Financial regulatory debate; Bank capital rules – Senate passes amendment

Washington

· Debt Cards – the Durbin amendment unexpectedly passes Thurs night; American Banker calls the move a surprise; under the amendment, the Federal Reserve would be authorized to regulate the fees charged to businesses by financial firms on debit cards, and empower merchants to offer discounts to customers if they pay with cash, check or a debit card (WSJ)  http://online.wsj.com/article/SB10001424052748704635204575242501678773926.html?mod=WSJ_hps_sections_news

· Debit Cards – JPMorgan’s T Huang has a note out today on the Durbin bill and its impact on the payment processing companies – “we think the amendment would be very difficult to implement and disruptive to card commerce, but manageable in terms of financial impact for the processing vendors”.   · Rating agencies – this hit during trading on Thurs – the Senate voted in favor of an amendment to the Dodd bill that would mandate the SEC w/creating and overseeing a credit-rating board that would act as a middleman between issuers seeking ratings and the rating agencies; the amendment is intended on ending the conflict of interest between issuers who select and pay bond rating firms.  WSJ    http://online.wsj.com/article/SB10001424052748704635204575242472908973624.html?mod=WSJ_hps_LEFTWhatsNews

· Rating agencies – CNBC says NY AG Cuomo not only looking at weather banks misled rating agencies, but also is the agencies themselves “looked the other way” in exchange for more business or even if there was collusion between the two sides.  A source says the inquiry is “very significant”  CNBC  http://www.cnbc.com//id/37132009

· Wall St structured finance investigations – some are talking about a global settlement according to the NYT – many are starting to think that Wall St will pursue a global settlement of all issues similar to the ’02 research resolution; the Times says that Wall St execs are already discussing among themselves “what the broad contours of such a settlement might look like”   NYT  http://www.nytimes.com/2010/05/14/business/14banks.html?ref=business

· UBS and CS both confirm Fri they are being probed by the NY AG’s office; Both banks said they have received subpoenas in connection with an ongoing probe – DJ

· Financial regulatory debate – Dodd wants to vote to end debate as early as this Mon, but GOP wants to spend more time on the issue.  http://www.politico.com/news/stories/0510/37229.html

· Bank capital rules – Senate passes amendment w/new standards - measure would direct federal regulators to impose minimum leverage and risk-based capital standards on banks, bank-holding companies and non-bank financial firms identified by the new systemic risk council created by the bill.  Fox Business 

· Municipal bond practices being looked at by regulators – Wall St’s practice of selling municipal debt, along w/also selling clients the ability to bet against the failure of that same debt, is coming under scrutiny by regulators; the probe is looking into whether banks are buying protection for themselves on the same muni debt they are selling to clients; Federal and state regulators are examining the issue (WSJ)   http://online.wsj.com/article/SB10001424052748703950804575242753286993826.html?mod=WSJ_hps_LEFTWhatsNews

· New trading circuit breakers to be unveiled next week – announcement to come on Mon; SEC is evaluating proposals that would create new rules on: a) uniform individual stock circuit breakers, b) a global circuit breaker, and c) busting trades.  CNBC  http://www.cnbc.com//id/37133357

· “Stub quoting” - Regulators are in discussions with U.S. stock exchanges about the practice of "stub quoting"; SEC head Schapiro told a House panel on Tuesday that stub quotes "serve no purpose in our marketplace." (WSJ)  http://online.wsj.com/article/SB20001424052748703950804575242740553192802.html#mod=todays_us_money_and_investing

· FX update – Treasury and Fed FX report to Congress; “U.S. Monetary Authorities Did Not Intervene In FX Markets During the First Quarter”  http://www.newyorkfed.org/newsevents/news/markets/2010/fxq110.pdf

· FX swap agreements - New York Fed releases U.S. Dollar Liquidity Swap Operations activity; in its first week since being reintroduced, there was $9.205B drawn from the swap windows, all of it coming from the ECB (the BoC, BOE, BOJ, or SNB didn’t draw anything).   http://www.newyorkfed.org/markets/fxswap/

· NY State Gov Race - Cuomo plans to formally declare he is running for governor on or about May 25, when the state Democratic Party convention begins (Bloomberg)

· Obama delivers upbeat comments on economy – he told a crowd at a manufacturing plant in Buffalo that job growth would continue and that “next year is going to be better than this year.”  NYT   http://www.nytimes.com/2010/05/14/us/politics/14obama.html?partner=rss&emc=rss

· Gulf of Mexico – the NYT says that some scientists think the impact of the Gulf crude spill is larger than expected.  NYT   http://www.nytimes.com/2010/05/14/us/14oil.html?hp

· US Equity Strategy – takeaways from JPMorgan’s T Lee - Confidence remains fragile, but labor recovery looks like '75/'82. 19 ideas - We remain “Constructive and Buy the Dips” with a YE10 Target of 1300 for the S&P 500 (based on a 14.4X P/E on ’11E $90). We still favor Domestic Cyclicals (Financials, Discretionary, small-cap industrials, Steels, Paper, etc) over Multinational given the visibility and risk of inflation outside the U.S.  We have identified 19 stocks based on the following criteria: (i) in one of the top 20 industries based on performance in 6 months after private payrolls hit 200k; (ii) Rated OW by J.P. Morgan; and (iii) Top Buzz-o-meter stock in each industry. The tickers are: KSS, HOT, CAR, X, MHK, NEM, ESS, IVZ, EQT, MICC, WCC, DE, MS, LSTR, CBG, STRA, GT, UNP, and TLAB.  T