Though Apple's live broadcast of its fourth quarter earnings doesn't start for another few minutes, they've already dumped the numbers on us. Here are the important ones: 6.9 million iPhones, 2.6 million Macs, and 11 million iPods. Wryly noting that "we sold more phones than RIM," Steve Jobs says they're still not sure how the recession is going to affect them, but whatever, bitches, they've got "$25 billion of cash safely in the bank with zero debt." We'll be following the call live in the post below, in case any other news breaks—like the death of the Mac mini. Update: Steve is on the call, says that iPhone is now 39 percent of their business, Apple is now world's "third largest mobile phone supplier."
Here's some context for the numbers: That's more iPhones than every previous quarter combined (6.1 million), the most Macs ever in a quarter (21 percent growth), and the most iPods ever in a non-holiday quarter. Apparently the iPhone would've been 39 percent of Apple's revenue in this quarter if they hadn't spread how it's accounted out over a stretched period of time. That's fairly incredible. And they've already passed the 10 million sold mark for 2008. Won't talk about how many new iPhone users with iPhone 3G vs. people trading in old one. Boooooooo.
Apparently they think the Mac sales would have even been better if the economy didn't suck and you assholes hadn't waited for the new notebooks, though they're not sure how the big impact of those things were. iPod marketshare is still over 70 percent in the US as of September, though most growth is abroad.
Steve TalkingSteve is talking about subscription accounting rules for iPhones over their two-year life and changing them because it's such a huge part of their business. "Apple beat RIM!" RIM sold 6.1. Apple sold 6.9 million. They're "a good company that makes good products" and it's amazing after 15 months in the market, Apple has beat them. "We're just happy to beat them numbers to numbers." 200 millionth app will be downloaded tomorrow.
Steve seems upbeat about shitty economy: "I wouldn't trade our customers for any other company's customers in the entire world." They'll delay in crappy times, they won't switch. Also feels good about their marketshare, and product lineup.
Steve on netbooks: "Not a lot of them getting sold. Our entrance into that category" is the iPhone. But "we'll wait and see" how the category evolves and "we've got some pretty interesting ideas if it does evolve." Also, "this particular downturn is not creating a market of cheaper computers, that market has existed for sometime. There are parts of that market we choose not to play in... We choose to be in certain segments of the market." "Our DNA" won't let them ship a $500 computer that's "a piece of junk."
They're trying to add more value to customers in segments they already play in, like making MacBook more Pro. He doesn't think the downturn will force Apple customers to use cheaper products.
Poor Apple TV, it will "continue to be a hobby" into 2009.
Steve on multiple kinds of iPhones: "From everything I've heard, Babe Ruth only had one home run, he just kept hitting it over and over again." It's all about software now. "We're extremely comfortable" doing what they're doing, and "approaching it as a software platform." And that's it.
It's clear Steve came on to ease investor fears about Apple's—and his own—health in the crappy economy. Based on after hours trading so far, it seems to be working.
Apple Reports Fourth Quarter Results6.9 Million iPhones SoldMac Sales Reach All-Time High
CUPERTINO, California—October 21, 2008—Apple® today announced financial results for its fiscal 2008 fourth quarter ended September 27, 2008. The Company posted revenue of $7.9 billion and net quarterly profit of $1.14 billion, or $1.26 per diluted share. These results compare to revenue of $6.22 billion and net quarterly profit of $904 million, or $1.01 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, up from 33.6 percent in the year-ago quarter. International sales accounted for 41 percent of the quarter’s revenue.
In accordance with the subscription accounting treatment required by GAAP, the Company recognizes revenue and cost of goods sold for iPhone™ and Apple TV® over their economic lives. Adjusting GAAP sales and product costs to eliminate the impact of subscription accounting, the corresponding non-GAAP measures* for the quarter are $11.68 billion of “Adjusted Sales” and $2.44 billion of “Adjusted Net Income.”
Apple shipped 2,611,000 Macintosh® computers during the quarter, representing 21 percent unit growth and 17 percent revenue growth over the year-ago quarter. The Company sold 11,052,000 iPods during the quarter, representing eight percent unit growth and three percent revenue growth over the year-ago quarter. Quarterly iPhone units sold were 6,892,000 compared to 1,119,000 in the year-ago-quarter.
“Apple just reported one of the best quarters in its history, with a spectacular performance by the iPhone—we sold more phones than RIM,” said Steve Jobs, Apple’s CEO. “We don’t yet know how this economic downturn will affect Apple. But we’re armed with the strongest product line in our history, the most talented employees and the best customers in our industry. And $25 billion of cash safely in the bank with zero debt.”
“We’re very pleased to have grown revenue 35 percent and to have generated $9.1 billion in cash in fiscal 2008,” said Peter Oppenheimer, Apple’s CFO. “Looking ahead, visibility is low and forecasting is challenging, and as a result we are going to be prudent in predicting the December quarter. We are providing a wide range for our guidance, targeting revenue of $9.0 to $10.0 billion and earnings per diluted share between $1.06 and $1.35.”
Apple will provide live streaming of its Q4 2008 financial results conference call utilizing QuickTime®, Apple’s standards-based technology for live and on-demand audio and video streaming. The live webcast will begin at 2:00 p.m. PDT on Tuesday, October 21, 2008 at www.apple.com/quicktime/qtv/earningsq408/ and will also be available for replay for approximately two weeks thereafter.
Source: http://gizmodo.com
Tuesday, October 21, 2008
Friday, October 17, 2008
The Bank Bailout's Side Effect: Rising Mortgage Costs
The government's effort to boost bank lending to end the credit crisis is hurting one of the areas critical to the nation's recovery: mortgage rates. In the past week, the average mortgage rate on a 30-year fixed home loan has jumped more than one half a percentage point to 6.74%, according to Bankrate.com. That might not sound like much, but it is the biggest one-week rise in the normally stable lending rate in 21 years. Some economists say mortgage rates could soon top 7%, a level they have not seen in more than six years.
"Certainly the moves the administration have made so far are not directly attacking the financial issues that affect American homeowners," says John Vogel, a finance professor at Dartmouth's Tuck School of Business. "We need to refinance million of homeowners into affordable mortgages, and if rates go up that makes that job just much harder to do."
Rising mortgage rates could also put downward pressure on housing prices, which have already dropped 20% since their peak in July of 2006, according to the S&P/Case-Shiller Home Price index. The increase in mortgage rates means that the average borrower will pay $1,296 a month in mortgage payment for a $200,000 loan. That's $100 more a month, and $1,200 more a year, than the same loan would have cost them a few weeks ago. For buyers on a budget, that means they can afford less house for the same amount of money. Conversely, sellers would have to drop their prices to attract that same buyer.
What's more, a new "Adverse Market Fee" recently instituted by lenders for borrowers with less than perfect credit (regardless of the market) could raise the cost of a loan another half a percentage point - or an additional $70 a month on that same $200,000 loan - for nearly 20% of Americans. "For individuals looking to buy a home this is going to be just one more obstacle in their way," says Barry Ziggus, who tracks housing issues for the Consumer Federation of America.
The story is worse for people in areas of the country, such as Scottsdale, AZ, or Glen Ellyn in suburban Chicago, where even modest houses can be in the $500,000 range. A $600,000 mortgage will now cost $4,319 a month, or nearly $500 more a month, and $6,000 more a year, than it did six months ago.
Last month, when the government took control of mortgage giants Fannie Mae and Freddie Mac and pledged to inject $200 billion in capital into the home loan guarantors, administration officials said the moves would make it easier and cheaper for people to get home loans. Unfortunately, it hasn't worked that way. Mortgage rates fell sharply after the move, but soon reversed quickly, and are now higher than they were before the Fannie/Freddie rescue plan was launched.
The problem is that other moves the government has made to render bank debt safer has had the unintended consequence of making Fannie and Freddie's bonds less safe by comparison. So Fannie and Freddie's investors have to be compensated for the increased risk. In particular, traders say, the move in the past week by the Federal Deposit Insurance Corp. to temporary offer unlimited deposit insurance for non-interest bearing accounts and guarantee roughly $1.4 trillion in new unsecured bank debt has caused a rush of selling of the bonds of Fannie and Freddie. That's because the FDIC's move makes bank debt more attractive at a time when traders are looking for safety. Sheila Bair, the head of the FDIC, was initially against backing this new bank debt, but eventually went along with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.
Lower prices (and thus higher interest rates) for Fannie and Freddie bonds make it more expensive for the government mortgage guarantors to borrow, and that means that Fannie and Freddie have less money to purchase home loans. Which means a lower supply of capital available for mortgage issuers. The result is higher mortgage rates for the average American.
The higher mortgage rates have left some people wondering just what the government can do next. "Just what would you do differently," says John Weicher, a director at the Hudson Institute and a former assistant security at the U.S. Department of Housing and Urban Development. "I'm inclined to believe that the efforts we have made to help homeowners have been successful, they just haven't been enough."
Source: Time.com
"Certainly the moves the administration have made so far are not directly attacking the financial issues that affect American homeowners," says John Vogel, a finance professor at Dartmouth's Tuck School of Business. "We need to refinance million of homeowners into affordable mortgages, and if rates go up that makes that job just much harder to do."
Rising mortgage rates could also put downward pressure on housing prices, which have already dropped 20% since their peak in July of 2006, according to the S&P/Case-Shiller Home Price index. The increase in mortgage rates means that the average borrower will pay $1,296 a month in mortgage payment for a $200,000 loan. That's $100 more a month, and $1,200 more a year, than the same loan would have cost them a few weeks ago. For buyers on a budget, that means they can afford less house for the same amount of money. Conversely, sellers would have to drop their prices to attract that same buyer.
What's more, a new "Adverse Market Fee" recently instituted by lenders for borrowers with less than perfect credit (regardless of the market) could raise the cost of a loan another half a percentage point - or an additional $70 a month on that same $200,000 loan - for nearly 20% of Americans. "For individuals looking to buy a home this is going to be just one more obstacle in their way," says Barry Ziggus, who tracks housing issues for the Consumer Federation of America.
The story is worse for people in areas of the country, such as Scottsdale, AZ, or Glen Ellyn in suburban Chicago, where even modest houses can be in the $500,000 range. A $600,000 mortgage will now cost $4,319 a month, or nearly $500 more a month, and $6,000 more a year, than it did six months ago.
Last month, when the government took control of mortgage giants Fannie Mae and Freddie Mac and pledged to inject $200 billion in capital into the home loan guarantors, administration officials said the moves would make it easier and cheaper for people to get home loans. Unfortunately, it hasn't worked that way. Mortgage rates fell sharply after the move, but soon reversed quickly, and are now higher than they were before the Fannie/Freddie rescue plan was launched.
The problem is that other moves the government has made to render bank debt safer has had the unintended consequence of making Fannie and Freddie's bonds less safe by comparison. So Fannie and Freddie's investors have to be compensated for the increased risk. In particular, traders say, the move in the past week by the Federal Deposit Insurance Corp. to temporary offer unlimited deposit insurance for non-interest bearing accounts and guarantee roughly $1.4 trillion in new unsecured bank debt has caused a rush of selling of the bonds of Fannie and Freddie. That's because the FDIC's move makes bank debt more attractive at a time when traders are looking for safety. Sheila Bair, the head of the FDIC, was initially against backing this new bank debt, but eventually went along with Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson.
Lower prices (and thus higher interest rates) for Fannie and Freddie bonds make it more expensive for the government mortgage guarantors to borrow, and that means that Fannie and Freddie have less money to purchase home loans. Which means a lower supply of capital available for mortgage issuers. The result is higher mortgage rates for the average American.
The higher mortgage rates have left some people wondering just what the government can do next. "Just what would you do differently," says John Weicher, a director at the Hudson Institute and a former assistant security at the U.S. Department of Housing and Urban Development. "I'm inclined to believe that the efforts we have made to help homeowners have been successful, they just haven't been enough."
Source: Time.com
Friday, October 10, 2008
Stocks end worst week mixed after wild session
NEW YORK - Wall Street capped one of its worst weeks ever with a wild session Friday that saw the Dow Jones industrials gyrate within a 1,000 point range before closing with a relatively mild loss and the Nasdaq composite index actually ending with a modest advance. Investors were still agonizing over frozen credit markets, but seven days of massive losses and the possibility of further government support for the markets tempted some investors late in the session.
The Dow lost 128 points, giving the blue chips an eight-day loss of just under 2,400, or 22.1 percent. The average had its worst week on record in both point and percentage terms. The Standard & Poor's 500 index, the indicator most watched by market professionals, posted its worst weekly run since 1933.
The latest loss also means the Dow is down 40.3 percent since reaching a record high close of 14,164.53 a year ago, on Oct. 9, 2007. The S&P 500, which reached its high of 1,565.15 the same day, is down 42.5 percent.
Investors suffered a paper loss for the day of about $100 billion, as measured by the Dow Jones Wilshire 5000 index. For the week, investors lost $2.4 trillion, and over the past year, the losses have piled up to $8.4 trillion.
But there were signs Friday that some investors believe the market is near a bottom. On Thursday, selling accelerated in the last hour of trading. The Dow was down 221 points at 3 p.m. but closed down 679 points an hour later. On Friday, the Dow was down 468 points at 3 but rocketed 790 points and was up 322 points just after 3:30. It then sold off but closed down only 128.
And the Russell 2000 index, which tracks the movements of smaller company stocks, had a 4.66 percent gain Friday; small-cap stocks are often first on investors' shopping lists when they think a market turnaround is at hand.
"Nobody wants to miss the bottom," said Anton Schutz, president of Mendon Capital Advisors, who said of the Dow's performance, "I view it as a victory that we only finished down 100."
Some investors may have been placing bets ahead of the weekend meeting of officials from the Group of Seven nations, who gathered in Washington to discuss the economic meltdown. One of the potential remedies expected to be reviewed at the meeting is for governments to guarantee lending among banks.
"Everyone is hoping for really good news that can invigorate some buying and break this credit freeze, but your guess is as good as mine as to whether that will happen. I think people are desperate for action," said Jon Biele, head of capital markets at Cowen & Co. "It truly is remarkable to watch what's happening."
Still, Friday's widely mixed finish was proof that Wall Street still has a long list of troubles, and trading is likely to remain volatile when the market reopens on Monday.
"This kind of volatility in the market tells you that there are huge disagreements among investors about what the fundamentals are, about what the outlook is," said Ethan Harris, managing director and chief U.S. economist at Barclays PLC.
The hair-trigger mentality of the market — a reflection of the intense anxiety on the Street — was evident from the opening bell. The Dow fell 696 points in the first 15 minutes, recovered to gain more than 100 before that first hour was over and then turned sharply lower again. It spent much of the session with a deficit between 300 points and 500 points, regaining some ground and then falling again — until the last hour, when the average had swings spanning hundreds of points that took the Dow up as much as 322.
Investors have shuddered the past month over a credit market that remains frozen, posing a threat to the economy by making it harder and costlier for businesses and consumers to get a loan. But Friday's gainers included financial stocks, the ones most decimated by the credit crisis.
Harris said policymakers likely will continue to do what is needed to revive the credit markets. Actions taken so far by central banks, among them the Federal Reserve, have included increased lending and interest rate cuts.
"The deeper problem is not the stock market drop but the freezing up of the credit markets and that's the root problem and they have to keep applying the antifreeze until it works," Harris said.
The major indexes' sharp swings Friday were likely exacerbated by the computer-driven "buy" and "sell" orders that kicked in when prices fell far enough.
"Fear has been running rampant all over the Street. Fear and greed, that's what rules the Street. I think the carcass has been stripped to the bone," said Dave Henderson, a floor trader on the New York Stock Exchange for Raven Securities Corp. "The mood, it swings with the market. When we went positive, the euphoria down there was awesome. It's like at a football game."
The Dow fell 128.00, or 1.49 percent, to 8,451.49. At its low point Friday, the Dow was down 696.68 at 7,882.51, some 600 points above its low in Wall Street's last bear market, 7,286.27, reached Oct. 9, 2002. It crossed the line between gains and losses 32 times during the session.
Its close was the lowest since April 25, 2003.
Market index stats again told how horrific the run has been on Wall Street:
• The Dow lost 1,874.19 points, or 18.2 percent, during the week. Its dismal performance outdid the week that ended July 22, 1933, which saw a 17 percent drop — and back then, during the Great Depression, there were six trading days in a week.
• The Dow has fallen for eight straight sessions — the longest losing streak since the eight days of declines following the Sept. 11, 2001, terror attacks, when the blue chips lost 1,038.12, or 10.8 percent.
• It's been the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent.
• Since hitting their record highs a year ago, the Dow has lost 5,713 points, or 40.3 percent, while the S&P 500 is off 665.90 points, or 42.5 percent.
Beyond the Dow, broader stock indicators were mixed Friday.
The S&P 500 index fell 10.70 or 1.18 percent, to 899.22. The 18.2 percent drop for the week was the S&P's steepest decline since the week ending May 21, 1933; its worst loss was in 1929, when it fell 19.9 percent. The index lost 200.01 points for the week.
The Nasdaq composite index rose 4.39, or 0.27 percent, to 1,649.51. For the week, the Nasdaq lost 297.88, or 15.3 percent.
The Russell 2000 rose 23.28, or 4.66 percent, to 522.48. For the week, the Russell fell 96.92, or 15.64 percent.
Decliners led advancers 2-to-1 on the New York Stock Exhange, where consolidated volume came to a record 11.2 billion shares, compared with 8.14 billion traded Thursday.
Most major central banks around the world slashed interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors this week as panicked at times, with investors bailing out of investments on fears there is no end in sight to the financial carnage.
A stream of selling forced exchanges in Austria, Russia and Indonesia to suspend trading, and those that remained opened were hammered. The rout in Australian markets caused traders there to call it "Black Friday."
European stocks sank Friday, with Britain's FTSE-100 falling 8.85 percent, German's DAX declining 7.01 percent, and France's CAC-40 ending down 7.73 percent. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market — the Nikkei 225 fell 9.6 percent.
An index considered to be Wall Street's fear gauge reached record highs on Friday in another sign of massive investor anxiety. The Chicago Board Options Exchange Volatility Index, known as the VIX, rose to an all-time intraday high of 76.94 Friday. The VIX, which usually trades under 50, tracks options activity for the companies that make up the S&P 500.
Still, prospects of further government help and, perhaps, attractive prices helped parts of the financial sector show signs of life. Big national banks were among the gainers, including Bank of America Corp., which rose $1.24, or 6.3 percent, to $20.87. Some smaller banks also rose, including Fifth Third Bank Corp., which advanced 67 cents, or 6.9 percent, to $10.40.
Not all financials enjoyed a bounce, however. Morgan Stanley Inc. fell $2.77, or 22 percent, to $9.68 as investors worried that even with a major investment from Japan's Mitsubishi UFJ Financial Group the company was still facing troubles. Meanwhile, Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80.
Financials were most prominent among the stocks that rose in the S&P 500, though technology stocks generally advanced. Apple Inc. rose $8.06, or 9.1 percent, to $96.80, while eBay Inc. rose 77 cents, or 4.8 percent, to $16.73.
Investors appeared unfazed by final results arriving in afternoon trading from an auction Friday that set the price of debt issued by now bankrupt Lehman Brothers Holdings Inc. at 8.625 cents on the dollar, down from a preliminary estimate of 9.75 cents.
The auction was for credit default swaps, which are contracts used to insure against the default of financial instruments like bonds and corporate debt. Traded in a $60 trillion, unregulated market, many of the instruments have fallen sharply because of their ties to bad mortgage debt. Those big losses and nervousness about who holds what CDS has made financial institutions hesitant to lend to one another. The auction could help the market determine which companies are most at risk from CDS losses.
Source: Associated Press
The Dow lost 128 points, giving the blue chips an eight-day loss of just under 2,400, or 22.1 percent. The average had its worst week on record in both point and percentage terms. The Standard & Poor's 500 index, the indicator most watched by market professionals, posted its worst weekly run since 1933.
The latest loss also means the Dow is down 40.3 percent since reaching a record high close of 14,164.53 a year ago, on Oct. 9, 2007. The S&P 500, which reached its high of 1,565.15 the same day, is down 42.5 percent.
Investors suffered a paper loss for the day of about $100 billion, as measured by the Dow Jones Wilshire 5000 index. For the week, investors lost $2.4 trillion, and over the past year, the losses have piled up to $8.4 trillion.
But there were signs Friday that some investors believe the market is near a bottom. On Thursday, selling accelerated in the last hour of trading. The Dow was down 221 points at 3 p.m. but closed down 679 points an hour later. On Friday, the Dow was down 468 points at 3 but rocketed 790 points and was up 322 points just after 3:30. It then sold off but closed down only 128.
And the Russell 2000 index, which tracks the movements of smaller company stocks, had a 4.66 percent gain Friday; small-cap stocks are often first on investors' shopping lists when they think a market turnaround is at hand.
"Nobody wants to miss the bottom," said Anton Schutz, president of Mendon Capital Advisors, who said of the Dow's performance, "I view it as a victory that we only finished down 100."
Some investors may have been placing bets ahead of the weekend meeting of officials from the Group of Seven nations, who gathered in Washington to discuss the economic meltdown. One of the potential remedies expected to be reviewed at the meeting is for governments to guarantee lending among banks.
"Everyone is hoping for really good news that can invigorate some buying and break this credit freeze, but your guess is as good as mine as to whether that will happen. I think people are desperate for action," said Jon Biele, head of capital markets at Cowen & Co. "It truly is remarkable to watch what's happening."
Still, Friday's widely mixed finish was proof that Wall Street still has a long list of troubles, and trading is likely to remain volatile when the market reopens on Monday.
"This kind of volatility in the market tells you that there are huge disagreements among investors about what the fundamentals are, about what the outlook is," said Ethan Harris, managing director and chief U.S. economist at Barclays PLC.
The hair-trigger mentality of the market — a reflection of the intense anxiety on the Street — was evident from the opening bell. The Dow fell 696 points in the first 15 minutes, recovered to gain more than 100 before that first hour was over and then turned sharply lower again. It spent much of the session with a deficit between 300 points and 500 points, regaining some ground and then falling again — until the last hour, when the average had swings spanning hundreds of points that took the Dow up as much as 322.
Investors have shuddered the past month over a credit market that remains frozen, posing a threat to the economy by making it harder and costlier for businesses and consumers to get a loan. But Friday's gainers included financial stocks, the ones most decimated by the credit crisis.
Harris said policymakers likely will continue to do what is needed to revive the credit markets. Actions taken so far by central banks, among them the Federal Reserve, have included increased lending and interest rate cuts.
"The deeper problem is not the stock market drop but the freezing up of the credit markets and that's the root problem and they have to keep applying the antifreeze until it works," Harris said.
The major indexes' sharp swings Friday were likely exacerbated by the computer-driven "buy" and "sell" orders that kicked in when prices fell far enough.
"Fear has been running rampant all over the Street. Fear and greed, that's what rules the Street. I think the carcass has been stripped to the bone," said Dave Henderson, a floor trader on the New York Stock Exchange for Raven Securities Corp. "The mood, it swings with the market. When we went positive, the euphoria down there was awesome. It's like at a football game."
The Dow fell 128.00, or 1.49 percent, to 8,451.49. At its low point Friday, the Dow was down 696.68 at 7,882.51, some 600 points above its low in Wall Street's last bear market, 7,286.27, reached Oct. 9, 2002. It crossed the line between gains and losses 32 times during the session.
Its close was the lowest since April 25, 2003.
Market index stats again told how horrific the run has been on Wall Street:
• The Dow lost 1,874.19 points, or 18.2 percent, during the week. Its dismal performance outdid the week that ended July 22, 1933, which saw a 17 percent drop — and back then, during the Great Depression, there were six trading days in a week.
• The Dow has fallen for eight straight sessions — the longest losing streak since the eight days of declines following the Sept. 11, 2001, terror attacks, when the blue chips lost 1,038.12, or 10.8 percent.
• It's been the worst run for the Dow since the nearly two-year bear market that ended in December 1974 when the Dow lost 45 percent.
• Since hitting their record highs a year ago, the Dow has lost 5,713 points, or 40.3 percent, while the S&P 500 is off 665.90 points, or 42.5 percent.
Beyond the Dow, broader stock indicators were mixed Friday.
The S&P 500 index fell 10.70 or 1.18 percent, to 899.22. The 18.2 percent drop for the week was the S&P's steepest decline since the week ending May 21, 1933; its worst loss was in 1929, when it fell 19.9 percent. The index lost 200.01 points for the week.
The Nasdaq composite index rose 4.39, or 0.27 percent, to 1,649.51. For the week, the Nasdaq lost 297.88, or 15.3 percent.
The Russell 2000 rose 23.28, or 4.66 percent, to 522.48. For the week, the Russell fell 96.92, or 15.64 percent.
Decliners led advancers 2-to-1 on the New York Stock Exhange, where consolidated volume came to a record 11.2 billion shares, compared with 8.14 billion traded Thursday.
Most major central banks around the world slashed interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors this week as panicked at times, with investors bailing out of investments on fears there is no end in sight to the financial carnage.
A stream of selling forced exchanges in Austria, Russia and Indonesia to suspend trading, and those that remained opened were hammered. The rout in Australian markets caused traders there to call it "Black Friday."
European stocks sank Friday, with Britain's FTSE-100 falling 8.85 percent, German's DAX declining 7.01 percent, and France's CAC-40 ending down 7.73 percent. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market — the Nikkei 225 fell 9.6 percent.
An index considered to be Wall Street's fear gauge reached record highs on Friday in another sign of massive investor anxiety. The Chicago Board Options Exchange Volatility Index, known as the VIX, rose to an all-time intraday high of 76.94 Friday. The VIX, which usually trades under 50, tracks options activity for the companies that make up the S&P 500.
Still, prospects of further government help and, perhaps, attractive prices helped parts of the financial sector show signs of life. Big national banks were among the gainers, including Bank of America Corp., which rose $1.24, or 6.3 percent, to $20.87. Some smaller banks also rose, including Fifth Third Bank Corp., which advanced 67 cents, or 6.9 percent, to $10.40.
Not all financials enjoyed a bounce, however. Morgan Stanley Inc. fell $2.77, or 22 percent, to $9.68 as investors worried that even with a major investment from Japan's Mitsubishi UFJ Financial Group the company was still facing troubles. Meanwhile, Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80.
Financials were most prominent among the stocks that rose in the S&P 500, though technology stocks generally advanced. Apple Inc. rose $8.06, or 9.1 percent, to $96.80, while eBay Inc. rose 77 cents, or 4.8 percent, to $16.73.
Investors appeared unfazed by final results arriving in afternoon trading from an auction Friday that set the price of debt issued by now bankrupt Lehman Brothers Holdings Inc. at 8.625 cents on the dollar, down from a preliminary estimate of 9.75 cents.
The auction was for credit default swaps, which are contracts used to insure against the default of financial instruments like bonds and corporate debt. Traded in a $60 trillion, unregulated market, many of the instruments have fallen sharply because of their ties to bad mortgage debt. Those big losses and nervousness about who holds what CDS has made financial institutions hesitant to lend to one another. The auction could help the market determine which companies are most at risk from CDS losses.
Source: Associated Press
Monday, October 6, 2008
Asian markets show signs of life after global rout
SEOUL, South Korea - Asian stocks showed signs of life Tuesday after a global market sell-off, with several markets climbing into positive territory or paring losses after opening sharply lower.
Australian stocks jumped after the country's central bank cut interest rates by a bigger-than-expected 1 percentage point to 6 percent in response to the unfolding global financial crisis. The S&P/ASX-200 index rose 2 percent to 4,634 after opening down 3.7 percent.
Japan's benchmark Nikkei 225 index erased some losses after briefly falling over 5 percent to below 10,000 for the first time in almost five years. By midday, it was trading about 1.7 percent lower at 10,292.
Markets in South Korea, India, Singapore and Taiwan all edged higher. Trading in Hong Kong was closed for a holiday.
The Bank of Japan announced it was keeping its interest rates unchanged at 0.5 percent, as expected. However, there is growing speculation that the central bank may soon coordinate with the U.S. Federal Reserve and the European Central bank in an emergency policy move.
Investors in Japan said they were encouraged by a late day rally on Wall Street Monday as well as overall sentiment that stocks had fallen too far too fast, said Toshikazu Horiuchi, equity strategist at Cosmo Securities.
"There was a sense that the market was oversold," he said.
The Dow Jones industrial average, down more than 800 points at one point Monday, recovered in the final 90 minutes of the session to finish down 370 points, or 3.6 percent, to 9,955.50, its first close below 10,000 since 2004.
Still, traders were jittery amid signs that the credit crisis was spreading to Europe, where troubled banks have needed bailouts.
"It's very hard to anticipate how long the repair job is going to take across financial markets at the moment," said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.
In Europe on Monday, leading bourses were battered. London's FTSE 100 index slid 7.9 percent and France's CAC-40 sank a stunning 9 percent, its worst performance ever.
In Japan, carmakers were among the biggest losers, partly due to the dollar's drop to 101 yen levels. Nissan Motor Co. fell 3.9 percent, and Toyota Motor Corp. slid 3.8 percent.
In South Korea, investors steadily bought back shares after the sharp early drop, with the Kospi gaining 0.5 percent in early afternoon trading.
Shim Jae-youb, a strategist at Meritz Securities in Seoul, also said that the Dow's late rally Monday was providing some comfort to investors.
Expectations that leading central banks might lower interest rates would be welcome, he said.
Such a move would provide "positive momentum to the stock market," Shim said.
Source: Associated Press
__
Australian stocks jumped after the country's central bank cut interest rates by a bigger-than-expected 1 percentage point to 6 percent in response to the unfolding global financial crisis. The S&P/ASX-200 index rose 2 percent to 4,634 after opening down 3.7 percent.
Japan's benchmark Nikkei 225 index erased some losses after briefly falling over 5 percent to below 10,000 for the first time in almost five years. By midday, it was trading about 1.7 percent lower at 10,292.
Markets in South Korea, India, Singapore and Taiwan all edged higher. Trading in Hong Kong was closed for a holiday.
The Bank of Japan announced it was keeping its interest rates unchanged at 0.5 percent, as expected. However, there is growing speculation that the central bank may soon coordinate with the U.S. Federal Reserve and the European Central bank in an emergency policy move.
Investors in Japan said they were encouraged by a late day rally on Wall Street Monday as well as overall sentiment that stocks had fallen too far too fast, said Toshikazu Horiuchi, equity strategist at Cosmo Securities.
"There was a sense that the market was oversold," he said.
The Dow Jones industrial average, down more than 800 points at one point Monday, recovered in the final 90 minutes of the session to finish down 370 points, or 3.6 percent, to 9,955.50, its first close below 10,000 since 2004.
Still, traders were jittery amid signs that the credit crisis was spreading to Europe, where troubled banks have needed bailouts.
"It's very hard to anticipate how long the repair job is going to take across financial markets at the moment," said Jamie Spiteri, senior dealer at Shaw Stockbroking in Sydney.
In Europe on Monday, leading bourses were battered. London's FTSE 100 index slid 7.9 percent and France's CAC-40 sank a stunning 9 percent, its worst performance ever.
In Japan, carmakers were among the biggest losers, partly due to the dollar's drop to 101 yen levels. Nissan Motor Co. fell 3.9 percent, and Toyota Motor Corp. slid 3.8 percent.
In South Korea, investors steadily bought back shares after the sharp early drop, with the Kospi gaining 0.5 percent in early afternoon trading.
Shim Jae-youb, a strategist at Meritz Securities in Seoul, also said that the Dow's late rally Monday was providing some comfort to investors.
Expectations that leading central banks might lower interest rates would be welcome, he said.
Such a move would provide "positive momentum to the stock market," Shim said.
Source: Associated Press
__
Dow finishes below 10,000 for first time since '04
NEW YORK - Wall Street joined in a worldwide cascade of despair Monday over the financial crisis, driving the Dow Jones industrials to their biggest loss ever during a trading day. Even a big afternoon rally failed to keep the Dow from its first close below 10,000 since 2004.
The sell-off came despite the $700 billion U.S. government bailout package, which was signed into law Friday after two weeks in which traders had appeared to count on the rescue as their only hope to avoid a market meltdown.
At its worst point, the Dow was down more than 800 points, an intraday record. The stock market rallied during the final 90 minutes of the trading day, and the Dow finished down about 370 points at 9,955.50.
The average is down almost 30 percent from its all-time high of 14,164.53, set a year ago Thursday.
Speculation among traders late in the session that the market's pullback had been severe enough to force the Federal Reserve into taking other steps to soothe the markets helped stocks rebound from their lows.
"If you can't say that we're oversold now I don't know what you say. You're at least due for a bounce if nothing else," said Bill Stone, chief investment strategist for PNC Wealth Management.
The global plunge in stocks was under way well before Wall Street ever woke up. In Japan, the Nikkei average lost more than 4 percent. And then the losses spread across Europe — nearly 6 percent for the FTSE-100 in Britain, 7 percent for the German DAX and more than 9 percent for France's CAC-40.
In the United States, President Bush twice made unscheduled remarks on the economy, saying in Cincinnati that the economy would be "just fine" but that the bailout package needed time to work.
The troubles that started with an overheated housing market in the U.S. have infected financial markets around the world, making banks fearful of lending to other banks, let alone to businesses and consumers. That has led to worries that economies around the world might not only sputter but slide into reverse.
The crush of selling Monday came exactly one week after the Dow lost 778 points, its biggest closing loss in terms of points. On that day, the House voted down an earlier bailout package that had appeared to be a safe bet to pass.
The swings in the Dow on Monday also marked the beginning a fourth week of tumult in the markets. Triple-digit Dow swings have been commonplace since mid-September, when investment house Lehman Brothers went bankrupt and the government stepped in to bail out insurer American International Group.
But even with the bailout package firmly in place — a plan under which the federal government will buy bad mortgage-related assets off the books of banks — investors remain worried that banks are too fearful to lend and are cutting off air to the economy.
Over the weekend, governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits. U.S. investors appeared worried the bailout would not be enough to jump-start the economy. Even other steps, including a Federal Reserve decision to expand a loan program to squeezed banks, didn't help much.
The sharp one-day tumbles over the last two Mondays don't come close to the drops that became black marks on the timeline of Wall Street history. Black Monday, in October 1987, and stock drops that preceded the Great Depression were more than 20 percent. Monday's drop, by comparisons, was less than 8 percent at its worst.
For the day, the Dow lost 3.6 percent. The selling was broad: Little more than 200 stocks finished the day higher on the New York Stock Exchange, while about 3,000 finished lower.
At its lowest point Monday, the Dow was down 800.06, at 9,525.32. The benchmark average dipped below 10,000 for the first time since Oct. 29, 2004, and closed there despite the afternoon rally.
The market's paper loss at the day's lows came to $1.1 trillion, as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks. That compares with a loss of about $1.5 trillion last week; that was the worst weekly return since the week after trading resumed following the Sept. 11, 2001, terror attacks.
As an indication of how fearful investors still are, government-backed debt was in high demand. The yield on the three-month Treasury bill, which moves in the opposite direction as its price, fell to 0.49 percent from late Friday at 0.50 percent. Investors are willing to accept low returns to have their money in a secure place.
Investors also moved into longer-term Treasury bonds as they fled the stock market. The yield on the 10-year note fell to 3.45 percent from 3.60 percent late Friday.
Broader indexes also plunged. The Standard & Poor's 500 index shed 42.34, or 3.85 percent, to 1,056.89; and the Nasdaq composite index fell 84.43, or 4.34 percent, to 1,862.96. The Russell 2000 index of smaller companies dropped 23.49, or 3.79 percent, to 595.91.
Consolidated volume on the NYSE reflected the frantic pace of the day's trading: 7.81 billion shares changed hands, up from Friday's 6.52 billion.
The market "is displaying one of its worst traits with a herd mentality, and investors have an appetite for feeding on fear," said Anthony Sabino, a professor of law and business at St. John's University.
But he cautioned it was still not a nightmare scenario.
"Most certainly, this is not the Great Depression of the 1930s, but (is like) the savings and loan crisis of the 1980s — and we bailed them out," he said. "Once people catch their breath, they'll see this is the proper analogy and this will breathe life back into banking institutions."
Source: Associated Press
The sell-off came despite the $700 billion U.S. government bailout package, which was signed into law Friday after two weeks in which traders had appeared to count on the rescue as their only hope to avoid a market meltdown.
At its worst point, the Dow was down more than 800 points, an intraday record. The stock market rallied during the final 90 minutes of the trading day, and the Dow finished down about 370 points at 9,955.50.
The average is down almost 30 percent from its all-time high of 14,164.53, set a year ago Thursday.
Speculation among traders late in the session that the market's pullback had been severe enough to force the Federal Reserve into taking other steps to soothe the markets helped stocks rebound from their lows.
"If you can't say that we're oversold now I don't know what you say. You're at least due for a bounce if nothing else," said Bill Stone, chief investment strategist for PNC Wealth Management.
The global plunge in stocks was under way well before Wall Street ever woke up. In Japan, the Nikkei average lost more than 4 percent. And then the losses spread across Europe — nearly 6 percent for the FTSE-100 in Britain, 7 percent for the German DAX and more than 9 percent for France's CAC-40.
In the United States, President Bush twice made unscheduled remarks on the economy, saying in Cincinnati that the economy would be "just fine" but that the bailout package needed time to work.
The troubles that started with an overheated housing market in the U.S. have infected financial markets around the world, making banks fearful of lending to other banks, let alone to businesses and consumers. That has led to worries that economies around the world might not only sputter but slide into reverse.
The crush of selling Monday came exactly one week after the Dow lost 778 points, its biggest closing loss in terms of points. On that day, the House voted down an earlier bailout package that had appeared to be a safe bet to pass.
The swings in the Dow on Monday also marked the beginning a fourth week of tumult in the markets. Triple-digit Dow swings have been commonplace since mid-September, when investment house Lehman Brothers went bankrupt and the government stepped in to bail out insurer American International Group.
But even with the bailout package firmly in place — a plan under which the federal government will buy bad mortgage-related assets off the books of banks — investors remain worried that banks are too fearful to lend and are cutting off air to the economy.
Over the weekend, governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits. U.S. investors appeared worried the bailout would not be enough to jump-start the economy. Even other steps, including a Federal Reserve decision to expand a loan program to squeezed banks, didn't help much.
The sharp one-day tumbles over the last two Mondays don't come close to the drops that became black marks on the timeline of Wall Street history. Black Monday, in October 1987, and stock drops that preceded the Great Depression were more than 20 percent. Monday's drop, by comparisons, was less than 8 percent at its worst.
For the day, the Dow lost 3.6 percent. The selling was broad: Little more than 200 stocks finished the day higher on the New York Stock Exchange, while about 3,000 finished lower.
At its lowest point Monday, the Dow was down 800.06, at 9,525.32. The benchmark average dipped below 10,000 for the first time since Oct. 29, 2004, and closed there despite the afternoon rally.
The market's paper loss at the day's lows came to $1.1 trillion, as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies' stocks. That compares with a loss of about $1.5 trillion last week; that was the worst weekly return since the week after trading resumed following the Sept. 11, 2001, terror attacks.
As an indication of how fearful investors still are, government-backed debt was in high demand. The yield on the three-month Treasury bill, which moves in the opposite direction as its price, fell to 0.49 percent from late Friday at 0.50 percent. Investors are willing to accept low returns to have their money in a secure place.
Investors also moved into longer-term Treasury bonds as they fled the stock market. The yield on the 10-year note fell to 3.45 percent from 3.60 percent late Friday.
Broader indexes also plunged. The Standard & Poor's 500 index shed 42.34, or 3.85 percent, to 1,056.89; and the Nasdaq composite index fell 84.43, or 4.34 percent, to 1,862.96. The Russell 2000 index of smaller companies dropped 23.49, or 3.79 percent, to 595.91.
Consolidated volume on the NYSE reflected the frantic pace of the day's trading: 7.81 billion shares changed hands, up from Friday's 6.52 billion.
The market "is displaying one of its worst traits with a herd mentality, and investors have an appetite for feeding on fear," said Anthony Sabino, a professor of law and business at St. John's University.
But he cautioned it was still not a nightmare scenario.
"Most certainly, this is not the Great Depression of the 1930s, but (is like) the savings and loan crisis of the 1980s — and we bailed them out," he said. "Once people catch their breath, they'll see this is the proper analogy and this will breathe life back into banking institutions."
Source: Associated Press
Monday, September 29, 2008
Stocks plunge after bailout bill fails in House
‘Sell’ orders flow after vote; Dow has biggest one-day point drop ever
Sept. 29: In the biggest one-day drop since 1987, the stock market dropped more than 750 points after the House of Representatives rejected the $700 billion bailout of the financial industry.
NEW YORK - Wall Street’s worst fears came to pass Monday, when the government’s financial rescue plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones industrials down nearly 7 percent. The almost 780-point decline was the largest one-day point drop ever for the index.
The percentage declines for the Standard & Poor’s 500 and Nasdaq composite indexes were even larger. And credit markets, whose turmoil helped feed the stock market’s angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.
Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the House voted down in midafternoon the administration’s $700 billion plan to buy up distressed mortgage securities. Activity on the floor became frenetic as the “sell” orders blew in.
The Dow told the story of the market’s despair. The blue chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.
The selling was so intense that just 162 stocks rose on the NYSE — and 3,073 dropped.
It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the rescue plan’s fate uncertain, no one knows how the financial sector hobbled by hundreds of billions of dollars in bad mortgage bets will recover.
While investors didn’t believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.
“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,” said Chris Johnson president of Johnson Research Group. “This isn’t a market for the timid.”
The plan’s defeat came amid more reminders of how troubled the nation’s financial system is — before trading began came word that Wachovia Corp., one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc. It followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc.; all of them were felled by bad mortgage investments.
And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. has a list of over 110 banks that were in trouble in the second quarter, and that number surely has grown in the third.
Traders on the floor were stunned by the House vote.
“How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty,” said Gordon Charlop, managing director with Rosenblatt Securities. “The bailout not going through sends a signal that Congress isn’t willing to do their part.”
Wall Street is contending with all these issues against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back.
The evidence of the credit markets’ ills could again be found Monday in the Treasury’s 3-month bill; investors were stashing money there, willing to take the tiniest of returns simply to be sure that their principal would survive in what’s considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.
Analysts said the government needs to find a way to help restore confidence in the markets.
“It’s probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed,” said Fred Dickson, director of retail research for D.A. Davidson & Co.
Treasury Secretary Henry Paulson indicated that the government would try again.
“We need to put something back together that works,” Paulson said. “We need it as soon as possible.”
On Wall Street, the Dow fell 777.68, or 6.98 percent, to 10,365.45. The decline also surpasses the 721.56-point intraday decline record also set during the first trading day after the terror attacks. Still, it was the 17th biggest percentage decline for the Dow and remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Depression.
Broader stock indicators also tumbled. The Standard & Poor’s 500 index declined 106.85, or 8.81 percent, to 1,106.42. It was the S&P’s largest-ever point drop and its biggest percentage loss since the Oct. 19, 1987, crash.
The Nasdaq composite index fell 199.61, or 9.14 percent, to 1,983.73, the third worst percentage decline for the index.
The Russell 2000 index of smaller companies fell 47.07, or 6.68 percent, to 657.72.
A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared that energy demand would continue to slide amid further economic weakness.
And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex.
Source: Associated Press
Sept. 29: In the biggest one-day drop since 1987, the stock market dropped more than 750 points after the House of Representatives rejected the $700 billion bailout of the financial industry.
NEW YORK - Wall Street’s worst fears came to pass Monday, when the government’s financial rescue plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones industrials down nearly 7 percent. The almost 780-point decline was the largest one-day point drop ever for the index.
The percentage declines for the Standard & Poor’s 500 and Nasdaq composite indexes were even larger. And credit markets, whose turmoil helped feed the stock market’s angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.
Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the House voted down in midafternoon the administration’s $700 billion plan to buy up distressed mortgage securities. Activity on the floor became frenetic as the “sell” orders blew in.
The Dow told the story of the market’s despair. The blue chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.
The selling was so intense that just 162 stocks rose on the NYSE — and 3,073 dropped.
It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the rescue plan’s fate uncertain, no one knows how the financial sector hobbled by hundreds of billions of dollars in bad mortgage bets will recover.
While investors didn’t believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.
“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,” said Chris Johnson president of Johnson Research Group. “This isn’t a market for the timid.”
The plan’s defeat came amid more reminders of how troubled the nation’s financial system is — before trading began came word that Wachovia Corp., one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc. It followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc.; all of them were felled by bad mortgage investments.
And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. has a list of over 110 banks that were in trouble in the second quarter, and that number surely has grown in the third.
Traders on the floor were stunned by the House vote.
“How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty,” said Gordon Charlop, managing director with Rosenblatt Securities. “The bailout not going through sends a signal that Congress isn’t willing to do their part.”
Wall Street is contending with all these issues against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back.
The evidence of the credit markets’ ills could again be found Monday in the Treasury’s 3-month bill; investors were stashing money there, willing to take the tiniest of returns simply to be sure that their principal would survive in what’s considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.
Analysts said the government needs to find a way to help restore confidence in the markets.
“It’s probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed,” said Fred Dickson, director of retail research for D.A. Davidson & Co.
Treasury Secretary Henry Paulson indicated that the government would try again.
“We need to put something back together that works,” Paulson said. “We need it as soon as possible.”
On Wall Street, the Dow fell 777.68, or 6.98 percent, to 10,365.45. The decline also surpasses the 721.56-point intraday decline record also set during the first trading day after the terror attacks. Still, it was the 17th biggest percentage decline for the Dow and remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Depression.
Broader stock indicators also tumbled. The Standard & Poor’s 500 index declined 106.85, or 8.81 percent, to 1,106.42. It was the S&P’s largest-ever point drop and its biggest percentage loss since the Oct. 19, 1987, crash.
The Nasdaq composite index fell 199.61, or 9.14 percent, to 1,983.73, the third worst percentage decline for the index.
The Russell 2000 index of smaller companies fell 47.07, or 6.68 percent, to 657.72.
A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared that energy demand would continue to slide amid further economic weakness.
And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex.
Source: Associated Press
Bush disappointed by House vote, vows to press on
WASHINGTON (AP) — President Bush voiced disappointment Monday at the House vote rejecting his administration's rescue plan for the nation's financial industry. "We've put forth a plan that was big because we've got a big problem," the president said as he vowed to keep pressing on in search of a way to help the U.S. economy.
A grim-looking Treasury Secretary Henry Paulson walked into the West Wing just before the president spoke.
"We need to put something back together that works," Paulson said when he came out of the White House later to talk to reporters. "We need it as soon as possible."
Bush and his top advisers met to decide next steps. "I was disappointed in the vote with the United States Congress on the economic rescue plan," Bush told reporters during a picture-taking session with the president of Ukraine. "We'll be working with members of Congress, leaders of Congress, on the way forward."
Bush spoke after the House voted 228-205 to reject the $700 billion bailout plan that had been backed by congressional leaders of both parties and by both presidential candidates.
"Our strategy is to continue to address this economic situation head-on. We'll be working to develop a strategy that will enable us to continue to move forward," Bush said.
After the president's meeting, Paulson said he was "committed to work with my fellow regulators to use all the tools available to protect our financial system and our economy. Our tool kit is substantial, but it is insufficient."
Paulson said the U.S. banking industry was holding up well in face of difficult circumstances.
"We've got much work to do, and this is much too important to simply let fail," he said.
Joining the president and Paulson in the White House meeting after the vote were Fed Chairman Ben Bernanke and Vice President Dick Cheney.
Bernanke gave his views on the current state of the economy and how things would look in the coming days, said White House spokesman Tony Fratto, who was at the meeting.
Fratto said that, in the coming days, Paulson and White House officials would be talking to House and Senate leaders about getting legislation back on track and also discussing other options for stabilizing financial markets.
The financial crisis that existed before the House vote continues and has already affected consumers and small businesses and "other banks continue to face stress," Fratto said.
Of the almost 780-point decline in the Dow Jones industrials on Monday, the largest point drop in history, Fratto said, "Nobody wants to see the markets fall like this. We don't want to see that."
Source: Associated Press
A grim-looking Treasury Secretary Henry Paulson walked into the West Wing just before the president spoke.
"We need to put something back together that works," Paulson said when he came out of the White House later to talk to reporters. "We need it as soon as possible."
Bush and his top advisers met to decide next steps. "I was disappointed in the vote with the United States Congress on the economic rescue plan," Bush told reporters during a picture-taking session with the president of Ukraine. "We'll be working with members of Congress, leaders of Congress, on the way forward."
Bush spoke after the House voted 228-205 to reject the $700 billion bailout plan that had been backed by congressional leaders of both parties and by both presidential candidates.
"Our strategy is to continue to address this economic situation head-on. We'll be working to develop a strategy that will enable us to continue to move forward," Bush said.
After the president's meeting, Paulson said he was "committed to work with my fellow regulators to use all the tools available to protect our financial system and our economy. Our tool kit is substantial, but it is insufficient."
Paulson said the U.S. banking industry was holding up well in face of difficult circumstances.
"We've got much work to do, and this is much too important to simply let fail," he said.
Joining the president and Paulson in the White House meeting after the vote were Fed Chairman Ben Bernanke and Vice President Dick Cheney.
Bernanke gave his views on the current state of the economy and how things would look in the coming days, said White House spokesman Tony Fratto, who was at the meeting.
Fratto said that, in the coming days, Paulson and White House officials would be talking to House and Senate leaders about getting legislation back on track and also discussing other options for stabilizing financial markets.
The financial crisis that existed before the House vote continues and has already affected consumers and small businesses and "other banks continue to face stress," Fratto said.
Of the almost 780-point decline in the Dow Jones industrials on Monday, the largest point drop in history, Fratto said, "Nobody wants to see the markets fall like this. We don't want to see that."
Source: Associated Press
Wednesday, September 17, 2008
Wachovia (WB) insider buys $11 million of stock
Wachovia Corp. (NYSE: WB - option chain) shares are falling today with most other financial stocks, but we uncovered some interesting insider activity from this week. On Monday, a director at WB bought one million shares for $11.00. This cost him $11 million and could be interpreted as a sign that the stock is probably not going to go away any time soon. However, it is also a good idea to note that the same director bought 500,000 shares last winter at $38, so he may also just be averaging his position downwards. Either way, if you think that the stock won't fall by too much more in the coming months, then now could be a good time to look at a bullish hedged trade on WB, since the put premiums will be high today.
WB opened this morning at $10.44. So far today the stock has hit a low of $8.50 and a high of $10.91. As of 12:55, WB is trading at $9.55, down $1.96 (17.0%). The chart for WB looks bearish and S&P gives the stock a 2 STARS (out of 5) sell ranking.For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $5 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 39.9% return in just one month as long as WB is above $5 at October expiration. Wachovia would have to fall by more than 47% before we would start to lose money. Learn more about this type of trade here.
WB hasn't been below $7.80 at all in the past year and has shown support around $8.50 today. Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in WB, but he does have a checking account there.
Source: http://www.bloggingstock.com/
WB opened this morning at $10.44. So far today the stock has hit a low of $8.50 and a high of $10.91. As of 12:55, WB is trading at $9.55, down $1.96 (17.0%). The chart for WB looks bearish and S&P gives the stock a 2 STARS (out of 5) sell ranking.For a bullish hedged play on this stock, I would consider an October bull-put credit spread below the $5 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 39.9% return in just one month as long as WB is above $5 at October expiration. Wachovia would have to fall by more than 47% before we would start to lose money. Learn more about this type of trade here.
WB hasn't been below $7.80 at all in the past year and has shown support around $8.50 today. Brent Archer is an options analyst and writer at Investors Observer. DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in WB, but he does have a checking account there.
Source: http://www.bloggingstock.com/
Tuesday, September 16, 2008
Morgan Stanley Surprises With Profit Beat
By all accounts, Morgan Stanley (MS) was supposed to have a mediocre quarter. Wall St. was concerned it could be worse than that. Enough of the large financial companies had been damaged by write-offs for the period.
Following the example of Goldman Sachs (GS), Morgan posted a profit, and its numbers were close to the ones it posted last year. For many traders, that was a miracle.
The investment bank's management decided it needed to get its numbers out before nervous investors pushed its shares any lower. For the day, MS shares fell 11% to a new 52-week low of $23.21. The firm faced another potential sell-off tomorrow.
MS income from continuing operations for the third quarter ended August 31 was $1,425 million, or $1.32 per share, compared with $1,474 million, or $1.38 per share, a year earlier. Net revenue rose 1 percent to $8.0 billion.
The firm was expected to report earnings of $.78 per share, according to a consensus compiled by Thomson Reuters.
While it will take another quarter or two of earnings from brokers and banks to show whether the worst of the credit crisis is over, poor reports from Goldman Sachs (GS) and Morgan Stanley (MS) could have taken the Dow down today by another 500 points.
Douglas A. McIntyre
Source: http://www.247wallst.com/
Following the example of Goldman Sachs (GS), Morgan posted a profit, and its numbers were close to the ones it posted last year. For many traders, that was a miracle.
The investment bank's management decided it needed to get its numbers out before nervous investors pushed its shares any lower. For the day, MS shares fell 11% to a new 52-week low of $23.21. The firm faced another potential sell-off tomorrow.
MS income from continuing operations for the third quarter ended August 31 was $1,425 million, or $1.32 per share, compared with $1,474 million, or $1.38 per share, a year earlier. Net revenue rose 1 percent to $8.0 billion.
The firm was expected to report earnings of $.78 per share, according to a consensus compiled by Thomson Reuters.
While it will take another quarter or two of earnings from brokers and banks to show whether the worst of the credit crisis is over, poor reports from Goldman Sachs (GS) and Morgan Stanley (MS) could have taken the Dow down today by another 500 points.
Douglas A. McIntyre
Source: http://www.247wallst.com/
Monday, September 15, 2008
Lehman Storm Sparks Global Stock Markets Purge
Global stocks hammered after Lehman files for Chapter 11
* Investors flee risk; high-grade debt, gold, yen in demand
* Fed, ECB, BoE turn on liquidity taps
* Focus turns to Fed policy
(Updates throughout, adds quotes, update prices)
By Veronica Brown
LONDON, Sept 15 (Reuters) - Global share prices sank on Monday after Lehman Brothers filed for bankruptcy protection, prompting a sharp exit from risk across world financial markets.
The dollar lost traction against the yen, setting the Japanese unit on track for its best daily performance in nearly 2 years, but rallied against other major currencies as deleveraging kicked in.
Reflecting a growing sense of panic, futures markets jumped to price in a near 80-percent chance of a quarter-point cut in Federal Reserve interest rates at its meeting on Tuesday.
U.S. stock market futures fell by between 2.6 and 3.7 percent, pointing to a sharply lower open, while European stocks shed more than 4 percent. Among them, Lehman Brothers shares in Frankfurt tanked 90 percent.
Adding to worries was a report that American International Group Inc, one of the world's largest insurers, had asked the Fed for a $40 billion bridge loan, while the Fed itself said it had expanded its liquidity provision facilities.
European stocks followed their Asian counterparts down after share prices in Australia, Singapore and Taiwan all dropped 3 to 4 percent, while Indian stocks fell 5 percent.
The FTSEurofirst 300 index of top European shares was down 4.5 percent at 1,109.85 points.
Banking stocks led the fallers across Europe, with UBS, HSBC , Royal Bank of Scotland, Societe Generale, BNP Paribas and Credit Agricole trading 7-22 percent lower.
"This is a perfect storm in a perfect storm," said Justin Urquhart Stewart, investment director at 7 Investment Management. "It's a return to pure capitalism, the survival of the fittest -- government can't and won't bail everybody out."
Lehman filed for bankruptcy protection after trying to finance too many risky assets with too little capital, making it the largest and highest-profile casualty of the global credit crunch.
Also in the financial sector, Bank of America Corp agreed to buy Merrill Lynch in an all-stock transaction that Bank of America said is worth $50 billion.
TIDAL SWELL AGAINST RISK
Turmoil on Wall Street, just a week after the U.S. government bailed out mortgage giants Fannie Mae and Freddie Mac, sparked a wave of risk aversion through all asset classes.
The dollar tumbled more than 3 percent at one point versus the yen. Yen gains were later trimmed after China cut its benchmark interest rates and reserve requirements..
The U.S. currency rallied elsewhere, gaining more than 2 percent versus the high-yielding Australian and New Zealand dollars. It rose to the euro as investors unwound riskier currency plays and repatriated dollars.
"There is a high likelihood that the distress in financial markets and wider evidence of slowing global growth are prompting investors, particularly U.S. investors to repatriate those flows back into the U.S.," said Lee Hardman, currency economist at Bank of Tokyo Mitsubishi-UFJ.
A classic safe-haven, gold, initially jumped 2 percent before paring gains, while U.S. Treasury yields, which fall as prices rise, hit multi-month lows.
Growing unease pushed the cost of borrowing overnight dollar funds up.
The bank-to-bank premium paid for overnight dollar funds was fixed at 3.10625 percent, according to the British Bankers Association's latest daily fixing, up nearly a full percentage point at its highest since late June.
The price of insurance against default on debt soared, with the investment-grade Markit iTraxx Europe index at 124.5 basis points, 21.5 basis points wider than late on Friday.
The Swiss franc and yen, associated with stability in times of stress, strengthened. The dollar was last down roughly 2 percent to 105.87 yen and was down 0.6 percent at 1.1237 Swiss francs.
But the euro fell 0.6 pecent to stand roughly 3 cents down from session highs seen earlier, while sterling also shed 0.6 percent.
FED, ECB, BOE OFFER LIQUIDITY
The Fed said it would begin accepting equities as collateral for emergency loans for the first time -- a step likely to help surviving financial institutions find cash but which may not do much to boost global confidence in the U.S. financial system.
The European Central Bank and Bank of England both announced fine-tuning operations, signalling they were prepared to open the funding taps to try and ease money market tension.
In addition, 10 of the world's biggest banks agreed to establish a $70 billion borrowing facility to bolster liquidity.
Source:http://www.guardian.co.uk/business
* Investors flee risk; high-grade debt, gold, yen in demand
* Fed, ECB, BoE turn on liquidity taps
* Focus turns to Fed policy
(Updates throughout, adds quotes, update prices)
By Veronica Brown
LONDON, Sept 15 (Reuters) - Global share prices sank on Monday after Lehman Brothers filed for bankruptcy protection, prompting a sharp exit from risk across world financial markets.
The dollar lost traction against the yen, setting the Japanese unit on track for its best daily performance in nearly 2 years, but rallied against other major currencies as deleveraging kicked in.
Reflecting a growing sense of panic, futures markets jumped to price in a near 80-percent chance of a quarter-point cut in Federal Reserve interest rates at its meeting on Tuesday.
U.S. stock market futures fell by between 2.6 and 3.7 percent, pointing to a sharply lower open, while European stocks shed more than 4 percent. Among them, Lehman Brothers shares in Frankfurt tanked 90 percent.
Adding to worries was a report that American International Group Inc, one of the world's largest insurers, had asked the Fed for a $40 billion bridge loan, while the Fed itself said it had expanded its liquidity provision facilities.
European stocks followed their Asian counterparts down after share prices in Australia, Singapore and Taiwan all dropped 3 to 4 percent, while Indian stocks fell 5 percent.
The FTSEurofirst 300 index of top European shares was down 4.5 percent at 1,109.85 points.
Banking stocks led the fallers across Europe, with UBS, HSBC , Royal Bank of Scotland, Societe Generale, BNP Paribas and Credit Agricole trading 7-22 percent lower.
"This is a perfect storm in a perfect storm," said Justin Urquhart Stewart, investment director at 7 Investment Management. "It's a return to pure capitalism, the survival of the fittest -- government can't and won't bail everybody out."
Lehman filed for bankruptcy protection after trying to finance too many risky assets with too little capital, making it the largest and highest-profile casualty of the global credit crunch.
Also in the financial sector, Bank of America Corp agreed to buy Merrill Lynch in an all-stock transaction that Bank of America said is worth $50 billion.
TIDAL SWELL AGAINST RISK
Turmoil on Wall Street, just a week after the U.S. government bailed out mortgage giants Fannie Mae and Freddie Mac, sparked a wave of risk aversion through all asset classes.
The dollar tumbled more than 3 percent at one point versus the yen. Yen gains were later trimmed after China cut its benchmark interest rates and reserve requirements..
The U.S. currency rallied elsewhere, gaining more than 2 percent versus the high-yielding Australian and New Zealand dollars. It rose to the euro as investors unwound riskier currency plays and repatriated dollars.
"There is a high likelihood that the distress in financial markets and wider evidence of slowing global growth are prompting investors, particularly U.S. investors to repatriate those flows back into the U.S.," said Lee Hardman, currency economist at Bank of Tokyo Mitsubishi-UFJ.
A classic safe-haven, gold, initially jumped 2 percent before paring gains, while U.S. Treasury yields, which fall as prices rise, hit multi-month lows.
Growing unease pushed the cost of borrowing overnight dollar funds up.
The bank-to-bank premium paid for overnight dollar funds was fixed at 3.10625 percent, according to the British Bankers Association's latest daily fixing, up nearly a full percentage point at its highest since late June.
The price of insurance against default on debt soared, with the investment-grade Markit iTraxx Europe index at 124.5 basis points, 21.5 basis points wider than late on Friday.
The Swiss franc and yen, associated with stability in times of stress, strengthened. The dollar was last down roughly 2 percent to 105.87 yen and was down 0.6 percent at 1.1237 Swiss francs.
But the euro fell 0.6 pecent to stand roughly 3 cents down from session highs seen earlier, while sterling also shed 0.6 percent.
FED, ECB, BOE OFFER LIQUIDITY
The Fed said it would begin accepting equities as collateral for emergency loans for the first time -- a step likely to help surviving financial institutions find cash but which may not do much to boost global confidence in the U.S. financial system.
The European Central Bank and Bank of England both announced fine-tuning operations, signalling they were prepared to open the funding taps to try and ease money market tension.
In addition, 10 of the world's biggest banks agreed to establish a $70 billion borrowing facility to bolster liquidity.
Source:http://www.guardian.co.uk/business
Sunday, September 14, 2008
Awake of Black Monday Big firm Gone - Lehman and Merrill
NEW YORK - When Wall Street woke up Black Monday morning, two more of its storied firms had vanished.
Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed.
Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction.
The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.
The world's largest insurance company, American International Group Inc., also was forced into a restructuring.
And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.
Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."
The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.
Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."
Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling.
The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.
Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama.
"Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system."
Lehman Brothers' announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.
Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.
TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.
Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.
People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"
Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for .8595 shares of Bank of America common stock for each Merrill Lynch common share.
Bank of America did not give a per-share price on the deal but earlier, a person briefed on the transaction listed its at $29 a share. That would be a 70 percent premium on Merrill's Friday closing price of $17.05, but well below what the brokerage was worth at its peak in early 2007.
Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.
Strategically, most industry analysts say it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.
Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.
The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.
Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.
Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor's office through the weekend to craft a solution that protects policyholders, according to Dinallo's spokesman David Neustadt.
"It's clear we're one step away from a financial meltdown," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.
The meetings that began Friday night were a who's who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.'s John Thain.
For all their efforts, Lehman appeared ready to file for bankruptcy.
The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.
The independent broker-dealers "are going the way of the dodo bird," said Bert Ely, an Alexandria, Va.,-based banking consultant.
That's partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.
On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.
Roubini said it's difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren't very transparent, he said.
That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.
"Once you lose confidence, the fundamentals matter less," he said.
The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.
The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.
That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.
The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.
The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.
Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits.
Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.
Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.
"If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said.
___
AP Business Writers Madlen Read, Tim Paradis and Stephen Bernard in New York, Martin Crutsinger in Washington, Ieva Augstums in Charlotte and Michael Liedtke in San Francisco contributed to this report.
Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed.
Bank of America Corp. said it is snapping up Merrill Lynch & Co. Inc. in an $50 billion all-stock transaction.
The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.
The world's largest insurance company, American International Group Inc., also was forced into a restructuring.
And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.
Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."
The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.
Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."
Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling.
The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.
Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama.
"Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system."
Lehman Brothers' announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.
Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.
TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.
Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.
People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"
Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for .8595 shares of Bank of America common stock for each Merrill Lynch common share.
Bank of America did not give a per-share price on the deal but earlier, a person briefed on the transaction listed its at $29 a share. That would be a 70 percent premium on Merrill's Friday closing price of $17.05, but well below what the brokerage was worth at its peak in early 2007.
Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.
Strategically, most industry analysts say it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.
Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.
The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.
Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.
Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor's office through the weekend to craft a solution that protects policyholders, according to Dinallo's spokesman David Neustadt.
"It's clear we're one step away from a financial meltdown," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.
The meetings that began Friday night were a who's who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase & Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch & Co.'s John Thain.
For all their efforts, Lehman appeared ready to file for bankruptcy.
The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.
The independent broker-dealers "are going the way of the dodo bird," said Bert Ely, an Alexandria, Va.,-based banking consultant.
That's partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.
On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.
Roubini said it's difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren't very transparent, he said.
That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.
"Once you lose confidence, the fundamentals matter less," he said.
The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.
The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.
That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.
The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.
The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.
Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits.
Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.
Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.
"If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said.
___
AP Business Writers Madlen Read, Tim Paradis and Stephen Bernard in New York, Martin Crutsinger in Washington, Ieva Augstums in Charlotte and Michael Liedtke in San Francisco contributed to this report.
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