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.
Tuesday, September 23, 2008
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.
Tips for 23rd Sep 2008
Sell BAJAJAUTO Below @ 607 Target 590-572 to 562.
Sell CMC Below @ 495 Target 473-449 to 437.
Sell HDFCBANK Below @ 1292 Target 1254-1210 to 1187.
Sell HINDALCO Below @ 110 Target 105-99 to 96.
Sell INFOSYS Below @ 1620 Target 1569-1512 to 1482.
Sell ITC Below @ 193 Target 184-174 to 169.
Sell KOTAKBANK Below @ 618 target 581-543 to 524.
Sell NTPC Below @ 181 Target 174-167 to 163.
Sell ONGC Below @ 1054 Target 1010-963 to 938.
Sell PNB Below @ 515 Target 494-472 to 461.
Sell RELCAPITAL Below @ 1266 Target 1201-1132 to 1096.
Sell RELIANCE Below @ 2038 Target 1938-1838 to 1786.
Sell SBI Below @ 1559 Target 1513-1461 to 1434.
Sell CMC Below @ 495 Target 473-449 to 437.
Sell HDFCBANK Below @ 1292 Target 1254-1210 to 1187.
Sell HINDALCO Below @ 110 Target 105-99 to 96.
Sell INFOSYS Below @ 1620 Target 1569-1512 to 1482.
Sell ITC Below @ 193 Target 184-174 to 169.
Sell KOTAKBANK Below @ 618 target 581-543 to 524.
Sell NTPC Below @ 181 Target 174-167 to 163.
Sell ONGC Below @ 1054 Target 1010-963 to 938.
Sell PNB Below @ 515 Target 494-472 to 461.
Sell RELCAPITAL Below @ 1266 Target 1201-1132 to 1096.
Sell RELIANCE Below @ 2038 Target 1938-1838 to 1786.
Sell SBI Below @ 1559 Target 1513-1461 to 1434.
Monday, September 22, 2008
G7 countries pledge to safeguard financial system
PARIS: Group of Seven nations welcomed the $700 billion US markets bailout plan on Monday but there was no sign that other governments saw any need to follow Washington in setting up rescue packages of their own.
"We will be in a telephone conference to consider and very probably express our support for the American plan," French Economy Minister Christine Lagarde told RMC radio in an interview, without giving more details.
US Treasury Secretary Henry Paulson said on Sunday he was "aggressively" encouraging other countries to put in place similar schemes to the plan announced on Friday which sent global stock markets soaring.
The world's big central banks have already joined in a coordinated move with the US Federal Reserve to pump hundreds of billions of dollars in extra funding into markets to prevent the world financial system from seizing up in a credit freeze.
But US allies within the G7 club of wealthy nations appeared more guarded about the need to follow Washington's lead and set up funds to buy bad debts from struggling banks.
"At the moment, I don't think Japan needs to launch a program similar to that of the United States," Japanese Vice Finance Minister Kazuyuki Sugimoto told reporters in Tokyo, echoing similar comments from France, Britain, Germany and the European Union.
"The government thinks measures like those taken in the United States are not necessary (in Germany)," German government spokesman Ulrich Wilhelm told a regular news conference.
However contacts have been intense as government leaders try to come up with a unified response to a financial crisis widely seen as the worst since the 1930s.
French President Nicolas Sarkozy, whose country holds the rotating EU presidency is visiting the United States this week for a United Nations meeting and is expected to talk to US officials about the crisis.
British Prime Minister Gordon Brown said last week he was in touch with Sarkozy about formulating a joint EU response and a government spokesman said on Britain would take "whatever action is necessary in the interest of financial stability."
European leaders have repeatedly said that their banks were better balanced than their US counterparts and do not face the dramatic problems that led to the collapse of Lehman Brothers and the forced sale or rescue of other Wall Street institutions.
"We will be in a telephone conference to consider and very probably express our support for the American plan," French Economy Minister Christine Lagarde told RMC radio in an interview, without giving more details.
US Treasury Secretary Henry Paulson said on Sunday he was "aggressively" encouraging other countries to put in place similar schemes to the plan announced on Friday which sent global stock markets soaring.
The world's big central banks have already joined in a coordinated move with the US Federal Reserve to pump hundreds of billions of dollars in extra funding into markets to prevent the world financial system from seizing up in a credit freeze.
But US allies within the G7 club of wealthy nations appeared more guarded about the need to follow Washington's lead and set up funds to buy bad debts from struggling banks.
"At the moment, I don't think Japan needs to launch a program similar to that of the United States," Japanese Vice Finance Minister Kazuyuki Sugimoto told reporters in Tokyo, echoing similar comments from France, Britain, Germany and the European Union.
"The government thinks measures like those taken in the United States are not necessary (in Germany)," German government spokesman Ulrich Wilhelm told a regular news conference.
However contacts have been intense as government leaders try to come up with a unified response to a financial crisis widely seen as the worst since the 1930s.
French President Nicolas Sarkozy, whose country holds the rotating EU presidency is visiting the United States this week for a United Nations meeting and is expected to talk to US officials about the crisis.
British Prime Minister Gordon Brown said last week he was in touch with Sarkozy about formulating a joint EU response and a government spokesman said on Britain would take "whatever action is necessary in the interest of financial stability."
European leaders have repeatedly said that their banks were better balanced than their US counterparts and do not face the dramatic problems that led to the collapse of Lehman Brothers and the forced sale or rescue of other Wall Street institutions.
Future Logistics is said to be in talks with strategic players such as Li & Fung, Logista and CMST for 15% stake.
Kishore Biyani's Future Logistics, a part of his Future Group, is planning to raise $40 million through a private placement. The firm plans to invest these funds in automation, mechanisation and technology in setting up state of the warehouses across the country. According to a report, the firm plans to dilute around 15% stake for $40 million placement, valuing the firm at $257 million.
Future Logistics is also said to be in talks with strategic players such as Li and Fung Group, European logistics and distribution operator Logista, and Chinese logistics enterprises solutions provider CMST. Interestingly Future Group also manages a $350 million logistics PE fund called Indospace Logistics Partners.
Future Group entered into the logistics business last year investing Rs 400 crore. Future Logistics has sales of Rs150 crore in FY08, and is targeting Rs1,500 crore by FY11. Future also plans to start its own transportation business by end of this year.
Logistics space has attracted a lot of interest from the private equity players in India. Private equity giant Blackstone has invested in Allcargo Logistics, in which New Vernon has also invested. IDFC Private Equity and Old Lane have backed Delhi-based firm Sical Logistics. Some of the others include Transport Corporation of India and Kotak-backed DRS Logistics.
Some new players are also planning an entry into this segment whose market value is expected to be $60 billion. All of these are entering this sector to ride on the expected boom of the reatil sector in India, which itself is feeling a little slowdon now. Infrastructure major Gammon India has set up a logistics company and plans to invest Rs 300 crore. Deccan Aviation's Capt GR Gopinath is also planning to enter this segment and is planning to raise around $50 million, for which it has given the mandate to Edelweiss Capital.
Future Logistics is also said to be in talks with strategic players such as Li and Fung Group, European logistics and distribution operator Logista, and Chinese logistics enterprises solutions provider CMST. Interestingly Future Group also manages a $350 million logistics PE fund called Indospace Logistics Partners.
Future Group entered into the logistics business last year investing Rs 400 crore. Future Logistics has sales of Rs150 crore in FY08, and is targeting Rs1,500 crore by FY11. Future also plans to start its own transportation business by end of this year.
Logistics space has attracted a lot of interest from the private equity players in India. Private equity giant Blackstone has invested in Allcargo Logistics, in which New Vernon has also invested. IDFC Private Equity and Old Lane have backed Delhi-based firm Sical Logistics. Some of the others include Transport Corporation of India and Kotak-backed DRS Logistics.
Some new players are also planning an entry into this segment whose market value is expected to be $60 billion. All of these are entering this sector to ride on the expected boom of the reatil sector in India, which itself is feeling a little slowdon now. Infrastructure major Gammon India has set up a logistics company and plans to invest Rs 300 crore. Deccan Aviation's Capt GR Gopinath is also planning to enter this segment and is planning to raise around $50 million, for which it has given the mandate to Edelweiss Capital.
US Stocks fall 2 percent on bailout unease, oil
NEW YORK (Reuters) - Stocks extended losses on Monday, sending the benchmark S&P 500 and the Nasdaq down more than 2 percent, as investors worried that passage of a proposed $700 billion bailout to resuscitate financial markets might hit a speed bump in Congress.
Another headwind for the market was a resurgence in the price of crude oil, which shot up $4.40 to $109.11 a barrel as the dollar slid.
Shares of financial services companies led the broader market's decline, which also hit other economically sensitive sectors like retailers and home builders. The S&P financial index dropped 6.3 percent.
Members of Congress have called for changes in the plan. But President Bush said in a statement: "Failure to act would have broad consequences far beyond Wall Street." Delay would threaten small businesses and home owners, Bush said.
The Dow Jones industrial average dropped 220.46 points, or 1.94 percent, to 11,167.98. The Standard & Poor's 500 Index shed 27.84 points, or 2.22 percent, to 1,227.24. The Nasdaq Composite Index lost 48.26 points, or 2.12 percent, to 2,225.64.
Another headwind for the market was a resurgence in the price of crude oil, which shot up $4.40 to $109.11 a barrel as the dollar slid.
Shares of financial services companies led the broader market's decline, which also hit other economically sensitive sectors like retailers and home builders. The S&P financial index dropped 6.3 percent.
Members of Congress have called for changes in the plan. But President Bush said in a statement: "Failure to act would have broad consequences far beyond Wall Street." Delay would threaten small businesses and home owners, Bush said.
The Dow Jones industrial average dropped 220.46 points, or 1.94 percent, to 11,167.98. The Standard & Poor's 500 Index shed 27.84 points, or 2.22 percent, to 1,227.24. The Nasdaq Composite Index lost 48.26 points, or 2.12 percent, to 2,225.64.
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.''
R-Power gets 1,800 acres for Andhra project
Reliance Power, an Anil Dhirubhai Ambani group company, has got possession of 1,800-acre land required for its power plant in Krishnapattnam.
The land will be sufficient to begin work for the main plant and related facilities, and a further 700-acre land for residential and ash ponds will be acquired soon.
The land was acquired by the Andhra Pradesh government and handed over to a special purpose vehicle created for Coastal Andhra Power, said a source.
The SPVs are created by the central government to facilitate faster implementation of Ultra Mega Power Project, each with a capacity of 4,000 MW.
These SPVs, which will get government and regulatory approvals, are transferred to companies after they won the bidding. Thus, CAPL is now a wholly-owned subsidiary of Reliance Power.
The acquisition is in sharp contrast to the problems faced by the Tata Group at Singur. Tata Motors [Get Quote] have stopped work at the plant because of protest against the land acquisition
The land will be sufficient to begin work for the main plant and related facilities, and a further 700-acre land for residential and ash ponds will be acquired soon.
The land was acquired by the Andhra Pradesh government and handed over to a special purpose vehicle created for Coastal Andhra Power, said a source.
The SPVs are created by the central government to facilitate faster implementation of Ultra Mega Power Project, each with a capacity of 4,000 MW.
These SPVs, which will get government and regulatory approvals, are transferred to companies after they won the bidding. Thus, CAPL is now a wholly-owned subsidiary of Reliance Power.
The acquisition is in sharp contrast to the problems faced by the Tata Group at Singur. Tata Motors [Get Quote] have stopped work at the plant because of protest against the land acquisition
Post market 22 Sep 2008
Profit selling coupled with concerns arising from higher crude oil
prices dragged the market lower today, 22 September 2008. The
30-share BSE Sensex provisionally ended 89.55 points lower. All the
sectoral indices on BSE, barring FMCG and metal indices, were
negative.
At 15:30 IST, the crude oil was trading at $106.04 on the New York
Mercantile Exchange (NYMEX).
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, and Taiwan were up by
between 0.31% to 7.77%. However, Singapore's Straits Times was down
0.58%.
However, uncertainty about the workings of the government's $700
billion bank bailout drove US stock index futures lower, suggesting
the US market may open lower today, 22 September 2008. The S&P 500
futures were down 4.90 points, Nasdaq 100 futures were down 4.50
points and the Dow futures were down 28 points. The drop in stock
index futures came on the heels of Friday's (19 September 2008)
massive rally in stocks worldwide -- the largest ever one-day
advance as measured by market value.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
European markets, which opened after Indian market, recovered from
initial slide. Key indices in UK, France, and Germany were down
0.03% to 0.20%.
As per provisional data, the BSE 30-share Sensex was down 89.55
points or 0.64% to 13,952.77. The Sensex rose 178.72 points at
day's high of 14,221.04, hit in early trade. The index shed 124.84
points at the day's low of 13,917.48, hit in mid-afternoon trade.
The indices were choppy throughout the session. The BSE Sensex
showed a gap of 303.56 points between session's high and low.
The S&P CNX Nifty was down 36.10 points or 0.85% to 4209.15.
The BSE Mid-Cap index was down 0.51% at 5,202.21 and the BSE
Small-Cap index was down 0.49% at 6,185.28.
The market breadth was negative on BSE with 1217 shares advancing
as compared to 1376 that declined. 70 shares remained unchanged.
BSE clocked a turnover of Rs 4871 crore compared with Rs 6,226.77
on Friday, 19 September 2008.
Satyam Computer (down 4.62% at Rs 353), Jaiprakash Associates (down
4.14% at Rs 129.65), Maruti Suzuki (down 4% at Rs 712), and Ranbaxy
Laboratories (3.61% at Rs 343.95), were the prominent losers from
the Sensex pack.
ACC (up 3.74% at Rs 627.65), ITC (up 1.91% at Rs 194.70), Hindustan
Unilever (up 1.65% at Rs 249.20), Bharti Airtel (up 0.87% at Rs
806.05), Housing Development Finance Corporation (up 0.72% at Rs
2325), and Grasim Industries (up 0.66% at Rs 1930), were the major
gainers from the Sensex pack.
India's largest state-run oil explorer Oil & Natural Gas
Corporation (ONGC) dropped 1.41% to Rs 1057. As per reports, ONGC
Videsh (OVL), the overseas investment arm of ONGC, may take a $1
billion short-term loan to partly fund the $2.8 billion acquisition
of London Stock Exchange-listed Imperial Energy.
India's largest aluminium producer Hindalco Industries fell 3.41%
at 109. The company's Rs 5050 crore rights share offering opened
for subscription today, 22 September 2008. The sale in a ratio of
three shares for every seven held at Rs 96 a share will close on 10
October 2008. The company aims to use the funds to repay a bridge
loan it had taken to buy Canada's Novelis in 2007.
World's sixth largest steel maker Tata Steel rose 2.38% at 491. As
per reports, Tata Steel, through its indirect subsidiary TS Global
Minerals Holdings, has purchased a 7.3% stake in Riversdale, which
has a coking coal project in Mozambique.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) declined 1.20% at Rs 2027.30.
The stock accounts for 15.09% of Sensex's weightage.
The company began production of crude oil from its KG-D6 block of
the Krishna Godavari basin on 17 September 2008 and the firm plans
to commercially release gas from the well by January 2009. The
company aims to supply at least 40% of the nation's requirement of
oil and gas and become one of the world's largest deep-water
developers. According to reports, the company can technically sell
its Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's largest private sector bank by market capitalisation ICICI
Bank rose 0.25% at Rs 629.70.
India's second largest software exporter by sales Infosys
Technologies was flat at Rs 1624.
India's largest engineering and construction firm by revenue Larsen
& Toubro fell 3.04% at Rs 2565 on reports company is planning to
sell as many as four business units that have not registered
significant growth.
Telecom solutions provider Tulip Telecom surged 8.87% to Rs 1,012
after the company bagged a project worth Rs 95 crore for supply and
installation of network equipment across Madhya Pradesh.
Offshore services provider Dolphin Offshore Enterprises India
surged 3.81% to Rs 252.05 after the company won two separate
contracts worth $16 million for charter hire of its diving support
vessels.
Automobile components maker Amtek India surged 1.90% to Rs 72.25 on
reports private equity firm Chrys Capital has acquired additional
4% stake in the company.
prices dragged the market lower today, 22 September 2008. The
30-share BSE Sensex provisionally ended 89.55 points lower. All the
sectoral indices on BSE, barring FMCG and metal indices, were
negative.
At 15:30 IST, the crude oil was trading at $106.04 on the New York
Mercantile Exchange (NYMEX).
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, and Taiwan were up by
between 0.31% to 7.77%. However, Singapore's Straits Times was down
0.58%.
However, uncertainty about the workings of the government's $700
billion bank bailout drove US stock index futures lower, suggesting
the US market may open lower today, 22 September 2008. The S&P 500
futures were down 4.90 points, Nasdaq 100 futures were down 4.50
points and the Dow futures were down 28 points. The drop in stock
index futures came on the heels of Friday's (19 September 2008)
massive rally in stocks worldwide -- the largest ever one-day
advance as measured by market value.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
European markets, which opened after Indian market, recovered from
initial slide. Key indices in UK, France, and Germany were down
0.03% to 0.20%.
As per provisional data, the BSE 30-share Sensex was down 89.55
points or 0.64% to 13,952.77. The Sensex rose 178.72 points at
day's high of 14,221.04, hit in early trade. The index shed 124.84
points at the day's low of 13,917.48, hit in mid-afternoon trade.
The indices were choppy throughout the session. The BSE Sensex
showed a gap of 303.56 points between session's high and low.
The S&P CNX Nifty was down 36.10 points or 0.85% to 4209.15.
The BSE Mid-Cap index was down 0.51% at 5,202.21 and the BSE
Small-Cap index was down 0.49% at 6,185.28.
The market breadth was negative on BSE with 1217 shares advancing
as compared to 1376 that declined. 70 shares remained unchanged.
BSE clocked a turnover of Rs 4871 crore compared with Rs 6,226.77
on Friday, 19 September 2008.
Satyam Computer (down 4.62% at Rs 353), Jaiprakash Associates (down
4.14% at Rs 129.65), Maruti Suzuki (down 4% at Rs 712), and Ranbaxy
Laboratories (3.61% at Rs 343.95), were the prominent losers from
the Sensex pack.
ACC (up 3.74% at Rs 627.65), ITC (up 1.91% at Rs 194.70), Hindustan
Unilever (up 1.65% at Rs 249.20), Bharti Airtel (up 0.87% at Rs
806.05), Housing Development Finance Corporation (up 0.72% at Rs
2325), and Grasim Industries (up 0.66% at Rs 1930), were the major
gainers from the Sensex pack.
India's largest state-run oil explorer Oil & Natural Gas
Corporation (ONGC) dropped 1.41% to Rs 1057. As per reports, ONGC
Videsh (OVL), the overseas investment arm of ONGC, may take a $1
billion short-term loan to partly fund the $2.8 billion acquisition
of London Stock Exchange-listed Imperial Energy.
India's largest aluminium producer Hindalco Industries fell 3.41%
at 109. The company's Rs 5050 crore rights share offering opened
for subscription today, 22 September 2008. The sale in a ratio of
three shares for every seven held at Rs 96 a share will close on 10
October 2008. The company aims to use the funds to repay a bridge
loan it had taken to buy Canada's Novelis in 2007.
World's sixth largest steel maker Tata Steel rose 2.38% at 491. As
per reports, Tata Steel, through its indirect subsidiary TS Global
Minerals Holdings, has purchased a 7.3% stake in Riversdale, which
has a coking coal project in Mozambique.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) declined 1.20% at Rs 2027.30.
The stock accounts for 15.09% of Sensex's weightage.
The company began production of crude oil from its KG-D6 block of
the Krishna Godavari basin on 17 September 2008 and the firm plans
to commercially release gas from the well by January 2009. The
company aims to supply at least 40% of the nation's requirement of
oil and gas and become one of the world's largest deep-water
developers. According to reports, the company can technically sell
its Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's largest private sector bank by market capitalisation ICICI
Bank rose 0.25% at Rs 629.70.
India's second largest software exporter by sales Infosys
Technologies was flat at Rs 1624.
India's largest engineering and construction firm by revenue Larsen
& Toubro fell 3.04% at Rs 2565 on reports company is planning to
sell as many as four business units that have not registered
significant growth.
Telecom solutions provider Tulip Telecom surged 8.87% to Rs 1,012
after the company bagged a project worth Rs 95 crore for supply and
installation of network equipment across Madhya Pradesh.
Offshore services provider Dolphin Offshore Enterprises India
surged 3.81% to Rs 252.05 after the company won two separate
contracts worth $16 million for charter hire of its diving support
vessels.
Automobile components maker Amtek India surged 1.90% to Rs 72.25 on
reports private equity firm Chrys Capital has acquired additional
4% stake in the company.
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.
Market slides as RIL retreats
Decline in index heavyweight Reliance Industries dragged the market
lower in afternoon trade. The BSE 30-share Sensex was down 26.46
points. Power and capital goods stocks declined. Mid-cap and
small-cap shares were in demand.
Europen markets, which opened after Indian market, were mixed in
early trade. key indices in UK, and France were down 0.41% to
0.47%. Germany's DAX index was up 0.06%.
At 13:20 IST, the BSE 30-share Sensex was down 26.46 points or
0.19% to 14,015.86. The Sensex rose 178.72 points at day's high of
14,221.04, hit in early trade. The index shed 70.43 points at the
day's low of 13,971.89, hit in afternoon trade.
The S&P CNX Nifty was down 18.95 points or 0.45% to 4226.30.
The BSE Mid-Cap index was up 0.16% at 5,237.03 and the BSE
Small-Cap index was up 0.18% at 6,227.41.
The market breadth was positive on BSE with 1272 shares advancing
as compared to 1160 that declined. 78 shares remained unchanged.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) declined 0.30% at Rs 2045.70.
The stock accounts for 15.09% of Sensex's weightage.
The company began production of crude oil from its KG-D6 block of
the Krishna Godavari basin on 17 September 2008 and the firm plans
to commercially release gas from the well by January 2009. The
company aims to supply at least 40% of the nation's requirement of
oil and gas and become one of the world's largest deep-water
developers. According to reports, the company can technically sell
its Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
World's sixth largest steel maker Tata Steel rose 3.62% at 496.95.
As per reports, Tata Steel, through its indirect subsidiary TS
Global Minerals Holdings, has purchased a 7.3% stake in Riversdale,
which has a coking coal project in Mozambique.
India's largest state-run oil explorer Oil & Natural Gas
Corporation (ONGC) dropped 1.85% to Rs 1052.25. As per reports,
ONGC Videsh (OVL), the overseas investment arm of ONGC, may take a
$1 billion short-term loan to partly fund the $2.8 billion
acquisition of London Stock Exchange-listed Imperial Energy.
India's largest aluminium producer Hindalco Industries fell 1.42%
at 111.25. The company's Rs 5050 crore rights share offering opened
for subscription today, 22 September 2008. The sale in a ratio of
three shares for every seven held at Rs 96 a share will close on 10
October 2008. The company aims to use the funds to repay a bridge
loan it had taken to buy Canada's Novelis in 2007.
India's second largest software exporter by sales Infosys
Technologies fell 0.50% at 1615.65.
India's largest private sector bank by market capitalisation ICICI
Bank was unchanged at Rs 628.45.
Power shares declined. GVK Power & Infrastructure (down 2.51% at Rs
31.10), Power Grid Corporation (down 1.80% at Rs 92.65), NTPC (down
1.75% at Rs 179.70), Tata Power Company (down 1.20% at Rs 1,015),
and Reliance Infrastructure (down 0.33% at Rs 889.50), slipped. The
BSE Power index declined 1% at 2,504.53.
Capital goods witnessed selling pressure. Suzlon Energy (down 4.41%
at Rs 203.75), Siemens (down 3.51% at Rs 488.75), Punj Lloyd (down
2.06% at Rs 305), Larsen & Toubro (down 1.90% at Rs 2,595), and
Bharat Heavy Electricals (down 1.79% at Rs 1,680), declined. The
BSE Capital Goods index lost 0.86% at 11,638.90.
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, and Taiwan were up by
between 0.31% to 7.77%. However, Singapore's Straits Times was down
0.75%.
lower in afternoon trade. The BSE 30-share Sensex was down 26.46
points. Power and capital goods stocks declined. Mid-cap and
small-cap shares were in demand.
Europen markets, which opened after Indian market, were mixed in
early trade. key indices in UK, and France were down 0.41% to
0.47%. Germany's DAX index was up 0.06%.
At 13:20 IST, the BSE 30-share Sensex was down 26.46 points or
0.19% to 14,015.86. The Sensex rose 178.72 points at day's high of
14,221.04, hit in early trade. The index shed 70.43 points at the
day's low of 13,971.89, hit in afternoon trade.
The S&P CNX Nifty was down 18.95 points or 0.45% to 4226.30.
The BSE Mid-Cap index was up 0.16% at 5,237.03 and the BSE
Small-Cap index was up 0.18% at 6,227.41.
The market breadth was positive on BSE with 1272 shares advancing
as compared to 1160 that declined. 78 shares remained unchanged.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) declined 0.30% at Rs 2045.70.
The stock accounts for 15.09% of Sensex's weightage.
The company began production of crude oil from its KG-D6 block of
the Krishna Godavari basin on 17 September 2008 and the firm plans
to commercially release gas from the well by January 2009. The
company aims to supply at least 40% of the nation's requirement of
oil and gas and become one of the world's largest deep-water
developers. According to reports, the company can technically sell
its Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
World's sixth largest steel maker Tata Steel rose 3.62% at 496.95.
As per reports, Tata Steel, through its indirect subsidiary TS
Global Minerals Holdings, has purchased a 7.3% stake in Riversdale,
which has a coking coal project in Mozambique.
India's largest state-run oil explorer Oil & Natural Gas
Corporation (ONGC) dropped 1.85% to Rs 1052.25. As per reports,
ONGC Videsh (OVL), the overseas investment arm of ONGC, may take a
$1 billion short-term loan to partly fund the $2.8 billion
acquisition of London Stock Exchange-listed Imperial Energy.
India's largest aluminium producer Hindalco Industries fell 1.42%
at 111.25. The company's Rs 5050 crore rights share offering opened
for subscription today, 22 September 2008. The sale in a ratio of
three shares for every seven held at Rs 96 a share will close on 10
October 2008. The company aims to use the funds to repay a bridge
loan it had taken to buy Canada's Novelis in 2007.
India's second largest software exporter by sales Infosys
Technologies fell 0.50% at 1615.65.
India's largest private sector bank by market capitalisation ICICI
Bank was unchanged at Rs 628.45.
Power shares declined. GVK Power & Infrastructure (down 2.51% at Rs
31.10), Power Grid Corporation (down 1.80% at Rs 92.65), NTPC (down
1.75% at Rs 179.70), Tata Power Company (down 1.20% at Rs 1,015),
and Reliance Infrastructure (down 0.33% at Rs 889.50), slipped. The
BSE Power index declined 1% at 2,504.53.
Capital goods witnessed selling pressure. Suzlon Energy (down 4.41%
at Rs 203.75), Siemens (down 3.51% at Rs 488.75), Punj Lloyd (down
2.06% at Rs 305), Larsen & Toubro (down 1.90% at Rs 2,595), and
Bharat Heavy Electricals (down 1.79% at Rs 1,680), declined. The
BSE Capital Goods index lost 0.86% at 11,638.90.
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, and Taiwan were up by
between 0.31% to 7.77%. However, Singapore's Straits Times was down
0.75%.
The BSE 30-share Sensex up 69.69 points
The key benchmark indices were range bound in early afternoon
trade. The BSE 30-share Sensex was up 69.69 points. The barometer
index hovered in a range of 14050 and 14150. FMCG shares were in
demand. Banking shares recouped early losses. India's largest real
estate developer by market capitalisation DLF moved higher.
At 12:20 IST, the BSE 30-share Sensex was up 69.69 points or 0.50%
to 14,112.01. The Sensex rose 178.72 points at day's high of
14,221.04, hit in early trade. The index shed 27.05 points at the
day's low of 14,015.27, hit in early trade.
The S&P CNX Nifty was up 9.60 points or 0.23% to 4254.85.
The BSE Mid-Cap index was up 0.86% at 5,273.50 and the BSE
Small-Cap index was down 0.78% at 6,264.75.
The market breadth was positive on BSE with 1404 shares advancing
as compared to 925 that declined. 77 shares remained unchanged.
India's largest real estate developer by market capitalisation DLF
rose 1.75% at 434.20. As per reports, the company is retrenching
around 300 employees across all its centres and subsidiaries as it
decides to slow down its project execution, especially in Tier II
cities, in the face of shrinking demand and expensive borrowing.
Tata Steel (up 3.11% at Rs 494.50), Housing Development Finance
Corporation (up 1.28% at Rs 2338), and Sterlite Industries (up
1.15% at Rs 474), were the prominent gainers from the Sensex pack.
Satyam Computer (down 2.46% at Rs 361.40), Ranbaxy Laboratories
(down 1.78% at Rs 350.25), Maruti Suzuki (down 1.56% at Rs 730.10),
Tata Motors (down 0.86% at Rs 419.20), and Wipro (down 0.535 at Rs
414.65), were the major losers from the Sensex pack.
India's largest state-run oil explorer Oil & Natural Gas
Corporation (ONGC) dropped 1.13% to Rs 1058. As per reports, ONGC
Videsh (OVL), the overseas investment arm of ONGC, may take a $1
billion short-term loan to partly fund the $2.8 billion acquisition
of London Stock Exchange-listed Imperial Energy.
India's largest aluminium producer Hindalco Industries fell 0.53%
at 112.25. The company's Rs 5050 crore rights share offering for
subscription today, 22 September 2008. The sale in a ratio of three
shares for every seven held at Rs 96 a share will close on 10
October 2008. The company aims to use the funds to repay a bridge
loan it had taken to buy Canada's Novelis in 2007.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) rose 1.22% at Rs 2077.15. The
company began production of crude oil from its KG-D6 block of the
Krishna Godavari basin on 17 September 2008 and the firm plans to
commercially release gas from the well by January 2009. The company
aims to supply at least 40% of the nation's requirement of oil and
gas and become one of the world's largest deep-water developers.
According to reports, the company can technically sell its
Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's second largest software exporter by sales Infosys
Technologies rose 0.22% at 1627.40.
Banking stocks recovered. India's largest private sector bank by
market capitalisation ICICI Bank rose 0.43% at Rs 630.70. It came
of early low of 616.20. State Bank of India (up 0.97% at Rs
1579.85), HDFC Bank (up 0.14% at Rs 1301), Axis Bank (up 0.63% at
Rs 713.30), and Bank of India (up 3.40% at Rs 293.10), moved up.
The BSE Bankex was up 0.70% at 7,159.66. The index recovered from
early low of 7,064.58.
FMCG shares were in demand. ITC (up 2.22% at Rs 195.30), Hindustan
Unilever (up 1.37% at Rs 248.50), United Breweries (up 3.04% at Rs
149), and Godrej Consumer Products (up 2.24% at Rs 118.70), soared.
The BSE FMCG index was up 1.57% at 2,209.37.
Telecom solutions provider Tulip Telecom surged 7.61% to Rs 1,002
after the company bagged a project worth Rs 95 crore for supply and
installation of network equipment across Madhya Pradesh.
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were
up by between 0.19% to 6.96%.
However, uncertainty about the workings of the government's $700
billion bank bailout drove US stock index futures lower, suggesting
the US market may open lower today, 22 September 2008. The S&P 500
futures were down 5.90 points, Nasdaq 100 futures were down 6.75
points and the Dow futures were down 76 points. The drop in stock
index futures came on the heels of Friday's (19 September 2008)
massive rally in stocks worldwide -- the largest ever one-day
advance as measured by market value.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
Back home, the current week will see expiry of September 2008
derivatives contracts. The September 2008 contracts expire on
Thursday, 25 September 2008. Roll over in Nifty futures till
Friday, 19 September 2008, was about 18% whereas Mini Nifty has
seen rollover of about 31% of positions.
trade. The BSE 30-share Sensex was up 69.69 points. The barometer
index hovered in a range of 14050 and 14150. FMCG shares were in
demand. Banking shares recouped early losses. India's largest real
estate developer by market capitalisation DLF moved higher.
At 12:20 IST, the BSE 30-share Sensex was up 69.69 points or 0.50%
to 14,112.01. The Sensex rose 178.72 points at day's high of
14,221.04, hit in early trade. The index shed 27.05 points at the
day's low of 14,015.27, hit in early trade.
The S&P CNX Nifty was up 9.60 points or 0.23% to 4254.85.
The BSE Mid-Cap index was up 0.86% at 5,273.50 and the BSE
Small-Cap index was down 0.78% at 6,264.75.
The market breadth was positive on BSE with 1404 shares advancing
as compared to 925 that declined. 77 shares remained unchanged.
India's largest real estate developer by market capitalisation DLF
rose 1.75% at 434.20. As per reports, the company is retrenching
around 300 employees across all its centres and subsidiaries as it
decides to slow down its project execution, especially in Tier II
cities, in the face of shrinking demand and expensive borrowing.
Tata Steel (up 3.11% at Rs 494.50), Housing Development Finance
Corporation (up 1.28% at Rs 2338), and Sterlite Industries (up
1.15% at Rs 474), were the prominent gainers from the Sensex pack.
Satyam Computer (down 2.46% at Rs 361.40), Ranbaxy Laboratories
(down 1.78% at Rs 350.25), Maruti Suzuki (down 1.56% at Rs 730.10),
Tata Motors (down 0.86% at Rs 419.20), and Wipro (down 0.535 at Rs
414.65), were the major losers from the Sensex pack.
India's largest state-run oil explorer Oil & Natural Gas
Corporation (ONGC) dropped 1.13% to Rs 1058. As per reports, ONGC
Videsh (OVL), the overseas investment arm of ONGC, may take a $1
billion short-term loan to partly fund the $2.8 billion acquisition
of London Stock Exchange-listed Imperial Energy.
India's largest aluminium producer Hindalco Industries fell 0.53%
at 112.25. The company's Rs 5050 crore rights share offering for
subscription today, 22 September 2008. The sale in a ratio of three
shares for every seven held at Rs 96 a share will close on 10
October 2008. The company aims to use the funds to repay a bridge
loan it had taken to buy Canada's Novelis in 2007.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) rose 1.22% at Rs 2077.15. The
company began production of crude oil from its KG-D6 block of the
Krishna Godavari basin on 17 September 2008 and the firm plans to
commercially release gas from the well by January 2009. The company
aims to supply at least 40% of the nation's requirement of oil and
gas and become one of the world's largest deep-water developers.
According to reports, the company can technically sell its
Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's second largest software exporter by sales Infosys
Technologies rose 0.22% at 1627.40.
Banking stocks recovered. India's largest private sector bank by
market capitalisation ICICI Bank rose 0.43% at Rs 630.70. It came
of early low of 616.20. State Bank of India (up 0.97% at Rs
1579.85), HDFC Bank (up 0.14% at Rs 1301), Axis Bank (up 0.63% at
Rs 713.30), and Bank of India (up 3.40% at Rs 293.10), moved up.
The BSE Bankex was up 0.70% at 7,159.66. The index recovered from
early low of 7,064.58.
FMCG shares were in demand. ITC (up 2.22% at Rs 195.30), Hindustan
Unilever (up 1.37% at Rs 248.50), United Breweries (up 3.04% at Rs
149), and Godrej Consumer Products (up 2.24% at Rs 118.70), soared.
The BSE FMCG index was up 1.57% at 2,209.37.
Telecom solutions provider Tulip Telecom surged 7.61% to Rs 1,002
after the company bagged a project worth Rs 95 crore for supply and
installation of network equipment across Madhya Pradesh.
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were
up by between 0.19% to 6.96%.
However, uncertainty about the workings of the government's $700
billion bank bailout drove US stock index futures lower, suggesting
the US market may open lower today, 22 September 2008. The S&P 500
futures were down 5.90 points, Nasdaq 100 futures were down 6.75
points and the Dow futures were down 76 points. The drop in stock
index futures came on the heels of Friday's (19 September 2008)
massive rally in stocks worldwide -- the largest ever one-day
advance as measured by market value.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
Back home, the current week will see expiry of September 2008
derivatives contracts. The September 2008 contracts expire on
Thursday, 25 September 2008. Roll over in Nifty futures till
Friday, 19 September 2008, was about 18% whereas Mini Nifty has
seen rollover of about 31% of positions.
Strong market breadth
Gains in metal and oil & gas pivotals took the key benchmark
indices in the positive terrain in mid-morning trade. However, the
upside was capped as auto, software and banking shares witnessed
selling pressure. Realty shares moved higher. The BSE 30-share
Sensex was up 50.54 points. India's largest state-run oil explorer
Oil & Natural Gas Corporation slipped.
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were
up by between 0.19% to 6.96%.
However, uncertainty about the workings of the government's $700
billion bank bailout drove US stock index futures lower, suggesting
the US market may open lower today, 22 September 2008. The S&P 500
futures were down 9.10 points, the Dow futures were down 99 points
and Nasdaq 100 futures were down 13 points. The drop in stock index
futures came on the heels of Friday's (19 September 2008) massive
rally in stocks worldwide -- the largest ever one-day advance as
measured by market value.
At 11:20 IST, the BSE 30-share Sensex was up 50.54 points or 0.36%
to 14,092.86. The Sensex rose 178.72 points at day's high of
14,221.04, hit in early trade. The index shed 27.05 points at the
day's low of 14,015.27, hit in early trade.
The S&P CNX Nifty was up 13.10 points or 0.31% to 4258.35.
The BSE Mid-Cap index was up 0.95% at 5,278.56 and the BSE
Small-Cap index was down 0.88% at 6,270.63.
The market breadth was positive on BSE with 1351 shares advancing
as compared to 794 that declined. 65 shares remained unchanged.
India's largest state-run oil explorer Oil & Natural Gas
Corporation dropped 1.13% to Rs 1058
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) fell 1.08% at Rs 2074. The
company began production of crude oil from its KG-D6 block of the
Krishna Godavari basin on 17 September 2008 and the firm plans to
commercially release gas from the well by January 2009. The company
aims to supply at least 40% of the nation's requirement of oil and
gas and become one of the world's largest deep-water developers.
According to reports, the company can technically sell its
Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's largest private sector bank by market capitalisation ICICI
Bank fell 0.79% at Rs 623.15.
Auto shares slipped as oil prices advanced. Hero Honda Motors (down
1.52% at Rs 808.50), Tata Motors (down 0.67% at Rs 420), and Maruti
Suzuki India (down 1.30% at Rs 732), tumbled. The BSE Auto index
was down 0.49% at 3,938.70.
Software shares slipped. Satyam Computer (down 2.53% at Rs 360.75),
TCS (down 0.15% at Rs 764.85), Wipro (down 0.13% at Rs 416.30), and
Infosys Technologies (down 0.36% at Rs 1618), declined. The BSE IT
index was down 0.36% at 3,653.69.
Metal shares were in demand. Gujarat NRE Coke (up 11.19% at Rs
73.05), Sesa Goa (up 6.78% at Rs 116.40), Welspun Gujarat Stahl
Rohren (up 2.40% at Rs 262.30), Jindal Steel (up 1.87% at Rs 1505),
and Tata Steel (up 3.13% at Rs 494.60), advanced. The BSE Metal
index was up 1.86% at 10,220.24.
Realty shares recovered after early decline. Akruti City (up 5.32%
at Rs 957.45), Housing Development & Infrastructure (up 3.77% at Rs
232.40), Unitech (up 3.33% at Rs 130.70), and DLF (up 2.90% at Rs
439.20), rose. The BSE Realty index was up 1.33% at 4,157.14. The
index came off early lows of 4,070.85.
Fashion apparel chain operator Pantaloon Retail India gained 2.23%
to Rs 316.90 after posting 74.24% growth in net profit to Rs 32.53
crore on 33% increase in total income to Rs 1381.44 crore in Q4
June 2008 over Q4 June 2007.
Software firm NIIT Technologies gained 3.35% to Rs 97.30 after the
company said it has secured a global sourcing contract from
American Safety Insurance Services, Inc to provide migration,
configuration and customization support.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
Back home, the current week will see expiry of September 2008
derivatives contracts. The September 2008 contracts expire on
Thursday, 25 September 2008. Roll over in Nifty futures till
Friday, 19 September 2008, was about 18% whereas Mini Nifty has
seen rollover of about 31% of positions.
As per reports, the overall rainfall in India in the current
monsoon season has till now been the best in the past six years in
terms of distribution though the quantum of rainfall was relatively
higher in 2003, 2006 and 2007. Rains were about 2% below normal
between 1 June 2008 and 17 September 2008.
indices in the positive terrain in mid-morning trade. However, the
upside was capped as auto, software and banking shares witnessed
selling pressure. Realty shares moved higher. The BSE 30-share
Sensex was up 50.54 points. India's largest state-run oil explorer
Oil & Natural Gas Corporation slipped.
Asian stocks rose after the US government proposed a $700 billion
plan to solve the world financial crisis by rescuing banks from
billions of dollars in risky mortgage debt. Key benchmark indices
in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were
up by between 0.19% to 6.96%.
However, uncertainty about the workings of the government's $700
billion bank bailout drove US stock index futures lower, suggesting
the US market may open lower today, 22 September 2008. The S&P 500
futures were down 9.10 points, the Dow futures were down 99 points
and Nasdaq 100 futures were down 13 points. The drop in stock index
futures came on the heels of Friday's (19 September 2008) massive
rally in stocks worldwide -- the largest ever one-day advance as
measured by market value.
At 11:20 IST, the BSE 30-share Sensex was up 50.54 points or 0.36%
to 14,092.86. The Sensex rose 178.72 points at day's high of
14,221.04, hit in early trade. The index shed 27.05 points at the
day's low of 14,015.27, hit in early trade.
The S&P CNX Nifty was up 13.10 points or 0.31% to 4258.35.
The BSE Mid-Cap index was up 0.95% at 5,278.56 and the BSE
Small-Cap index was down 0.88% at 6,270.63.
The market breadth was positive on BSE with 1351 shares advancing
as compared to 794 that declined. 65 shares remained unchanged.
India's largest state-run oil explorer Oil & Natural Gas
Corporation dropped 1.13% to Rs 1058
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) fell 1.08% at Rs 2074. The
company began production of crude oil from its KG-D6 block of the
Krishna Godavari basin on 17 September 2008 and the firm plans to
commercially release gas from the well by January 2009. The company
aims to supply at least 40% of the nation's requirement of oil and
gas and become one of the world's largest deep-water developers.
According to reports, the company can technically sell its
Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's largest private sector bank by market capitalisation ICICI
Bank fell 0.79% at Rs 623.15.
Auto shares slipped as oil prices advanced. Hero Honda Motors (down
1.52% at Rs 808.50), Tata Motors (down 0.67% at Rs 420), and Maruti
Suzuki India (down 1.30% at Rs 732), tumbled. The BSE Auto index
was down 0.49% at 3,938.70.
Software shares slipped. Satyam Computer (down 2.53% at Rs 360.75),
TCS (down 0.15% at Rs 764.85), Wipro (down 0.13% at Rs 416.30), and
Infosys Technologies (down 0.36% at Rs 1618), declined. The BSE IT
index was down 0.36% at 3,653.69.
Metal shares were in demand. Gujarat NRE Coke (up 11.19% at Rs
73.05), Sesa Goa (up 6.78% at Rs 116.40), Welspun Gujarat Stahl
Rohren (up 2.40% at Rs 262.30), Jindal Steel (up 1.87% at Rs 1505),
and Tata Steel (up 3.13% at Rs 494.60), advanced. The BSE Metal
index was up 1.86% at 10,220.24.
Realty shares recovered after early decline. Akruti City (up 5.32%
at Rs 957.45), Housing Development & Infrastructure (up 3.77% at Rs
232.40), Unitech (up 3.33% at Rs 130.70), and DLF (up 2.90% at Rs
439.20), rose. The BSE Realty index was up 1.33% at 4,157.14. The
index came off early lows of 4,070.85.
Fashion apparel chain operator Pantaloon Retail India gained 2.23%
to Rs 316.90 after posting 74.24% growth in net profit to Rs 32.53
crore on 33% increase in total income to Rs 1381.44 crore in Q4
June 2008 over Q4 June 2007.
Software firm NIIT Technologies gained 3.35% to Rs 97.30 after the
company said it has secured a global sourcing contract from
American Safety Insurance Services, Inc to provide migration,
configuration and customization support.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
Back home, the current week will see expiry of September 2008
derivatives contracts. The September 2008 contracts expire on
Thursday, 25 September 2008. Roll over in Nifty futures till
Friday, 19 September 2008, was about 18% whereas Mini Nifty has
seen rollover of about 31% of positions.
As per reports, the overall rainfall in India in the current
monsoon season has till now been the best in the past six years in
terms of distribution though the quantum of rainfall was relatively
higher in 2003, 2006 and 2007. Rains were about 2% below normal
between 1 June 2008 and 17 September 2008.
Market slips into red after firm start; breadth positive
Extending Friday's (19 September 2008) solid surge, the key
benchmark indices opened higher. However, profit booking at higher
level pulled the indices in the red within few minutes of opening.
The market slipped as crude oil price breached $100 mark once
again, raising fears of inflationary pressures in the economy. Auto
banking and realty shares witnessed selling pressure. Shares of the
state-run oil refiners declined on high oil prices.
Stocks rose in Asia on hopes for a $700 billion bank bailout
proposed by the United States over the weekend to tackle the US
financial crisis. Key benchmark indices in Hong Kong, Japan, China,
South Korea, Singapore and Taiwan were up by between 0.24% to 6.4%.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
Back home, the current week will see expiry of September 2008
derivatives contracts. The September 2008 contracts expire on
Thursday, 25 September 2008. Roll over in Nifty futures till
Friday, 19 September 2008, was about 18% whereas Mini Nifty has
seen rollover of about 31% of positions.
At 10:20 IST, the BSE 30-share Sensex was down 15.92 points or
1.11% to 14,026.40. The index shed 27.05 points at the day's low of
14,015.27, hit in early trade. The Sensex rose 178.72 points at
day's high of 14,221.04, hit in early trade.
The S&P CNX Nifty was down 3.80 points or 0.09% to 4241.45.
The BSE Mid-Cap index was up 0.56% at 5,258.30 and the BSE
Small-Cap index was down 0.49% at 6,246.68.
The market breadth was positive on BSE with 982 shares advancing as
compared to 616 that declined. 52 shares remained unchanged.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) fell 1.28% at Rs 2078.10. The
company began production of crude oil from its KG-D6 block of the
Krishna Godavari basin on 17 September 2008 and the firm plans to
commercially release gas from the well by January 2009. The company
aims to supply at least 40% of the nation's requirement of oil and
gas and become one of the world's largest deep-water developers.
According to reports, the company can technically sell its
Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's second largest software exporter by sales Infosys
Technologies rose 0.13% at Rs 1626.
India's largest private sector bank by market capitalisation ICICI
Bank fell 0.60% at Rs 624.30.
Reliance Infrastructure (up 1.74% at Rs 906), ACC (up 1.31% at Rs
612.95), Tata Steel (up 1.19% at Rs 485.30), HDFC Bank (up 0.82% at
Rs 1309.85), Tata Power Company (up 0.85% at Rs 1036), Housing
Development Finance Corporation (up 0.77% at Rs 2325.60), edged
higher from the Sensex pack.
ONGC (down 2.15% at Rs 1049), Ranbaxy Laboratories (down 1.64% at
Rs 350), Maruti Suzuki (down 1.64% at Rs 351), Mahindra & Mahindra
(down 1.24% at Rs 547.10), Wipro (down 0.44% at Rs 415), Grasim
Induatries (down 0.49% at Rs 1908), edged lower from the Sensex
pack.
Shares of the state-run oil refiners declined on rise in oil
prices. BPCL (down 2.89% at Rs 336.05), HPCL (down 2.43% at Rs
229.05) and Indian Oil Corporation (down 1.59% at Rs 390.35),
slipped. Private sector oil explorer Cairn India rose 1.99% at Rs
225.70, and private sector oil refiner Reliance Petroleum rose
3.05% at Rs 155.50.
At 10:21 IST, the crude oil for October 2008 delivery was at $
104.73 a barrel
As per provisional data released by the stock exchanges, foreign
funds bought shares worth a net Rs 1016.18 crore on Friday, 19
September 2008. Domestic funds bought shares worth a net Rs 43.91
crore. The BSE 30-share Sensex jumped 726.72 points or 5.46% to
14,042.32 on Friday, 19 September 2008.
Foreign funds pressed sales worth a net Rs 7594.40 crore this month
(till 18 September 2008). Their cumulative outflow in calendar 2008
reached Rs 36108.20 crore.
benchmark indices opened higher. However, profit booking at higher
level pulled the indices in the red within few minutes of opening.
The market slipped as crude oil price breached $100 mark once
again, raising fears of inflationary pressures in the economy. Auto
banking and realty shares witnessed selling pressure. Shares of the
state-run oil refiners declined on high oil prices.
Stocks rose in Asia on hopes for a $700 billion bank bailout
proposed by the United States over the weekend to tackle the US
financial crisis. Key benchmark indices in Hong Kong, Japan, China,
South Korea, Singapore and Taiwan were up by between 0.24% to 6.4%.
According to the US administration's proposal, the federal
government would buy up as much as $700 billion of illiquid
mortgage assets at a deep discount from banks. The Treasury
Department would run the program directly, unlike the savings and
loan crisis of the 1990s when Congress created the Resolution Trust
Company to spearhead a financial bailout. The $700 billion plan,
the most sweeping intervention in the financial markets since the
Great Depression, is aimed at stemming the credit crisis roiling
Wall Street and threatening the global markets.
Back home, the current week will see expiry of September 2008
derivatives contracts. The September 2008 contracts expire on
Thursday, 25 September 2008. Roll over in Nifty futures till
Friday, 19 September 2008, was about 18% whereas Mini Nifty has
seen rollover of about 31% of positions.
At 10:20 IST, the BSE 30-share Sensex was down 15.92 points or
1.11% to 14,026.40. The index shed 27.05 points at the day's low of
14,015.27, hit in early trade. The Sensex rose 178.72 points at
day's high of 14,221.04, hit in early trade.
The S&P CNX Nifty was down 3.80 points or 0.09% to 4241.45.
The BSE Mid-Cap index was up 0.56% at 5,258.30 and the BSE
Small-Cap index was down 0.49% at 6,246.68.
The market breadth was positive on BSE with 982 shares advancing as
compared to 616 that declined. 52 shares remained unchanged.
India's largest private sector firm by market capitalisation and
oil refiner Reliance Industries (RIL) fell 1.28% at Rs 2078.10. The
company began production of crude oil from its KG-D6 block of the
Krishna Godavari basin on 17 September 2008 and the firm plans to
commercially release gas from the well by January 2009. The company
aims to supply at least 40% of the nation's requirement of oil and
gas and become one of the world's largest deep-water developers.
According to reports, the company can technically sell its
Krishna-Godavari (KG) basin gas at a price higher than the
government-discovered price of $4.20 per million British thermal
units (mBtu).
India's second largest software exporter by sales Infosys
Technologies rose 0.13% at Rs 1626.
India's largest private sector bank by market capitalisation ICICI
Bank fell 0.60% at Rs 624.30.
Reliance Infrastructure (up 1.74% at Rs 906), ACC (up 1.31% at Rs
612.95), Tata Steel (up 1.19% at Rs 485.30), HDFC Bank (up 0.82% at
Rs 1309.85), Tata Power Company (up 0.85% at Rs 1036), Housing
Development Finance Corporation (up 0.77% at Rs 2325.60), edged
higher from the Sensex pack.
ONGC (down 2.15% at Rs 1049), Ranbaxy Laboratories (down 1.64% at
Rs 350), Maruti Suzuki (down 1.64% at Rs 351), Mahindra & Mahindra
(down 1.24% at Rs 547.10), Wipro (down 0.44% at Rs 415), Grasim
Induatries (down 0.49% at Rs 1908), edged lower from the Sensex
pack.
Shares of the state-run oil refiners declined on rise in oil
prices. BPCL (down 2.89% at Rs 336.05), HPCL (down 2.43% at Rs
229.05) and Indian Oil Corporation (down 1.59% at Rs 390.35),
slipped. Private sector oil explorer Cairn India rose 1.99% at Rs
225.70, and private sector oil refiner Reliance Petroleum rose
3.05% at Rs 155.50.
At 10:21 IST, the crude oil for October 2008 delivery was at $
104.73 a barrel
As per provisional data released by the stock exchanges, foreign
funds bought shares worth a net Rs 1016.18 crore on Friday, 19
September 2008. Domestic funds bought shares worth a net Rs 43.91
crore. The BSE 30-share Sensex jumped 726.72 points or 5.46% to
14,042.32 on Friday, 19 September 2008.
Foreign funds pressed sales worth a net Rs 7594.40 crore this month
(till 18 September 2008). Their cumulative outflow in calendar 2008
reached Rs 36108.20 crore.
Pre Market Report 22/09/2008
The market may edge higher extending Friday's (19 September 2008) solid surge on hopes for the $700 billion bank bailout proposed by the United States over the weekend to tackle the US financial crisis. Stocks rose in Asia today, 22 September 2008, boosted by the US package. Key benchmark indices in Hong Kong, Japan, China, South Korea, Singapore and Taiwan were up by between 0.24% to 6.4%.
According to the US administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout. The $700 billion plan, the most sweeping intervention in the financial markets since the Great Depression, is aimed at stemming the credit crisis roiling Wall Street and threatening the global markets.
Stocks across the global had risen sharply late last week after regulators and central banks across the globe came to the rescue of the battered markets. On Thursday, 28 September 2008, major central banks around the world announced a series of measures to improve dollar liquidity in money markets. UK on Friday, 19 September 2008, announced a four-month ban on short-selling of financial stocks. In US, the Securities and Exchange Commission announced a temporary ban on short selling of 799 financial stocks effective Friday, 19 September 2008.
A deep financial crisis engulfed the global markets last week when the US investment banking giant Lehman Brothers filed for bankruptcy, Merrill Lynch was bought over by Bank of America in a distress sale and the world's largest insurer AIG had to seek US government help to thwart an imminent collapse.
As per provisional data released by the stock exchanges, foreign funds bought shares worth a net Rs 1016.18 crore on Friday, 19 September 2008. Domestic funds bought shares worth a net Rs 43.91 crore. The BSE 30-share Sensex jumped 726.72 points or 5.46% to 14,042.32 on Friday, 19 September 2008.
Foreign funds pressed sales worth a net Rs 7594.40 crore this month (till 18 September 2008). Their cumulative outflow in calendar 2008 reached Rs 36108.20 crore.
In the near term, the domestic bourses will also eye developments on the Indo-US nuclear deal front. US Undersecretary of State William Burns on Thursday, 18 September 2008, urged members of the US Congress to approve a US-India nuclear cooperation agreement before the House and Senate adjourn ahead of November 2008 elections. However, some US lawmakers have strong concerns about the pact, chiefly that the extra fuel the accord provides could boost India's nuclear arsenal by freeing up its domestic uranium for weapons.
According to the US administration's proposal, the federal government would buy up as much as $700 billion of illiquid mortgage assets at a deep discount from banks. The Treasury Department would run the program directly, unlike the savings and loan crisis of the 1990s when Congress created the Resolution Trust Company to spearhead a financial bailout. The $700 billion plan, the most sweeping intervention in the financial markets since the Great Depression, is aimed at stemming the credit crisis roiling Wall Street and threatening the global markets.
Stocks across the global had risen sharply late last week after regulators and central banks across the globe came to the rescue of the battered markets. On Thursday, 28 September 2008, major central banks around the world announced a series of measures to improve dollar liquidity in money markets. UK on Friday, 19 September 2008, announced a four-month ban on short-selling of financial stocks. In US, the Securities and Exchange Commission announced a temporary ban on short selling of 799 financial stocks effective Friday, 19 September 2008.
A deep financial crisis engulfed the global markets last week when the US investment banking giant Lehman Brothers filed for bankruptcy, Merrill Lynch was bought over by Bank of America in a distress sale and the world's largest insurer AIG had to seek US government help to thwart an imminent collapse.
As per provisional data released by the stock exchanges, foreign funds bought shares worth a net Rs 1016.18 crore on Friday, 19 September 2008. Domestic funds bought shares worth a net Rs 43.91 crore. The BSE 30-share Sensex jumped 726.72 points or 5.46% to 14,042.32 on Friday, 19 September 2008.
Foreign funds pressed sales worth a net Rs 7594.40 crore this month (till 18 September 2008). Their cumulative outflow in calendar 2008 reached Rs 36108.20 crore.
In the near term, the domestic bourses will also eye developments on the Indo-US nuclear deal front. US Undersecretary of State William Burns on Thursday, 18 September 2008, urged members of the US Congress to approve a US-India nuclear cooperation agreement before the House and Senate adjourn ahead of November 2008 elections. However, some US lawmakers have strong concerns about the pact, chiefly that the extra fuel the accord provides could boost India's nuclear arsenal by freeing up its domestic uranium for weapons.
Tips for 22nd Sep 2008
On Mobile buy 464.20 stoploss 424.00 target 535 566
CHI Investment buy 33.00 stoploss 29.00 target 38 43
Ganesh Forging buy 23.05 stoploss 20.00 target 28 33
Infosys buy 1624.55 stoploss 1612 1600 target 1667 1704
SesaGoa buy 109.90 stoploss 106 103 target 119 127
Escorts buy 71.95 stoploss 68 65 target 78 85
Century Text buy 396.15 stoploss 388 380 target 428 458
BUY PUNJLLOYD ABOVE 315 TGT 321>329 STOPLOSS 308
IFCI buy 40.60 stoploss 39 37 target 44 49
BUY HDFC ABOVE 2332 TGT 2401>2471 STOPLOSS 2289
CHI Investment buy 33.00 stoploss 29.00 target 38 43
Ganesh Forging buy 23.05 stoploss 20.00 target 28 33
Infosys buy 1624.55 stoploss 1612 1600 target 1667 1704
SesaGoa buy 109.90 stoploss 106 103 target 119 127
Escorts buy 71.95 stoploss 68 65 target 78 85
Century Text buy 396.15 stoploss 388 380 target 428 458
BUY PUNJLLOYD ABOVE 315 TGT 321>329 STOPLOSS 308
IFCI buy 40.60 stoploss 39 37 target 44 49
BUY HDFC ABOVE 2332 TGT 2401>2471 STOPLOSS 2289
Sunday, September 21, 2008
Suzlon Energy Annual Report
Suzlon Energy’s (Suzlon) ROAE (adjusted) before exceptional items was at 20.2%,despite return on net operating assets (RNOA) before exceptional items being at 14.2%(ROE analyser analyses the difference).Declining RNOA, from 36% in FY06 to 14% in FY08, has led to ROAE dipping from 42%in FY06 to 20% in FY08. Cost of goods sold (as a percentage of sales) increased from 60% of sales in FY07 to65% in FY08, due to change in geographical mix in which it operates, undertaking ofwind turbine generator (WTG) erection, installation and commissioning of project activities, and changes in product mix. Unhedged foreign currency exposure (net liabilities) as at March 31, 2008, was INR 7.2bn. The company has recognised foreign exchange gain of INR 258 mn in FY08 (loss ofINR 333 mn in FY07) out of which INR 195 mn is unrealised gain. With INRdepreciating 13% against USD since March 2008, future profits will be impacted. During the year, Suzlon reported exceptional expenses of INR 1.5 bn (net of tax). Itincludes a provision of INR 1.2 bn made to resolve the blade crack issue in some of itsS88 turbines in the US and Portugal
NAAZARE For Week 22.09.08 To 26.09.08
Last week was very very bad and superb also for all world markets. In the early stage of las week, News of Lehman Brothers and Merrill Lynch has came out ….then the news of AIG……. Bank Of America had bought Merril Lynch.....more bad news had came out till thurday morning…..all world market was on blood bath….Even India too…….. We had lost almost 1500 pts…..and index had touched the low of 12558 and nifty future had touched the low of 3812 on Thursday morning in the opening trade. Then after the news of all central banks had agreed to come together boost all world markets and our FM had given the good statement about our all banks and AIG’s stake in TATA AIG act as boost to our market also. From lower level of 12558 it has touched a high of 14097 and nifty future from a low of 3812 ,touched a high of 4285.50.
We will advise you all to take profits of 25-30% whenever u r getting and stay well in cash. Buy at dips only and take profits at rise. If FII’s, HNI’s and Mutual Funds were keeping cash on hands, buying at dips and taking profits at higher levels then why we can’t ??? …… We advise all our dear investors like u that please be choosy with your hard earned money and be choosy to invest at right levels in right stocks……….. Wishing u all the best wishes to get good and profitable returns on your investments. May god gives u all the wealthy returns……..
If Index Crosses 14325 then It may touch 14663,14945…13674 May Act as Strong Support….
If Nifty Fut Crosses 4346,then 4418,4490,4526…4142 May Act As Strong Support…..
We will advise you all to take profits of 25-30% whenever u r getting and stay well in cash. Buy at dips only and take profits at rise. If FII’s, HNI’s and Mutual Funds were keeping cash on hands, buying at dips and taking profits at higher levels then why we can’t ??? …… We advise all our dear investors like u that please be choosy with your hard earned money and be choosy to invest at right levels in right stocks……….. Wishing u all the best wishes to get good and profitable returns on your investments. May god gives u all the wealthy returns……..
If Index Crosses 14325 then It may touch 14663,14945…13674 May Act as Strong Support….
If Nifty Fut Crosses 4346,then 4418,4490,4526…4142 May Act As Strong Support…..
McAfee shares surge as software concerns ease
SAN FRANCISCO (AP) -- McAfee Inc. shares surged more than 6 percent Friday, recovering some of the losses that piled up in recent weeks as investors fretted about businesses curtailing their spending on software products amid the U.S. economy's deepening woes.
But those concerns eased late Thursday after Oracle Corp., the world's second-largest software maker, released quarterly earnings that topped analyst estimates.
McAfee, a leading maker of computer security software, is currently in the tail end of its third quarter and won't report the results until next month. But investors are now betting the Santa Clara, Calif.-based company's sales will hold up better than they thought.
The renewed optimism helped lift McAfee shares $2.18, or 6.2 percent, to $37.31 Friday. The stock price had fallen by 12 percent this month before rallying in the last two sessions.
Friedman, Billings, Ramsey & Co. analyst Daniel Ives gave McAfee a vote of confidence in a Friday note that reported the company had closed several sales with corporate customers in recent weeks. Ives also upgraded his rating on McAfee's stock to "Market Perform" from "Underperform."
Although McAfee seems to be faring reasonably well, Ives remains worried about a spending slowdown on information technology later this year.
"We continue to be cautious" about McAfee's stock, Ives stressed.
But those concerns eased late Thursday after Oracle Corp., the world's second-largest software maker, released quarterly earnings that topped analyst estimates.
McAfee, a leading maker of computer security software, is currently in the tail end of its third quarter and won't report the results until next month. But investors are now betting the Santa Clara, Calif.-based company's sales will hold up better than they thought.
The renewed optimism helped lift McAfee shares $2.18, or 6.2 percent, to $37.31 Friday. The stock price had fallen by 12 percent this month before rallying in the last two sessions.
Friedman, Billings, Ramsey & Co. analyst Daniel Ives gave McAfee a vote of confidence in a Friday note that reported the company had closed several sales with corporate customers in recent weeks. Ives also upgraded his rating on McAfee's stock to "Market Perform" from "Underperform."
Although McAfee seems to be faring reasonably well, Ives remains worried about a spending slowdown on information technology later this year.
"We continue to be cautious" about McAfee's stock, Ives stressed.
$700B rescue plan may not save some troubled banks
NEW YORK (AP) -- A sweeping government plan to buy up to $700 billion in bad mortgages may not be enough to save some banks, which experts say may be forced to absorb big losses if they sell their troubled assets.
The proposal for the government to soak up the mortgage-backed securities would be the biggest bailout plan since the Great Depression, but experts say a critical issue will be how much it actually pays for the troubled assets.
How the government might acquire banks' toxic debt is still being ironed out, but one approach suggested by Treasury Secretary Henry Paulson involves a process under which financial institutions would propose a price for their mortgage-backed securities and the government would choose the lowest bids.
If banks sell at the proposed price -- say 50 cents on the dollar -- accounting rules would require firms to take the losses on their balance sheets before getting the damaged assets off their books. For weaker banks buffeted by the deepening credit crisis, the losses may hinder their ability to go out raise capital, make loans and ultimately stay afloat, according to industry experts.
"There is a risk that there will be bank failures to come," said Vincent R. Reinhart, former director of the Federal Reserve's monetary affairs division.
While the reverse auctions could help banks set a clearing price for mortgage-related assets, Reinhart said, that "price doesn't mean that every financial firm will be solvent" after those assets are sold.
Another risk is that if the auctions set too low a price for mortgage-related assets, other institutions with bad debt may be forced to take the distressed valuation onto their books under mark-to-market accounting rules, Reinhart said. Mark-to-market rules involve adjusting the price of an asset to reflect its current market value.
"If the auctions don't go well, it will drag down everybody's balance sheet who marks to market," Reinhart said.
The financial system has been battered by $500 billion in losses from the mortgage mess, and the International Monetary Fund has estimated the price tag could ultimately top $1 trillion.
The crisis has forced 11 federally insured banks and thrifts into failure this year. Another 117 banks and thrifts were considered to be in trouble in the second quarter -- the highest level since 2003 -- with the total assets of troubled banks tripling to $78 billion, according to the Federal Deposit Insurance Corp. The agency does not disclose which institutions are on its list, but on average, 13 percent of banks that make the list fail.
Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics, has predicted that 110 banks with assets worth $850 billion are in danger of failing by next summer. He said the Treasury Department's rescue plan hasn't given him reason to be more optimistic.
"If the government comes in and buys these assets at a discount and you're a strong bank, you don't care because you're getting cash and you go off and do business. If you're a weak bank and you take a big hit, you may not have that option," Whalen said.
He said the government may decide that the only option to save some banks is to pay full price for the assets in exchange for equity, which could be sold later.
But that could be risky because if the government pays too high a price, it will be difficult if not impossible to go out and sell the assets for a profit in the future, meaning any losses incurred would be absorbed by taxpayers. But paying too little also is problematic because banks will be forced to take steeper losses that they may not be able to recover from.
"The government should be able to arrange to pick a price that helps the banks but also that allow the government to turn around and make a profit down the line," said Marvin Goodfriend, professor of economics at Carnegie Mellon University.
The proposal for the government to soak up the mortgage-backed securities would be the biggest bailout plan since the Great Depression, but experts say a critical issue will be how much it actually pays for the troubled assets.
How the government might acquire banks' toxic debt is still being ironed out, but one approach suggested by Treasury Secretary Henry Paulson involves a process under which financial institutions would propose a price for their mortgage-backed securities and the government would choose the lowest bids.
If banks sell at the proposed price -- say 50 cents on the dollar -- accounting rules would require firms to take the losses on their balance sheets before getting the damaged assets off their books. For weaker banks buffeted by the deepening credit crisis, the losses may hinder their ability to go out raise capital, make loans and ultimately stay afloat, according to industry experts.
"There is a risk that there will be bank failures to come," said Vincent R. Reinhart, former director of the Federal Reserve's monetary affairs division.
While the reverse auctions could help banks set a clearing price for mortgage-related assets, Reinhart said, that "price doesn't mean that every financial firm will be solvent" after those assets are sold.
Another risk is that if the auctions set too low a price for mortgage-related assets, other institutions with bad debt may be forced to take the distressed valuation onto their books under mark-to-market accounting rules, Reinhart said. Mark-to-market rules involve adjusting the price of an asset to reflect its current market value.
"If the auctions don't go well, it will drag down everybody's balance sheet who marks to market," Reinhart said.
The financial system has been battered by $500 billion in losses from the mortgage mess, and the International Monetary Fund has estimated the price tag could ultimately top $1 trillion.
The crisis has forced 11 federally insured banks and thrifts into failure this year. Another 117 banks and thrifts were considered to be in trouble in the second quarter -- the highest level since 2003 -- with the total assets of troubled banks tripling to $78 billion, according to the Federal Deposit Insurance Corp. The agency does not disclose which institutions are on its list, but on average, 13 percent of banks that make the list fail.
Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics, has predicted that 110 banks with assets worth $850 billion are in danger of failing by next summer. He said the Treasury Department's rescue plan hasn't given him reason to be more optimistic.
"If the government comes in and buys these assets at a discount and you're a strong bank, you don't care because you're getting cash and you go off and do business. If you're a weak bank and you take a big hit, you may not have that option," Whalen said.
He said the government may decide that the only option to save some banks is to pay full price for the assets in exchange for equity, which could be sold later.
But that could be risky because if the government pays too high a price, it will be difficult if not impossible to go out and sell the assets for a profit in the future, meaning any losses incurred would be absorbed by taxpayers. But paying too little also is problematic because banks will be forced to take steeper losses that they may not be able to recover from.
"The government should be able to arrange to pick a price that helps the banks but also that allow the government to turn around and make a profit down the line," said Marvin Goodfriend, professor of economics at Carnegie Mellon University.
Economists see financial bailout as necessary
WASHINGTON (AP) -- The economy could suffer a massive hangover from the government's efforts to rescue the financial system in the form of a soaring debt burden. But the alternatives look infinitely worse.
The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.
To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.
The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.
The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms.
And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.
And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.
The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion.
The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.
It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.
Republican John McCain and Democrat Barack Obama are both running for president, making campaign promises about what new programs they will implement once in office, promises that could be severely constrained by the costs of a financial bailout.
The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. And then there is the matter of the country's large trade imbalances which mean the United States has to borrow $2 billion a day from foreigners.
Will foreigners still want to lend as much to the United States if there are concerns that all the borrowing could weaken the dollar's value against other currencies.
But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option.
"It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands.
The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.
The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.
What the administration's plan would do is at least establish a price for the mortgage-backed securities, which at the moment no one wants to own.
Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government -- say 50 cents on the dollar -- and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
"This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody's Economy.com, who has written a book on the mortgage meltdown.
And the final cost to the government?
No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.
In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls.
"Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower."
The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.
To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.
The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books.
The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president's first year in office, will hit $482 billion, a record in dollar terms.
And that forecast doesn't include the $200 billion the administration committed to spending two weeks ago when it took over the nation's two biggest mortgage companies, Fannie Mae and Freddie Mac.
And it doesn't have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.
The legislation Congress passed this summer that gave the authority to rescue Fannie and Freddie boosted the limit on the national debt by $800 billion to $10.6 trillion.
The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.
It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government's borrowing costs and the less it has to spend on other programs.
Republican John McCain and Democrat Barack Obama are both running for president, making campaign promises about what new programs they will implement once in office, promises that could be severely constrained by the costs of a financial bailout.
The escalating borrowing also means that the government is competing with the private sector for loans, driving up interest rates. And then there is the matter of the country's large trade imbalances which mean the United States has to borrow $2 billion a day from foreigners.
Will foreigners still want to lend as much to the United States if there are concerns that all the borrowing could weaken the dollar's value against other currencies.
But even with all these threats, economists said the government has to take decisive action because the alternative of letting the financial system slide into even deeper problems which could jeopardize the routine loans that businesses and consumers need was simply not an option.
"It was critical to arrest the downward slide in financial markets," said Sung Won Sohn, an economist at California State University, Channel Islands.
The dire situation was dramatically demonstrated this past week when the Federal Reserve, working with the central banks of other nations, poured billions of dollars into the financial system without any significant impact because of the fear keeping banks from lending.
The financial system has already been staggered with $500 billion in losses from the mortgage mess and the International Monetary Fund has estimated the ultimate price could be $1 trillion.
What the administration's plan would do is at least establish a price for the mortgage-backed securities, which at the moment no one wants to own.
Officials who have briefed Congress on Treasury Secretary Henry Paulson's plan have suggested that one approach would be for the government to buy the toxic debt through a reverse auction process in which companies wanting to unload their mortgage-backed securities would propose a price to the government -- say 50 cents on the dollar -- and those offering the lowest price would win the bid.
By establishing a price for assets no one currently wants to buy, it could allow a market to develop and allow financial firms to get on with the effort of taking their losses and getting the damaged assets off their books.
"This could go a long way toward solving these problems," said Mark Zandi, chief economist at Moody's Economy.com, who has written a book on the mortgage meltdown.
And the final cost to the government?
No one knows for sure, but Zandi said if the experience with cleaning up all the assets left over from the savings and loan mess is any guide, it should be less than the $700 billion that the administration is seeking.
In the S&L crisis, the government was able to recoup about two-thirds of its initial costs when it sold the assets it had obtained from the failed S&Ls.
"Obviously there is a big upfront cost to taxpayers," Zandi said, "but the ultimate cost may be measurably lower."
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