Early Edition September 19 2008 at 01:30 PM Chi-Chu Tschang and Harry Maurer
Top Stories of the Week
Confidence-Boosters Lift Stocks
As Washington seemed to be moving at breakneck speed to craft a monster bailout for the financial system, investors around the world voted with their dollars. After sharp rallies in Asia and Europe, U.S. stocks headed for the skies as soon as the market opened, with the Dow up more than 400 points around 1:30 p.m. Even Russia's market, which had been shut for two days following precipitous drops, rose 16% after the government pledged $20 billion to prop stocks up.
Investors found reason for cheer on several fronts. The most important, of course, was the plan floated by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke for a bailout of the financial and housing sectors. Congress seemed inclined to pass the legislation by next week. News reports said officials were contemplating an $800 billion fund to buy "failed assets" from beleaguered banks and other institutions, and another fund to protect money-market fund shareholders (see item below). The SEC also slapped on a ban against short-selling the stocks of 799 financial companies, in a bid to stop the free-falling shares of such firms as Morgan Stanley and Goldman Sachs. And central banks in Europe pumped $90 billion in cash into the money markets in a bid to ease the credit freeze and quell liquidity fears.
Source: BusinessWeek
The Fed Will Rescue Money-Market Funds, Too
The Federal Reserve announced that it will expand its already unprecedented bailout efforts to money-market funds in an effort to reassure investors. It will use the discount window to lend up to $230 billion through banks to offset the billions in currently illiquid commercial paper held by many of the funds. The Fed is worried that the funds won't have enough cash on hand if nervous investors set off a massive wave of redemptions.
Source: Wall Street Journal
Morgan Stanley Considers Options
Faced with plunging share values, Morgan Stanley is considering several options including combining with Wachovia and taking in more investment by China's sovereign wealth fund. China Investment Corp. already took a $5 billion stake in the firm in December.
Source: Washington Post
Beijing Moves to Lift Markets
Following a 70% drop in China's stock markets over the last year, Beijing announced Thursday that it was scrapping the stamp tax on stock buys and would spend government money to lift Chinese bank shares. China's sovereign wealth fund will buy stakes in the Industrial and Commercial Bank of China, Bank of China, and China Construction Bank.
Source: Financial Times
Lehman Looks to Sumitomo Mitsui for Asset Sales
Lehman Brothers Holdings Inc. is in talks with Sumitomo Mitsui Financial Group about selling assets in an effort to save its Japan operation, sources have informed Bloomberg. Sumitomo Mitsui may also consider buying Lehman's assets elsewhere in Asia.
Source: Bloomberg
Southern California Foreclosures Drive Property Sales
Almost one-half of homes sold in Southern California in August had been repossessed, real estate tracking service MDA DataQuick reports. That helped drive prices down by 34% compared to the previous year to an average of $333,000.
Source: Los Angeles Times
SEC's Cox Catches Blame for Financial Crisis
Criticism of the Securities & Exchange Commission and its chairman, Christopher Cox, rose sharply on Sept. 18 as Republican Presidential candidate John McCain suggested he should be fired. "Mismanagement and greed became the operating standard while regulators were asleep at the switch," McCain said at a campaign appearance in Cedar Rapids, Iowa. "The chairman of the SEC serves at the appointment of the President and has betrayed the public's trust. If I were President today, I would fire him."
Source: BusinessWeek
Money Funds Hit by Credit Market Turmoil
Money-market funds, once considered the safest investments after bank deposits and Treasury debt, were hit hard on Sept. 18. Putnam Investments LLC in Boston said it closed the $12.3 billion institutional Putnam Prime Money Market Fund yesterday after receiving a surge of investor redemptions. It plans to return all cash to investors. Shares of State Street Corp. fell 9% after losing as much as 55% earlier in the session. Federated Investors, the fourth-largest money-fund manager, lost $3.41, or 11%, to $27.10 after being down as much as 44 %t. BNY Mellon declined $1.53, or 4.6 %, to $31.57 after dropping as much as 36 %. Money markets were swept into turmoil after the Reserve Primary Fund said Sept. 16 that losses on Lehman debt forced its net asset value below the $1-a-share price paid by investors.
Source: Bloomberg
Barclays May Pick Up More Lehman Assets
Barclays may also be interested in buying up some of Lehman Brothers' European and Asian holdings. The third-largest British bank has already offered to pay $1.75 billion for Lehman's investment banking, fixed income, and equities divisions in North America. Japan's Nomura Holdings is also said to be eyeing pieces of Lehman's European operations.
Source: Associated Press
Ranbaxy Hit by FDA Ban
Shares in India's biggest drugmaker fell sharply after the U.S. Food and Drug Administration on Sept. 17 banned more than 30 of its generic drugs . The FDA cited violations at Ranbaxy's drug processing facilities in India as the cause. The U.S. accounts for nearly a quarter of Ranbaxy's sales.
Source: Reuters
The Fed throws AIG a lifeline
The Fed authorized the Federal Reserve Bank of New York to lend up to $85 billion to AIG. The loan is the first step in a process by which AIG will restructure itself, selling off some of its businesses, and will be repaid with the proceeds from those sales.
Source: BusinessWeek
Samsung Makes $5.85 Billion SanDisk Offer
Korean giant Samsung Electronics offered $5.85 billion to buy Silicon Valley-based SanDisk. At $26 a share, the offer is 90% higher than SanDisk's closing price of $15.04. Shares rose in after-hours trading to almost $23. In a public letter on Tuesday, SanDisk chief executive Eli Harari rejected the proposal.
Source: New York Times
L.A. Times Employees Sue Paper's Owner
Charging the Tribune Co., the owner of the Los Angeles Times, and CEO Sam Zell with reckless mismanagement, current and former employees of the newspaper filed a lawsuit in Federal court in Los Angeles seeking class-action status on behalf of employees at the Times as well as other assets owned by Tribune. Company management declined to comment.
Source: Los Angeles Times
The Fed Holds the Line
Despite hopes in some quarters that the Federal Reserve would cut rates in light of the financial crisis, the central bank kept its benchmark rate at 2%. The Fed's statement noted that "strains in financial markets have increased significantly and labor markets have weakened further." So why didn't Ben Bernanke's band ease up on the reins? Because, as the statement continued, "inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities." Thus, "the inflation outlook remains highly uncertain." The Fed is also known to be reluctant to adjust rates just before an election, for fear of being accused of trying to influence the vote.
Source: New York Times
HP To Cut 25,000 Jobs
Hewlett-Packard plans to cut nearly 25,000 jobs, about half of them in the U.S., over three years as it moved to integrate Electronic Data Systems, the world's second-biggest information technology services company, into the computer conglomerate. The move adds to a string of bad employment news, including Monday's collapse of Lehman Brothers and recent job figures that showed the US unemployment rate rose to 6.1% in August, its highest level in five years. HP said employees at EDS, which is based in Plano, Texas, would account for "nearly all" the planned job cuts.
Source: Financial Times
BASF Bags Ciba
The rapidly consolidating chemicals industry saw another deal take shape today, as the world's biggest chemicals outfit, BASF, agreed to buy Switzerland's Ciba for $5.5 billion. That's a premium of 32% over the closing price on Friday. Ciba has struggled lately, and the move will give Germany's BASF a stronger presence in the market for paper additives.
Source: Bloomberg
Conversation of the Day: DAWN OF THE REREGULATION ERA?
Reader QuestionAuthority writes: "The current mess only proves that unregulated capitalism leads to abuse of the system. The question is if those in power will allow reregulation to happen."
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Hot Topic on the Business Exchange: Lehman Brothers
As the credit crunch hits the U. S. economy, Lehman is fighting to survive as an independent entity. Shirley Brady and others are sharing their insights.
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