‘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
Monday, September 29, 2008
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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