Daily News: DC's AIG Uproar, Hugo Chavez and More

By Markos N. Kaminis - Washington Analyst:

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Washington is on my mind, and the rest of the world's as well. Between the whole AIG debacle, Obama appearing on Leno, Chris Dodd and Tim Geithner pointing fingers, and the bill taxing AIG executives 90% on their bonus payouts progressing to the Senate, how could it not be!

Washington Buzz

Washington earthquake is more like it! The outrage that followed the brazen issuing of bonuses to AIG (NYSE: AIG) executives set DC on fire this week. So much so, that we're going to publish a dedicated piece to this subject in the near-term. For now though, we'll cover what's happening today.

Since the bonus penalty passed the House yesterday, the Senate must now consider the bill. A few voices have cried out on the constitutional conflict that seems inherent to this "after the fact" legislation. Concerns over moral hazard, unintended consequences to corporate America and the possibility of human resource brain drain have been arisen as well. So, we do not expect the overwhelming level of support in the Senate as recorded by the House of Representatives yesterday. Still, we expect the bill will pass into law.

Media Darling Obama

President Obama has clearly transcended a message and his long-term political strategy; that being as America's hands-on president. The guy is releasing videos, appearing on talk shows and is generally in your face daily. Four years from now, this will secure his legacy in the minds of Americans far and wide as a hard working blue collar president. This is a brilliant PR strategy, and the earnest effort behind it all is helping America feel good about its vote. So far, I'm mostly on board, but I cannot offer support to the embryonic stem cell change and a few other ultra liberal efforts. My faith will not allow it. I admire what he is trying to do to prevent a new Middle East war. He's gone over and beyond, really thinking outside the box to find solution to the Iranian threat. You gotta love that!!! I suspect a few cubicle robots are malfunctioning though, with all this out-of-the-box thinking.

Bernanke's Address to Community Bankers

It was boring! Let's admit it. He keeps rehashing the same old speech and tweaking it a bit for the individual audiences. But the guy is busy and things do not change fast enough for major speech revisions...

The only differences today were tied to the audience. After reminding us of the Fed and Treasury actions thus far, and his goals going forward (I'm tired of restating this stuff; go ahead and read it yourself or find some other means of self-mutilation to keep you busy), he addressed the challenges and opportunities community bankers face today.

The challenges of course include those old faithfuls tied to any cyclical downturn, including lower loan demand, lighter deposit savings and increased bad debt and reserving needs. Besides that, banks are faced with higher scrutiny from regulators upon regulators, bad press from a frenzied media and community anger and frustration. The banks as a result of all these things must tighten their own lending standards and stick to prudent decision making...what a drag...

However, the community banks are benefiting from the run of money out of the commercial bank space and the removal of non-bank competitors. So, there is a long-term opportunity for their businesses to grow into the void.

TALF Stumbles Out of the Gate

The Fed's Term Asset-Backed Securities Loan Facility kicked off on Thursday, but demand was limited to $4.7 billion of funding to buy new securities backed by credit cards, small business, student and auto loans. The Federal Reserve started this fund out at $200 billion, and believes it could grow to $1 trillion. There's been some rumbling about the impact of the government's "after the fact" regulating of AIG (NYSE: AIG). We've also seen banks like J.P. Morgan Chase (NYSE: JPM) and others seeking to pay back TARP funds to avoid government meddling. Ford (NYSE: F) said no thanks to government money as well, as the Fed and others have effectively taken away the "moral hazard." Nobody wants to be saved by the government now, and that's wonderful. With regard to TALF, the economic environment is likely driving the light demand more than anything else one might speculate about. Risky bets are rising as job security and unemployment deteriorate, and that naturally keeps investment down, even for so-called AAA debt!

Overseas News

Hurricane Hugo

Hugo Chavez looks determined to run Venezuela into the ground and reduce his nation to the poverty level seen in Cuba in the process. We think it's only a matter of time before dissidents rise up, and Hugo hurries off. His latest disaster is the nationalization of the local operations of Spanish bank, Grupo Santander (SAN.MC). So far Chavez has not run into foreign contention in his socialization progress, as fair enough compensation has been paid for assets. Still, ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP) have given up on the country's energy reserves. This latest bank claim, however, may push Venezuela toward scuffle with Spain. Chavez has a personal issue with the Spanish King, and so he offered $600K less than Santander's asking price for Banco de Venezuela. This story will be worth watching...

Corporate News Drivers

Xerox (NYSE: XRX)

Xerox is feeling the heat, as business customers have frozen spending. The famed copy machine maker notes high-teen revenue decline in January and February of this year, and it slashed its first quarter EPS guidance 85% as a result. Not long after, two rating agencies cut the outlook on the company to negative. Needless to say, it's been a bad day for shareholders, as XRX is off 19% at this hour. Xerox (NYSE: XRX) is meeting its troubles head on though, taking several cost cutting measures including layoffs.

Bayer

Bayer got good news from the doctor today, err the FDA anyway, and the stock is up as a result. Bayer (XETRA: BAY.DE) and partner Johnson & Johnson (NYSE: JNJ) received FDA approval for their anti-clotting pill. Bayer expects peak sales of $2.7 billion from this first new clotting drug, the first in 55 years. Rivaroxaban, as it's called, has gained approval for hip and knee surgeries initially, opening the door for future procedure approvals.

Today's EPS Schedule

The light earnings schedule includes news from Companhia Paranaese De Energia (NYSE: ELP), Doral Financial (NYSE: DRL), Kirland's (Nasdaq: KIRK) and NeurogesX (Nasdaq: NGSX).


Please see our disclosures at the Wall Street Greek website and author bio pages found there. (Article interests: AMEX: DIA, AMEX: SPY, Nasdaq: QQQQ, NYSE: NYX, AMEX: DOG, AMEX: SDS, AMEX: QLD, AMEX: XLF, AMEX: IWM, AMEX: TWM, AMEX: IWD, AMEX: SDK).