GLOBAL FINANCIAL EMERGENCY
September 15th, 2008I’ll commence a crisis thread here. New information on top:
Debt-Ridden Alitalia in Crisis Talks
Via: CNN:
Efforts to save debt-ridden Italian flag carrier Alitalia were continuing Monday night amid warnings that flights could be grounded because of the airline’s inability to pay for fuel.
…
On Saturday Alitalia’s bankruptcy administrator Augusto Fantozzi warned that some flights could be grounded due to a lack of fuel supplies, AP reported.
advertisement
Paolo Scaroni, the head of ENI, Italy’s national oil company, also warned Sunday that Alitalia would not be provided with fuel supplies without cash up front, reuters.com reported.
—
Oil Down Sharply
Via: CNN:
Oil prices fell sharply Monday as Wall Street’s latest tale of woes added fuel to the economic slowdown that has been crippling demand for energy.
In addition, initial reports showed that Hurricane Ike did not do as much damage as was originally feared to the Gulf Coast region.
Oil was trading down $3.94 to $97.24 a barrel. It traded as low as $94.13.
The last time oil traded below $94.13 was Feb. 14, when the intraday low was $93.25, according to New York Mercantile Exchange. The last time that oil closed below $94.13 was Feb. 13, when oil settled at $93.27 a barrel.
Roubini: Goldman Sachs and Morgan Stanley Are Next
Via: Yahoo:
This morning, Roubini forecast another 20% drop in stock prices, and reiterated a prior view that there will be no major independent broker/dealers standing before this crisis ends. In other words, Goldman Sachs and Morgan Stanley should be seeking suitors today, or face a similar fate as Lehman later.
—
AIG Shares Fall 52%
Via: Reuters:
Shares of American International Group (AIG.N: Quote, Profile, Research) fell more than 50 percent in early trading on reports that the insurer had turned to the Federal Reserve for $40 billion (22.3 billion pounds) in bridge financing to ward off a liquidity crisis and ratings downgrades.
AIG shares dropped 52 percent to $5.82 on the New York Stock Exchange before recouping a bit to $7.41. The shares have fallen 80 percent this year and closed Friday at $12.14.
The up-front cost of insuring $10 million of AIG debt for five years jumped to $3.05 million from $1.3 million on Friday, in addition to annual payments of $500,000, according to Markit Intraday.
Over the weekend, AIG executives and New York state insurance regulators scrambled to find a way to boost AIG’s liquidity.
It was not clear early on Monday if and when a plan would be agreed on. A company spokesman did not immediately return a call seeking comment.
The insurer, which has incurred $18 billion in losses over the past three quarters from guarantees it wrote on mortgage derivatives, was hit on Friday by Standard & Poor’s putting the company’s credit ratings on negative watch, indicating a possible downgrade.
—
LEHMAN: LARGEST BANKRUPTCY IN HISTORY; LISTED MORE THAN $613 BILLION OF DEBT
Via: Bloomberg:
Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.’s insolvency in 2002 and Drexel Burnham Lambert’s failure in 1990.
Lehman was forced into bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks yesterday and the company lost 94 percent of its market value this year. Chief Executive Officer Richard Fuld, who turned the New York-based firm into the biggest underwriter of mortgage-backed securities at the top of the U.S. real estate market, joins his counterparts at Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn’t survive this year’s credit crunch.
“There is likely to be a domino effect as other firms and individuals who relied on Lehman for financing feel the effects of its meltdown,” said Charles “Chuck” Tatelbaum, a bankruptcy lawyer with Adorno & Yoss in Florida and former editor of the American Bankruptcy Institute Journal. “The whole thing is frankly frightening for the U.S. economy.”
Shares, Bonds
Lehman’s filing was made by lawyers from New York-based Weil Gotshal & Manges, led by bankruptcy lawyer Harvey Miller. The case was assigned to U.S. Bankruptcy Judge James Peck, according to court records. Peck was sworn in as a judge in January 2006. Before taking the bench, he served as co-chair of business reorganization at Schulte Roth & Zabel, and prior to that was a partner at Duane Morris, according to the court’s web page.
Lehman shares at 9:39 a.m. dropped 92 percent in New York trading to 29 cents from their $3.65 close on Sept. 12. UBS AG, HBOS Plc and Axa SA led a decline of more than 3 percent for European stock markets on speculation a forced sale of Lehman’s assets may lead to further writedowns at other banks.
Benchmark gauges of corporate credit risk rose by a record in Europe, and traded at an all-time high in North America as investment banks sought to minimize losses from Lehman’s collapse. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.
60 Cents
Lehman bondholders may get about 60 cents on the dollar if the investment bank is forced into liquidation, analysts at CreditSights Inc. said. The filing is by Lehman’s holding company and won’t include any of its subsidiaries. Lehman owes its 10 largest unsecured creditors more than $157 billion, including debts to bondholders totaling $155 billion.
The largest single creditor listed in today’s filing is Tokyo-based Aozora Bank Ltd., owed $463 million for a bank loan. Other top creditors include Mizuho Corporate Bank Ltd., owed $382 million, and a Citigroup Inc. unit based in Hong Kong owed an estimated $275 million. Lehman listed $639 billion of assets. New York-based Citigroup and The Bank of New York Mellon Corp. are among trustees for bondholders who Lehman owed about $155 billion.
London-based Barclays, which emerged as a leading candidate to acquire Lehman, pulled out first yesterday, saying it couldn’t obtain guarantees from the U.S. government or other Wall Street firms to protect against losses on Lehman’s assets.
Three Hours Later
Bank of America Corp. withdrew about three hours later, before saying it would acquire New York-based Merrill Lynch. Brokers sought yesterday to consolidate trades linked to Lehman to minimize the impact of a bankruptcy filing.
—
Industrial Output Plunges by Largest Amount in 3 Years as Auto Production Falls Sharply
Via: AP:
Government data show the nation’s industrial output plunged in August by nearly four times the amount that had been expected. It’s the worst performance since Hurricane Katrina devastated the Gulf Coast in 2005.
The Federal Reserve reported Monday that industrial output dropped 1.1 percent last month, far worse than the 0.3 percent decline that economists had been expecting.
The weakness was led by an 11.9 percent drop in production of motor vehicles and parts, reflecting the hard times facing the U.S. auto industry.
The problems in autos contributed to a 1 percent overall drop in manufacturing, the first decline since a 0.9 percent fall in April.
—
Central Banks Injecting Billions Into Markets
Via: AFP:
The US Federal Reserve, European Central Bank and Bank of England injected tens of billions of dollars into money markets after the fall of the banking titans under the weight of the massive financing of bad loans.
Paulson, who took part in weekend discussions in New York, said the actions “will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets.”
—
U.S. Equities Will Open Sharply Lower, Steepest Drop Since 2002
The PPT will be out in force today. Forex traders, be on the lookout for an emergency rate cut. It could happen since so many people are getting bloody on this one. EUR/USD is orderly so far.
Via: Bloomberg:
U.S. stock-index futures tumbled, pointing to the steepest retreat by the Standard & Poor’s 500 Index since September 2002, as the bankruptcy of Lehman Brothers Holdings Inc. fueled speculation that turmoil in the credit markets will deepen.
Lehman, once the fourth-largest U.S. investment bank, plunged 90 percent after the 158-year-old firm’s subprime mortgage losses pushed it into the biggest bankruptcy filing in history. American International Group Inc. retreated 47 percent and was poised to erase 47 points from the Dow Jones Industrial Average as the biggest U.S. insurer sought capital, while Bank of America Corp. slumped 14 percent after agreeing to buy Merrill Lynch & Co. for $50 billion. Stocks fell across Europe and Asia, while U.S. Treasuries surged.
“It’s all basically going down the drain,” said Franz Wenzel, who helps oversee about $830 billion as deputy director for investment strategy at Axa Investment Managers in Paris. “The rhythm of the shoes that drop has accelerated. That’s what we follow with caution.”
S&P 500 futures expiring in December declined 44.70 points, or 3.6 percent, to 1,213.80 at 8:30 a.m. in New York, paring a decline of as much as 4.4 percent. Dow average futures sank 339 to 11,112, and Nasdaq-100 Index futures decreased 44.75 to 1,734.75. Europe’s Dow Jones Stoxx 600 Index lost 3.8 percent, the most since March.
The S&P 500 has decreased 20 percent since an October record as worldwide bank losses from the first nationwide decline in U.S. home values since the Great Depression reached $513.6 billion.
Rate-Cut Bets
Yields on two-year Treasury notes fell below 2 percent for the first time since April, as traders in futures contracts gave 78 percent odds the Federal Reserve will cut its benchmark interest rate to 1.75 percent by tomorrow.
—
Most of Europe Down Between 4% and 5%
See: finance.yahoo.com.
I was wondering how long the financial black magicians could keep all those buzzing chainsaws in the air. I’ve been asking myself that question throughout the (Northern Hemisphere) summer, and often when I did so, my subconscious mind would mentally play the song “When September Ends” by the Gen-Xer band Green Day.
Aozora Bank. Ouch. Could be the second time for these ____ers to go go down the gurgler! (used to be called NCB, but was nationalised and reprivatised after the 1998 fiasco)
Mizuho Corporate Bank. No sympathies there, either. Used to be (substantially) IBJ. Arrogant bunch of pr__ks. They’re a “megabank” so won’t go under.
Going to be “Fujiyama Day”* on the TSE on Tuesday, looks like. (markets were closed on Monday for a holiday)
*see wikipedia entry
The real story here is: Fed to Accept Equities at Discount Window.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=60306
It’s a long thread. This is an “Oh shit!” moment.
Also here:
http://www.tickerforum.org/cgi-ticker/akcs-www?forum=Ticker
Help us who are financially challenged: what does “Fed to accept equities at discount window” mean, in plain terms? What was accepted as collateral prior to this? Is the problem that equities are constantly changing in price, and therefore unsuited as collateral?
It means that the fed will accept pocket lint as collateral for loans to these doomed corporations.
“It means that the fed will accept pocket lint as collateral for loans to these doomed corporations.”
Did they have another option?
Can any of you explain:- for months we’ve been watching the Fed. conduct liquidity injections, direct and indirect bailouts and loans of large financial institutions, or even Ford/GM. Even the stimulus checks were pretty expensive. All of this could be expected to cause rapid inflation, and add to our debt which can’t be paid off soon. Why did the Fed. apparently stop the pattern today? Was it that Lehman was just too large, or the Reserve is critically short on money, or did Bernanke switch strategies?
Quintanus, accepting “pocket lint” in exchange for cash means that, instead of continuing these penny-ante bailouts where finanacial institutions have to go through a bunch of stupid freakin’ CHANNELS, the Fed just gave away the whole store.
Now they can all just turn in their old socks and crusty underwear to the Fed, value it according to their whim (oooh, $500 billion for the old socks), and the Fed will give them cash–and bill it to the taxpayer.
The pattern has not stopped; it has accelerated.
Mish’s take on the AIG fiasco is a must-read. Jaysus gawd, I need another drink.
http://globaleconomicanalysis.blogspot.com/2008/09/crime-in-buying-aig-time.html
Quintanus
Why did the Fed. apparently stop the pattern today?
It stopped because the traitor Hehhnry Pawlson
is doing some favors for his buddies who he OWES
from Gohhhldmann Sahhhcks.
Selective application of his own policies to eliminate their competition.
The real problem I am having in this environment is that it is causing distress across ALL asset classes. I have nowhere left that is safe to put cash.
@ pookie:
yeah, that’ s really a charming read.
here’s another:
“Banks can now get loans through the Fed’s newly enhanced “permanent emergency” credit windows, and pose as collateral equities (stocks) and even your deposits. Yes, you heard that right. That is the condition underlying Bank of America’s purchase of Merrill Lynch. BoA can -and will- use the money in your bank account to continue Merrill’s activities, the same ones that led to Lehman’s death: securitization, swaps and derivatives.
That is one frightening development. And so, for that matter, is accepting stocks for T-bills. What if those stocks plunge, as so many are doing lately? What if companies go bankrupt? In the end, through the Treasury, it’s once again the taxpayer who’s going to be presented with the bill. ”
from http://theautomaticearth.blogspot.com/
as for having a drink, well … 1 isn’t gonna make it. Fortunately, I have come up with an answer: a still ! I will start building stills … after all, I do live in Western NC.
@ Kevin, et al:
It isn’t as though we haven’ t known this was coming … the shakeout is not going to be orderly, imho. All I can hope for now is that it remains peaceful, as I am marooned here, now …
🙁
cybele
ps: regards to The Hindenburg .