The chief executives of Morgan Stanley and Merrill Lynch & Co. are going without bonuses for a year that has seen Wall Street ravaged by staggering losses, mass layoffs and the collapse of storied firms.
Morgan Stanley’s CEO John J Mack is giving up a bonus for the second straight year, while Merrill Lynch & Co. said its CEO John Thain also asked to go without the extra compensation for 2008 after reports surfaced he had sought as much as $10 million.
Mack told employees Monday in a memo that he and the firm’s two presidents, James Gorman and Walid Chammah, informed the board’s compensation committee of their decision to forgo 2008 bonuses, and the committee accepted.
Mack who did not receive a bonus for 2007, either said the company is changing year-end compensation for other employees, too.
The executives, however, are still being paid. Last year, Mack earned a salary of $800,000 as well as nearly $400,000 in other compensation, including personal use of a corporate jet.
Compensation for the 14 members of the firm’s operating committee will be down an average of 75%, and down 65% for the 35 members of the management committee.
Morgan Stanley plans to tie compensation for all employees eligible for bonuses more closely to performance. It will also allow for “clawbacks” where the company could reclaim any bonus paid to an employee if his or her actions led to “the need for a restatement of results, a significant financial loss or other reputational harm,” the memo said.
The CEO compensation debate comes as global banks have lost billions of dollars amid a credit crisis that still has yet to be contained. In the last few months, major US banks have taken advantage of a $700 billion government bailout program to help them avoid fates similar to that of investment bank Lehman Brothers Holdings Inc., which declared Chapter 11 bankruptcy in October.
Goldman Sachs CEO Lloyd Blankfein _ and six of his top lieutenants _ announced last month that they won’t take cash or stock bonuses for 2008.
Merrill Lynch said Thain and four other top executives President and COO Greg Fleming, Chief Financial Officer Nelson Chai, President of Global Wealth Management Robert McCann, and General Counsel Rosemary Berkery have all requested that they do not receive bonuses for 2008. According to a statement by the bank, the executives cited “current economic and market conditions” for their request. Directors at the regularly scheduled board meeting Monday accepted the offer.
The Wall Street Journal reported that Thain previously sought a multimillion dollar bonus, which raised the ire of some regulators.
New York State Attorney General Andrew Cuomo, who is conducting an ongoing inquiry into executive compensation at Wall Street firms, has been asking firms to scrap their bonuses this year.
Merrill Lynch shareholders on Friday approved the brokerage’s acquisition by Bank of America Corp., creating the largest US financial services company. Thain ushered through the combination in September at fire sale prices to avoid a collapse similar to that of Lehman Brothers.
Showing posts with label Morgan Stanley. Show all posts
Showing posts with label Morgan Stanley. Show all posts
Tuesday, December 9, 2008
Tuesday, September 30, 2008
House rejects $700B bailout in stunning defeat, driving stocks down; Treasury vows more work
WASHINGTON (AP) -- In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day.
"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.
Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.
All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.
But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.
In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections.
The bill went down, 228-205.
The House Web site was overwhelmed as millions of people sought information about the measure through the day.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.
Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.
In the meantime, Paulson said he would work with other regulators "to use all the tools available to protect our financial system and our economy."
"Our tool kit is substantial but insufficient," he said, indicating the government intended to continue piecemeal fixes while pressing Congress for broader action.
Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.
As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.
The final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.
In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.
Thirteen of the 19 most vulnerable Republicans and Democrats in an Associated Press analysis voted against the bill despite the pleas from Bush and their party leaders to pass it.
In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."
The overriding question was what to do next.
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."
Republican leader John Boehner, R-Ohio, the minority leader, said he and other Republicans were pained to back the measure, but in light of the potential consequences for the economy and all Americans, "We need to renew our efforts to find a solution that Congress can support."
Sen. Chris Dodd, D-Conn., said there was scant time to reopen legislation that was the product of hard-fought bipartisan negotiations.
"What happened today was not a failure of a bill, it was a failure of will," said Dodd, the Banking Committee chairman. "Our hope is that cooler heads will prevail, people will think about what they did today and recognize that this is not just scare tactics -- it's reality."
A brutal round of partisan finger-pointing followed the vote.
Republicans blamed Pelosi's scathing speech near the close of the debate -- which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets -- for the defeat. It was not much different from her usual tough words against the president and his party.
"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said.
Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.
That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country."
More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.
Indeed, many GOP lawmakers spurned Bush's urgent calls for action. "We have a gun to our head," said Rep. Ginny Brown-Waite, R-Fla., who opposed the bill. "This isn't legislation -- it's extortion."
The two men campaigning to replace Bush watched the situation closely -- from afar -- and demanded action.
In Iowa, Republican John McCain said his rival Barack Obama and congressional Democrats "infused unnecessary partisanship into the process. Now is not the time to fix the blame; it's time to fix the problem."
Obama said, "Democrats, Republicans, step up to the plate, get it done."
Lawmakers were under extraordinary pressure from powerful outside groups, which gave notice they considered the legislation a "key vote" -- one they would consider when rating members of Congress.
The U.S. Chamber of Commerce said opponents of the bailout would pay for their stance.
"Make no mistake: When the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen," said R. Bruce Josten, the Chamber's top lobbyist, in a letter to members.
The conservative Club for Growth made a similar threat to supporters of the bailout.
"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it -- not me.'"
"We're in this moment, and if we fail to do the right thing, Heaven help us," he said.
If Congress doesn't come around on a bailout, more pressure would fall on the Federal Reserve.
The Fed, which has been providing billions in short-term loans to squeezed banks to help them overcome credit stresses, could keep expanding those loans to encourage lending. And, it could keep working with other central banks to inject billions into financial markets overseas.
It also has the power to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit.
"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.
Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.
All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.
But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.
In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections.
The bill went down, 228-205.
The House Web site was overwhelmed as millions of people sought information about the measure through the day.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.
Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.
In the meantime, Paulson said he would work with other regulators "to use all the tools available to protect our financial system and our economy."
"Our tool kit is substantial but insufficient," he said, indicating the government intended to continue piecemeal fixes while pressing Congress for broader action.
Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.
As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.
The final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.
In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.
Thirteen of the 19 most vulnerable Republicans and Democrats in an Associated Press analysis voted against the bill despite the pleas from Bush and their party leaders to pass it.
In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."
The overriding question was what to do next.
"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."
Republican leader John Boehner, R-Ohio, the minority leader, said he and other Republicans were pained to back the measure, but in light of the potential consequences for the economy and all Americans, "We need to renew our efforts to find a solution that Congress can support."
Sen. Chris Dodd, D-Conn., said there was scant time to reopen legislation that was the product of hard-fought bipartisan negotiations.
"What happened today was not a failure of a bill, it was a failure of will," said Dodd, the Banking Committee chairman. "Our hope is that cooler heads will prevail, people will think about what they did today and recognize that this is not just scare tactics -- it's reality."
A brutal round of partisan finger-pointing followed the vote.
Republicans blamed Pelosi's scathing speech near the close of the debate -- which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets -- for the defeat. It was not much different from her usual tough words against the president and his party.
"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said.
Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.
That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country."
More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.
Indeed, many GOP lawmakers spurned Bush's urgent calls for action. "We have a gun to our head," said Rep. Ginny Brown-Waite, R-Fla., who opposed the bill. "This isn't legislation -- it's extortion."
The two men campaigning to replace Bush watched the situation closely -- from afar -- and demanded action.
In Iowa, Republican John McCain said his rival Barack Obama and congressional Democrats "infused unnecessary partisanship into the process. Now is not the time to fix the blame; it's time to fix the problem."
Obama said, "Democrats, Republicans, step up to the plate, get it done."
Lawmakers were under extraordinary pressure from powerful outside groups, which gave notice they considered the legislation a "key vote" -- one they would consider when rating members of Congress.
The U.S. Chamber of Commerce said opponents of the bailout would pay for their stance.
"Make no mistake: When the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen," said R. Bruce Josten, the Chamber's top lobbyist, in a letter to members.
The conservative Club for Growth made a similar threat to supporters of the bailout.
"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it -- not me.'"
"We're in this moment, and if we fail to do the right thing, Heaven help us," he said.
If Congress doesn't come around on a bailout, more pressure would fall on the Federal Reserve.
The Fed, which has been providing billions in short-term loans to squeezed banks to help them overcome credit stresses, could keep expanding those loans to encourage lending. And, it could keep working with other central banks to inject billions into financial markets overseas.
It also has the power to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit.
Thursday, September 25, 2008
Bush warns 'entire economy is in danger'
WASHINGTON (AP) -- President Bush said Wednesday that lawmakers risk a cascade of wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses if they fail to act on a massive financial rescue plan. "Our entire economy is in danger," he said.
"Without immediate action by Congress, American could slip into a financial panic and a distressing scenario would unfold," Bush said in a 12-minute prime-time address delivered from the White House East Room that he hoped would help rescue his tough-sell bailout package. "Ultimately, our country could experience a long and painful recession."
Said Bush: "We must not let this happen."
The unprecedented $700 billion bailout, which the Bush administration asked Congress last weekend to approve before it adjourns, is meeting with deep skepticism, especially from conservatives in Bush's own Republican Party who are revolting at the high price tag and massive private-sector intervention by government. Though there is general agreement that something must be done to address the spiraling economic problems, Bush has been forced to accept changes almost daily, based on demands from the right and left.
Seeking to explain himself to conservatives, Bush stressed he was reluctant to put taxpayer money on the line to help businesses that had made bad decisions and that the rescue is not aimed at saving individual companies. He tried to address some of the major complaints from Democrats by promising that CEOs of failed companies won't be rewarded, while warning he would draw the line at regulations he determined would hamper economic growth.
"With the situation becoming more precarious by the day, I faced a choice: to step in with dramatic government action or to stand back and allow the irresponsible actions by some to undermine the financial security of all," Bush said.
The president turned himself into an economics professor for much of the address, tracing the origins of the problem back a decade.
But while generally acknowledging risky and poorly thought-out financial decisions at many levels of society, Bush never assigned blame to any specific entity, such as his administration, the quasi-independent mortgage giants Fannie Mae and Freddie Mac or the Wall Street firms that built rising profits on increasingly speculative mortgage-backed securities. Instead, he spoke in terms of investment banks that "found themselves saddled with" the toxic assets the government is now proposing to buy and banks that "found themselves" with questionable balance sheets.
Intensive, personal lobbying of lawmakers is not usually Bush's style as president, unlike some predecessors. He does not often make calls or twist arms on behalf of a legislative priority.
But with the nation facing the biggest financial meltdown in decades, Bush took the unusual step of asking Democrat Barack Obama and Republican John McCain, one of whom will inherit the financial mess in four months, and key congressional leaders of both parties to a White House meeting on Thursday to work on a compromise.
Obama spokesman Bill Burton said the senator would attend the meeting scheduled for the afternoon, and senior McCain advisers said he would, too. The plans of the other invitees were unknown. The White House said that the idea for the joint meeting was McCain's and that aides went about setting it up after Bush and McCain spoke Wednesday afternoon.
In another move welcome at the White House, Obama and McCain issued a joint statement using their own dire language to urge lawmakers to act. The two candidates -- bitterly fighting each other for the White House but coming together over this issue -- said the situation offers a chance for politicians to prove Washington's worth.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said. "This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe."
However, the Oval Office rivals were not putting politics aside entirely. McCain asked Obama to agree to delay their first debate, scheduled for Friday, while Obama said it should go ahead.
White House and administration officials have warned repeatedly in recent days of a coming "financial calamity."
But that has not closed the deal, which for many recalls previous warnings of grave threats from Bush -- such as before the Iraq war -- that did not materialize. So Bush's goal with his speech, his first prime-time address in 377 days, was to frame the debate in layman's terms to show the depths of the crisis, explain how it affects the people's daily lives and inspire the public to demand action from Washington.
He said that more banks could fail, the stock market could plummet and erase retirement accounts, businesses could find it hard to get credit and be forced to close, wiping out jobs for millions of Americans.
He ended on a positive note, predicting lawmakers would "rise to the occasion" and that the nation's economy will overcome "a moment of great challenge."
With so many crises hitting the United States at once, the presidential race has taken a back seat and so has Bush's involvement in politics. Bush canceled a campaign trip to Florida on Wednesday to deal with the problem, the third time in a week that he has scrapped his attendance at out-of-town fundraisers, either because of the market turmoil or Hurricane Ike.
The economic crisis also is almost certain to overshadow the rest of Bush's four months left in office and could hugely impact his legacy. It has been assumed that the long-term view of Bush's presidency was to be shaped largely by Iraq, Hurricane Katrina and the Sept. 11, 2001, attacks. Now, the dire economic problems and the aftermath of the government's attempted solution will certainly be added to that list.
"Without immediate action by Congress, American could slip into a financial panic and a distressing scenario would unfold," Bush said in a 12-minute prime-time address delivered from the White House East Room that he hoped would help rescue his tough-sell bailout package. "Ultimately, our country could experience a long and painful recession."
Said Bush: "We must not let this happen."
The unprecedented $700 billion bailout, which the Bush administration asked Congress last weekend to approve before it adjourns, is meeting with deep skepticism, especially from conservatives in Bush's own Republican Party who are revolting at the high price tag and massive private-sector intervention by government. Though there is general agreement that something must be done to address the spiraling economic problems, Bush has been forced to accept changes almost daily, based on demands from the right and left.
Seeking to explain himself to conservatives, Bush stressed he was reluctant to put taxpayer money on the line to help businesses that had made bad decisions and that the rescue is not aimed at saving individual companies. He tried to address some of the major complaints from Democrats by promising that CEOs of failed companies won't be rewarded, while warning he would draw the line at regulations he determined would hamper economic growth.
"With the situation becoming more precarious by the day, I faced a choice: to step in with dramatic government action or to stand back and allow the irresponsible actions by some to undermine the financial security of all," Bush said.
The president turned himself into an economics professor for much of the address, tracing the origins of the problem back a decade.
But while generally acknowledging risky and poorly thought-out financial decisions at many levels of society, Bush never assigned blame to any specific entity, such as his administration, the quasi-independent mortgage giants Fannie Mae and Freddie Mac or the Wall Street firms that built rising profits on increasingly speculative mortgage-backed securities. Instead, he spoke in terms of investment banks that "found themselves saddled with" the toxic assets the government is now proposing to buy and banks that "found themselves" with questionable balance sheets.
Intensive, personal lobbying of lawmakers is not usually Bush's style as president, unlike some predecessors. He does not often make calls or twist arms on behalf of a legislative priority.
But with the nation facing the biggest financial meltdown in decades, Bush took the unusual step of asking Democrat Barack Obama and Republican John McCain, one of whom will inherit the financial mess in four months, and key congressional leaders of both parties to a White House meeting on Thursday to work on a compromise.
Obama spokesman Bill Burton said the senator would attend the meeting scheduled for the afternoon, and senior McCain advisers said he would, too. The plans of the other invitees were unknown. The White House said that the idea for the joint meeting was McCain's and that aides went about setting it up after Bush and McCain spoke Wednesday afternoon.
In another move welcome at the White House, Obama and McCain issued a joint statement using their own dire language to urge lawmakers to act. The two candidates -- bitterly fighting each other for the White House but coming together over this issue -- said the situation offers a chance for politicians to prove Washington's worth.
"The plan that has been submitted to Congress by the Bush administration is flawed, but the effort to protect the American economy must not fail," they said. "This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe."
However, the Oval Office rivals were not putting politics aside entirely. McCain asked Obama to agree to delay their first debate, scheduled for Friday, while Obama said it should go ahead.
White House and administration officials have warned repeatedly in recent days of a coming "financial calamity."
But that has not closed the deal, which for many recalls previous warnings of grave threats from Bush -- such as before the Iraq war -- that did not materialize. So Bush's goal with his speech, his first prime-time address in 377 days, was to frame the debate in layman's terms to show the depths of the crisis, explain how it affects the people's daily lives and inspire the public to demand action from Washington.
He said that more banks could fail, the stock market could plummet and erase retirement accounts, businesses could find it hard to get credit and be forced to close, wiping out jobs for millions of Americans.
He ended on a positive note, predicting lawmakers would "rise to the occasion" and that the nation's economy will overcome "a moment of great challenge."
With so many crises hitting the United States at once, the presidential race has taken a back seat and so has Bush's involvement in politics. Bush canceled a campaign trip to Florida on Wednesday to deal with the problem, the third time in a week that he has scrapped his attendance at out-of-town fundraisers, either because of the market turmoil or Hurricane Ike.
The economic crisis also is almost certain to overshadow the rest of Bush's four months left in office and could hugely impact his legacy. It has been assumed that the long-term view of Bush's presidency was to be shaped largely by Iraq, Hurricane Katrina and the Sept. 11, 2001, attacks. Now, the dire economic problems and the aftermath of the government's attempted solution will certainly be added to that list.
Wednesday, September 24, 2008
Ahead of the US Bell: Bernanke briefing
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke is scheduled to return to Capitol Hill Wednesday to provide lawmakers an up-to-date assessment of the economy, and again make the case for Congress to speedily enact the $700 billion financial bailout package.
Bernanke's first stop will be Congress' Joint Economic Committee, where he'll discuss the economy, which has been badly bruised by the housing and credit debacles. That hearing is slated to begin at 10 a.m. EDT.
Unemployment has climbed to a five-year high of 6.1 percent as nervous employers cut jobs, and consumers are hunkering down as the bracing tonic of the government's tax rebates disappears.
Oil prices are up about $15 in the past week, momentarily halting a precipitous two-month slide from the all-time high of $147.27 a barrel reached in mid July.
Appearing Tuesday before the Senate Banking Committee, Bernanke warned that the economy could face grave consequences if credit problems persist because Congress doesn't step in and enact the financial bailout. More jobs would be lost, more homes would fall into foreclosure and the economy will contract, he said.
The plan would let the government buy bad mortgages and other troubled assets held by banks and other financial institutions. Getting those debts off their books, should make them more inclined to lend, breaking through the credit jam and reviving the economy. Congressional leaders predict passage but want significant changes to better protect taxpayers.
Later on Wednesday, Bernanke is scheduled to appear before the House Financial Services Committee, along with Treasury Secretary Henry Paulson, to talk about the state of financial markets and make a fresh pitch for the Bush administration's bailout package. That hearing is slated to begin at noon EDT.
Bernanke's first stop will be Congress' Joint Economic Committee, where he'll discuss the economy, which has been badly bruised by the housing and credit debacles. That hearing is slated to begin at 10 a.m. EDT.
Unemployment has climbed to a five-year high of 6.1 percent as nervous employers cut jobs, and consumers are hunkering down as the bracing tonic of the government's tax rebates disappears.
Oil prices are up about $15 in the past week, momentarily halting a precipitous two-month slide from the all-time high of $147.27 a barrel reached in mid July.
Appearing Tuesday before the Senate Banking Committee, Bernanke warned that the economy could face grave consequences if credit problems persist because Congress doesn't step in and enact the financial bailout. More jobs would be lost, more homes would fall into foreclosure and the economy will contract, he said.
The plan would let the government buy bad mortgages and other troubled assets held by banks and other financial institutions. Getting those debts off their books, should make them more inclined to lend, breaking through the credit jam and reviving the economy. Congressional leaders predict passage but want significant changes to better protect taxpayers.
Later on Wednesday, Bernanke is scheduled to appear before the House Financial Services Committee, along with Treasury Secretary Henry Paulson, to talk about the state of financial markets and make a fresh pitch for the Bush administration's bailout package. That hearing is slated to begin at noon EDT.
SMFG seen eyeing Goldman as Japan shops on Wall
TOKYO (Reuters) - Sumitomo Mitsui Financial Group (Tokyo:8316.T - News), Japan's No. 3 bank, plans to invest in Goldman Sachs Group Inc (NYSE:GS - News), Japanese media said, in what would be the third big Japanese investment this week on Wall Street.
SMFG said the bank had no deal in place at the moment but media said it wanted to join the list of Japanese financial firms using the upheaval in the United States to aggressively expand abroad.
The purchases, including a big stake in Morgan Stanley (NYSE:MS - News) and the Asian and European assets of failed Lehman Brothers (Other OTC:LEHMQ.PK - News), are a major turnaround for Japanese banks that were nearly crushed by bad loans just a few years ago and needed massive injections of public cash to stay afloat.
Late on Tuesday, Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News) agreed to invest $5 billion in Goldman Sachs, a big boost for the Wall Street bank from the world's best-known investor, but a Goldman spokesman said he could not confirm the report SMFG would follow suit.
SMFG's investment in Goldman Sachs would total several hundred billion yen, Kyodo news agency said, while the Nikkei business daily said the bank would consider investing up to 100 billion yen ($946 million).
SMFG played down the reports, which both cited unnamed sources.
"At this point, it is not true that we've decided to invest in Goldman Sachs," said SMFG spokeswoman Chika Togawa, who declined to comment further.
In a broader rally of financial stocks, shares of SMFG finished up 1.2 percent at 684,000 yen, compared with a 0.1 percent decline in Tokyo's broad TOPIX share average.
"If they take a big position in Goldman, you can definitely say it would be a positive over the medium- to long-term," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"If they take a big enough position so that they can benefit from Goldman's know-how and human resources, it will be positive."
Once considered too naive and cautious for the high-risk, high-return world of investment banking, cash-rich Japanese firms have largely avoided the huge credit losses of the subprime mortgage crisis, leaving them well-placed to pick up the best assets from the carnage on Wall Street.
Nomura Holdings Inc <8604.
Japan's top bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), has agreed to buy up to 20 percent of Morgan Stanley for as much as $8.5 billion.
Back from a one day market holiday on Tuesday, shares of Nomura rose 5.2 percent to 1,505 yen, and Mitsubishi UFJ gained 4.2 percent to 936 yen. Tokyo's index of bank stocks (-IBNKST - News) rose 1.1 percent.
"Nomura was able to buy Lehman after it filed for bankruptcy so I think investors think that Nomura got Lehman on the cheap," said Nana Otsuki, banking analyst at UBS in Tokyo.
"It kind of seems that MUFG might have been able to get Morgan Stanley cheaper if they had waited a little," she added.
Both Goldman and Morgan Stanley secured approval from the Federal Reserve to become commercial, deposit-taking banks this week, signaling the end of an era for Wall Street's free-wheeling, investment banking model.
Some analysts had previously speculated that Goldman could turn to SMFG for funding, because the two companies have a history of investing in each other.
In 2003, Goldman bought 150 billion yen in convertible preferred shares of SMFG, giving it a much-needed capital injection while in the 1980s, SMFG's predecessor bank helped bail out Goldman.
Sumitomo Mitsui said in June it would pay 500 million pounds ($927 million) to take a 2 percent stake in British bank Barclays Plc (LSE:BARC.L - News).
SMFG's President, Teisuke Kitayama, later told Reuters the two banks would work together on private and commercial banking outside of Japan.
SMFG said the bank had no deal in place at the moment but media said it wanted to join the list of Japanese financial firms using the upheaval in the United States to aggressively expand abroad.
The purchases, including a big stake in Morgan Stanley (NYSE:MS - News) and the Asian and European assets of failed Lehman Brothers (Other OTC:LEHMQ.PK - News), are a major turnaround for Japanese banks that were nearly crushed by bad loans just a few years ago and needed massive injections of public cash to stay afloat.
Late on Tuesday, Warren Buffett's Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News) agreed to invest $5 billion in Goldman Sachs, a big boost for the Wall Street bank from the world's best-known investor, but a Goldman spokesman said he could not confirm the report SMFG would follow suit.
SMFG's investment in Goldman Sachs would total several hundred billion yen, Kyodo news agency said, while the Nikkei business daily said the bank would consider investing up to 100 billion yen ($946 million).
SMFG played down the reports, which both cited unnamed sources.
"At this point, it is not true that we've decided to invest in Goldman Sachs," said SMFG spokeswoman Chika Togawa, who declined to comment further.
In a broader rally of financial stocks, shares of SMFG finished up 1.2 percent at 684,000 yen, compared with a 0.1 percent decline in Tokyo's broad TOPIX share average.
"If they take a big position in Goldman, you can definitely say it would be a positive over the medium- to long-term," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
"If they take a big enough position so that they can benefit from Goldman's know-how and human resources, it will be positive."
Once considered too naive and cautious for the high-risk, high-return world of investment banking, cash-rich Japanese firms have largely avoided the huge credit losses of the subprime mortgage crisis, leaving them well-placed to pick up the best assets from the carnage on Wall Street.
Nomura Holdings Inc <8604.
Japan's top bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), has agreed to buy up to 20 percent of Morgan Stanley for as much as $8.5 billion.
Back from a one day market holiday on Tuesday, shares of Nomura rose 5.2 percent to 1,505 yen, and Mitsubishi UFJ gained 4.2 percent to 936 yen. Tokyo's index of bank stocks (-IBNKST - News) rose 1.1 percent.
"Nomura was able to buy Lehman after it filed for bankruptcy so I think investors think that Nomura got Lehman on the cheap," said Nana Otsuki, banking analyst at UBS in Tokyo.
"It kind of seems that MUFG might have been able to get Morgan Stanley cheaper if they had waited a little," she added.
Both Goldman and Morgan Stanley secured approval from the Federal Reserve to become commercial, deposit-taking banks this week, signaling the end of an era for Wall Street's free-wheeling, investment banking model.
Some analysts had previously speculated that Goldman could turn to SMFG for funding, because the two companies have a history of investing in each other.
In 2003, Goldman bought 150 billion yen in convertible preferred shares of SMFG, giving it a much-needed capital injection while in the 1980s, SMFG's predecessor bank helped bail out Goldman.
Sumitomo Mitsui said in June it would pay 500 million pounds ($927 million) to take a 2 percent stake in British bank Barclays Plc (LSE:BARC.L - News).
SMFG's President, Teisuke Kitayama, later told Reuters the two banks would work together on private and commercial banking outside of Japan.
US Stocks extend fall as Street weighs bailout plan
NEW YORK (AP) -- Financial markets extended their declines Tuesday as investors worried that lawmakers were beginning to doubt the necessity of a broad government bailout for financial institutions as a way to revive ailing credit markets.
Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.
Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained some ground after being hard hit Monday.
After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing -- and also about resistance to the plan in Congress.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.
Traders grew nervous, and sent the stock market lower, as the officials faced questions about whether the government's planned response was appropriate. Sen. Chuck Schumer, D-N.Y., for example, asked whether $150 billion might be adequate to get the program started if investors were told more money could be added if necessary.
The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.
"There's skepticism about whether the $700 billion number is the right number," said Jim Herrick, manager and director of equity trading at Baird & Co.
Bernanke told the Senate Banking Committee Congress risks triggering a recession if it doesn't act on the plan. He said inaction could leave a range of businesses unable to borrow the money while consumers could find it impossible to finance big purchases like cars and homes.
While financial markets showed uneasiness as investors listened to the testimony, there wasn't the level of fear and volatility that dominated Monday's trading.
Demand for short-term Treasurys remained high. The yield on the 3-month T-bill fell to 0.79 percent from 0.88 percent on Monday; last week, it was around zero after investors flooded money into T-bills as the credit markets seized up. That spurred government officials to propose a debt buyout plan.
The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.80 percent from 3.85 percent late Monday.
The dollar, whose decline Monday drove some of the frenetic trading in other markets, regained some of its lost ground against the euro, while gold prices declined after starting the week with a big advance.
The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180. With Monday's 370-point decline, the blue chips are down 534 points, or 4.69 percent, for the week.
Broader stock indicators also fell Tuesday. The Standard & Poor's 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.67, or 1.18 percent, to 2,153.34.
Investors also were watching oil prices after anxiety over the government bailout and a huge short-covering rally pushed crude to the biggest one-day gain.
Light, sweet crude for November delivery fell $2.76 to settle at $106.61 on the New York Mercantile Exchange. The October contract, which expired Monday, surged as much as $25.45 to $130 before falling back to settle at $120.92, an advance of $16.37. While that gain was due to technical market dynamics, the price of oil has moved higher over the past week amid increasing concerns about the U.S. financial system.
"We're going to see this volatility for a while even after this package passes because I think we're still facing a fundamental slowdown in the economy worldwide which is going to have some impact on earnings," said J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners.
Financial stocks finished mixed as some investors worried that the government's plan could prove inadequate to save some banks. Should the government pay too little for assets some banks might be forced to book ruinous write-offs and risk going under.
Bank of America Corp. fell 85 cents, or 2.5 percent, to $33.30, while Washington Mutual Inc. fell 13 cents, or 3.9 percent, to $3.20.
Some energy names lost ground as oil declined. Occidental Petroleum Corp. fell $4.08, or 5 percent, to $77.16 and XTO Energy Inc. declined $1.14, or 2.2 percent, to $51.30.
In addition, some industrial stocks slid as investors worried about the well-being of the global economy. Aluminum maker Alcoa Inc. fell $1.21, or 4.5 percent, to $25.59. Seed company Monsanto Co. fell $4.85, or 4.2 percent, to $112.14.
Some technology stocks advanced as investors looked for areas outside the financial, energy and industrial sectors. Computer chip maker Intel Corp. rose 13 cents to $18.63, while Sprint Nextel Corp. rose 27 cents, or 4.2 percent, to $6.77.
Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to 5.11 billion shares, compared with 5.22 billion traded Monday.
The Russell 2000 index of smaller companies fell 11.25, or 1.56 percent, to 709.19.
Overseas, Britain's FTSE 100 fell 1.91 percent, Germany's DAX index slid 0.64 percent, and France's CAC-40 fell 1.98 percent. Japanese financial markets were closed Tuesday for a national holiday.
Top economic officials updating Congress about efforts to work out a $700 billion financial rescue plan faced a greater degree of second-guessing from lawmakers than some investors had expected. The Dow Jones industrials, which had been higher for the first half of the session ended at the lows of the day, tacking a 161-point loss onto a steep drop from Monday.
Still, trading appeared more orderly than Monday, when investors rushed into hard assets like oil and gold. Meanwhile, demand remained high for 3-month Treasury bills, considered the safest short-term financial asset, while the dollar regained some ground after being hard hit Monday.
After days of intense gyrations in financial markets, investors are anxious about whether the plan to absorb bad mortgages and other risky assets will help steer the economy onto more solid footing -- and also about resistance to the plan in Congress.
Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox testified before lawmakers, who are working alongside others in the Bush administration to complete the details of the bailout.
Traders grew nervous, and sent the stock market lower, as the officials faced questions about whether the government's planned response was appropriate. Sen. Chuck Schumer, D-N.Y., for example, asked whether $150 billion might be adequate to get the program started if investors were told more money could be added if necessary.
The market remains uncertain about how long it will take for the bailout plans to take effect, and assuming they do, how effective they will be.
"There's skepticism about whether the $700 billion number is the right number," said Jim Herrick, manager and director of equity trading at Baird & Co.
Bernanke told the Senate Banking Committee Congress risks triggering a recession if it doesn't act on the plan. He said inaction could leave a range of businesses unable to borrow the money while consumers could find it impossible to finance big purchases like cars and homes.
While financial markets showed uneasiness as investors listened to the testimony, there wasn't the level of fear and volatility that dominated Monday's trading.
Demand for short-term Treasurys remained high. The yield on the 3-month T-bill fell to 0.79 percent from 0.88 percent on Monday; last week, it was around zero after investors flooded money into T-bills as the credit markets seized up. That spurred government officials to propose a debt buyout plan.
The yield on the benchmark 10-year Treasury note, which trades opposite its price, fell to 3.80 percent from 3.85 percent late Monday.
The dollar, whose decline Monday drove some of the frenetic trading in other markets, regained some of its lost ground against the euro, while gold prices declined after starting the week with a big advance.
The Dow fell 161.52, or 1.47 percent, to 10,854.17 after having risen more than 125 points in the early going and then falling by more than 180. With Monday's 370-point decline, the blue chips are down 534 points, or 4.69 percent, for the week.
Broader stock indicators also fell Tuesday. The Standard & Poor's 500 index fell 18.87, or 1.56 percent, to 1,188.22, and the Nasdaq composite index fell 25.67, or 1.18 percent, to 2,153.34.
Investors also were watching oil prices after anxiety over the government bailout and a huge short-covering rally pushed crude to the biggest one-day gain.
Light, sweet crude for November delivery fell $2.76 to settle at $106.61 on the New York Mercantile Exchange. The October contract, which expired Monday, surged as much as $25.45 to $130 before falling back to settle at $120.92, an advance of $16.37. While that gain was due to technical market dynamics, the price of oil has moved higher over the past week amid increasing concerns about the U.S. financial system.
"We're going to see this volatility for a while even after this package passes because I think we're still facing a fundamental slowdown in the economy worldwide which is going to have some impact on earnings," said J. Stephen Lauck, chief executive and portfolio manager at Ashfield Capital Partners.
Financial stocks finished mixed as some investors worried that the government's plan could prove inadequate to save some banks. Should the government pay too little for assets some banks might be forced to book ruinous write-offs and risk going under.
Bank of America Corp. fell 85 cents, or 2.5 percent, to $33.30, while Washington Mutual Inc. fell 13 cents, or 3.9 percent, to $3.20.
Some energy names lost ground as oil declined. Occidental Petroleum Corp. fell $4.08, or 5 percent, to $77.16 and XTO Energy Inc. declined $1.14, or 2.2 percent, to $51.30.
In addition, some industrial stocks slid as investors worried about the well-being of the global economy. Aluminum maker Alcoa Inc. fell $1.21, or 4.5 percent, to $25.59. Seed company Monsanto Co. fell $4.85, or 4.2 percent, to $112.14.
Some technology stocks advanced as investors looked for areas outside the financial, energy and industrial sectors. Computer chip maker Intel Corp. rose 13 cents to $18.63, while Sprint Nextel Corp. rose 27 cents, or 4.2 percent, to $6.77.
Declining issues outnumbered advancers by about 5 to 2 on the New York Stock Exchange, where consolidated volume came to 5.11 billion shares, compared with 5.22 billion traded Monday.
The Russell 2000 index of smaller companies fell 11.25, or 1.56 percent, to 709.19.
Overseas, Britain's FTSE 100 fell 1.91 percent, Germany's DAX index slid 0.64 percent, and France's CAC-40 fell 1.98 percent. Japanese financial markets were closed Tuesday for a national holiday.
Tuesday, September 23, 2008
Bailout debate mulls making Wall Street pay
NEW YORK (Reuters) - The planned $700 billion bailout to shore up the battered U.S. financial system looked set to drag into next week as Washington lawmakers haggled over how exactly they could make Wall Street pay for its rescue.
Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work.
"The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?"'
A day after America's last two big investment banks, Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News), ended Wall Street's swashbuckling era by securing Federal Reserve approval to become commercial banks, all eyes shifted to Washington.
U.S. lawmakers and Bush administration officials were hammering out details of a deal they hope will end the worst U.S. financial crisis since the Great Depression.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke start two-days of congressional hearings on Tuesday to hasten approval of the bailout.
With the economy the No. 1 issue in a U.S. presidential election that is about six weeks away, lawmakers want a plan in place quickly, fearing delay could send markets reeling again.
But with one-third of the U.S. Senate and the entire U.S. House of Representatives up for re-election on November 4, lawmakers will want to sound tough on such hot-button issues as the pay of reckless executives.
"We are not sending a blank check to Wall Street," House Speaker Nancy Pelosi said after holding bipartisan talks.
With so many ideas being floated in Washington on Monday, one congressional aide who asked not to be identified likened the scene to a "Turkish bazaar of public policy ideas."
The crisis has unsettled world markets, and Group of Seven finance ministers and central bank heads promised "heightened close cooperation" to safeguard the global economy.
The latest jitters came after the deal late Sunday scrapped the investment bank model synonymous with Wall Street, ensuring Goldman Sachs Group Inc and Morgan Stanley will avoid the fate of rivals that collapsed or were bought in the brutal meltdown of recent weeks.
Morgan Stanley went a step further, striking a deal with Japan's largest bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), on Monday to spend as much as $8.5 billion for about one-fifth of the prestigious 73-year-old investment bank, sending Morgan's shares higher before closing down.
ANGER AT BAILOUT
After Monday's talks, U.S. Rep. Barney Frank, a top Democrat, said the U.S. government would take equity in the companies seeking a bailout. But the U.S. Treasury is against that idea, sources close to Treasury told Reuters.
The White House said it agreed to an oversight board to monitor the bailout, which Democrats had pushed for. And Frank said there was also agreement that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But lawmakers and Treasury officials were at odds on the emotional issue of whether executives at the companies in need of rescue must agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.
Earlier, U.S. President George W. Bush said, "Failure to act would have broad consequences far beyond Wall Street."
But U.S. Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, voiced outrage at the notion of any bailout without a cap on executive pay.
"The (Bush) administration's plan ... would enrich the Wall Street executives whose reckless investments caused the financial crisis," the powerful California Democrat said. "The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."
Even some Republicans came out against the bailout.
Alabama Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he feared the bailout was "neither workable nor comprehensive."
"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.
Sen. Chuck Hagel, a Nebraska Republican, told Reuters after a meeting of fellow Senate Banking Committee members, "I suspect there will be opposition. We're not there. We don't even have a product yet."
South Carolina Republican Sen. Jim DeMint called the Bush plan "completely unacceptable."
The uncertainty caused stocks to lose most of the gains seen on Friday, when word of the plan sparked Wall Street's best one-day gain since 1987. The S&P 500 index (^SPX - News) dropped 3.8 percent.
Buoyed by the dollar's near 2 percent decline, U.S. crude oil futures soared $16.37 to settle at $120.92, the biggest ever jump in a trading session. At one point, oil was up a stunning $25.45, or 24.3 percent.
In a crisis that has lurched from issue to issue since the U.S. economy first showed weakness and home prices began to tumble last year, prompting a credit crunch and the collapse of investment banking, some wondered where it would end.
"The thing that scares me is the breadth of it," said Robert MacMahon, managing director for restructuring at GE (NYSE:GE - News) Corporate Lending.
Democrats, who control both chambers of Congress, pushed for changes to the plan on concerns that it could expand the powers of the executive branch without adequate oversight -- a frequent Democratic criticism of the Bush administration.
GLOBAL CRISIS
The crisis is threatening global markets. Central banks from Europe to Japan sought to shore up banks by injecting money into the banking system. (ID:nLM163631). Even in the oil-rich Gulf region, the crisis was felt.
The United Arab Emirates Central Bank launched its first-ever emergency funding facility to help fund banks as global lending between institutions shriveled.
The Fed's agreement to convert the once high-flying Goldman and Morgan Stanley investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets and avoid a deep recession.
Both Goldman and Morgan will now face a thicket of new regulations, which will bolster their resources but also curb the spectacular profit growth that made investment bankers among the highest paid in the nation.
The rescue came together after seismic shifts on Wall Street that saw Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News) file for bankruptcy, Merrill Lynch & Co Inc (NYSE:MER - News) agree to sell itself to Bank of America (NYSE:BAC - News), and the Fed stage an $85 billion rescue of American International Group Inc (NYSE:AIG - News).
AIG shares gained 23 percent on Monday on reports its investors were hatching a plan to prevent the insurer from falling into government ownership, by repaying the Fed's loan.
Goldman and Morgan Stanley were the last of the big five investment banks that shaped 20 years of Wall Street history after Bear Stearns collapsed earlier this year.
Stocks and the U.S. dollar tumbled on Monday as emerging details of the plan left many players skeptical that the rescue, which would give powers to the U.S. Treasury Department to buy up toxic mortgage-related debt from financial groups, would work.
"The big detail we want to know is how is the government going to buy these securities, and what they will pay, how that reverse auction will work," said Giri Cherukuri, head trader at OakBrook Investments LLC in Lisle, Illinois. "And the big question is, 'Will this bring us out of the woods?"'
A day after America's last two big investment banks, Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News), ended Wall Street's swashbuckling era by securing Federal Reserve approval to become commercial banks, all eyes shifted to Washington.
U.S. lawmakers and Bush administration officials were hammering out details of a deal they hope will end the worst U.S. financial crisis since the Great Depression.
U.S. Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke start two-days of congressional hearings on Tuesday to hasten approval of the bailout.
With the economy the No. 1 issue in a U.S. presidential election that is about six weeks away, lawmakers want a plan in place quickly, fearing delay could send markets reeling again.
But with one-third of the U.S. Senate and the entire U.S. House of Representatives up for re-election on November 4, lawmakers will want to sound tough on such hot-button issues as the pay of reckless executives.
"We are not sending a blank check to Wall Street," House Speaker Nancy Pelosi said after holding bipartisan talks.
With so many ideas being floated in Washington on Monday, one congressional aide who asked not to be identified likened the scene to a "Turkish bazaar of public policy ideas."
The crisis has unsettled world markets, and Group of Seven finance ministers and central bank heads promised "heightened close cooperation" to safeguard the global economy.
The latest jitters came after the deal late Sunday scrapped the investment bank model synonymous with Wall Street, ensuring Goldman Sachs Group Inc and Morgan Stanley will avoid the fate of rivals that collapsed or were bought in the brutal meltdown of recent weeks.
Morgan Stanley went a step further, striking a deal with Japan's largest bank, Mitsubishi UFJ Financial Group Inc (Tokyo:8306.T - News), on Monday to spend as much as $8.5 billion for about one-fifth of the prestigious 73-year-old investment bank, sending Morgan's shares higher before closing down.
ANGER AT BAILOUT
After Monday's talks, U.S. Rep. Barney Frank, a top Democrat, said the U.S. government would take equity in the companies seeking a bailout. But the U.S. Treasury is against that idea, sources close to Treasury told Reuters.
The White House said it agreed to an oversight board to monitor the bailout, which Democrats had pushed for. And Frank said there was also agreement that the plan should minimize the number of Americans who will lose their homes to foreclosure.
But lawmakers and Treasury officials were at odds on the emotional issue of whether executives at the companies in need of rescue must agree to limits to their compensation.
With details still in dispute, Frank said the legislation could take until next week to complete.
Earlier, U.S. President George W. Bush said, "Failure to act would have broad consequences far beyond Wall Street."
But U.S. Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, voiced outrage at the notion of any bailout without a cap on executive pay.
"The (Bush) administration's plan ... would enrich the Wall Street executives whose reckless investments caused the financial crisis," the powerful California Democrat said. "The taxpayer is being asked to risk billions to protect the bonuses of investment bankers."
Even some Republicans came out against the bailout.
Alabama Sen. Richard Shelby, the top Republican on the Senate Banking Committee, said he feared the bailout was "neither workable nor comprehensive."
"It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted," he said.
Sen. Chuck Hagel, a Nebraska Republican, told Reuters after a meeting of fellow Senate Banking Committee members, "I suspect there will be opposition. We're not there. We don't even have a product yet."
South Carolina Republican Sen. Jim DeMint called the Bush plan "completely unacceptable."
The uncertainty caused stocks to lose most of the gains seen on Friday, when word of the plan sparked Wall Street's best one-day gain since 1987. The S&P 500 index (^SPX - News) dropped 3.8 percent.
Buoyed by the dollar's near 2 percent decline, U.S. crude oil futures soared $16.37 to settle at $120.92, the biggest ever jump in a trading session. At one point, oil was up a stunning $25.45, or 24.3 percent.
In a crisis that has lurched from issue to issue since the U.S. economy first showed weakness and home prices began to tumble last year, prompting a credit crunch and the collapse of investment banking, some wondered where it would end.
"The thing that scares me is the breadth of it," said Robert MacMahon, managing director for restructuring at GE (NYSE:GE - News) Corporate Lending.
Democrats, who control both chambers of Congress, pushed for changes to the plan on concerns that it could expand the powers of the executive branch without adequate oversight -- a frequent Democratic criticism of the Bush administration.
GLOBAL CRISIS
The crisis is threatening global markets. Central banks from Europe to Japan sought to shore up banks by injecting money into the banking system. (ID:nLM163631). Even in the oil-rich Gulf region, the crisis was felt.
The United Arab Emirates Central Bank launched its first-ever emergency funding facility to help fund banks as global lending between institutions shriveled.
The Fed's agreement to convert the once high-flying Goldman and Morgan Stanley investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets and avoid a deep recession.
Both Goldman and Morgan will now face a thicket of new regulations, which will bolster their resources but also curb the spectacular profit growth that made investment bankers among the highest paid in the nation.
The rescue came together after seismic shifts on Wall Street that saw Lehman Brothers Holdings Inc (Other OTC:LEHMQ.PK - News) file for bankruptcy, Merrill Lynch & Co Inc (NYSE:MER - News) agree to sell itself to Bank of America (NYSE:BAC - News), and the Fed stage an $85 billion rescue of American International Group Inc (NYSE:AIG - News).
AIG shares gained 23 percent on Monday on reports its investors were hatching a plan to prevent the insurer from falling into government ownership, by repaying the Fed's loan.
Goldman and Morgan Stanley were the last of the big five investment banks that shaped 20 years of Wall Street history after Bear Stearns collapsed earlier this year.
Congress, Bush team agree on some bailout terms
WASHINGTON (AP) -- Scrambling for a swift deal on the $700 billion bailout for failing financial firms, key Democrats and Bush administration officials agreed Monday to include mortgage help for beleaguered homeowners but wrangled over other issues, including "golden parachutes" for executives who benefit from the unprecedented rescue.
Democrats demanded that the measure limit pay packages for executives of companies helped by the biggest financial rescue since the Great Depression. The administration was balking at that, and also at a proposal by Democrats to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments.
President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."
Rep. Barney Frank, the House Financial Services Committee chairman, said the administration essentially had forced Congress to the negotiating table by creating an expectation in financial markets that a massive bailout was on the way.
"By the declaration that they made, by sending this proposal, I think we have to recognize the reality that we don't have a choice now of debating whether this is a good or a bad thing," said Frank, D-Mass, who was leading negotiations with Treasury Secretary Henry Paulson.
"We have gotten closer," Frank said, but "We're not there yet."
Congressional aides said the House could act on a bailout bill as early as Wednesday, but leaders emerged from a closed-door meeting late Monday with no firm timetable for action.
House Speaker Nancy Pelosi, D-Calif., said only that leaders were working to give the markets confidence that "this legislation will pass, and it will pass soon."
However, Wall Street wasn't comforted by the progress of the talks. The Dow Jones industrials plummeted 372 points, oil prices soared $25 a barrel at one point and gold prices surged anew as investors searched for a safe place to park their money. And despite encouraging talk on Capitol Hill, lawmakers on both the right and left were already assailing the deal-in-progress.
The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.
In one expansion of its original proposal, the administration is asking for broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.
Sen. Chris Dodd, D-Conn., the Banking Committee chairman, has proposed granting that request; Frank said he was working to limit the bailout to mortgage-related investments.
Differences remained with the administration on Democrats' proposal that the government take an ownership stake in the troubled companies it bails out so that taxpayers could benefit from future profits. Frank said Paulson had accepted the idea in principle, but several staff aides at work on the plan said there was no agreement yet on how the concept would work.
Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to mandate that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.
As for tottering financial firms, there still were divisions on which would be helped and what kind of assets the government could buy as part of the bailout.
And in a fresh sign of a challenging road ahead, Sen. Richard C. Shelby of Alabama, the top Banking Committee Republican, blasted the emerging plan as "neither workable nor comprehensive."
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said.
Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both and huddled privately to express their concerns.
A partisan battle was brewing over the bankruptcy provision for homeowners' mortgage payments, a key Democratic demand.
"We'll see how hard they fight -- it's something we care about," Frank said.
Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson is said to be concerned that such curbs would discourage companies from participating.
"Some element of that has to be in this package," said Sen. Mel Martinez, R-Fla.
Investors were uncertain just how successful the administration's plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.
Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policymaking process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."
Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."
The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.
That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
Democrats demanded that the measure limit pay packages for executives of companies helped by the biggest financial rescue since the Great Depression. The administration was balking at that, and also at a proposal by Democrats to let judges rewrite mortgages to lower bankrupt homeowners' monthly payments.
President Bush prodded Congress during the day to pass the rescue plan quickly, declaring, "The whole world is watching."
Rep. Barney Frank, the House Financial Services Committee chairman, said the administration essentially had forced Congress to the negotiating table by creating an expectation in financial markets that a massive bailout was on the way.
"By the declaration that they made, by sending this proposal, I think we have to recognize the reality that we don't have a choice now of debating whether this is a good or a bad thing," said Frank, D-Mass, who was leading negotiations with Treasury Secretary Henry Paulson.
"We have gotten closer," Frank said, but "We're not there yet."
Congressional aides said the House could act on a bailout bill as early as Wednesday, but leaders emerged from a closed-door meeting late Monday with no firm timetable for action.
House Speaker Nancy Pelosi, D-Calif., said only that leaders were working to give the markets confidence that "this legislation will pass, and it will pass soon."
However, Wall Street wasn't comforted by the progress of the talks. The Dow Jones industrials plummeted 372 points, oil prices soared $25 a barrel at one point and gold prices surged anew as investors searched for a safe place to park their money. And despite encouraging talk on Capitol Hill, lawmakers on both the right and left were already assailing the deal-in-progress.
The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.
In one expansion of its original proposal, the administration is asking for broad power to buy up virtually any kind of bad asset -- including credit card debt or car loans -- from any financial institution in the U.S. or abroad in order to stabilize markets.
Sen. Chris Dodd, D-Conn., the Banking Committee chairman, has proposed granting that request; Frank said he was working to limit the bailout to mortgage-related investments.
Differences remained with the administration on Democrats' proposal that the government take an ownership stake in the troubled companies it bails out so that taxpayers could benefit from future profits. Frank said Paulson had accepted the idea in principle, but several staff aides at work on the plan said there was no agreement yet on how the concept would work.
Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to mandate that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.
As for tottering financial firms, there still were divisions on which would be helped and what kind of assets the government could buy as part of the bailout.
And in a fresh sign of a challenging road ahead, Sen. Richard C. Shelby of Alabama, the top Banking Committee Republican, blasted the emerging plan as "neither workable nor comprehensive."
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said.
Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both and huddled privately to express their concerns.
A partisan battle was brewing over the bankruptcy provision for homeowners' mortgage payments, a key Democratic demand.
"We'll see how hard they fight -- it's something we care about," Frank said.
Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson is said to be concerned that such curbs would discourage companies from participating.
"Some element of that has to be in this package," said Sen. Mel Martinez, R-Fla.
Investors were uncertain just how successful the administration's plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.
Bush said, "Obviously, there will be differences over some details, and we will have to work through them. That is an understandable part of the policymaking process." But he also said, "It would not be understandable if members of Congress sought to use this emergency legislation to pass unrelated provisions, or to insist on provisions that would undermine the effectiveness of the plan."
Treasury spokeswoman Brookly McLaughlin said, "We are confident that we can get a bill done this week."
The fast-moving negotiations between the administration and Congress unfolded a day after the government approved a request by investment houses Goldman Sachs and Morgan Stanley to change their status to bank holding companies.
That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
Oil prices make biggest single-day price jump ever on bailout unease, contract expiration
NEW YORK (AP) -- Oil prices briefly spiked more than $25 a barrel Monday, shattering the record for the biggest one-day gain as unease about the government's $700 billion bailout plan pummeled the dollar and spurred investors to buy safe-haven assets. An expiring crude contract added fuel to the frenzied rally.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.
Still, the rally, which shattered crude's previous one-day price jump of $10.75, set June 6, showed the intensity of emotion in the market. The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The November crude contract, which became the front-month contract at the end of Monday's session, settled at $109.37, up $6.62, still a very sharp gain.
The severity of the price move shocked veteran market participants and prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame.
Acting CFTC Chairman Walter Lukken said the agency's surveillance and enforcement staff was analyzing the price spike "to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain."
Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.
"When people sense that someone is short, it's like blood on the streets. It just accelerates the rally," Flynn said.
In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other safe-haven commodities also rallied, underscoring investors' uncertainly about the direction of the economy and their fear of more turmoil ahead.
"We're off to the races again," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "There's a renewed scramble for commodities because of a general weakness in the dollar."
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The rally came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
"They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer," said Matt Zeman, head trader at LaSalle Futures in Chicago. "Right now it's fear and anxiety driving people who want tangible assets."
The 15-nation euro rose to $1.4796 in afternoon trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.
"That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude," said Andrew Lebow, senior vice president and broker at MF Global in New York.
Crude's resurgence could halt steadily sliding pump prices. A gallon a regular shed 1.8 cents overnight to a new national average of $3.739, according to auto club AAA, the Oil Price Information Service and Wright Express.
But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations. Though pump prices have eased from record levels above $4 a gallon, they remain expensive, and more softening in the economy would likely further curtail energy use in the world's thirstiest consumer.
Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.
"We've already seen that the world can't afford oil at these prices. If it keeps going up, demand will drop off again," Flynn said.
However, he cautioned that oil's future direction hinged on the outcome of the government bailout plan and its effect on the U.S. economy.
"If the dollar keeps getting whacked and everybody panics, then we are going up again," he said.
U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation, House Speaker Nancy Pelosi said Sunday.
Treasury Secretary Henry Paulson pushed lawmakers, who received the package on Saturday, to approve the proposal as soon as possible.
The Federal Reserve also announced late Sunday it granted a request by investment banks Goldman Sachs and Morgan Stanley to change their status to bank holding companies, a move that will allow the two institutions to open commercial banking subsidiaries, greatly bolstering their resources.
In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon. Natural gas futures rose 9.5 cents to settle at $7.943 per 1,000 cubic feet.
In London, November Brent crude rose $6.43 to settle at $106.04 a barrel on the ICE Futures exchange.
Light, sweet crude for October delivery jumped as much as $25.45 to $130 a barrel on the New York Mercantile Exchange before falling back to settle at $120.92, up $16.37. The contract expired at the end of the day, adding to the volatility as traders rushed to cover positions; the October price began accelerating sharply in the last hour of regular trading, a common occurrence when a contract is about to go off the board.
Still, the rally, which shattered crude's previous one-day price jump of $10.75, set June 6, showed the intensity of emotion in the market. The Nymex temporarily halted electronic crude oil trading after prices breached the $10 daily trading limit. Trading resumed seconds later after the daily limit was increased.
The November crude contract, which became the front-month contract at the end of Monday's session, settled at $109.37, up $6.62, still a very sharp gain.
The severity of the price move shocked veteran market participants and prompted the U.S. Commodity Futures Trading Commission to launch an investigation into whether illegal manipulation was to blame.
Acting CFTC Chairman Walter Lukken said the agency's surveillance and enforcement staff was analyzing the price spike "to ensure that no one is taking advantage of the current stresses facing our financial marketplace for their own manipulative gain."
Phil Flynn, analyst and oil trader with Alaron Trading Corp. in Chicago, said the late-session surge in oil appeared to be the result of a large investment fund scrambling to cover their short positions, or bets that prices would fall.
"When people sense that someone is short, it's like blood on the streets. It just accelerates the rally," Flynn said.
In other trading, gold prices shot up more than $44.30 to settle at $909 an ounce, and other safe-haven commodities also rallied, underscoring investors' uncertainly about the direction of the economy and their fear of more turmoil ahead.
"We're off to the races again," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. "There's a renewed scramble for commodities because of a general weakness in the dollar."
Crude has gained about $30 in a dramatic four-day rally that has at least temporarily halted oil's steep two-month slide below $100. At this rate, crude is within striking distance of its all-time record of $147.27, reached in July.
The rally came as energy traders grappled with the implications of the government's proposed initiative to stem the U.S. financial crisis by absorbing billions of dollars of banks' bad mortgage-related securities. Anxiety over the plan also sent stocks sharply lower Monday; the credit markets were calmer than they were last week, but still showing the effects of investors' nervousness.
Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another wave of safe-haven buying in investments like commodities.
"They're going to have to continue auctioning off a whole lot of Treasurys to finance these projects, so the dollar is going to suffer," said Matt Zeman, head trader at LaSalle Futures in Chicago. "Right now it's fear and anxiety driving people who want tangible assets."
The 15-nation euro rose to $1.4796 in afternoon trading, up from the $1.4470 on Friday. A weak greenback was a catalyst for the commodities boom of the past year, and analysts said large investment funds were expected to pour money back into the sector.
"That trade was very successful in past so if the dollar keeps weakening, a lot people are going to want to own hard assets like crude," said Andrew Lebow, senior vice president and broker at MF Global in New York.
Crude's resurgence could halt steadily sliding pump prices. A gallon a regular shed 1.8 cents overnight to a new national average of $3.739, according to auto club AAA, the Oil Price Information Service and Wright Express.
But there is still much uncertainty about what impact the U.S. rescue plan will have on energy demand. Oil's run-up near $150 a barrel in July and a weak U.S. economy has forced Americans to cut back on their driving and led business to scale down operations. Though pump prices have eased from record levels above $4 a gallon, they remain expensive, and more softening in the economy would likely further curtail energy use in the world's thirstiest consumer.
Given the dire economic outlook, some analysts questioned whether oil prices would keep rising.
"We've already seen that the world can't afford oil at these prices. If it keeps going up, demand will drop off again," Flynn said.
However, he cautioned that oil's future direction hinged on the outcome of the government bailout plan and its effect on the U.S. economy.
"If the dollar keeps getting whacked and everybody panics, then we are going up again," he said.
U.S. congressional leaders endorsed the plan's main thrust, saying passage might occur in a matter of days. But they also want independent oversight, protections for homeowners and constraints on excessive executive compensation, House Speaker Nancy Pelosi said Sunday.
Treasury Secretary Henry Paulson pushed lawmakers, who received the package on Saturday, to approve the proposal as soon as possible.
The Federal Reserve also announced late Sunday it granted a request by investment banks Goldman Sachs and Morgan Stanley to change their status to bank holding companies, a move that will allow the two institutions to open commercial banking subsidiaries, greatly bolstering their resources.
In other Nymex trading, heating oil futures rose 14.52 cents to settle at $3.043 a gallon, while gasoline futures rose 10.41 cents to settle at $2.7038 a gallon. Natural gas futures rose 9.5 cents to settle at $7.943 per 1,000 cubic feet.
In London, November Brent crude rose $6.43 to settle at $106.04 a barrel on the ICE Futures exchange.
Monday, September 22, 2008
U.S. Stocks Fall, Led by Regional Banks; Regions, M&I Tumble
Sept. 22 (Bloomberg) -- U.S. stocks fell following the biggest two-day rally since 1987, dragged down by regional banks, on concern smaller lenders are unlikely to profit from the government's $700 billion bailout of the financial system.
Regions Financial Corp., Alabama's biggest bank, tumbled 17 percent and Marshall & Ilsley Corp., Wisconsin's largest, dropped 21 percent after Merrill Lynch & Co. said the Treasury's proposal may accelerate credit losses at small and mid-sized banks by forcing them to write down real-estate assets. D.R. Horton Inc. and Lennar Corp. led declines among all 15 homebuilders in Standard & Poor's indexes. Ford Motor Co. and American Airlines' parent AMR Corp. lost more than 5 percent as oil had its biggest four-day gain since 2000.
The S&P 500 lost 17.85, or 1.4 percent, to 1,237.23 at 10:36 a.m. in New York. The Dow Jones Industrial Average slid 131.02 to 11,257.42. The Nasdaq Composite Index decreased 28.63, or 1.3 percent, to 2,245.27. Three stocks retreated for each that rose on the New York Stock Exchange.
``They really haven't changed the economic fundamentals at all,'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $18 billion. ``We still have a debt-laden U.S. consumer facing falling employment. That's going to be overhanging our economy for some time.''
Regionals Pare Rally
The S&P 500 Regional Banks Index slumped 7.4 percent today as all 12 of its companies declined. The group rallied 101 percent from its July 15 low through Sept. 19, more than three times a measure of large-cap financial companies in the index. Zions Bancorp., the Salt Lake City-based lender with operations in 10 Western states, led regionals with a 163 percent advance, while Columbus, Ohio-based Huntington Bancshares Inc. climbed 143 percent.
The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the S&P 500 up 8.5 percent in the final two days of last week.
For Barclays Global Investors' Russ Koesterich, Treasury Secretary Henry Paulson's move to shift the burden of subprime- mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''
Two-Day Rally
The S&P 500's rally at the end of last week followed a rout that began when Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Bank of America Corp. and the U.S. took control of American International Group Inc.
The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders.
More than $500 billion in losses at banks stemming from the first nationwide drop in home prices since the 1930s has pushed the S&P 500 15 percent lower in 2008. U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg.
Bailout Widened
The Bush administration widened the scope of its plan to include assets other than mortgage-related securities. The change to potentially allow purchases of instruments such as car loans and credit-card debt may force an increase in the size of the package as the legislation proceeds through Congress.
Morgan Stanley rallied $3.23 to $30.44. Mitsubishi UFJ will buy 10 percent to 20 percent of the securities firm and decide on a price after conducting due diligence, the Japanese bank said in a statement.
Goldman Sachs Group Inc. slipped 74 cents to $129.06. The announcement that the two firms will become banks paves the way for Goldman and Morgan Stanley, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using borrowed money -- the leverage that led to the undoing of Lehman and Bear Stearns Cos.
Regions Financial Corp., Alabama's biggest bank, tumbled 17 percent and Marshall & Ilsley Corp., Wisconsin's largest, dropped 21 percent after Merrill Lynch & Co. said the Treasury's proposal may accelerate credit losses at small and mid-sized banks by forcing them to write down real-estate assets. D.R. Horton Inc. and Lennar Corp. led declines among all 15 homebuilders in Standard & Poor's indexes. Ford Motor Co. and American Airlines' parent AMR Corp. lost more than 5 percent as oil had its biggest four-day gain since 2000.
The S&P 500 lost 17.85, or 1.4 percent, to 1,237.23 at 10:36 a.m. in New York. The Dow Jones Industrial Average slid 131.02 to 11,257.42. The Nasdaq Composite Index decreased 28.63, or 1.3 percent, to 2,245.27. Three stocks retreated for each that rose on the New York Stock Exchange.
``They really haven't changed the economic fundamentals at all,'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $18 billion. ``We still have a debt-laden U.S. consumer facing falling employment. That's going to be overhanging our economy for some time.''
Regionals Pare Rally
The S&P 500 Regional Banks Index slumped 7.4 percent today as all 12 of its companies declined. The group rallied 101 percent from its July 15 low through Sept. 19, more than three times a measure of large-cap financial companies in the index. Zions Bancorp., the Salt Lake City-based lender with operations in 10 Western states, led regionals with a 163 percent advance, while Columbus, Ohio-based Huntington Bancshares Inc. climbed 143 percent.
The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the S&P 500 up 8.5 percent in the final two days of last week.
For Barclays Global Investors' Russ Koesterich, Treasury Secretary Henry Paulson's move to shift the burden of subprime- mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''
Two-Day Rally
The S&P 500's rally at the end of last week followed a rout that began when Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Bank of America Corp. and the U.S. took control of American International Group Inc.
The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders.
More than $500 billion in losses at banks stemming from the first nationwide drop in home prices since the 1930s has pushed the S&P 500 15 percent lower in 2008. U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg.
Bailout Widened
The Bush administration widened the scope of its plan to include assets other than mortgage-related securities. The change to potentially allow purchases of instruments such as car loans and credit-card debt may force an increase in the size of the package as the legislation proceeds through Congress.
Morgan Stanley rallied $3.23 to $30.44. Mitsubishi UFJ will buy 10 percent to 20 percent of the securities firm and decide on a price after conducting due diligence, the Japanese bank said in a statement.
Goldman Sachs Group Inc. slipped 74 cents to $129.06. The announcement that the two firms will become banks paves the way for Goldman and Morgan Stanley, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using borrowed money -- the leverage that led to the undoing of Lehman and Bear Stearns Cos.
Goldman, Morgan Stanley Bring Down Curtain on an Era
Sept. 22 (Bloomberg) -- The Wall Street that shaped the financial world for two decades ended last night, when Goldman Sachs Group Inc. and Morgan Stanley concluded there is no future in remaining investment banks now that investors have determined the model is broken.
The Federal Reserve's approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.
``The decision marks the end of Wall Street as we have known it,'' said William Isaac, a former chairman of the Federal Deposit Insurance Corp. ``It's too bad.''
Goldman, whose alumni include Henry Paulson, the Treasury Secretary presiding over a $700 billion bank bailout, and Morgan Stanley, a product of the 1933 Glass-Steagall Act that cleaved investment and commercial banks, insisted they didn't need to change course, even as their shares plunged and their borrowing costs soared last week.
By then, it was too late. As financial markets gyrated -- the Dow Jones Industrial Average whipsawed 1,000 points in the week's last two days -- and clients defected, executives at the two firms concluded they had no choice. The Federal Reserve Board met at 9 p.m. yesterday and considered applications delivered that day, said Michelle Smith, a spokeswoman for the central bank. The decision was unanimous, she said.
`Blood in Water'
``There's blood in the water in the industry and the sharks are circling,'' Peter Kovalski, who helps oversee about $10 billion at Alpine Woods Capital Investors LLC, said at the end of last week. ``It all comes down to perception and the current trust within the community.''
Morgan Stanley rose 16 percent to $31.60 as of 9:31 a.m. in New York Stock Exchange composite trading. Goldman advanced 3 percent to $133.37.
Wall Street hasn't had such a shakeup since the 1980s, when firms including Morgan Stanley and Bear Stearns Cos. went public and London's financial markets were altered forever with the so- called Big Bang reforms implemented in 1986. Bear Stearns disappeared in March, when it was bought by JPMorgan Chase & Co.
The announcement paves the way for the two New York-based firms, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using money borrowed in the bond market -- the leverage that led to the undoing of Bear Stearns and Lehman.
Depositors Rule
Morgan Stanley has taken $15.7 billion of writedowns and losses on mortgage-related securities and other types of loans since the credit crunch started last year. Goldman's tally stands at about $4.9 billion. While both companies have remained profitable and avoided money-losing quarters suffered by Lehman and Merrill Lynch, their revenue from sales and trading and investment banking has been declining this year.
``Deposit-banking is king right now,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``It's the only meaningful critical-mass way to make money.''
Mitsubishi UFJ Financial Group Inc., Japan's largest bank, said today it will pay up to 900 billion yen ($8.4 billion) for as much as a fifth of Morgan Stanley. The deal would mark the biggest overseas acquisition by a Japanese financial company, according to data compiled by Bloomberg.
Building Deposit Base
The Japanese bank will become ``a valuable partner as we transition to a bank holding company and build our bank services and deposit base,'' Morgan Stanley Chief Executive Officer John Mack said in a statement today.
The deal announced today came after Morgan Stanley held talks last week to pursue a merger with Wachovia Corp. That deal became less likely now that Morgan Stanley is becoming a bank holding company, said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
Morgan Stanley, the second-biggest securities firm until this week, had $36 billion of deposits and 3 million retail accounts at the end of August. The company plans to convert its Utah-based industrial bank into a national bank.
``This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position,'' Chairman and CEO Mack, 63, said in a statement last night. ``It also offers the marketplace certainty about the strength of our financial position and our access to funding.''
Citigroup, JPMorgan
Goldman, the largest and most profitable of the U.S. securities firms, will become the fourth-largest bank holding company. The firm already has more than $20 billion in customer deposits in two subsidiaries and is creating a new one, GS Bank USA, that will have more than $150 billion of assets, making it one of the 10 largest banks in the U.S., the firm said in a statement last night. The firm will increase its deposit base ``through acquisitions and organically,'' Goldman said.
``Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,'' Lloyd Blankfein, 54, Goldman's chairman and CEO, said in the statement.
The Washington-based Fed is the primary regulator of bank- holding companies, which are firms that own or control banks. Citigroup Inc., Bank of America Corp. and JPMorgan are bank- holding companies regulated by the Fed.
Less Risky
Securities firms, by contrast, had been regulated by the Securities and Exchange Commission. The SEC's future becomes dimmer with the change in Goldman and Morgan Stanley's structures.
``You can't kiss goodbye to the last two important investment banks without noting that the house is empty,'' said David Becker, a former SEC general counsel who is now a partner at Cleary Gottlieb Steen & Hamilton in Washington. ``It's a downward spiral where the less significant the population you regulate, the less your available resources.''
The change is also likely to lead to less risk-taking by the companies and possibly lower pay for their employees. Both Goldman and Morgan Stanley held more than $20 of assets for every $1 of shareholder equity, making them dependent on market funding to operate.
Goldman, in particular, has been remarkable for the high bonuses it pays to its employees. Goldman's CEO and two co- presidents were each paid more than $67 million last year.
``They're going to have to protect their deposit bases by law, and the days of high leverage are gone,'' said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who wrote ``Wall Street: A History.'' ``The days of the big bonuses are gone.''
The Federal Reserve's approval of their bid to become banks ends the ascendancy of the securities firms, 75 years after Congress separated them from deposit-taking lenders, and caps weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.
``The decision marks the end of Wall Street as we have known it,'' said William Isaac, a former chairman of the Federal Deposit Insurance Corp. ``It's too bad.''
Goldman, whose alumni include Henry Paulson, the Treasury Secretary presiding over a $700 billion bank bailout, and Morgan Stanley, a product of the 1933 Glass-Steagall Act that cleaved investment and commercial banks, insisted they didn't need to change course, even as their shares plunged and their borrowing costs soared last week.
By then, it was too late. As financial markets gyrated -- the Dow Jones Industrial Average whipsawed 1,000 points in the week's last two days -- and clients defected, executives at the two firms concluded they had no choice. The Federal Reserve Board met at 9 p.m. yesterday and considered applications delivered that day, said Michelle Smith, a spokeswoman for the central bank. The decision was unanimous, she said.
`Blood in Water'
``There's blood in the water in the industry and the sharks are circling,'' Peter Kovalski, who helps oversee about $10 billion at Alpine Woods Capital Investors LLC, said at the end of last week. ``It all comes down to perception and the current trust within the community.''
Morgan Stanley rose 16 percent to $31.60 as of 9:31 a.m. in New York Stock Exchange composite trading. Goldman advanced 3 percent to $133.37.
Wall Street hasn't had such a shakeup since the 1980s, when firms including Morgan Stanley and Bear Stearns Cos. went public and London's financial markets were altered forever with the so- called Big Bang reforms implemented in 1986. Bear Stearns disappeared in March, when it was bought by JPMorgan Chase & Co.
The announcement paves the way for the two New York-based firms, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using money borrowed in the bond market -- the leverage that led to the undoing of Bear Stearns and Lehman.
Depositors Rule
Morgan Stanley has taken $15.7 billion of writedowns and losses on mortgage-related securities and other types of loans since the credit crunch started last year. Goldman's tally stands at about $4.9 billion. While both companies have remained profitable and avoided money-losing quarters suffered by Lehman and Merrill Lynch, their revenue from sales and trading and investment banking has been declining this year.
``Deposit-banking is king right now,'' said David Hendler, an analyst at CreditSights Inc. in New York. ``It's the only meaningful critical-mass way to make money.''
Mitsubishi UFJ Financial Group Inc., Japan's largest bank, said today it will pay up to 900 billion yen ($8.4 billion) for as much as a fifth of Morgan Stanley. The deal would mark the biggest overseas acquisition by a Japanese financial company, according to data compiled by Bloomberg.
Building Deposit Base
The Japanese bank will become ``a valuable partner as we transition to a bank holding company and build our bank services and deposit base,'' Morgan Stanley Chief Executive Officer John Mack said in a statement today.
The deal announced today came after Morgan Stanley held talks last week to pursue a merger with Wachovia Corp. That deal became less likely now that Morgan Stanley is becoming a bank holding company, said Tony Plath, a finance professor at the University of North Carolina at Charlotte.
Morgan Stanley, the second-biggest securities firm until this week, had $36 billion of deposits and 3 million retail accounts at the end of August. The company plans to convert its Utah-based industrial bank into a national bank.
``This new bank holding structure will ensure that Morgan Stanley is in the strongest possible position,'' Chairman and CEO Mack, 63, said in a statement last night. ``It also offers the marketplace certainty about the strength of our financial position and our access to funding.''
Citigroup, JPMorgan
Goldman, the largest and most profitable of the U.S. securities firms, will become the fourth-largest bank holding company. The firm already has more than $20 billion in customer deposits in two subsidiaries and is creating a new one, GS Bank USA, that will have more than $150 billion of assets, making it one of the 10 largest banks in the U.S., the firm said in a statement last night. The firm will increase its deposit base ``through acquisitions and organically,'' Goldman said.
``Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,'' Lloyd Blankfein, 54, Goldman's chairman and CEO, said in the statement.
The Washington-based Fed is the primary regulator of bank- holding companies, which are firms that own or control banks. Citigroup Inc., Bank of America Corp. and JPMorgan are bank- holding companies regulated by the Fed.
Less Risky
Securities firms, by contrast, had been regulated by the Securities and Exchange Commission. The SEC's future becomes dimmer with the change in Goldman and Morgan Stanley's structures.
``You can't kiss goodbye to the last two important investment banks without noting that the house is empty,'' said David Becker, a former SEC general counsel who is now a partner at Cleary Gottlieb Steen & Hamilton in Washington. ``It's a downward spiral where the less significant the population you regulate, the less your available resources.''
The change is also likely to lead to less risk-taking by the companies and possibly lower pay for their employees. Both Goldman and Morgan Stanley held more than $20 of assets for every $1 of shareholder equity, making them dependent on market funding to operate.
Goldman, in particular, has been remarkable for the high bonuses it pays to its employees. Goldman's CEO and two co- presidents were each paid more than $67 million last year.
``They're going to have to protect their deposit bases by law, and the days of high leverage are gone,'' said Charles Geisst, a finance professor at Manhattan College in Riverdale, New York, who wrote ``Wall Street: A History.'' ``The days of the big bonuses are gone.''
Federal Reserve changes status of Goldman Sachs and Morgan Stanley to bank holding companies
WASHINGTON (AP) -- The Federal Reserve said Sunday it had granted a request by the country's last two major investment banks -- Goldman Sachs and Morgan Stanley -- to change their status to bank holding companies.
The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.
The change continued the biggest restructuring on Wall Street since the Great Depression.
The request for the change to bank holding companies was granted by a unanimous vote of the Fed's board of governors during a late Sunday meeting in Washington.
The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation's bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
Shares of both institutions had come under pressure ever since the bankruptcy filing last week by investment bank Lehman Brothers and the forced sale of investment bank Merrill Lynch to Bank of America.
Investors feared that the last remaining independent investment banks would not be able to survive in their current form. There had been speculation that both institutions would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
The decision by the two giants of finance to get approval from the Fed to change their own status represented another dramatic development in one of the most turbulent periods in Wall Street history.
In the surprise announcement late Sunday, the central bank said that to provide increase funding support to the two institutions during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.
The Fed said its action would take final effect after a five-day waiting period required under law.
The decision means that the Goldman and Morgan Stanley will be able not only to set up commercial bank subsidiaries to take deposits, giving them a major resource base, but they will also have the same access as other commercial banks to the Fed's emergency loan program.
After the collapse of Bear Stearns and its forced sale to JP Morgan Chase last March, the Fed used powers it had been granted during the Great Depression to extend its emergency loans to investment banks as well as commercial banks. However, that extension was granted on a temporary basis.
But as commercial banks, Goldman Sachs and Morgan Stanley will have permanent access to emergency loans from the Fed, the same privilege that other commercial banks enjoy.
The action by the Fed's board of governors in Washington came on a day when the Bush administration continued to campaign for quick congressional approval of its request for authority to use $700 billion to purchase a mountain of bad mortgage debt held by financial companies. The effort represented the boldest action yet aimed at stabilizing chaotic financial markets.
Democrats in Congress said they would demand provisions in the bailout measure to protect people in danger of losing their homes as well as seeking to cap executive compensation at firms who get to unload their bad mortgages debt onto the government. But the proposal was expected to win quick congressional passage because both parties are concerned about the adverse reaction in financial markets should the measure look like it was being delayed.
The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.
The change continued the biggest restructuring on Wall Street since the Great Depression.
The request for the change to bank holding companies was granted by a unanimous vote of the Fed's board of governors during a late Sunday meeting in Washington.
The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation's bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
Shares of both institutions had come under pressure ever since the bankruptcy filing last week by investment bank Lehman Brothers and the forced sale of investment bank Merrill Lynch to Bank of America.
Investors feared that the last remaining independent investment banks would not be able to survive in their current form. There had been speculation that both institutions would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
The decision by the two giants of finance to get approval from the Fed to change their own status represented another dramatic development in one of the most turbulent periods in Wall Street history.
In the surprise announcement late Sunday, the central bank said that to provide increase funding support to the two institutions during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.
The Fed said its action would take final effect after a five-day waiting period required under law.
The decision means that the Goldman and Morgan Stanley will be able not only to set up commercial bank subsidiaries to take deposits, giving them a major resource base, but they will also have the same access as other commercial banks to the Fed's emergency loan program.
After the collapse of Bear Stearns and its forced sale to JP Morgan Chase last March, the Fed used powers it had been granted during the Great Depression to extend its emergency loans to investment banks as well as commercial banks. However, that extension was granted on a temporary basis.
But as commercial banks, Goldman Sachs and Morgan Stanley will have permanent access to emergency loans from the Fed, the same privilege that other commercial banks enjoy.
The action by the Fed's board of governors in Washington came on a day when the Bush administration continued to campaign for quick congressional approval of its request for authority to use $700 billion to purchase a mountain of bad mortgage debt held by financial companies. The effort represented the boldest action yet aimed at stabilizing chaotic financial markets.
Democrats in Congress said they would demand provisions in the bailout measure to protect people in danger of losing their homes as well as seeking to cap executive compensation at firms who get to unload their bad mortgages debt onto the government. But the proposal was expected to win quick congressional passage because both parties are concerned about the adverse reaction in financial markets should the measure look like it was being delayed.
Thursday, September 18, 2008
Morgan Stanley seeks deal with Wachovia
NEW YORK (AP) -- Morgan Stanley's stock price plunged again Thursday as the investment bank scrambled to strike a major deal or raise more cash that will assuage investors and prevent more damage to its free-falling shares.
John Mack, the No. 2 U.S. investment bank's chief executive, has reached out to China's Citic Group overnight about a possible investment, according to a person familiar with the talks. Morgan Stanley is also considering a combination with retail bank Wachovia Corp. and an investment from Singapore Investment Corp., one of the world's biggest sovereign wealth funds, said the person, who spoke on the condition of anonymity because the discussions were still ongoing,
Morgan Stanley shares have fallen 38 percent in the past week amid unprecedented turmoil in the global banking system. Investors remain anxious after Lehman Brothers filed for bankruptcy protection, Merrill Lynch & Co. was forced into a sale to Bank of America Corp. and the federal government bailed out insurer American International Group.
Mack made telephone calls late Wednesday to Wachovia executives and also to Citigroup Inc. CEO Vikram Pandit, exploring all options to help restore confidence in the investment house, the person said. Citigroup was not interested in a tie-up, but talks remain ongoing with Wachovia, he said.
Wachovia declined to comment about a potential deal, while Citigroup confirmed that Mack and Pandit spoke.
Spokesmen for GIC and Citic could not immediately be reached for comment.
Mack isn't the only CEO looking to strike some kind of a deal or capital infusion. Washington Mutual Inc., which has lost billions and seen its shares plummet due to subprime mortgage exposure, is selling itself or looking for a deep-pocketed investor.
And overnight in London, Britain's Lloyds TSB Lloyds TSB announced a $21.85-billion deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.
The U.S. government, which helped organize an $85 billion bailout of insurer AIG on Tuesday, also sought to break the grip of worsening global credit crisis by pumping billions into financial markets in a concerted action with central banks of other countries. The Federal Reserve Bank of New York, in two operations, injected $55 billion into temporary reserves in the United States, a move aimed to help ease a strained financial system in danger of freezing up.
The move helped steady Wall Street after the previous session's massive rout. However, market participants still moved into safe assets such as gold and Treasury bills, a sign that they remain skittish during the most troubling period for the world's financial system in most investors' memory.
AP Economics Writer Jeannine Aversa in Washington and AP Business Writer Tim Paradis in New York contributed to this report.
John Mack, the No. 2 U.S. investment bank's chief executive, has reached out to China's Citic Group overnight about a possible investment, according to a person familiar with the talks. Morgan Stanley is also considering a combination with retail bank Wachovia Corp. and an investment from Singapore Investment Corp., one of the world's biggest sovereign wealth funds, said the person, who spoke on the condition of anonymity because the discussions were still ongoing,
Morgan Stanley shares have fallen 38 percent in the past week amid unprecedented turmoil in the global banking system. Investors remain anxious after Lehman Brothers filed for bankruptcy protection, Merrill Lynch & Co. was forced into a sale to Bank of America Corp. and the federal government bailed out insurer American International Group.
Mack made telephone calls late Wednesday to Wachovia executives and also to Citigroup Inc. CEO Vikram Pandit, exploring all options to help restore confidence in the investment house, the person said. Citigroup was not interested in a tie-up, but talks remain ongoing with Wachovia, he said.
Wachovia declined to comment about a potential deal, while Citigroup confirmed that Mack and Pandit spoke.
Spokesmen for GIC and Citic could not immediately be reached for comment.
Mack isn't the only CEO looking to strike some kind of a deal or capital infusion. Washington Mutual Inc., which has lost billions and seen its shares plummet due to subprime mortgage exposure, is selling itself or looking for a deep-pocketed investor.
And overnight in London, Britain's Lloyds TSB Lloyds TSB announced a $21.85-billion deal to take over struggling HBOS PLC, Britain's biggest mortgage lender.
The U.S. government, which helped organize an $85 billion bailout of insurer AIG on Tuesday, also sought to break the grip of worsening global credit crisis by pumping billions into financial markets in a concerted action with central banks of other countries. The Federal Reserve Bank of New York, in two operations, injected $55 billion into temporary reserves in the United States, a move aimed to help ease a strained financial system in danger of freezing up.
The move helped steady Wall Street after the previous session's massive rout. However, market participants still moved into safe assets such as gold and Treasury bills, a sign that they remain skittish during the most troubling period for the world's financial system in most investors' memory.
AP Economics Writer Jeannine Aversa in Washington and AP Business Writer Tim Paradis in New York contributed to this report.
Wednesday, September 17, 2008
US Stocks sink over 3 percent on bank fears
NEW YORK (Reuters) - Stocks plunged more than 3 percent on Wednesday as a spike in inter-bank lending rates fanned fears about the health of global markets and the U.S. rescue of American International Group failed to reassure the market.
Anxious investors spent the morning wondering which company might be next to come under serious strain due to tight credit conditions, prompting them to dump financial shares across the board. The S&P 500 financial index (^GSPF - News) slid nearly 8 percent.
Morgan Stanley (NYSE:MS - News) shares tumbled 32.5 percent to $19.37 as investors worried whether it would survive as an independent investment bank in the current environment.
Shares of the other remaining U.S. investment bank, Goldman Sachs(NYSE:GS - News), plunged 21.5 percent to $104.39 after several brokerages cut their profit outlooks for the firm.
The S&P 500 sank 4.2 percent to 1,163.02, its lowest level since May 2005, while the Dow has shed 700 points since the start of the week.
"The fear is, 'Who is next?"' said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say, 'Who is the next likely target that we can put a short on?' and that spreads continuous fear."
Strategists said the damage threatens to go beyond the financial services sector, hurting the corporate profit outlook and spreading panic among increasingly overstretched consumers.
"What does tomorrow bring? Will it start spilling over into consumers? Will there be runs on the banks? There's a million things going on," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets.
"Hopefully, we'll see a capitulation soon when everybody throws in the towel," he added.
The Dow Jones industrial average (DJI:^DJI - News) was down 352.06 points, or 3.18 percent, at 10,706.96. The Standard & Poor's 500 Index (^SPX - News) was down 45.15 points, or 3.72 percent, at 1,168.44. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 80.16 points, or 3.63 percent, at 2,127.74.
Also worrying investors was news on Tuesday that the Reserve Primary Fund, a money-market mutual fund whose assets have fallen 65 percent in recent weeks, fell below $1 a share in net asset value because of losses on debt issued by the now bankrupt Lehman Brothers Holdings (NYSE:LEH - News; NYSE:LEH - News).
"Every investor is now questioning each and every investment they have anywhere on the planet," said John Schloegel, vice president of investment strategies at Capital Cities Asset Management in Austin, Texas.
"It's leading them to sell anything that has any type of risk -- to sell first. It's an unusual situation we are in right now."
A break below important technical support for both the Dow and S&P 500 accelerated the market's slide, traders said.
The bank-to-bank cost of borrowing overnight dollars fell more than a percentage point on Wednesday, but the premium paid for the greenback and sterling over three months swelled, fanning fears that the supply of credit might be drying up in the global financial system.
The drop in Morgan Stanley's shares came despite the bank's posting quarterly results after the bell on Tuesday that beat Wall Street's estimates.
The government agreed on Tuesday to rescue AIG (NYSE:AIG - News) through an emergency $85 billion loan. The insurance company's shares were off almost 46 percent at $2.04 on the NYSE.
Banks frantically seeking dollar funds have been stonewalled by others increasingly reluctant to lend amid uncertainty and nervousness following the collapse of Lehman Brothers and the bailout of AIG.
Anxious investors spent the morning wondering which company might be next to come under serious strain due to tight credit conditions, prompting them to dump financial shares across the board. The S&P 500 financial index (^GSPF - News) slid nearly 8 percent.
Morgan Stanley (NYSE:MS - News) shares tumbled 32.5 percent to $19.37 as investors worried whether it would survive as an independent investment bank in the current environment.
Shares of the other remaining U.S. investment bank, Goldman Sachs(NYSE:GS - News), plunged 21.5 percent to $104.39 after several brokerages cut their profit outlooks for the firm.
The S&P 500 sank 4.2 percent to 1,163.02, its lowest level since May 2005, while the Dow has shed 700 points since the start of the week.
"The fear is, 'Who is next?"' said John O'Brien, senior vice president at MKM Partners LLC in Cleveland. "It almost feels like people scour the books and say, 'Who is the next likely target that we can put a short on?' and that spreads continuous fear."
Strategists said the damage threatens to go beyond the financial services sector, hurting the corporate profit outlook and spreading panic among increasingly overstretched consumers.
"What does tomorrow bring? Will it start spilling over into consumers? Will there be runs on the banks? There's a million things going on," said Angel Mata, managing director of listed equity trading at Stifel Nicolaus Capital Markets.
"Hopefully, we'll see a capitulation soon when everybody throws in the towel," he added.
The Dow Jones industrial average (DJI:^DJI - News) was down 352.06 points, or 3.18 percent, at 10,706.96. The Standard & Poor's 500 Index (^SPX - News) was down 45.15 points, or 3.72 percent, at 1,168.44. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was down 80.16 points, or 3.63 percent, at 2,127.74.
Also worrying investors was news on Tuesday that the Reserve Primary Fund, a money-market mutual fund whose assets have fallen 65 percent in recent weeks, fell below $1 a share in net asset value because of losses on debt issued by the now bankrupt Lehman Brothers Holdings (NYSE:LEH - News; NYSE:LEH - News).
"Every investor is now questioning each and every investment they have anywhere on the planet," said John Schloegel, vice president of investment strategies at Capital Cities Asset Management in Austin, Texas.
"It's leading them to sell anything that has any type of risk -- to sell first. It's an unusual situation we are in right now."
A break below important technical support for both the Dow and S&P 500 accelerated the market's slide, traders said.
The bank-to-bank cost of borrowing overnight dollars fell more than a percentage point on Wednesday, but the premium paid for the greenback and sterling over three months swelled, fanning fears that the supply of credit might be drying up in the global financial system.
The drop in Morgan Stanley's shares came despite the bank's posting quarterly results after the bell on Tuesday that beat Wall Street's estimates.
The government agreed on Tuesday to rescue AIG (NYSE:AIG - News) through an emergency $85 billion loan. The insurance company's shares were off almost 46 percent at $2.04 on the NYSE.
Banks frantically seeking dollar funds have been stonewalled by others increasingly reluctant to lend amid uncertainty and nervousness following the collapse of Lehman Brothers and the bailout of AIG.
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