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Wall Street Breakfast: Must-Know News
Dear readers: Please note there will be no Wall Street Breakfast on Tuesday or Wednesday. We'll be back on Thursday.
- Bailout blueprint. Details of the government's $700B Wall Street bailout were 'frozen' Sunday, to enable Congress to begin voting on the bill, which leaves much of the bailout's mechanics at the discretion of the Treasury, Monday. The Treasury seeks to become market-maker for troubled mortgage-backed assets held by U.S. banks and some other financial institutions, thereby enabling firms to offload toxic holdings and bring life back to their balance sheets. The government could get approval for $250B immediately, $100B more if necessary, and the last $350B as long as Congress doesn't block it. The plan imposes some curbs on executive compensation at participating firms, including a ban on 'golden parachutes.' The Treasury will receive warrants for preferred shares in beneficiary firms, enabling taxpayers to share in the upside. Bush budget chief Jim Nussle thinks the measure will cost taxpayers considerably less than $700B (some think the White House will turn a profit). Rep. Barney Frank, the House Financial Services Committee chairman, predicts the measure would pass, though not by a large majority.
- Fed gains deeper control of short-term rates. The proposed bailout plan gives the Fed added control over short-term interest rates by allowing the Fed to pay interest on reserves deposited by financial institutions - encouraging banks to deposit excess funds with the Fed rather than dumping them into money markets and distorting the overnight federal funds rate. Former Fed policy advisor Marvin Goodfriend likes the measure, which he says will "enable the Fed to have credit policy that's independent of its monetary policy." Until now, the Fed indirectly achieved its target by buying or selling bonds on the open market. Paying interest on reserves puts a floor on the overnight rate, allowing the central bank to inject liquidity without driving down rates.
- More help for homeowners. The bailout plan as agreed on by Congress includes more aggressive steps to help homeowners, requiring the government to work to reduce loan balances and interest rates and to minimize foreclosures. Until now, most government efforts to help home owners have relied on voluntary measures by mortgage lenders. Critics say this approach hasn't helped, and some economists argue that direct government involvement could be a windfall for all taxpayers - including those who pay their mortgages on time.
- Vultures look to one-up Treasury. Vulture investors, who've been eyeing distressed assets for months, are likely to become more aggressive even as the Treasury implements its rescue plan. Vultures say they offer an advantage to some sellers, because unlike the government, they place no restrictions on executive compensation and don't demand stock warrants. Others, however, remain sidelined: they're unconvinced the government plan will cut a clear path for pricing the illiquid assets - which has been a sticking point on potential sales until now.
- Wachovia in talks with buyers. After its shares fell 27% on Friday amid concerns about its mortgage assets, Wachovia (WB) held weekend talks with Citigroup (C) and Wells Fargo (WFC) to sell itself. By late Sunday evening, Wells Fargo appeared to be the more likely buyer, and sources familiar with the situation said the two firms were in advanced discussions. Though officials from the Federal Reserve and Treasury are involved with the negotiations as well, trying to push Wachovia to seal a quick deal to prevent further erosion of its deposit base, the government stopped short of offering financial guaranties to the buyer.
- U.K. seizes struggling bank. Unable to obtain credit and weighed down by troubled mortgage assets, Bradford & Bingley, the U.K.'s largest lender, was nationalized by the U.K. government. Spanish bank Santander (STD) will buy B&B's £21B deposit book and branch network for around £600M. The government will pay around £14B to enable the transfer to Santander, and another £4B to protect deposits not covered by the compensation plan.
- Fortis gets three-way bailout. Fortis, the largest Belgian financial-services firm, received a $16.3B rescue from three countries in the biggest European bailout since the credit crisis began. In exchange for the capital, Belgium will receive a 49% stake in Fortis' Belgian banking unit, the Netherlands will receive a similar stake in the Dutch banking unit, and Luxembourg will receive a 49% stake in convertible-shares in Fortis' Luxembourg banking unit. Fortis will also sell its stake in ABN Amro's consumer banking unit, but did not identify a buyer.
- ImClone's mystery suitor. Imclone (IMCL) is expected to announce today that it is in ongoing negotiations to sell itself to a major pharmaceutical firm for around $6.1B. ImClone has not named the mystery suitor, though speculation has focused on Pfizer (PFE) and possibly Eli Lilly (LLY). Sources close to the situation said a deal could be reached within days. Last week, ImClone rejected an improved $62/share bid from Bristol-Myers (BMY), calling the bid too low.
- MUFG nears Morgan purchase. Mitsubishi UFJ (MTU), Japan's biggest bank by market capitalization, is closing in on a deal to buy a 20% stake in Morgan Stanley (MS) for $8-9B. An announcement is expected shortly.
- Lehman's failure still causing global damage. In hindsight, Lehman Brother's failure turned out to be costlier than almost anyone imagined. Lehman's Sept. 15 bankruptcy filing set off a chain reaction in credit markets, accelerating the demise of insurance giant AIG (AIG) and causing widespread losses. The mayhem pushed Goldman Sachs (GS) and Morgan Stanley (MS) to become bank-holding companies, and ultimately prompted the government's $700B rescue plan. Financial repercussions from the fallout are still echoing globally. Some critics argue the systemic crisis of the last two weeks could have been avoided if the government had stepped in to rescue Lehman.
- Goldman pushing to expand. Goldman Sachs (GS), now a bank-holding company, is looking to buy up to $50B in assets from troubled U.S. banks as part of its transition into commercial banking. Goldman wants to expand its deposit base through acquisitions.
- Goldman denies AIG vulnerability. Goldman Sachs (GS) called a NY Times story that claimed it had about $20B in exposure to troubled insurance giant AIG (AIG) 'seriously misleading.' The report said Goldman was AIG's biggest trading partner, and that its potential collapse could saddle Goldman with a massive loss - in contrast to a recent comment by Goldman CFO David Viniar that the firm's exposure to AIG was immaterial. "For the avoidance of doubt, our exposure to AIG is offset by collateral and hedges and is not material to Goldman Sachs in any way," a Goldman spokesman said Sunday.
- AIG gets ready to slim down. Trying to repay an $85B government loan, AIG (AIG) may sell between 15-20 of its businesses, including its aircraft leasing unit, a stake in a large reinsurer and billions of dollars worth of properties. Media reports say it has agreed to sell a 25% stake in the London City Airport for about £250M to Global Infrastructure Partners, whose shareholders include Credit Suisse (CS) and GE (GE). AIG's Asian operations may be attractive to Aviva, ING Group (ING), China Life (LFC) and HSBC (HBC). Bidders on other assets could include Zurich Life, Allianz (AZ), AXA (AXA) and Swiss Re (SWCEY.PK).
- AT&T re-directs to new sat-TV provider. AT&T (T) switched its satellite-TV provider to DirecTV Group (DTV) from Dish Network (DISH). DirecTV now has deals with all the major U.S. phone companies. Dish, on the other hand, no longer has deals with any phone companies, calling into question the company's prospects. Dish has stumbled recently, posting a loss in subscribers, failing to move aggressively into hi-def programs and remaining overly focused on the low end of the market.
- Hedge fund hemorrhage. The $2T global hedge fund industry will shrink sharply as leverage becomes scarcer and more expensive, the world's largest hedge fund allocator says. 33-40% of funds may go dry, with arbitrage funds - which rely heavily on leverage - hardest hit. "I would not be surprised if, 12-18 months down the line, the $2T had become $1.5T," Christophe Bernard says. "There are too many weak players." 350 funds shuttered in H1, vs. 563 in all of 2007. "Darwinism is survival of the most adaptable. Those that can change to meet the current circumstances will do well and those that can't will go to the wall."
- Liquidity still scarce. The central banks of Japan, Australia and the ECB pumped billions of dollars and euros into money markets Monday as more financial institutions run into trouble both in the U.S. and abroad.
- The pound gets pounded. The pound took its biggest beating against the dollar in 15 years after the U.K. nationalized troubled lender Bradford & Bingley. The pound also fell against the euro as U.K. mortgage approvals hit nearly ten-year lows.
Today's Markets
- Asia markets struggled Monday. Nikkei -1.26% to 11,744. Hang Seng -4.29% to 17,881. BSE -4.89% to 12,461. Shanghai closed.
- Europe is deep in the red. London -2.85%. Paris -2.75%. Frankfurt -2.65%.
- Futures have not managed to muster any strength. Dow -1.62%. S&P -1.71%. Nasdaq -1.91%. Crude -3.1% to $103.58. Gold +0.39% to $892.80.
Monday's Economic Calendar
- 8:30 Personal Income and Outlays
3:00 PM Farm Prices
8:45 PM Fed's Hoenig speaks on U.S. economy - Notable earnings before Monday's open: CC, WAG
Seeking Alpha editor Rachael Granby contributed to this post.
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This article has 22 comments:
- eddie64
- 56 Comments
Sep 29 08:49 AM[1] Imposes "some curbs" on Exec comp........
[2] Taxpayers to "share" in any profits.......... with ACORN??????
[3] Treasury Dept still Market Maker...........
[4] Vulture Investors.........Full Disclosure when they buy????????
[5] SARBOX & FASB 157 not addressed to stop hemmorraging.......
[6] No contribution from Billionaires/Millionai... $11 Trillion.........
[7] No change to SEC UPTICK RULE & NAKED SHORTING!!!!!!!
****As one honest expert stated Sunday, TAXPAYERS ARE THE SUCKERS..............A...
Americans who are investors in stock market instruments need to take this opportunity to reevaluate their financial positions and consider preservation of capital as #1 priority well above gains/risks..............
Don't let this happen to you again, as it will, because nothing has happened to the GREED MERCHANTS or the GAMES OF WALL STREETS WORST PLAYERS!!!!!!!!
IMHO
- axelrod608
- 177 Comments
Sep 29 09:27 AM- Billgls
- 7 Comments
Sep 29 09:33 AMI believe the most important thing I heard last week in the debate between the two men applying for President was Senator McCainʼs promise of accountability.
We have at least two elected congressional representatives that were charged with oversight of Fanny Mae and Freddy Mac, Senators Dodd and Representive Barney Frank that took favors and were negligent of duty, an act as serious as or more serious than a soldier, sailor or marine sleeping on watch.
At least one Senator that wants to be President, Obama, that has taken large sums of money and favorable loans from Fanny Mae and/or Freddy Mac and has a potential felon, Franklin Raines, CEO of the Fanny Mae, as an advisor on his Campaign board. Of course, the CEO should be tried and sent to a dark damp dungeon and the publically elected Senators and Congressmen that are guilty of malfeasance of duty tried and sent to an adjoining dungeon to the CEOs.
We citizens of the United States of America deserve the right to impose punishment upon any miscreant elected official and or his staff.
- notsosmart
- 1078 Comments
Sep 29 10:04 AM- Jersey
- 50 Comments
Sep 29 10:12 AM- Jersey
- 50 Comments
Sep 29 10:14 AM- axelrod608
- 177 Comments
Sep 29 11:34 AM- selene
- 54 Comments
Sep 29 12:02 PMFrom Newsweek:
Never mind the fact that Raines never actually advised Obama on anything. The real problem here is that McCain's campaign is swarming with 26 advisers or fundraisers who have lobbied for Fannie Mae or Freddie Mac--including nearly a dozen who lobby right now. As the Washington Monthly's Steve Benen wrote last week, "one of McCain's top policy advisers, Charlie Black, was lobbyist for Freddie Mac for 10 years, while his campaign manager, Rick Davis, lobbied to help Fannie and Freddie steer clear of additional federal regulations [and earned $2 million in the process]... Tom Loeffler, who serves McCain's campaign co-chairman, also lobbied for Fannie Mae. Aquiles Suarez, a McCain economic adviser, was a Fannie Mae executive. Dan Crippen, a McCain adviser who helped craft the campaign's health-care policy, lobbied for Fannie Mae (and Merrill Lynch). Arthur B. Culvahouse, who helped lead McCain's VP search committee, also lobbied for Fannie Mae." According to former Fannie Mae executive William Maloni, "photographs of Sen. McCain's staff... loo[k] to me like the team of lobbyists who used to report to me." Without these ties--which are far more extensive than Obama's--McCain would have every right to say that associating with officials from troubled financial institutions is a sign of bad judgment. Again, it's not like Obama's hands are spotless. But with them, McCain offers Obama an otherwise unavailable opportunity to remind voters that McCain's own judgment--at least by McCain's own standards--is worse. So much for "no seat... at the table."
www.blog.newsweek.com/...
- rightinsanfrancisco
- 169 Comments
My Website
Sep 29 12:22 PM- Froggie
- 3 Comments
Sep 29 12:38 PM- Fastcad
- 21 Comments
Sep 29 02:00 PM- Econ 101
- 46 Comments
Sep 29 02:22 PM"This" started a long toime ago. In 1990 congress repealed Glass Seagal allowing the banks to increase leverage from 12 to 1 to anything to 1. The congress pushed racist policies to force lenders to lower lending standards to put unqualified minorities into homes they couldnt aford. The fed then dropped interest rates and a boom in home speculation put homnest people out of the housing market.
BOTH the republics and and democrats caused this, they are just thieves put in charge of the bank
- axelrod608
- 177 Comments
Sep 29 02:24 PMIt gives the Secretary of the Treasury authority to hire staff and appoint outside companies as agents of the federal government. Or, as I've said all along, it promotes the chief arsonist - Paulson - to Fire Chief. And you can be certain his old company Goldman Sachs is about to become an agent of my/our federal government.
The provisions early in the "act" on golden parachutes and bonuses are 1) no golden parachute payable while Treasury is holding any assets of the company, and 2) that return of bonuses/overpayment can only be effected if there is material evidence of misrepresentation in the company financials. Bet you're thrilled about that tough stance.
Market "transparency&quo... is limited to "type of financial institution". All the bank assets lumped together, etc. There is no language in the entire act requiring identification of individual asset with the company it came from. Perhaps we could change it to "opacity".
There will be additional costs. $50,000,000 was appropriated to fund a special investigator general. More funds were approved for pay, expenses and reimbursement of oversight boards.
The national debt is increased to $11,315,000,000,000. (It was under $5T when George II took office) "Way to go, Georgie !!"
The last 12 pages cover tax treatment of exec compensation and "golden parachute" provisions. Gobbledegook, all. You'd have to be a tax attorny to understand it.
In the middle there's a dozen pages of changes and modifications to Roberts Rules of Order to cover this act.
Basically, it is misnamed. It should be. "The Incompetent Financial Executives Employment Continuation Act and Exemption From Examination of Insolvent Businesses' Accounting by Forensic Accountants Act of 2008.
The differences between the proposed act and the Bankruptcy act are minimal. The major differences are that the fat cat perps who created this mess get to keep their jobs and they get to keep their hidden assets and liabilities hidden.
What a country.!! They could have just used the $700B to loan to SOLVENT businesses if available lines of credit were what was needed. Instead they're going to pour it into INSOLVENT financial companies and take the increasing risk that they will fail anyway and take the $700B along with them.
"We're from the Federal Government and we're here to help you". Please don't. Please....
- woodsey
- 101 Comments
Sep 29 02:36 PM- hkn
- 6 Comments
Sep 29 03:47 PM- hkn
- 6 Comments
Sep 29 03:50 PM- hkn
- 6 Comments
Sep 29 03:53 PM- vjrvsnl@gmail.com
- 3 Comments
Sep 29 10:35 PMPeople let down . made poorer.
who is responsible. Those who present the balance sheet of banks companies. Those who make it. Those Audit firms which certify them
are to be crucified first.
People are cheated by these Audit firms and controller and regulators
of stocks which allow theses kind of statements without checking the fundamentals.
God save this universe..
- zanardm
- 33 Comments
Sep 30 01:19 AMHedge fund hemorrhage. The $2T global hedge fund industry will shrink sharply as leverage becomes scarcer and more expensive, the world's largest hedge fund allocator says. 33-40% of funds may go dry, with arbitrage funds - which rely heavily on leverage - hardest hit. "I would not be surprised if, 12-18 months down the line, the $2T had become $1.5T," Christophe Bernard says. "There are too many weak players." 350 funds shuttered in H1, vs. 563 in all of 2007. "Darwinism is survival of the most adaptable. Those that can change to meet the current circumstances will do well and those that can't will go to the wall."
course every one gets a markup, accept for us. Just say know to bailing out hedge funds and their associates. Also long term consider dual currencies like in Europe; that is, eurodollar as well as greenback Does anyone want a bailout of Hedge funds? Totally unregulated - you know why. So they can all be bankrupt; but will find out at a pro forma mark to market once a year maybe. Hedge can cleverly unload and toxic holdings such as mortgage backed bonds etc. to another more open firm, which then can unload such holdings to the gov. Also introduce dual currencies, such as eurodollar for currency and accounting. Not so different from American firms in the City in London? Hence competition, wherein we trust the stability of the eurodollar more than what the politicians have done to our currency (-30%), which results in a 30% premium on our number one import, oil. We must have less government spending, in order to restore confidence in our currency and bonds, for a debtor nation. Nice work House.
- zanardm
- 33 Comments
Sep 30 01:23 AM- eddie64
- 56 Comments
Sep 30 01:45 PMI found her comments on the JBLU board on Yahoo Finance. First I had heard them and FOX may be the only media outlet which could broadcast them. We'll never see her comments on the Networks??? They're too commited to destroying Sarah Palin........ Now they have two strong and patriotic women not afraid to stand up to ominous powerful forces......
IMHO
- 101010
- 18 Comments
Sep 30 09:41 PMText of the bailout plan (from the NY Times):
graphics8.nytimes.com/...
Sec 109c line 14 "principal write downs" of mortgages
Sec 110-2 Modifications (to mortgages)
(a) Reduction in interest rates
(b) Reduction in loan principal
Now think about this example:
There are two neighboring houses.
In the first house, Peter was prudent, saved his money, lived within his means, worked hard, and could afford his mortgage.
In the second house, Paul took on too much debt, lived beyond his means (possibly even taking out a HELOC or two to "live the good life"), worked just enough, and frankly cannot afford the mortgage he got himself into.
The aforementioned sections essentially say that the tax money that Peter has paid will go to help his neighbor Paul. Truly robbing Peter to pay Paul's mortgage!!
On top of that, everyone else who knew they couldn't afford a house and thus are renting... their tax money goes to help Paul too!!
That is f***ing ridiculous.
Sec 113a1. "Minimizing negative impact" -- This section is pure fluff but does clearly say there *will* be a negative impact, which they will attempt to minimize (ya right). None of "the gov't might actually make a profit" absurd punditry.
Here is a graphic showing who in the House voted for or against this absurd, Socialist bill:
www.nytimes.com/ref/wa...
I will vote for, and contribute to, the incumbent campaigns of those who voted against this bill.
I will vote against, and contribute to, the challenger campaigns of those who voted for this bill.
As a taxpayer, one who lives well below his means, and an American, I am utterly furious that House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., Paulson and House Republican Whip Ray Blunt, R-Mo could come up with this absolute garbage.
Moreover, the fact that Henry J Paulson originally asked for $700,000,000,000 without any oversight at all, just a "trust me, I'll spend it right" attitude, is completely un-American and goes against our democratic system of checks-and-balances. He is a snake, a complete failure at his duties, and should resign immediately.
I implore all of you:
PLEASE send emails, write letters and tell your Senator and Representatives that you-- as a financially responsible homeowner-- REFUSE to help pay the mortgages of your financially irresponsible neighbors. They don't need to be very long-- just a paragraph or two to get to the point.
Tell them you will send money to support the challengers to kick out the incumbents to voted for this bill.
And tell those Representatives who voted against this bill that you wholeheartedly support their vote, and will be contributing to their campaigns.
They need to know: Vote for this bill and they will be out of office.
More by SA Editor Eli Hoffmann