Wall Street awakes to 2 storied firms gone...!

[Lucky13]

By JOE BEL BRUNO, CHRISTOPHER S. RUGABER and MARTIN CRUTSINGER, AP Business Writers
24 minutes ago

NEW YORK - When Wall Street woke up Monday morning, two more of its storied firms had vanished.

Lehman Brothers, burdened by $60 billion in soured real-estate holdings, said it is filing for Chapter 11 bankruptcy after attempts to rescue the 158-year-old firm failed.

Bank of America Corp. said it is snapping up Merrill Lynch Co. Inc. in an $50 billion all-stock transaction.

The demise of the independent Wall Street institutions came as shock waves from the 14-month-old credit crisis roiled the U.S. financial system six months after the collapse of Bear Stearns.

The world's largest insurance company, American International Group Inc., also was forced into a restructuring.

And a global consortium of banks, working with government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.

The aim, according to participants who spoke to The Associated Press, was to prevent a worldwide panic on stock and other financial exchanges.

Ten banks — Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS — each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."

The Federal Reserve also chipped in with more largesse in its emergency lending program for investment banks. The central bank announced late Sunday that it was broadening the types of collateral that financial institutions can use to obtain loans from the Fed.

Federal Reserve Chairman Ben Bernanke said the discussions had been aimed at identifying "potential market vulnerabilities in the wake of an unwinding of a major financial institution and to consider appropriate official sector and private sector responses."

Futures pegged to the Dow Jones industrial average fell more than 300 points in electronic trading Sunday evening, pointing to a sharply lower open for the blue chip index Monday morning. Asian stock markets were also falling.

The stunning weekend developments took place as voters, who rank the economy as their top concern, prepare to elect a new president in seven weeks. It likely will spur a much greater focus by presidential candidates — Republican John McCain and Democrat Barack Obama — and members of Congress on the need for stricter financial regulation.

Samuel Hayes, finance professor emeritus at Harvard Business School, said the Bush administration may get a lot of blame for the situation, which could benefit Obama.

"Just the psychological impact of this kind of failure is going to be significant," he said. "It will color people's feelings about their well-being and the integrity of the financial system."

Lehman Brothers' announcement that it is filing for bankruptcy came after all potential buyers walked away. Potential suitors were spooked by the U.S. Treasury's refusal to provide any takeover aid, as it had done six months ago when Bear Stearns faltered and earlier this month when it seized Fannie Mae and Freddie Mac.

Employees emerging from Lehman's headquarters near the heart of Times Square Sunday night carried boxes, tote bags and duffel bags, rolling suitcases, framed artwork and spare umbrellas. Many were emblazoned with the Lehman Brothers name.

TV trucks lined Seventh Avenue opposite the building, while barricades at the building's main entrance attempted to keep workers and onlookers from gumming up the steady flow of pedestrians flowing in and out of Times Square.

Some workers had moist eyes while a few others wept and shared hugs. Most who left the building quietly declined interviews.

People snapped pictures with cameras and their phones. Observers pressed up against a police barricade drew the ire of one man who emerged from the building and shouted: "Are you enjoying watching this? You think this is funny?"

Merrill Lynch, another investment bank laid low by the crisis that was triggered by rising mortgage defaults and plunging home values in the U.S., agreed to be acquired by Bank of America for .8595 shares of Bank of America common stock for each Merrill Lynch common share.

Bank of America did not give a per-share price on the deal but earlier, a person briefed on the transaction listed its at $29 a share. That would be a 70 percent premium on Merrill's Friday closing price of $17.05, but well below what the brokerage was worth at its peak in early 2007.

Charlotte, N.C.,-based Bank of America has the most deposits of any U.S. bank, while Merrill Lynch is the world's largest brokerage. A combination of the two would create a global financial giant to rival Citigroup Inc., the biggest U.S. bank in terms of assets.

Strategically, most industry analysts say it's a good fit. If the deal goes according to plan, Bank of America will be able to offer Merrill's retail brokerage services to its huge customer base. There is not a great deal of overlap between the two companies — Bank of America does have an investment bank already, but it has never been terribly strong.

 

[Lucky13]

Where there is duplication, however, the combination of the two companies could result in more layoffs. Both Merrill and Bank of America have already cut thousands of investment banking jobs over the past year.

The deal would not come without risks, however. Merrill Lynch, like many of its Wall Street peers, has been struggling with tight credit markets and billions of dollars in assets tied to mortgages that have plunged in value. Merrill has reported four straight quarterly losses.

Bank of America's own finances are far from robust. As consumer credit deteriorates, the bank has seen its profits decline, and the company is still in the midst of absorbing the embattled mortgage lender Countrywide Financial, which it acquired in January.

Insurer AIG, hit hard by deterioration in the credit markets, said Sunday it is reviewing its operations and discussing possible options with outside parties to improve its business after a week when its stock dropped 45 percent amid concerns about the company's financial underpinnings. It was working with New York Insurance Superintendent Eric Dinallo and a representative of the governor's office through the weekend to craft a solution that protects policyholders, according to Dinallo's spokesman David Neustadt.

"It's clear we're one step away from a financial meltdown," said Nouriel Roubini, chairman of the consulting firm RGE Monitor.

The meetings that began Friday night were a who's who of financial heavyweights: Treasury Secretary Hank Paulson, Timothy Geithner, president of the New York Fed, Securities and Exchange Commission Chairman Christopher Cox, and a host of CEOs, including Vikram Pandit of Citigroup Inc., Jamie Dimon of JPMorgan Chase Co., John Mack of Morgan Stanley, Lloyd Blankfein of Goldman Sachs Group Inc., and Merrill Lynch Co.'s John Thain.

For all their efforts, Lehman appeared ready to file for bankruptcy.

The end of Lehman may not stop the financial crisis that has gripped Wall Street for months, analysts said. More investment banks could disappear soon.

The independent broker-dealers "are going the way of the dodo bird," said Bert Ely, an Alexandria, Va.,-based banking consultant.

That's partly because some of the firms, particularly Merrill, made bad bets on real estate. But several analysts said that investment companies will need the deep pockets of commercial banks to survive the next few years.

On Sunday, there was also an emergency trading session being held at the International Swaps and Derivatives Association to "reduce risk associated with a potential Lehman Brothers Holdings Inc. bankruptcy." The ISDA, which arranges trades for derivatives, said it was allowing customers to make trades and unwind positions linked to Lehman.

Roubini said it's difficult to accurately gauge the health of companies like Merrill because their financial health depends on how they value complex securities. As a result, their finances aren't very transparent, he said.

That can lead to a loss of confidence in the financial markets, he said, which can overwhelm an investment bank even if it is financially healthy by some measures.

"Once you lose confidence, the fundamentals matter less," he said.

The common denominator of the financial crisis, analysts said, is the bursting of the housing bubble. Home prices have dropped on average 25 percent so far. Roubini predicted they could drop another 15 percent.

The crisis has begun to slow the broader economy as banks make fewer loans and consumers have begun cutting spending. Many economists are now forecasting that the economy could slip into recession by the end of this year and early next year.

That, in turn, could cause additional losses for commercial banks on credit cards, auto loans and student loans.

The Fed is widely expected to keep interest rates steady at 2 percent, below inflation, when it meets Tuesday. It was possible, however, that the central bank might decide in coming weeks to cut rates if such a move is seen as needed to calm turbulent financial markets.

The International Monetary Fund predicted earlier this year that total losses from the credit crisis could reach almost $1 trillion. So far, banks have only taken about $350 billion in losses.

Commercial banks are also starting to feel the pinch. Eleven have closed so far this year, including Pasadena, Calif.-based IndyMac Bank, which had $32 billion in assets and $19 billion in deposits.

Christopher Whalen, managing director of Institutional Risk Analytics, a research firm, predicts that approximately 110 banks with $850 billion in assets could close by next July. That's out of 8,400 federally insured institutions, he said, which together hold $13 trillion in assets.

Individual customers are starting to get nervous about the financial health of their banks for the first time in generations, he said. Whalen's firm analyzes the safety and soundness of banks for business clients, but began receiving inquiries from individuals in the past two months for the first time, he said.

"If we don't get ahead of this, we are going to face a run on the retail banks by election day," he said.
___

AP Business Writers Madlen Read, Tim Paradis and Stephen Bernard in New York, Martin Crutsinger in Washington, Ieva Augstums in Charlotte and Michael Liedtke in San Francisco contributed to this report.

 

[timshatz]

Yeah man, this is bad. 4 firms out of business in the last week (Lehman, Freddy, Fanny and Merrill) with one on the rocks (AIG). The IB (Investment banks) going tits up are somewhat understandable. Same with Freddie and Fanny, they are the lender of last resort and ended up with a portfolio of unknown worth.

But AIG going down (if it happens) means the contagin is spreading. AIG is in insurance. That is their main line. If it's gotten into the insurance industry, it's only a matter of time before it gets into Commercial Banks. Something of a cascading failure going on. And nobody knows where it will stop.

I honestly thought we were going to ride it out ok about mid July. But the last two months have shown me this thing has plenty to go. The Fed tried to stop it with Bear Sterns, now I really don't think there is a lot they can do. There is too little money (known as liquidity) out there for all the debts. That leads to bankruptcy.

As much as it is hitting the US, expect it to be as bad if not worse in Europe. They are in the same boat but are hiding it for now. Whistling past the graveyard. I don't know if banks in Europe have deposit insurance, but it would be a good idea if you found out if your bank does and to what limit it goes.

 

[wilbur1]

oh great

 

[Thorlifter]

It's very scary that the U.S. Government is now the largest loan holder in the U.S. That's just screams socialism. You know if you miss a payment that the government can now forclose on your property.

 

[timshatz]

Yeah, with the temporary takeover of Freddie and Fanny, that's about the way it is. The desire is for it to be a short one but I can't see it being anything less than 2 years minimum.

What bothers me is, again, Europe. Consider this. The GNP for Switzerland is about 450 Billion. The total portfolio of Credit Suisse is about 650 Billion. What happens if Credit Suisse goes in the tank (Keep in mind the total portfolio of both Bear Stearns and Lehman Brothers was about 500 billion a piece so banks of that size do fail)?

I guess it is technically possible to bankrupt a country in this thing.

 

[ccheese]

I think this is only the beginning. First Freddie Mac then Fannie Mae. Now
two of the biggest names in the business. There are going to be a lot of
banks.... both large and small, going down the tubes because of bad banking
practices and the lousy economy.

Wonder who's to blame ????

Charles

 

[syscom3]

Wonder who's to blame ????

Dont tell me all those financial wizards who ran the banks didnt hear those mortgage loan ads on the radio offering loans for people with no credit and no stated income. And dont tell me they were not warned about the unsustainability in the home price to income ratios.

The executives ran their institutions into the ground because of extremely poor mangement and greed that was not held in check.

I hope some of them go to jail for the havoc they created.

 

[timshatz]

We're pretty much all in the same pot on this one. Not a recent event, just the coming home to roost of a lot of chickens that've been out there for the last 30-40 years. Industrial base declining while the economy is growing? Even when you factor in the computer revolution, it still doesn't add up.

Cheap credit, people using their homes as ATMs, derivatives (puts, calls, swaps) without regulations, overleveraging, increasing costs of healthcare, education and just about everything beyond that of inflation, ect. Man, the list goes on and on when it comes to blame. Everybody's name is on the list and we are all going to feel the affects.

Long party, it's over and now comes the hangover.

 

[Freefalling]

I used to work for Merrill in one of their IT departments. The former CEO Stan O'Neal with the concurrence of the board made some very, very poor decisions that ultimately cost ML about 40 billion in writeoffs. O'Neal and company would leave the company with tens of millions of dollars for a severance package. I saw the writing on the wall back in May and elected to leave ML to come to Afghanistan. We can't legislate stupid decisions and people out of the equation, but I wish we could.

 

[Lucky13]

By TOMOKO A. HOSAKA, Associated Press Writer
23 minutes ago



TOKYO - Asian stock markets plummeted Tuesday as the collapse of Lehman Brothers and takeover of Merrill Lynch spurred fears of an imminent global financial crisis.

European markets extended losses in early trading after falling sharply Monday.

Tokyo's Nikkei 225 index sank nearly 5 percent to 11,609.72, its lowest close since July 2005, while Hong Kong's blue-chip Hang Seng Index shed 5.4 percent to its lowest point in nearly two years. Both markets — Asia's two biggest — had been closed for holidays on Monday, when news first broke about the turmoil on Wall Street that has dramatically changed its landscape.

"Today was a bloodbath," said Alex Tang, head of research at Core Pacific-Yamaichi, who noted that trading volume was its highest in months. "This was panic selling ... They are dumping shares, they just want to liquidate their positions."

South Korea's main index slumped 6.1 percent, Taiwan's benchmark was off 4.9 percent, and China's Shanghai index dropped 4.5 percent to a nearly two-year low. But markets in India and Indonesia managed to eke out gains.

To ensure liquidity, Japan's central bank on Tuesday injected of 2.5 trillion yen (US$24 billion) into money markets and issued a statement vowing to take measures to maintain stability in the country's financial markets.

The dollar also took a hard hit, sinking to 103.83 yen Tuesday afternoon in Asia from mid-107 yen levels before the weekend.

In Europe, Britain's FTSE 100 was down 1.5 percent in morning trading and France's CAC-40 slid 1.4 percent.

The Japanese unit of Lehman Brothers Holdings Inc. on Tuesday sought bankruptcy protection at a Tokyo court after the 158-year-old firm filed for Chapter 11 bankruptcy in New York the previous day.

Desapite a flurry of last-minute negoatiations over the weekend, the storied New York investment bank was unable to find an investment parter to throw it a lifeline amid US$60 billion in soured real-estate holdings.

Investors were further shaken by equally stunning news that Merrill Lynch, one of the world's most famous brokerages, sought to avoid a similar fate with a $50 billion transaction to become part of Bank of America Corp.

Indeed, the crisis appeared to be far from over. American Insurance Group, the world's largest insurer, was fighting for its survival after downgrades from major credit rating firms, adding pressure as AIG seeks billions of dollars to strengthen its balance sheet.

On Wall Street Monday, the Dow Jones industrial average fell more than 500 points, or 4.4 percent, to 10,917.51 — its worst point drop since after the September 11, 2001, terror attacks.

U.S. stock futures were down modestly, suggesting Wall Street could fall further Tuesday.

The Tokyo Stock Exchange halted securities and derivatives trading by Lehman Brothers a day after Japan's financial watchdog ordered its local unit to suspend operations.

Regulators in Hong Kong also announced they were restricting Lehman's trading activities, allowing the firm to deliver securities to clients for any trades in the last two days and to settle any outstanding futures positions with clients by day's end.

South Korea's financial regulator suspended some operations of two local units of Lehman Brothers.

Financial issues faced intense selling pressure across Asia in the wake of Lehman's demis.

In Tokyo, investors unloaded shares in institutions named as some of Lehman's biggest lenders, including Aozora Bank Ltd., Mizuho Corporate Bank Ltd., Shinsei Bank Ltd. and Mitsubishi UFJ Financial Group, Inc.

Aozora, a midsize Tokyo-based bank, lost 15.8 percent to 171 yen, even as the company in a statement sought to reassure markets that its net exposure could be reduced to less than US$25 million compared with an initially reported figure of US$463 million.

Mizuho Financial Group, Inc., the parent company of Mizuho Corporate Bank, retreated 10.7 percent to 418,000 yen.

Shinsei lost 16 percent to 314 yen, and Mitsubishi UFJ Financial Group tumbled 7.7 percent to 792 yen.

In China, the overnight debacle on Wall Street outweighed any positive impact from a decision by China's central bank late Monday to cut a key lending rate.

"Almost all the banking shares dropped by nearly 10 percent today because investors don't think the interest rate cut will really boost the market," said Wang Xiaodong, deputy manager of United Securities in Beijing.

Industrial Commercial Bank of China, the country's biggest lender, fell by the daily 10 percent limit to 3.80 yuan, while Bank of China dropped 9.2 percent to 3.17 yuan.

Australia's banks, including Commonwealth Bank of Australia, ANZ Banking Group and National Australia Bank Ltd., were also hit hard.

In Seoul, top lender Kookmin Bank shares slid 8 percent. Hong Kong's HSBC weakened 3.4 percent, while China Construction Bank tanked 8.2 percent to HK$5.15.

Hong Kong government officials said they were keeping a close eye on the markets.

"We know Hong Kong has a good monitoring system in place. I believe all monitoring agencies will make sure trading is conducted smoothly today," said Chan Ka-keung, secretary for financial services and treasury.

A wilting dollar compounded the heavy sell-off, dragging down major exporters like Toyota Motor Corp., which declined 3.8 percent and home appliance producer Matsushita Electric Industrial Co., which fell 6.18 percent.
___

Associated Press writers Kelly Olsen in Seoul, South Korea, Ray Lilley in Wellington, New Zealand, Rohan Sullivan in Sydney, Australia, Mari Yamaguchi in Tokyo, Jeremiah Marquez in Hong Kong and Elaine Kurtenbach in Shanghai contributed to this report.

 

[Thorlifter]

Oh goody! I should be another wonderful day on Wall Street!

 

[timshatz]

Look out for AIG. If that tanks, it will be worse than Lehman. They are a huge insurer and with fingers in everyone's pie. Last night, the downgrades by ratings agencies started. That means it cost more for them to insure debt, which means they have to raise more capital which means they have greater cash needs, ect, ect. Downward spiral towards bankruptcy.

Further, other wall street IBs are coming out and saying the failure of Lehman means they have bad debt on their books.

Let's hope this thing doesn't cascade.

 

[ToughOmbre]

My IRA is taking a beating!

TO

 

[Thorlifter]

I refuse to look at my 401k.

 

[ccheese]

I heard this morning that AIG Insurance company may be next !! That's
one of the biggest life insurance companies in the country !! Guess it's
time for another government 'good ole boy' bailout....

Charles

 

[timshatz]

I used to work for Merrill in one of their IT departments. The former CEO Stan O'Neal with the concurrence of the board made some very, very poor decisions that ultimately cost ML about 40 billion in writeoffs. O'Neal and company would leave the company with tens of millions of dollars for a severance package. I saw the writing on the wall back in May and elected to leave ML to come to Afghanistan. We can't legislate stupid decisions and people out of the equation, but I wish we could.

Stan O'Neal wrecked Merrill. No two ways about it. If the guy set out to destroy the company, he couldn't have done a better job. Got rid of talent, isolated himself and got some weird kind of Stalinist paranoia. Then he walks away with all the green.

Guy oughta be in jail.

 

[timshatz]

I heard this morning that AIG Insurance company may be next !! That's
one of the biggest life insurance companies in the country !! Guess it's
time for another government 'good ole boy' bailout....

Charles

Don't think it's going to happen. The Bear Sterns act was an attempt to stop this in it's tracks and the Feds have realized it didn't work. These guys are just going to have to fail.

Everybody is going to get wet on this one. But, on the good side, people that get their hands dirty when they go to work are going to be the best off. This act is killing the suits but not hitting little guys. At least not yet. They'll feel it but the damage won't be as bad as for the suits.

For the suits, this is the Somme.

 

[ToughOmbre]

I refuse to look at my 401k.

Yea, I ain't lookin' any more either!

TO

 

[timshatz]

On the good side, this is going to kill a number of Liberal News Organizations out there. Combine declining readership with increased costs, and some of these turkeys are going to be gone. Read today that the Philadelphia Inquirer can no longer even pay the interest on their debt.

Couldn't happen to a better group of lefties. Later dude!