It seems that Halloween has come early this year. The dead are filing tax returns, the health bill was pulled back from the brink and Carl Icahn has shown signs that his corporate raider alter ego, which struck fear into the hearts of Wall Street firms, hasn't disappeared entirely. (If you missed last week's news, check out Water Cooler Finance:Bailouts, Buffett-Rock And Prison Brawls.)
In Pictures: The Biggest Bank Failures
The "Little" Bill That Could
It seems that, like Mark Twain once remarked, reports of the healthcare bill's demise were greatly exaggerated. It looked like the bill would die in the cold of winter due to flagging public support and skepticism over the end-cost estimates and the tax impact. Spring saw the bill rise again and it passed by a vote of 219 to 212 last week. It will be tied up in the process of reconciliation for a while, as the general public and Wall Street struggle to grasp the impact of a bill weighing in at over 2,000 pages. (Learn more about the new bill in 10 Ways The New Healthcare Bill May Affect You.)
Although there are real concerns about tax increases and runaway costs (see Medicare, Social Security, etc), some investors are already honing in on ways to profit from the change. Firms are buying up health centers and even charity hospitals on the expectation that more clients will be able to pay for the care they receive.
Tax Refunds for Zombies
Lehman Brothers (OTC:LEHPQ) has crawled from the grave long enough to file taxes. The highly leveraged firm collapsed in 2008, leading to some of the darkest days in finance. With the provisions in the stimulus bill for carrying losses back five years – three additional years than was previously allowed – Lehman's can apply the massive losses it incurred in 2008 and 2009 against taxes it paid in the high-flying bubble years. (Learn more about this company's collapse in Case Study: The Collapse Of Lehman Brothers.)
While it's not clear how much the firm will get, JPMorgan (NYSE:JPM) is asking for a $1.4 billion dollar adjustment from the government. If granted, this will essentially cover the purchase of Washington Mutual (OTC:WAMPQ). Combined with backing on the Bear Stearns (NYSE:TZK) deal, JPMorgan has become one of the biggest players on Wall Street thanks to government support. Too big to fail? Only time will tell ...
Germany to Pay for Greek Hubris
Instead of getting caught up bailing out corporations, the European Union is now in the business of bailing out nations. This is a nightmare for Germany. The fiscally conservative nation was behind many of the clauses and covenants requiring member nations to run sustainable budgets and avoid bailouts. The lessons of hyperinflation taught Germany that massive debt and the ability to inflate make for dangerous motivations.
Now the Germans, the biggest financial power within the union, have been officially put on the hook for their free-spending fellow EU members' debt. This owes more than a little to the fact that Greece is not in the minority when it comes to bending EU rules. Germany has wrangled out of some concessions of its own accord, like the involvement of the International Monetary Fund (IMF) and the re-evaluation of the oft-flaunted rules that let things get to this point. (Learn more about what's been happening in Greece in EU Economics? It's All Greek To Me!)
Lions Gate, MGM and Icahn, Oh My!
As Lions Gate (NYSE:LGF) eyed up MGM (NYSE:MGM) as a possible takeover target, Carl Icahn eyed up Lions Gate. Icahn already holds 20% of the company, but he made a tender offer to buy all of the company's shares at $6 a share. Icahn believes the company has lost its way and shouldn't be looking to increase its exposure to the movie business by taking on struggling MGM. Icahn's unique twist on the greenmail technique he pioneered seems to have been enough to make Lions Gate pull its bid for MGM and halt its acquisition plans for now. (Learn more about this famous corporate raider in Can You Invest Like Carl Icahn?)
Feinberg Making More Friends
Kenneth Feinberg, better known as the "pay czar", is far from popular on Wall Street this week. Although he has increased the cash salaries being paid at the firms he oversees, most notably AIG (NYSE:AIG) and GM, the companies still saw more wage freezes and compensation cuts than increases. While a $500,000 cap looks very generous, many of the executives at these firms are making much less than their counterparts who either did not receive TARP funds or have paid them back already. Fienberg will likely never be well-loved by Wall Street, but it's hard not to sympathize with a guy who has to balance political will and practical business on a daily basis.
Back Scratching Abroad
Two globe-spanning bribery cases also emerged this week. In China, Rio Tinto PLC (NYSE:RTP) employees admitted in court that they accepted bribes. Many aspects of the case are unclear, including the charges of stealing commercial secrets. Although Rio Tinto was supportive of its employees leading up to the trial, with almost a quarter of its revenue coming from China, it looks like the company will let the Chinese courts settle the score.
On home soil, the SEC has settled with Daimler AG over bribery allegations. The German company was under scrutiny for paying millions in bribes to secure foreign business. Daimler will pay $185 million to settle the case, which dates back to 2004.
The Chinese will no longer be able to "Google it." It takes a big story to grab as many headlines as the healthcare bill, but Google (NYSE:GOOG) managed it with ease. The internet giant announced that it was pulling out of China and ceasing to censor results from the Hong Kong site. According to reports, the cyber-attacks originating from China that hacked Google's servers were the last straw in an already strained relationship. For years, China has been testing whether capitalism can work without democratic freedom. For Google, at least, the answer is no. (For related reading, see Top 6 Factors That Drive Investment In China.)