Frontrunning: December 16

Tough Question for Fed: Time to Act? (Hilsenrath )
Merkel Begins Third Term Strengthened by SPD Partner Backing (BBG)
Wary of Roma, Europe cold-shoulders its new eastern workmates (Reuters)
New Medicines Emerge, but Few Blockbusters (WSJ)
SIP in the crosshairs: U.S. Exchanges Near Deal for Infrastructure Upgrade (WSJ)
Secret Inside BofA Office of CEO Stymied Needy Homeowners (BBG)
AIG Said to Near Sale of Plane Unit to AerCap (BBG)
Inside the Saudi 9/11 coverup (NYPost)
Russian Bank Chief Weighs Firings as Costs Absorb Revenue (BBG)
Video Boom Forces Verizon to Upgrade Network (WSJ)
Chinese Manufacturing Slows (AP)
Euro-Area Factory Output Expands Faster Than Forecast (BBG)
Deal Reached to Shoot Avatar Sequels (WSJ)
GOP Incumbents Lean on Donors to Beat Back Primary Foes (WSJ)

Overnight Media Digest

WSJ

* A malfunctioning HealthCare.gov website and confusion over canceled policies have kept millions of Americans from choosing new health plans so far this fall. But with website access improving and the initial deadline to sign up for coverage looming Dec. 23, insurers are starting to blanket the airwaves and social media with glitzy ads urging consumers to buy their plans.

* American International Group Inc is in advanced talks to sell its jet-leasing business to AerCap Holdings for $3 billion in cash and a minority stake in the smaller, Netherlands-based company, said people with knowledge of the talks.

* Representatives of Amazon.com Inc workers in Germany will take their beef with the e-commerce giant to the United States on Monday, staging a protest at the retailer’s Seattle headquarters in tandem with strikes planned at Amazon sites in Germany.

* Bond investors are showing the most confidence in corporate America since the financial crisis, underscoring expectations that the U.S. economy will keep rolling as the Federal Reserve prepares to trim monetary stimulus. Purchasers of corporate debt are demanding the smallest interest-rate premium to comparable government bonds since 2007.

* U.S. exchanges are near an agreement to upgrade a central piece of the country’s trading infrastructure that critics say has been neglected and caused a serious market outage in August, according to people with knowledge of the discussions.

* After years of anemic productivity, pharmaceutical companies are launching new drugs at the fastest pace since the 1990s, including 39 last year alone. But there is a problem: selling the new drugs.

* Andrew Farkas’s recent venture in commercial real-estate brokerage is quietly downsizing its New York office. NAI Global, a network of more than 200 brokerage firms around the world, has reduced the number of brokers in its Manhattan office from 12 to four, according to people familiar with the matter.

* Hollywood may leave movie-goers feeling a little too stuffed this holiday season. Twelve movies are set to open at 500 theaters or more between Dec. 12 and Dec. 25, the highest number in recent time. Over the past decade, the number of movies opening nationwide in the two weeks leading up to Christmas has averaged fewer than 10.

* The leadership upheaval at BlackBerry Ltd continues under interim Chief Executive John Chen, according to people familiar with the matter. The smartphone makers’ executive vice president in charge of global sales, Rick Costanzo, will be leaving the company by early next year, while Chris Wormald, who was in charge of BlackBerry’s mergers and acquisitions strategy, will be gone by the end of this month.

* Oracle Corp has had a rocky year. On Wednesday, investors will get a better read on whether it was a blip, or if the competition is starting to dent the corporate-technology giant.

* Corporate acquirers are no longer willing to settle for “buyer beware.” In a number of recent mergers, acquirers have demanded unusually tight protection against undiscovered alleged criminal activity that could result in big fines or reputation hits down the road.

* The collapse of a regional Australian airline, Brindabella Airline, flying to remote mining towns has highlighted pressures facing companies that rode the wave of booming investment in resources but which have recently seen business dry up.

Royal Bank of Canada, the country’s largest bank, is mulling over spinning off parts of its proprietary trading business, a move that demonstrates the long reach of the United States’ new Volcker rule against banks speculating with their own money.

Toshiba’s U.S. unit Westinghouse is close to announcing plans to buy Spanish utility Iberdrola’s 50 percent stake in British nuclear consortium NuGen for over 100 million pounds ($163 million), according to sources.

Vodafone’s Greek business has been slapped with a 250 million euro ($343 million) lawsuit claiming that the world’s No. 2 mobile operator breached its contracts with a Greek retail partner.

Sompo Japan Insurance is in advanced talks to buy the privately held Lloyd’s of London syndicate Canopius Group for about 600 million pounds.

Credit Suisse plans to back an online marketplace for investment banking and hedge fund software, highlighting the latest attempt by an investment bank to reduce the sector’s fast-rising technology costs.

NYT

* All across the country, booksellers have a Christmas wish: that the e-book thrill is gone. There is reason to believe it will come true. E-book sales have flattened in 2013, giving publishers and bookstores hope that consumers’ appetite for print books will be renewed during the most crucial sales period of the year.

* BigDog, Cheetah, WildCat and Atlas have joined Google’s growing robot menagerie. Google confirmed that it had completed the acquisition of Boston Dynamics, an engineering company that has designed mobile research robots for the Pentagon. The company has gained an international reputation for machines that walk with an uncanny sense of balance and even – cheetahlike – run faster than the fastest humans.

* A proposed $745 mi
llion tie-up between the Chinese supermarket operator Wumart Stores and C.P. Lotus, a retailer in China controlled by the Thai billionaire Dhanin Chearavanont, has fallen apart after the two sides failed to agree on final terms of the deal, both companies said Monday.

* Tim Armstrong, chief executive of AOL, is finally winding down Patch, a network of local news sites that he helped invent and that AOL bought after he took over.

* Budget Travel, the 15-year-old magazine that printed its last issue in October 2012, has spent 2013 fighting to survive in bankruptcy court. But it appears that Budget Travel may be turning a corner as it has found ways to generate revenue through digital subscriptions on iPad, Kindle, Nook and Android devices.

* Airbnb, which lets travelers rent accommodations in private residences worldwide, is introducing its first integrated, national advertising campaign on Monday, using birds and bird houses as a metaphor for its customers and their accommodations.

* The bond between banker and diamond dealer has long been a cozy one in an industry shaped by an insular culture of carats and cash, secrets and intrigues, weddings and bar mitzvahs. But lately those old bonds are dissolving in the packed square mile of gem traders here that forms the hub of the global diamond industry. A flurry of legal cases, investigations and leaked bank documents have drawn attention to the opaque movement of diamond-backed money.

* Established electronics retailers have gone to great lengths in recent months to overhaul their stores. And the heavyweights behind many of the devices – the Microsofts, Googles and Intels – have moved to open retail stores of their own. Behind all the investments in retailing is one of the technology industry’s favorite buzzwords: “user experience.”

Canada

THE GLOBE AND MAIL

* Ontario Progressive Conservative Leader Tim Hudak is pledging to put subway construction at the top of the government’s priority list – and move other infrastructure projects down – in a bid to break gridlock in the Toronto region.

* The federal government’s proposal to create a national securities watchdog is a violation of the Constitution and an intrusion into a provincial jurisdiction that defies a recent a Supreme Court of Canada ruling, says Quebec Finance Minister Nicolas Marceau.

Reports in the business section:

* Prince Edward Island is floating a plan to delay the launch of an expanded Canada Pension Plan to 2018 in a bid to forge a consensus among the provinces, and to push the federal government to act in reforming retirement benefits.

* They may take home huge paychecks, but Canada’s top CEOs are also writing big checks to cover their income tax bills. The chief executive officers of Canada’s 60 largest companies paid about $2.5 million each in income tax in 2010 on average total compensation of $6.2 million, according to a new study by compensation consulting firm McDowall Associates.

* Barrick Gold Corp is seeking to align the bulk of its executives’ compensation with the gold company’s performance and is expected to require top managers to hold their stock until retirement.

NATIONAL POST

* Police would have the option of ticketing people for a range of minor offences – instead of laying criminal charges – under a plan that could yield significant savings for the cash-strapped justice system.

* Canada’s newest union has expanded its membership to include everyone. Unifor – Canada’s largest private sector union, which formed on Labor Day from the existing Canadian Auto Workers and Communications, Energy and Paperworkers Union of Canada – has opened its doors to part-time workers, the self-employed, those without a job and even political activists by asking people to organize “community chapters” around a common cause, rather than an employer.

FINANCIAL POST

* Canada Post’s $6.5 billion pension shortfall is just a fraction of the more than $150 billion in unfunded pension liabilities facing the federal government for its employee pension plans, raising new questions about the solvency of those plans, benefits for workers and costs for taxpayers.

* WestJet Airlines Ltd has big plans to push into the East in 2014 by expanding its new low-cost regional carrier Encore in the spring, and launching flights to Europe from Atlantic Canada next summer. To accommodate these changes, WestJet will establish bases in Vancouver and Toronto, in addition to Calgary, early next year.

China

CHINA SECURITIES JOURNAL

– National Development & Reform Commission, China’s top planning body, said the country will allocate more resources for fundamental and strategic projects such as railway construction and low-income housing projects, while cutting investments in smaller projects in competitive sectors.

SHANGHAI DAILY

– China’s lunar lander and the rover it carried have sent back photos they took of each other to Earth.

CHINA DAILY

– China’s top drug administration is holding back 450,000 hepatitis B vaccines after two babies died following injections last week. Officials said no clear link has been established between the vaccines and the deaths.

PEOPLE’S DAILY

– In order to improve the work ethics of party members, institutional mechanisms must also change, said a commentary in the paper that acts as the party’s mouthpiece.

CHINA FINANCE NETWORK

Central Huijin Investments, a government-owned asset management firm, has quietly increased its holdings in New China Life Insurance and Everbright Bank.

Britain

The Telegraph

STANDARD CHARTERED FORCED BY BANK TO STRIP TOP EXEC OF RISK ROLE

The Bank of England has forced Standard Chartered to strip its finance director, Richard Meddings, of his responsibility for risk at the emerging markets-focused lender.

JAPAN’S SOMPO DUE TO BUY INSURER CANOPIUS

The Lloyd’s of London insurer Canopius is expected to be bought by Sompo Japan Insurance for 100 billion yen($969.56 million) this week.

ADIDAS MAY CUT SPORTS DIRECT FROM SUPPLY OF WORLD CUP 2014 FOOTBALL SHIRTS

Adidas may refuse to supply Sports Direct with Argentina, Germany and Spain football shirts ahead of the 2014 World Cup over concerns about the state of the discount retailer’s stores and customer service.

BIRDS EYE OWNER ASKS LENDERS FOR EXTRA BREATHING SPACE

Iglo, the debt-laden company behind Birds Eye frozen food, has asked its lenders for extra breathing space as its new chief executive, Elio Sceti, seeks to double sales by 2020.

The Guardian

INSURANCE FIRM RSA DENIES INVESTOR DEMAND FOR SALE

The troubled insurance firm RSA has denied that leading shareholders have demanded it put itself up for sale but admitted it was considering its options, including disposals and cost cuts.

VIRGIN MONEY TO ENTER CURRENT ACCOUNT MARKET

Virgin Money, the financial services company that took over Northern Rock, is expected to offer current accounts for the first time next year.

The Times

BOOST FOR JOHN LEWIS AS CHRISTMAS APPROACHES

Demand for sofas and carving trays helped John Lewis to post a 1.4 percent year-on-year rise in sales in the week to Dec. 14. Sales of 149.9 million pounds ($244.01 million) were up 12.6 percent on two years ago and an increase of 3.7 percent compared with last week’s figures.

FRACKERS SEEK COMIC RELIEF IN DISHING OUT BENEFIT FUNDS

The shale gas industry is in talks with the organisation that distributes donations on behalf of Sport Relief and Comic Relief to run its proposed 1.1 billion pound community benefit fund.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Allison Transmission (ALSN) upgraded to Buy from Neutral at BofA/Merrill
CRH Plc. (CRH) upgraded to Neutral from Underperform at BofA/Merrill
Charles Schwab (SCHW) upgraded to Equal Weight from Underweight at Evercore
Citigroup (C) upgraded to Overweight from Equal Weight at Evercore
Exxon Mobil (XOM) upgraded to Buy from Neutral at Goldman
FMC Technologies (FTI) upgraded to Neutral from Sell at Goldman
Fidus Investment (FDUS) upgraded to Strong Buy from Outperform at Raymond James
Fifth Street Finance (FSC) upgraded to Overweight from Equal Weight at Barclays
Fifth Third Bancorp (FITB) upgraded to Overweight from Equal Weight at Evercore
Lumber Liquidators (LL) upgraded to Buy from Neutral at Goldman
Monster Beverage (MNST) upgraded to Top Pick from Outperform at RBC Capital
Moody’s (MCO) upgraded to Overweight from Equal Weight at Barclays
Oceaneering (OII) upgraded to Buy from Neutral at Goldman
Old Dominion (ODFL) upgraded to Buy from Hold at Deutsche Bank
St. Jude Medical (STJ) upgraded to Outperform from Market Perform at BMO Capital
TASER (TASR) upgraded to Overweight from Neutral at JPMorgan
Yum! Brands (YUM) upgraded to Outperform from Market Perform at Bernstein

Downgrades

AMD (AMD) downgraded to Underperform from Perform at Oppenheimer
Aveo (AVEO) downgraded to Underperform from Sector Perform at RBC Capital
Broadcom (BRCM) downgraded to Perform from Outperform at Oppenheimer
Cirrus Logic (CRUS) downgraded to Underperform from Perform at Oppenheimer
Con-way (CNW) downgraded to Hold from Buy at Deutsche Bank
Hercules Technology (HTGC) downgraded to Market Perform at Raymond James
Jazz Pharmaceuticals (JAZZ) downgraded to Neutral from Buy at Goldman
Leap Wireless (LEAP) downgraded to Equal Weight from Overweight at Barclays
Marathon Oil (MRO) downgraded to Neutral from Buy at Goldman
Navistar (NAV) downgraded to Neutral from Outperform at RW Baird
Nielsen (NLSN) downgraded to Market Perform from Outperform at BMO Capital
PNC Financial (PNC) downgraded to Equal Weight from Overweight at Evercore

Initiations

Analogic (ALOG) initiated with a Buy at Brean Capital
Avianca (AVH) initiated with a Buy at Citigroup
Evogene (EVGN) initiated with a Neutral at Piper Jaffray
Impax (IPXL) coverage resumed with a Buy at Goldman
Navigator Holdings (NVGS) initiated with a Buy at Jefferies
Navigator Holdings (NVGS) initiated with an Overweight at Evercore
PVH Corp. (PVH) initiated with a Buy at UBS

HOT STOCKS

AerCap (AER) to acquire ILFC from AIG (AIG) for $3B in cash, 97.56M shares
Harvest Natural (HNR) reported share purchase agreement to sell interests in Venezuela
Carlyle Group (CG) committed up to $200M in Discover Exploration Limited
CME Group (CME) announced solution to delivery gap in Treasury futures
IBM (IBM) said will ‘vigorously fight’ lawsuit by Louisiana Sheriffs’ Pension Fund
GSK (GSK) initiated offer to increase stake in Indian subsidiary
Alaska Air (ALK), flight attendants tentatively agreed on five-year contract

NEWSPAPERS/WEBSITES

Fed officials face a delicate decision at their policy meeting this week, with stronger economic figures and a Washington budget deal adding fuel to the debate over whether to pull back on their signature bond-buying program, the Wall Street Journal reports
With HealthCare.gov website access improving and the initial deadline to sign up for coverage looming December 23, insurers are starting to blanket the airwaves and social media with glitzy ads urging consumers to buy their plans (WLP, AET, CI, WPPGY, IPG), the Wall Street Journal reports
Telecom Italia (TI) has not received information from BlackRock (BLK) regarding an increase in its stake in the Italian telecoms group to 10.14%. That stake would make BlackRock the second biggest shareholder in Telecom Italia, and give it a potentially pivotal role at a shareholder vote on Friday on whether to oust the company’s board, Reuters reports
Workers at Amazon.com’s (AMZN) German operations were set to go on strike today in a dispute over pay that has been raging for months. A delegation of German workers will also protest at Amazon’s headquarters in Seattle, helped by U.S. workers unions, Reuters reports
U.S. and Hong Kong stock market regulators are demanding that Chinese companies provide investors more warnings about the risks of a legal structure commonly used to list those shares overseas. The SEC pressed Baidu Inc. (BIDU) to make additional disclosures about its corporate structure, citing the potential for foreign owners to lose control, Bloomberg reports
Facebook (FB), Wal-Mart (WMT) and other companies planning to use facial-recognition scans for security or tailored sales pitches will help the Commerce Department write rules for how images and online profiles can be used, Bloomberg reports

BARRON’S

PayPal could drive eBay (EBAY) stock 20% higher
YPF SA (YPF) could be worth three times its current price
Innophos Holdings (IPHS) could rise 30%
Hilton Worldwide (HLT) looks expensive
athenahealth (ATHN) will probably report losses this year, next year
Time to take profits in Deckers Outdoor (DECK)

SYNDICATE

Kips Bay Medical (KIPS) files to sell 539,620 shares for holders
RMG Networks (RMGN) files to sell 150,000 shares for holders