overweight. Soleil initiates Tellabs at Hold; $7.25 target. Soleil initiates Alcatel-Lucent at Buy; $6 target. Wells Fargo initiates Sun Communities at Market Perform. Wells Fargo initiates Equity Lifestyle Properties at Outperform. Merriman initiates Electroic Game Card at Buy. FBR Capital initiates Lincoln National at Outperform; $35 target. SunTrust initiates Genesco at Buy; $28 target. Oppenheimer initiates American Tower at Outperform; $41 target. Oppenheimer initiates Crown Castle Int’l at Outperform; $35 target. William Blair initiates ArcSight at Outperform. William Blair initiates McAfee at Outperform. William Blair initiates Check Point Software Technologies at Market Perform.

Morgan Stanley initiates the diversified Utilities group:
Initiated at Overweight are: Allegheny Energy, target $31; and Entergy, target $95. Initiated at Equal Weight are: Edison International, target $36; Exelon, target $52; Public Service Enterprise, target $33.50; and Sempra Energy, target $53. Initiate at Underweight is: FPL Group, $56 target.

IHS reports Q3 earnings of $0.66 per share, excluding non-recurring items, $0.06 better than the consensus of $0.60; revenues rose 15.2% year/year to $239MM vs. the $234.8MM consensus; issues upside guidance for FY09.

Palm reports Q1 loss of $0.10 per share, $0.15 better than the consensus of ($0.25); revenues declined 1.6% YoY to $360.7MM vs. $290.70MM consensus. Palm prelim reports Q1 gross margin 27.9% vs. 25.6% consensus; issues downside revenue guidance for Q2 and issues upside revenue guidance for FY10.