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Sep 14
2008
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U.S. Financial Markets Against the Ropes and Taking a Beating!Posted by 0 in Merrill Lynch, Lehman Brothers, investing, investing, interest rates, financial markets, Federal Reserve, credit crisis, bailout, AIG   |
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September 15, 2008
Sunday, September 14th is already being called Black Sunday for Wall Street as troubled financial giants Lehman Brothers, Merrill Lynch and AIG were all desperately seeking lifelines for survival as frenzied behind-close-doors meetings happened around the clock. And today might well become Black Monday if the cloud of the current financial crisis does not lift.
U.S. financial stocks and markets are getting battered unmercifully today as worried investors react to the uncertainty and instability of the U.S. financial system happenings.
Today
Lehman Brothers filed for bankruptcy protection. Long hours were put in over
the weekend to find a Lehman buyer, but apparently a savior was not found and
they are headed toward bankruptcy after all potential buyers walked away. They
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 mortgage giants Fannie Mae and Freddie Mac.
Bank of America (NYSE: BAC) said it has agreed to buy Merrill Lynch & Co. Inc. (NYSE: MER) in an all-stock deal worth around $50B. Hopefully BOA can absorb this Merrill acquisition and flourish. If BOA can pull it off, the good news is that they will now own one of the best and largest retail brokerages in the country.
Perhaps the biggest news is related to shares of American International Group (NYSE: AIG). AIG gapped down at the open more than 50%, and was down as much as 65%. AIG, hit by $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, worked feverishly to put together a plan that would stave off rating downgrades, after Standard & Poor's threatened to cut the insurer's ratings on Friday. AIG is seeking a $40B bridge loan from the government to continue as they liquidate assets. They do not have long to find a solution as investors lose confidence and the stock continues to plunge.
Two weeks ago the government took over the mortgage giants Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) which was a shocking bailout by the government.
The downfall of these major independent Wall Street institutions comes around six months after the collapse of Bear Stearns and 14 months after the beginning of the credit crisis, sparked by bad mortgage finance and real estate investments.
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 of the bank consortium, is supposed to prevent a worldwide panic on stock and other financial exchanges as the government is signaling that it will not continued to bail out Wall Street, The government is saying that they are continuing to work on reducing financial market disruptions and minimize the impact of these financial market developments on the broader economy.
The housing crisis and sub-prime mortgage meltdown is the root cause of these financial troubles. Home prices have dropped on average 25 percent thus far, and some analysts are predicting that they could drop further before things bottom out and the market starts to firm up.
The credit crisis is slowing the broader economy as a whole. Credit gets tighter and banks make fewer loans. As a consequence, consumers start cutting spending. Economists have been saying for months we were, are or, will soon be in a recession. Every week it changes but if the base of our financial system does not stabilize, we could quickly slip into a full-blown recession by the end of this year and early next year.
It is way too early for investors to start thinking about playing a bottom in this market. There is still bound to be more shakeout ahead for some of the smaller players. It will be interesting to see whether this carnage in the financial markets will prompt the Federal Reserve to cut interest rates this week. The Fed has indicated that they would be vigilant against inflation and have indicated they might hold firm or raise interest rates to hold prices in check but inflation worries are probably less of a concern at the moment compared to the stabilization of the financial institutions around which our whole credit system is based.
It’s too early to tell when the worm will turn and things will stabilize and the bleeding will stop in the financial markets, but we will all be keeping a close eye on things.
Other Bank Stocks today:
American International Group (NYSE: AIG). Down
55%
Washington Mutual (WM): Down 19%
Wachovia CP (NYSE: WB): Down 21%
Merrill Lynch (NYSE: MER): Up 18%
Bank of America: (NYSE: BAC): Down 15.5%
Fannie Mae (NYSE: FNM): Down 15%
Freddie Mac (NYSE: FRE): Down 13%
Citigroup (NYSE: C): Down 12%
