Monday, September 15, 2008

Financial Jitters In USA

Breaking News: Bank of America will buy Merrill Lynch. For John Thain to have to sell despite having sold tons of assets to try to remain afloat, tells me that if Merrill has to be sold, then those infected with toxic assets will have to be absorbed as well. It also looks like there won't be a similar bailout plan ala Bear Stearns. If ML has to be sold, then Lehman (which is in worse state) will have to declare bankruptcy. This will mean Washington Mutual, Suntrust and Wachovia will have a very high chance of being bought out in order to survive (in that order of likelihood).

Dealbook/WSJ/Bloomberg: The heads of Wall Street’s biggest firms descended upon the New York Federal Reserve on Saturday to figure out how to shore up the American financial system.

The extraordinary meeting, including the heads of Wall Street’s remaining investment banking giants, was covened to discuss options for Lehman Brothers, the faltering securities firm whose collapse could ripple throughout the global financial network.

Also weighing on the likes of Citigroup’s Vikram S. Pandit and Merrill Lynch’s John A. Thain were the troubles besetting the American International Group, the giant insurance company; Washington Mutual, the nation’s largest savings and loan; and Mr. Thain’s own firm.

Representatives from many other major firms were also present, including Morgan Stanley’s John Mack, Goldman Sachs’s Lloyd C. Blankfein, JPMorgan Chase’s James Dimon, Credit Suisse’s Brady Dougan, Bank of New York Mellon’s Robert Kelly and UBS Americas’s Robert Wolf.

Robert E. Diamond of Barclays, one of Lehman’s potential buyers, was seen entering the New York Fed’s employee entrance, clutching a briefcase. However Bank of America’s Kenneth Lewis, another potential bidder, was not present.

Government officials there included Treasury secretary Henry M. Paulson Jr. and New York Fed president Timothy Geithner, who together led the discussions. Securities and Exchange Commission chief Christopher Cox was also in attendance.

It was in some ways a replay of 1998, when Wall Street’s top executives were summoned to the same building to discuss plans for Long-Term Capital Management, the big hedge fund whose failing health similarly threatened the fragile financial network. Many recall one of the bitter ironies of today’s situation: Lehman then was considered in danger of failing, owing to its large exposure to Long-Term.

As one can imagine, heavy security surrounded the building where the heads of global finance had gathered for most of the day.

Formal talks broke off at 6 p.m., and Wall Street’s chiefs are expected to regroup at 9 a.m. on Sunday.

Comments: Well, it looks very likely that Lehman Brothers is a goner, and maybe Washington Mutual as well. The big banking unit that was predicted to fall, which was not mentioned in the above report, should very well be Wachovia. These developments will weigh heavily on financials in US and Europe. The Treasury and Federal Reserve would definitely try their hardest NOT TO BE seen as bailing out any more financials. Could see a run in USD if the bailouts were to be seen to continue. More bad assets will appear as collateral on Federal Reserve balance sheet.

p/s photo: Taw-Natoporn Taemeeruk

6 comments:

yj said...

Kenneth Rogoff, last month did gave a warning on this. He was spot on.

SecretGarden128 said...

Worst has yet to come. At the very least, I still anticipate the followings to happen in the next 15 months (we are only half way through) :

1. The break up of Citigroup - Vikram doesnt seem to be inspiring at all, comparing to Jamie

2. The collapse of Goldman Sachs - the only Investment bank which has the bulk of its revenue from trading (yeah, volatility is our friend. But luck will run out...)

3. To a lesser extent, the collapse of Macquarie Group (the sole survivor of the infrastructure model in Australia now)

clk said...

Goes to show audit no longer can capture events just 6 mths later...If I read correctly the Gorilla named, Fuld was paid a bonus of US$22m for 2007 results.

Really sinful $ and don't tell me he did not know this was coming!

Chowpiao said...

Malaysia is disappointed that the BoA-Lehman deal didnt go thru....They
would think the merged entity would then be called Boleh and the
Malaysian branch would then be called Malaysia Boleh...

Ivan said...

Dali,

Thanks for your posting. It seem the market is in the bearish moood. .

yoyo. . .
shall we short the market ?
short the DJIA?
shor the indicies?
short the finance stock?

oops! i not money. .that is for rich guy game like soros .. .
if i am not mistake, soros and Warrent Buffet mostly already make tons of $$$ from tsunmi..

secretgarden128- thank you for your sharing as well but how come insurance company not included? seem AIG is the 1st .. will it going bankrupt as well?


ivan

clk said...

Looking with a hindsight view one can imagine say a Board meeting 5 yrs ago in a typical I-Bank if one had not followed the crowd.

BOD members-why is our profit lower than the rest of our peers?

CEO- we decided not to participate in the high-risk mortgages, we believe its a bubble waiting to burst.

BOD members- you've been saying that the last BOD meeting, its now 2 meetings since and the profits reported by Mayril and APMorgain are much better than us. We want you to go in as well.

CEO-Yes boss!