Bada Bing Bada Boom!
Stocks set to plunge after fall of Lehman Bros.
By TIM PARADIS, AP Business Writer
2 minutes ago
U.S. stocks headed for a sharply lower open and Treasury bond prices soared Monday as investors reacted to a stunning reshaping of the landscape of Wall Street. A series of events took out two storied names Sunday: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.
Stocks posted sharp losses in markets across much of the globe as investors absorbed bankruptcy plans at Lehman and Merrill Lynch's forced sale to Bank of America for $50 billion in stock. And perhaps most ominously, American International Group Inc. is asking the Federal Reserve for emergency funding. The world's largest insurance company plans to announce a major restructuring Monday.
The swift developments are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
But AIG's troubles a week after its stock dropped 45 percent are perhaps most worrisome for some investors because of the company's enormous balance sheet and the risks that troubles with that companies finances could spill over to the companies with which it does business. AIG, one of the 30 stocks that make up the Dow industrials, fell 48 percent in premarket trading Monday.
Still, many market observers have said for months that a cathartic sell-off is necessary for Wall Street to purge its worries over bad debt and the tight credit conditions that have hobbled the economy. They reason that a scare and subsequent sell-off in the markets could establish conditions for a market bottom to form.
Dow Jones industrial average futures fell 334, or 3 percent, to 11,115. Standard & Poor's 500 index futures fell 45.40, or 3.61 percent, to 1,213.10. Nasdaq 100 index futures fell 47.25, or 2.7 percent, to 1,732.25.
Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.53 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.
Meanwhile, the New York Fed said Monday that manufacturing activity in New York State has weakened in September.
Investors did have some more solid footing than they might have predicted at the end of last week, when Lehman's troubles and those of AIG weighed on the markets. A global consortium of banks, working alongside government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
And the deal for Merrill Lynch pays a 70 percent premium to the brokerage's closing price Friday. The stock has been squeezed in recent weeks, leading many Wall Street veterans to point to the company as the next behind Lehman as likely to run into trouble with bearish investors and get hit by intensified selling. The deal to pair the company with Bank of America, a huge bank with a big asset base, removes some of the worries that Merrill would be the next to fall after Lehman.
And oil again dropped below the $100 mark after doing so Friday for the first time since April.
But even good news like a drop in oil and some resolution to fears about Merrill couldn't prevent widespread selling. Markets in Tokyo and several other Asian money centers were closed for holidays. But in afternoon trading in Europe, Britain's FTSE 100 fell 4.40 percent, Germany's DAX index fell 3.81 percent, and France's CAC-40 fell 4.50 percent. The European Central Bank, the Bank of England, and the Swiss central bank stepped in an attempt to calm markets by making more short-term credit available to banks.
Light, sweet crude dropped $5.42 to $95.46 in premarket electronic trading on the New York Mercantile Exchange after damage to Gulf of Mexico oil infrastructure from Hurricane Ike was less than investors feared. Worries about a slower economy have also weighed on oil prices in recent weeks. Oil is down sharply from its mid-July highs when it hit a record over $147 a barrel.
But despite the pullback in oil, prices at the gas pump rose above $5 per gallon in some parts of the country Sunday after Ike left some the nation's refining capacity inoperable.
The reduced headcount of Wall Street firms Monday left Goldman Sachs Group Inc. and Morgan Stanley as the remaining big, independent firms. The two are slated to report quarterly results Tuesday and Wednesday, respectively.
The shake up comes only a week after the government bailed out mortgage lenders Fannie Mae and Freddie Mac and ahead of sizable economic developments this week. The Federal Reserve is expected to make a decision on interest rates on Tuesday.
Stocks set to plunge after fall of Lehman Bros.
By TIM PARADIS, AP Business Writer
2 minutes ago
U.S. stocks headed for a sharply lower open and Treasury bond prices soared Monday as investors reacted to a stunning reshaping of the landscape of Wall Street. A series of events took out two storied names Sunday: Lehman Brothers Holdings Inc. and Merrill Lynch & Co.
Stocks posted sharp losses in markets across much of the globe as investors absorbed bankruptcy plans at Lehman and Merrill Lynch's forced sale to Bank of America for $50 billion in stock. And perhaps most ominously, American International Group Inc. is asking the Federal Reserve for emergency funding. The world's largest insurance company plans to announce a major restructuring Monday.
The swift developments are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt.
Investors are worried that trouble at AIG and the bankruptcy filing by Lehman, felled by $60 billion in bad debt and a dearth of investor confidence, will touch off another series of troubles for banks and financial institutions that may be forced to further write down the value of their own debt assets. Wall Street had been hopeful six months ago that the collapse of Bear Stearns would mark the darkest day of the credit crisis.
But AIG's troubles a week after its stock dropped 45 percent are perhaps most worrisome for some investors because of the company's enormous balance sheet and the risks that troubles with that companies finances could spill over to the companies with which it does business. AIG, one of the 30 stocks that make up the Dow industrials, fell 48 percent in premarket trading Monday.
Still, many market observers have said for months that a cathartic sell-off is necessary for Wall Street to purge its worries over bad debt and the tight credit conditions that have hobbled the economy. They reason that a scare and subsequent sell-off in the markets could establish conditions for a market bottom to form.
Dow Jones industrial average futures fell 334, or 3 percent, to 11,115. Standard & Poor's 500 index futures fell 45.40, or 3.61 percent, to 1,213.10. Nasdaq 100 index futures fell 47.25, or 2.7 percent, to 1,732.25.
Bond prices surged as investors fled to the security of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, plunged to 3.53 percent from 3.72 percent late Friday. The dollar was lower against other major currencies, while gold prices rose.
Meanwhile, the New York Fed said Monday that manufacturing activity in New York State has weakened in September.
Investors did have some more solid footing than they might have predicted at the end of last week, when Lehman's troubles and those of AIG weighed on the markets. A global consortium of banks, working alongside government officials in New York, announced a $70 billion pool of funds to lend to troubled financial companies.
And the deal for Merrill Lynch pays a 70 percent premium to the brokerage's closing price Friday. The stock has been squeezed in recent weeks, leading many Wall Street veterans to point to the company as the next behind Lehman as likely to run into trouble with bearish investors and get hit by intensified selling. The deal to pair the company with Bank of America, a huge bank with a big asset base, removes some of the worries that Merrill would be the next to fall after Lehman.
And oil again dropped below the $100 mark after doing so Friday for the first time since April.
But even good news like a drop in oil and some resolution to fears about Merrill couldn't prevent widespread selling. Markets in Tokyo and several other Asian money centers were closed for holidays. But in afternoon trading in Europe, Britain's FTSE 100 fell 4.40 percent, Germany's DAX index fell 3.81 percent, and France's CAC-40 fell 4.50 percent. The European Central Bank, the Bank of England, and the Swiss central bank stepped in an attempt to calm markets by making more short-term credit available to banks.
Light, sweet crude dropped $5.42 to $95.46 in premarket electronic trading on the New York Mercantile Exchange after damage to Gulf of Mexico oil infrastructure from Hurricane Ike was less than investors feared. Worries about a slower economy have also weighed on oil prices in recent weeks. Oil is down sharply from its mid-July highs when it hit a record over $147 a barrel.
But despite the pullback in oil, prices at the gas pump rose above $5 per gallon in some parts of the country Sunday after Ike left some the nation's refining capacity inoperable.
The reduced headcount of Wall Street firms Monday left Goldman Sachs Group Inc. and Morgan Stanley as the remaining big, independent firms. The two are slated to report quarterly results Tuesday and Wednesday, respectively.
The shake up comes only a week after the government bailed out mortgage lenders Fannie Mae and Freddie Mac and ahead of sizable economic developments this week. The Federal Reserve is expected to make a decision on interest rates on Tuesday.
