Dollar Drops Most in Decade Against Yen as Lehman Goes Bankrupt
By Bo Nielsen and Ron Harui
Sept. 15 (Bloomberg) -- The dollar fell the most in a decade against the yen after Lehman Brothers Holdings Inc. filed for bankruptcy and traders speculated the Federal Reserve may need to cut interest rates to buoy financial markets.
The U.S. currency also dropped the most since June against the Swiss franc as American International Group Inc. sought capital to avoid credit downgrades. The dollar erased declines against the euro after Bank of America Corp. agreed to acquire Merrill Lynch & Co. and as investors sought the relative safety of U.S. Treasuries.
"``Risk aversion is going through the roof,'' said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi Ltd. in London. ``There is great deal of uncertainty on how this will affect the markets.''"
"The dollar weakened as much as 3.4 percent to 104.54 yen, the most since October 1998, and traded at 105.27 at 6:45 a.m. in New York, from 107.94 on Sept. 12. The U.S. currency traded at $1.4185 per euro, from $1.4224, and after weakening to $1.4481 earlier. It touched $1.3882 on Sept. 11, the strongest since Sept. 18, 2007."
"The Japanese currency surged 2.7 percent to 149.38 per euro, the biggest jump since 2001, and rallied against all 16 major currencies as investors reduced so-called carry trades. In such transactions, funds are borrowed in a country with low interest rates and used to buy assets where returns are higher. Traders earn the spread between the two rates, taking the risk that currency market moves erase their profit."
`Pressure on Dollar'
"The Australian dollar fell 4.1 percent to 85.29 yen, the biggest drop since November, and New Zealand's dollar declined 3.6 percent to 69.51 yen. Japan's benchmark interest rate is 0.5 percent, making the yen a favorite funding currency for the carry trade. The 15-nation euro region's key interest rate is 4.25 percent."
"``The pressure on the dollar will be more emphasized against the low-yielders as markets remain volatile and risk reduction is the theme,'' said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. The dollar may trade as low as 101 yen in the coming weeks, he said."
"The U.S. currency fell as Lehman filed a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York. The ICE's Dollar Index, a gauge measuring the dollar against the currencies of six U.S. trading partners, slipped 0.1 percent to 78.912 on concern that credit-market losses will spread to other financial institutions."
"AIG, trying to stave off credit downgrades that would force it to post more than $13 billion in collateral, is seeking capital from buyout firms Kohlberg Kravis Roberts & Co. and J.C. Flowers & Co., said a person familiar with the situation yesterday. The insurer is seeking $40 billion from the Fed, the New York Times reported."
"Bank of America Corp. said in a statement today it agreed to acquire Merrill Lynch for about $50 billion, after shares in Merrill plummeted in the past week."
"The dollar also declined as futures on the Chicago Board of Trade soared to a 86 percent chance that the Fed will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point, compared with no chance a week ago."
"``In prior crises, after the initial sell-off in the dollar, the remainder of the day was all about moves back into the dollar on safe-haven flows as people go back into cash,'' said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. ``I expect dollar strength to be the core theme of the day.''"
"The yield on the two-year Treasury dropped 38 basis points to 1.81 percent, the biggest decline since the September 2001 terror attacks and the first time is has fallen below 2 percent since April, as investors sold higher-yielding assets."
"The Swiss franc, which typically strengthens when trader aversion to higher-risk investments increases, rose 1.3 percent to 1.1155 per dollar, the biggest gain since June 6."
"Stocks tumbled, with Standard & Poor's 500 Index futures expiring in December snapping three days of gains to slide 4 percent. The MSCI World Index of shares fell 1.4 percent. Markets in China, Hong Kong, Japan and South Korea were shut for holidays today."
China Cuts Rate
The dollar gained about 11 percent through to the end of last week since touching an all-time low of $1.6038 per euro on July 15.
"``If the stress in the U.S. financial system intensifies, there's the potential for a partial retracement of the dollar's recent gains,'' Hardman said. The dollar may trade at $1.46 this week, he said."
"China today cut its one-year lending rate by 27 basis points and lowered the reserve ratio by 1 percentage point at some of the banks, according to People's Bank of China, in response to the slowdown in the global economy."
"The world may face ``Japan-like'' economic stagnation as turmoil in financial markets weighs on growth and challenges the ability of policy makers to manage the crisis, Tony Tan, deputy chairman of Government of Singapore Investment Corp., said yesterday."
To contact the reporters on this story: Bo Nielsen in Copenhagen at email@example.com; Ron Harui in Tokyo at firstname.lastname@example.org
"Last Updated: September 15, 2008 07:04 EDT"
"HSBC, Barclays Lead Jump in Bank Bond Risk on Lehman Bankruptcy "
"Sept. 15 (Bloomberg) -- HSBC Holdings Plc, Europe's biggest bank, and Barclays Plc led a jump in the cost of bank default protection as Lehman Brothers Holdings Inc.'s bankruptcy fueled investor concern that regulators will allow lenders to fail."
"Credit-default swaps on London based HSBC soared 29 basis points to 100, the most ever, according to CMA Datavision prices at 10:30 a.m. in London. Barclays, the U.K.'s third-biggest bank, rose 38 to 170, Zurich-based UBS AG jumped 39 to 175 and Spain's Banco Santander surged 22 to 122."
"The U.S. government's decision not to bail out 158-year old Lehman reduces the ``moral hazard'' introduced when the Treasury backed the rescue of Bear Stearns Cos. and the Bank of England nationalized mortgage lender Northern Rock Plc, according to Juan Esteban Valencia, a credit strategist at Societe Generale SA in London."
"``The get-out-of-jail-free card turned out not to be worth what they thought,'' said Matt King, head of quantitative credit stategy at Citigroup Inc. in London. ``This makes it much, much harder for financial institutions to get the financing they need.''"
"Credit-default swaps on the Markit iTraxx Financial index of 25 banks and insurers soared a record 32 basis points to 127, according to JPMorgan Chase & Co."
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite."
"Contracts on the benchmark Markit iTraxx Crossover index soared 58 basis points to 600, having earlier traded at 635, according to JPMorgan Chase & Co. prices at 8:35 a.m. in London. During an unprecedented trading session in New York yesterday the Markit CDX North America Investment Grade index reached a record 200 basis points from 152.5 on Sept. 12."
Investors are concerned the collapse of Lehman may add to the more than $514 billion in losses and writedowns at financial companies around the world since the start of the subprime- mortgage crisis last year.
"Lehman has been one of the top 10 biggest counterparties in the market for credit-default swaps. A default by a financial institution that had $2 trillion in contracts outstanding might trigger between $36 billion and $47 billion in losses for those that traded with the firm, Barclays Capital analysts wrote in February."
Merrill Taken Over
"Bank of America Corp., the largest U.S. consumer bank, agreed to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion, after abandoning talks to take over Lehman."
"``There are too many credit assets trying to find a home into a market with too few long-term buyers,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``Lehman defaulting is the maximum shock. It couldn't be much worse.''"
"A basis point on a credit-default swap contract protecting 10 million euros ($14.1 million) of debt from default for five years is equivalent to 1,000 euros a year."
"``Without Merrill, it would have been a maximum negative day for the market,'' Reid said. ``Today is not going to be the worst day. The bigger risk is in the medium term.''"
To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net
Overnight Money-Market Rate for Dollars Jumps Most Since June
By Justin Carrigan
"Sept. 15 (Bloomberg) -- The cost of borrowing in dollars overnight jumped the most since June, according to the British Bankers' Association."
"The London interbank offered rate, or Libor, increased 96 basis points to 3.11 percent, the BBA said today. The three- month rate was little changed at 2.82 percent."
To contact the reporter on this story: Justin Carrigan in London at email@example.com
"Last Updated: September 15, 2008 06:55 EDT"
Credit-Default Risk Soars After Lehman Files for Bankruptcy
By Shannon D. Harrington and Abigail Moses
Sept. 15 (Bloomberg) -- Concern the $62 trillion credit derivatives market will unravel increased after Lehman Brothers Holdings Inc. filed for bankruptcy.
"Benchmark gauges of corporate credit risk rose by a record in Europe, and traded at an all-time high in North America, after an emergency trading session in New York yesterday where 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."
"Lehman, the fourth-largest securities firm until last week, has been one of the 10 largest counterparties in the market for credit-default swaps, according to a 2007 report by Fitch Ratings. The market, which is unregulated and has no central exchange where prices are disclosed, has been the fastest-growing part of so-called over-the-counter derivatives, according to the Bank for International Settlements."
"``The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co., said in an interview with Bloomberg Radio yesterday. ``It induces a tremendous amount of volatility and uncertainty in terms of Monday morning trading.''"
"The Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings jumped by as much as 89 basis points, and was up 67 basis points to 613, according to JPMorgan Chase & Co. prices at 11:30 a.m. in London."
"Morgan Stanley and Goldman Sachs Group Inc. led a jump in the cost of default protection on U.S. banks. Credit-default swaps on Morgan Stanley soared 128 basis points to 392 and Goldman jumped 96 basis points to 295, according to CMA Datavision prices at 6:34 a.m. in New York."
Credit-default swaps on the Markit iTraxx Financial index of 25 European banks and insurers added 32 basis points to 127.
"The Markit CDX North America Investment Grade Index, linked to the bonds of 125 companies in the U.S. and Canada, was trading at 200 basis points yesterday, according to Phoenix Partners Group in New York. It closed at 152.5 basis points Sept. 12, according to CMA Datavision in London. The index, which rises as investor confidence falls, reached 197.5 basis points in March."
"Losses may reach several hundred million dollars should a major dealer default, Moody's Investors Service said in May. Lehman filed for bankruptcy today after Barclays Plc and Bank of America Corp. abandoned talks to buy the company."
"Lehman bondholders may get about 60 cents on the dollar if the U.S. securities firm is forced into liquidation, analysts at CreditSights Inc. said."
"Investors in the New York-based company's senior unsecured bonds are likely to get between 60 cents and 80 cents on the dollar after the securities traded as low as 32 cents, analysts led by David Hendler and Baylor Lancaster wrote in a research note. Holders of lower-ranked debt should expect less."
Bank of America's agreement to buy Merrill Lynch & Co. tempered credit-default swaps' advance.
"``Without Merrill, it would have been a maximum negative day for the market,'' said Jim Reid, head of fundamental credit strategy at Deutsche Bank AG in London. ``Merrill pulls us back. Its impact is not to be underestimated.''"
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements."
"A gauge of risk in the U.S. leveraged-loan market that falls as credit risk increases was being quoted 1.25 percentage points lower, according to Goldman Sachs Group Inc. The Markit LCDX index was at a mid-price of 95.75. The index is tied to high-yield, high-risk loans."
`So Far Off the Edge'
"``We've fallen so far off the edge of the earth right now that we can't even begin to describe what we are seeing,'' said Jim Bianco, president of Bianco Research LLC in Chicago. ``Nobody begins to know what will happen because we've never come to anything remotely close to this before.''"
"Corporate bond yields may increase by as much as 40 basis points more than Treasuries, said Gross, who is also co-chief investment officer at Newport Beach, California-based Pimco. Investment-grade bonds traded at 344 basis points more than U.S. Treasuries on Sept. 12, according to Merrill Lynch's U.S. Corporate Master index, after climbing 22 basis points. A basis point is 0.01 percentage point."
"While credit-default swaps have grown 100-fold in the past seven years, there's no central clearinghouse designed to help absorb losses from a bank collapse."
"Barclays Capital analysts in February estimated that if a financial institution that had $2 trillion in credit-default swap trades outstanding were to fail, it might trigger between $36 billion and $47 billion in losses for those that traded with the firm. That doesn't include ``large, potentially concentrated'' market value losses others would face, the analysts, led by Arup Ghosh in London, wrote on Feb. 20."
"Derivatives such as credit-default swaps are traded between banks, hedge funds, insurance companies and other institutional investors, so the collapse of a market-maker has the potential to wipe out profits made on those contracts that aren't backed by collateral."
"A Lehman bankruptcy ``obviously puts a lot more risk in the market, so it's definitely going to be wider,'' said Brian Yelvington, a strategist at CreditSights Inc. in New York."
"The Federal Reserve widened the collateral it accepts for loans to Wall Street bond dealers yesterday in an effort to keep financial markets from seizing up. The central bank will accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment-grade debt."
Term Lending Facility
"Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment- grade debt securities. The size of the TSLF will also increase to $200 billion from $175 billion, the Fed said."
"In addition to the session for netting derivatives, or canceling trades that offset each other, Merrill Lynch, JPMorgan Chase & Co., Bank of America and seven other firms said in a joint statement yesterday that they will provide a total of $70 billion to a borrowing facility aimed at providing liquidity to financial institutions."
"``Some people say that `yes, when you net up all the Lehman trades it will be less than the gross amount', but we have no idea because we've never attempted anything like this before,'' said Bianco. Dealers also face losses from the government takeover of Fannie Mae and Freddie Mac on Sept. 7, which caused a technical default on the contracts."
"The cost of protecting European investment-grade corporate bonds from default jumped. The Markit iTraxx Europe index of 125 companies rose 24.5 basis points to 127, JPMorgan prices show."
"A basis point on a credit-default swap contract protecting 10 million euros ($14.2 million) of debt from default for five years is equivalent to 1,000 euros a year."
"Treasuries rose as investors sought the relative safety of government debt. The yield on two-year Treasury notes dropped 36 basis points, or 0.36 percentage point, to a five-month low of 1.85 percent, according to bond broker BGCantor Market Data. The yield is below the Fed's target interest rate for overnight loans between banks, a sign investors are speculating the central bank will lower borrowing costs."
"The dollar weakened versus the 16 most-traded currencies today, trading at $1.4231 against the euro, near the lowest in 11 days. It slipped to a two-month low against the yen."
"Investors may have had enough warning to limit losses, said Tony Crescenzi, chief bond strategist at Miller Tabak & Co. in New York."
"``Market participants have had ample warning on Lehman and have likely already taken the precautions they felt were necessary to guard against risks Lehman's potential failure might pose,'' Crescenzi wrote in a note to clients yesterday."
"Derivatives are financial instruments linked to stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather."
Banks and brokers yesterday opened trading desks to enter into derivatives transactions that would offset trades with Lehman in case the firm filed for bankruptcy before midnight. The International Swaps and Derivatives Association said the ``netting trading session'' began at 2 p.m. and continued until at least 6 p.m. New York time. The trades would have been canceled had Lehman not filed for bankruptcy.
"Banks are behind schedule on plans for a clearinghouse that would absorb the failure of a market-maker. The Clearing Corp., the Chicago clearinghouse, isn't set to be completed until at least the end of this year, or early 2009."
"``What we've seen this year is regardless of the fundamentals, regardless of efforts made by the Fed and the Treasury to restore confidence, you can't order that up,'' said Martin Fridson, chief executive officer of Fridson Investment Advisors, said in New York."
To contact the reporter on this story: Shannon Harrington in New York at Sharrington6@bloomberg.net
"Last Updated: September 15, 2008 06:37 EDT"
Emerging-Market `Panic' May End With 20% Stock Rally (Update1)
By Michael Tsang and Eric Martin
"Sept. 15 (Bloomberg) -- Emerging-market companies, earning more for shareholders than ever before, are getting no respect just as their stocks drop to levels that preceded rallies."
"More than $500 billion in credit-market losses and falling prices of oil, nickel and soybeans pushed the MSCI Emerging Markets Index down more than a third since October, leaving it 24.7 percent below its 200-day moving average. In the past two decades, the difference grew that wide only in the aftermath of Sept. 11, the 1998 Russian debt default and Mexico's 1994 peso devaluation, data compiled by Bloomberg show. In every case, the index gained 20 percent or more in the next three months."
"This time, prospects for a rebound are even greater as developing-nation economies grow twice as fast as a decade ago, says Uri Landesman, head of global growth and international equities at ING Groep NV's asset management unit in New York. Return on equity, or a company's profit made with money invested by shareholders, rose to 16.8 percent this quarter, the highest for emerging markets since Bloomberg began tracking MSCI Inc. data in 2003 and a level Morgan Stanley says may be a record."
"``You're more than getting paid for your risk,'' said Landesman, who oversees $5 billion. ``When you have a panic like this, the baby gets thrown out with the bathwater.''"
"Equity prices in the MSCI index average 9.8 times forecast earnings over the next 12 months, the cheapest in a decade versus reported profits. Valuations have fallen even as developing economies are projected to expand 6.7 percent next year, double the average rate during the 1990s, with one-tenth the inflation, according to the Washington-based International Monetary Fund."
"The MSCI Emerging Markets Index lost 2 percent at 12:01 p.m. London time as stocks tumbled worldwide on the bankruptcy of Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank."
"While return on equity for industrialized-nation stocks fell almost 10 percent from an all-time high in October as global economic growth slowed, developing-nation companies increased profitability, data compiled by Bloomberg show."
"Return on equity at China Mobile Ltd., the world's largest wireless carrier by users, climbed to 27.76 percent in the first half, the most on record dating back to 2003. China Mobile said last month that second-quarter profit jumped 51 percent, beating analysts' estimates."
"Even so, the Beijing-based company, which lost 45 percent of its value this year in the biggest decline since 2001, is trading at 10.1 times estimated 2009 profit. That's the lowest valuation compared with reported earnings in more than five years."
"CEZ AS, the Czech Republic's biggest utility, reported a return on equity of 27.6 percent in the second quarter, the highest since at least 2002, data compiled by Bloomberg show."
"The company, located in Prague, raised its full-year profit forecast after saying last month second-quarter earnings rose 68 percent on cost cuts and higher electricity prices. Still, CEZ plummeted 21 percent this year and traded at a record low 9.7 times next year's forecast earnings last week."
"``Emerging-market equities should get respect,'' said Brett Hammond, New York-based chief investment strategist at TIAA-CREF, which oversees $420 billion and is buying shares in developing nations. ``The fundamentals are what's driving earnings. They're still robust compared to anything in the developed world.''"
"After emerging-market stocks surged more than fourfold in the past five years, investors grew skeptical of growth prospects as commodity prices fell by the most in almost three decades and the biggest U.S. housing bust since the Great Depression caused $514 billion in asset writedowns and credit losses for banks."
"``The air is coming out of those emerging-market stocks,'' said Jeffrey Kleintop, chief market strategist at LPL Financial in Boston, which oversees $273 billion. ``What we're seeing is a really nasty bear market and it can stay oversold for as long as it stayed overbought in the bull market run-up.''"
Kleintop said LPL started trimming its emerging-market holdings in the first quarter and sold out completely in July.
"Investors have pulled almost $29 billion from emerging- market equity funds this year, the most ever on a net basis, data compiled by EPFR Global, a Cambridge, Massachusetts-based fund research firm, and New York-based Merrill Lynch & Co. show."
The 14-week stretch of redemptions also matches the longest streak since EPFR started tracking the data in 2000.
"Traders in currency markets are also betting on further declines as the economic slowdowns in the U.S., Europe and Japan make investors less willing to take on risk. Volatility on options for currencies from the Brazilian real to South Korean won versus the dollar is rising at a faster pace than those to buy or sell the euro and yen, according to JPMorgan Chase & Co."
"The MSCI Emerging Markets Index plummeted 31 percent this year, the biggest year-to-date drop in a decade."
"Raw-materials producers, which make up about a third of the index, accelerated the decline as 19 commodities such as crude oil, metals and farm products averaged the biggest monthly loss since 1980. The index fell 2.1 percent to 855.47 last week, and slumped 24.7 percent below its average price in the past 200 trading days. The gap, which tracks the depth and speed of a sell- off and gauges investor pessimism, signaled similar bearishness only three times in the MSCI gauge's 20-year history."
"In the wake of the Asian financial crisis and Russia's default on $40 billion of ruble-denominated debt, the index plunged 37 percent below its 200-day moving average in September 1998. During the so-called Tequila Crisis that began when Mexico devalued its currency in December 1994, emerging markets hit bottom after tumbling 22.7 percent below the average."
The benchmark index slid 24.3 percent below the 200-day mean in September 2001 after terrorists crashed commercial jetliners into New York's World Trade Center and the Pentagon.
"This year's plunge is one of the worst in history, with less than a 0.3 percent chance of occurring at any given time, based on volatility-adjusted probabilities compiled by Bloomberg."
History shows that each of the three prior troughs heralded the start of a bull market for emerging-market equities. Developing-nation stocks climbed an average 24 percent in the next three months and 36 percent over a 12-month span.
"The steepest drop preceded the biggest rally, with the MSCI index jumping 27 percent between September and December 1998."
"``It's been an incredibly quick and deep sell-off, and very little has been spared,'' said Greg Lesko, who oversees $900 million at Deltec Asset Management Corp., a New York-based hedge fund. ``We're seeing real value out there, and when we see real value we like to be buying it.''"
To contact the reporters on this story: Michael Tsang in New York at firstname.lastname@example.org; Eric Martin in New York at email@example.com.
"Last Updated: September 15, 2008 07:09 EDT"
Stocks Drop Worldwide as Treasuries Surge on Lehman Bankruptcy
By Adria Cimino and Michael Patterson
"Sept. 15 (Bloomberg) -- Stocks tumbled worldwide, the dollar fell and U.S. Treasuries surged after the bankruptcy of Lehman Brothers Holdings Inc. drove investors to the safety of government debt."
"Equities dropped in Europe and Asia, led by a 36 percent tumble in HBOS Plc and a 10 percent decline in Macquarie Group Ltd. Futures on the Standard & Poor's 500 Index fell 4 percent as American International Group Inc. sank 46 percent. Russia's Micex Index declined 5.3 percent, leading a retreat in emerging markets."
"Yields on two-year Treasury notes fell below 2 percent for the first time since April on speculation the Federal Reserve will need to lower interest rates to bolster financial institutions battered by $514 billion of credit losses and asset writedowns from the subprime-mortgage market's collapse. Gold rose 2 percent, while the dollar dropped the most in a decade against the yen and fell versus the euro, pound and Swiss franc."
"``Investors are in uncharted waters,'' said Tony Dolphin, London-based director of strategy and economics at Henderson Global Investors, which manages about $125 billion. ``In the short-term, this can only mean higher risk premiums and a flight to safety.''"
"The cost to protect corporate bonds from default surged as Lehman's bankruptcy, the biggest in U.S. history, and the emergency sale of Merrill Lynch & Co. to Bank of America Corp. heightened concern the subprime crisis will cause more bank failures. AIG tumbled after the New York Times reported the insurer asked the Fed for a $40 billion bridge loan."
"The MSCI World Index, a benchmark for equities in 23 developed nations, dropped 1.5 percent as of 12:14 p.m. in London, while the MSCI Emerging Markets Index lost 2.1 percent. The yield on two-year notes dropped 37 basis points, or 0.37 percentage point, to 1.84 percent, according to bond broker BGCantor Market Data."
"The dollar fell the most against the Japanese currency since October 1998, losing as much as 3.2 percent. Credit-default swaps indexes rose by a record in Europe, with the Markit iTraxx Crossover Index of 50 European companies with mostly high-risk, high-yield credit ratings jumping 61 basis to 607, according to JPMorgan Chase & Co."
"``It's mayhem,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which holds about $128 billion of assets. ``If you thought the U.S. economy was slowing, that fear has been amplified, and that has implications for overall global economic activity.''"
Central Banks React
"Europe's Dow Jones Stoxx 600 Index declined 4.9 percent as UBS AG and Societe Generale SA retreated. The MSCI Asia Pacific excluding Japan Index lost 1.4 percent. Stock markets in Japan, South Korea, Hong Kong and China are closed for holidays, tempering losses for the Asian gauge. Futures on the Dow Jones Industrial Average declined 3.3 percent."
"To help Wall Street brace for Lehman's bankruptcy, the Fed widened the collateral it accepts for emergency loans to securities firms. A group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. separately formed a $70 billion fund to ensure market liquidity."
"The steps ``are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement yesterday in Washington."
The European Central Bank said it will offer financial institutions as much money as they need and the Swiss central bank offered additional liquidity through its overnight facility. The Bank of England said it will take ``appropriate actions if necessary'' to bolster money markets.
China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves.
"Lehman, once the fourth-largest U.S. investment bank and the biggest underwriter of mortgage-backed securities, filed for bankruptcy after Barclays Plc and Bank of America abandoned talks to buy the 158-year-old firm. The collapse of Lehman, which listed more than $613 billion of debt, surpasses WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990."
Lehman shares dropped 88 percent to 42 cents.
"Bank of America, the biggest U.S. consumer bank, will pay $29 a share for Merrill in stock, 70 percent more than the Sept. 12 closing price. Merrill, battered by $52.2 billion in losses and writedowns from subprime-mortgage-contaminated securities, has plunged more than 80 percent from its peak of $97.53 at the start of last year."
"Bank of America shares fell 14 percent to $29, while Merrill added 35 percent to $23.05."
"AIG, seeking to raise capital and sell units to forestall credit downgrades, asked the Fed for a $40 billion bridge loan, after rejecting an offer from J.C. Flowers & Co. that would have given the buyout firm an option to acquire the whole company, the New York Times said, citing an unidentified person. AIG spokesman Nicholas Ashooh and the Fed's Michelle Smith didn't return phone calls seeking comment."
AIG shares tumbled 46 percent to $6.50.
"``The global credit crisis has permeated through all markets,'' said Jason Teh, who helps manage the equivalent of $5.7 billion at Investors Mutual Ltd. in Sydney. ``The real economy will feel the effects of this because it takes time for the banking system to restore itself.''"
"HBOS, the U.K.'s biggest mortgage lender, fell 36 percent to 180 pence. UBS, the European bank hardest hit by subprime-related losses, sank 17 percent to 19.6 francs, and Societe Generale, France's third-largest bank by assets, dropped 14 percent to 55.66 euros. Macquarie, Australia's biggest investment bank, slumped 10 percent."
"``The drop reflects the concern about the solidity of the whole system,'' said Emmanuel Soupre, a fund manager at Neuflize OBC Asset Management in Paris, which oversees the equivalent of $33 billion. ``What will be the consequences of this bankruptcy on the economy? That's the question and we don't have a solution.''"
Mining and energy companies also declined as industrial metals fell in London on concern the housing slump is hurting demand and oil dropped below $97 a barrel after refineries along the Gulf of Mexico coast escaped major damage from Hurricane Ike.
"BHP Billiton Ltd., the world's biggest mining company, sank 5 percent to 1,433 pence. Rio Tinto Group, the third-largest, lost 5.2 percent to 4,258 pence."
"Total SA, Europe's biggest oil refiner, slid 5.8 percent to 43.07 euros. BP Plc, the region's second biggest energy producer, lost 3.5 percent to 492 pence."
To contact the reporter on this story: Adria Cimino in Paris at firstname.lastname@example.org; Michael Patterson in London at email@example.com.
"Last Updated: September 15, 2008 07:28 EDT"
Money-Market Rates Climb on Lehman Bankruptcy Filing (Update2)
By Kim-Mai Cutler
"Sept. 15 (Bloomberg) -- The cost of borrowing in dollars overnight jumped the most since June after Lehman Brothers Holdings Inc. filed for bankruptcy, deepening the freeze in lending between banks."
"The London interbank offered rate, or Libor, climbed 96 basis points to 3.11 percent, the British Bankers' Association said today. The cost of borrowing in euros overnight increased 19 basis points to 4.49 percent, the BBA said."
"``Lehman is now basically considered out of business so I can't imagine that the money markets today or tomorrow are going to be lovely or fine,'' said Luca Jellinek, head of interest-rate strategy in London at Royal Bank of Scotland Group Plc. ``Spreads are going to be ugly and screen prices are probably going to be fiction.''"
"The difference between the three-month London interbank offered rate for dollars and what traders bet the U.S. central bank's daily effective federal funds rate will average over the next three months, the so-called OIS spread, widened to 106 basis points today, the most since Dec. 4, from 87 basis points at the end of last week."
The spread widened on concern Lehman's collapse may herald more losses at financial institutions. The U.S. bank succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
"Banks and insurers are among financial companies that have booked almost $514 billion in writedowns and credit-market losses since last year as the U.S. mortgage crisis deepened. Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. today for about $50 billion as the credit crisis claimed another of America's oldest financial companies."
"``The market is underestimating the awfulness of this news so I would look for a gradual rise in money-market rates,'' said Ciaran O'Hagan, a fixed-income strategist for Societe Generale SA in Paris. ``I still hear a lot of talk that this is rock-bottom and it can't get any worse. That kind of bravado will only ensure things will worsen.''"
"In an effort to help Wall Street weather Lehman's bankruptcy, the Fed widened the collateral it accepts for loans to securities firms to include stocks and also boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
The European Central Bank and the Bank of England said they will offer financial institutions additional money after Lehman's application for bankruptcy threatened to derail global markets.
The ECB said it injected 30 billion euros ($43 billion) at a marginal rate of 4.30 percent to soothe credit markets while the Bank of England loaned financial institutions an additional 5 billion pounds ($9 billion) for three days in its exceptional fine-tuning operation. The Swiss central bank offered additional liquidity through its overnight facility for the first time since Feb. 22.
"``It's a short-term fix to help the liquidity situation,'' said Barry Moran, a money-market trader in Dublin at the Bank of Ireland, the country's second-biggest bank. ``Overnight cash rates across all major currencies are pushing up higher this morning. Cash is going to be a little more expensive for a while.''"
"The cost of borrowing in euros for three months stayed within a basis point of the highest level since December 2000, according to the European Banking Federation."
"The euro interbank offered rate, or Euribor, was little changed at 4.96 percent, EBF data showed today. The one-week rate increased 2 basis points to 4.42 percent."
"The so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months and a sign of lender confidence, was at 131 basis points today, down 4 basis points from Sept. 12 and the second-highest level since July 21. It averaged 39 basis points in the first half of last year."
"``There's definitely a flight to quality, but apart from that people are really trying to get a grip on the news,'' said Jan Misch, a money-market trader in Stuttgart at Landesbank Baden- Wuerttemberg, Germany's biggest state-owned bank."
"Treasuries surged, sending two-year notes up by the most since the September 2001 terrorist attacks, as Lehman's bankruptcy filing stoked speculation the Fed may cut interest rates. The gains pushed the yield below 2 percent for the first time since April after Barclays Plc and Bank of America withdrew from talks to buy Lehman."
"Bank of America will pay $29 a share in stock for New York- based Merrill, 70 percent more than the Sept. 12 closing price, the company said today in a statement."
To contact the reporters on this story: Kim-Mai Cutler in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 07:17 EDT"
China Cuts 1-Year Lending Rate; Reduces Lending Curb (Update1)
By Li Yanping
Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside after economic growth slowed and amid tumult on Wall Street.
"The People's Bank of China cut the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio by 1 percentage point at some banks. The changes were in a statement on the central bank's Web site today."
"Cooling inflation has given the central bank more room to move, while global financial turmoil adds to the risk of bigger slowdowns in China's export markets. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth."
"``This is the first tangible sign of a move to a pro-growth stance by the Chinese government,'' said Mark Tan, who helps oversee about $3 billion in Asian equities at UOB Asset Management in Singapore."
"The central bank pushed the reserve requirement to a record 17.5 percent in June. The nation's largest banks were excluded from the cut. The requirement for smaller banks drops by 1 percentage point from Sept. 25. For lenders in earthquake- affected areas, the reduction is 2 percentage points."
"-- With reporting by Chua Kong Ho in Shanghai. Editors: Paul Panckhurst, Michael Dwyer"
To contact the reporter on this story: Li Yanping in Beijing at email@example.com
"Last Updated: September 15, 2008 05:43 EDT"
China Cuts Rates as U.S. Turmoil Adds to Global Risks (Update2)
By Li Yanping and Kevin Hamlin
Sept. 15 (Bloomberg) -- China cut interest rates for the first time in six years and allowed most banks to set aside smaller reserves as worsening credit-market turmoil and weakening export demand dim the outlook for economic growth.
"The People's Bank of China reduced the one-year lending rate to 7.20 percent from 7.47 percent, effective tomorrow, and lowered the reserve ratio at the nation's smaller banks by 1 percentage point. The changes were in a statement on the central bank's Web site today."
"Lehman Brothers Holdings Inc. filed for bankruptcy today and Merrill Lynch & Co. agreed to be sold, adding to evidence that the credit crisis is deepening and threatening the global economy. Cooling inflation has given China room to cut borrowing costs and protect jobs in the world's fourth-largest economy."
"``Policy makers see the probability of a recession in the U.S. is higher now, so the outlook for Chinese exports has deteriorated,'' said Darius Kowalczyk, chief investment strategist at CFC Seymour Ltd. in Hong Kong. ``Policy makers have concluded that inflation is easing permanently.'' He was the only one of seven economists in a Sept. 13 Bloomberg survey to predict a rate cut this year or in the first quarter of 2009."
"China's inflation was the weakest in 14 months in August, slowing to 4.9 percent, export growth cooled and industrial production grew by the least in six years, according to data released last week."
"The rate cut is ``to help solve important problems in our economy for its continued stable and fast development,'' the central bank said in the statement."
"China's economy expanded 10.1 percent in the three months to June 30 from a year earlier, the fourth straight quarter of slower growth. From July, policy makers dropped references to a ``tight'' monetary policy and put extra emphasis on sustaining the economic expansion."
"``The economic slowdown in the U.S. could be more serious than previously anticipated,'' said Zhao Qingming, senior economist at China Construction Bank Corp. in Beijing. ``The impact on China could be harsher, making it harder to maintain the pace of economic growth.''"
"Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, filed for bankruptcy after losing 94 percent of its market value this year. Bank of America Corp. agreed to acquire Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America's oldest financial companies."
Federal Reserve Acts
"The Federal Reserve widened the collateral it accepts for loans to securities firms and boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
China's central bank had pushed the reserve requirement for banks to a record 17.5 percent in June. The nation's biggest banks were excluded from the reduction announced today.
"Those exempted were: Bank of China Ltd., Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank Corp., Bank of Communications Co. and Postal Savings Bank of China."
"The requirement for smaller banks drops by 1 percentage point from Sept. 25. For lenders in earthquake-affected areas, the reduction is 2 percentage points."
The central bank left deposit rates unchanged.
"``Obviously this is negative for the yuan,'' said Kowalczyk. ``The yuan has benefited a lot from the widening of the interest rate differential between the U.S. and China.''"
"-- With reporting by Chua Kong Ho in Shanghai and Patricia Kuo in Hong Kong. Editors: Paul Panckhurst, Michael Dwyer"
To contact the reporters on this story: Li Yanping in Beijing at firstname.lastname@example.org Kevin Hamlin in Beijing on email@example.com
"Last Updated: September 15, 2008 06:55 EDT"
"ECB, BOE Join Fed in Soothing Markets After Lehman (Update1) "
By John Fraher
Sept. 15 (Bloomberg) -- The European Central Bank and the Bank of England joined the Federal Reserve in taking action to soothe financial markets spooked by Lehman Brothers Holdings Inc.'s bankruptcy filing.
"The ECB said it awarded banks 30 billion euros ($43 billion) in a one-day money-market auction that was more than three times oversubscribed. The Bank of England loaned banks 5 billion pounds ($9 billion) for three days. Earlier, the Federal Reserve widened the collateral it accepts for loans to securities firms."
Stocks plunged and the cost of borrowing dollars surged after Lehman became the latest victim of a yearlong credit squeeze. Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market turmoil has erased $11 trillion from global stocks in the past year.
"``It remains to be seen whether today's operation will be sufficient to restore market confidence,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc. ``The ECB will likely wait for the U.S. open to consider more aggressive action. Key will be how credit and equity markets develop in the coming days.''"
The ECB said it injected the funds at a marginal rate of 4.30 percent. The Swiss central bank offered liquidity through its overnight facility for the first time since Feb. 22.
"``We have to be extraordinarily alert,'' ECB President Jean-Claude Trichet told reporters in Frankfurt today. ``We have said it in recent weeks'' that ``it's an ongoing market correction'' with ``episodes of a high level of volatility.''"
"China cut interest rates for the first time in six years and the Reserve Bank of Australia added A$2.1 billion ($1.7 billion) through so-called repurchase agreements today. The Bank of Japan, whose markets were closed today for a holiday, said it was monitoring the situation."
"``The job of central banks now is to ensure there is sufficient liquidity in the system and they're assuring market participants of that,'' said Thomas Mayer, co-chief economist at Deutsche Bank AG in London."
"The Fed also yesterday boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
"Yields on two-year Treasury notes fell below 2 percent for the first time since April on speculation the Fed will need to cut rates. U.S. index futures dropped, with December contracts on the Standard & Poor's 500 Index falling 3.3 percent. The cost of borrowing dollars overnight jumped to 3.11 percent today from 2.15 percent."
No Rate Cut Yet
The ECB and the Bank of England may nevertheless hold off cutting rates right away as they seek to curb inflation. The ECB has spent much of the past year arguing that it can use its money market operations to tackle the credit crisis and doesn't need to resort to rate cuts.
"``Rate cuts are only likely to be forthcoming if financial markets melt down in the coming days or weeks,'' said David Mackie, chief European economist at JPMorgan Chase & Co. ``For the time being, European policy makers look like they will continue to hold the line on the separation of powers. At some point though, that line could be reached.''"
"Trichet said in his speech today that ``price stability is a prerequisite for financial stability, a very important objective at the current juncture.''"
"The ECB was the first central bank to respond when credit markets first seized up in August last year by offering financial institutions unlimited funds. Banks today asked for 90.3 billion euros in funds, close to the 94.8 billion euros bid on the first day of the crisis last year."
"``The results of the one-day refinancing bill auction show that demand for liquidity is currently very high and highlights how fragile the current situation is,'' said Cailloux. ``The ECB will likely take note that the financial system remains starved of cash and that it might thus be forced to step in again.''"
To contact the reporter on this story: John Fraher in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 07:14 EDT"
"U.K. Stocks Slide on Lehman Bankruptcy; Barclays, HBOS Decline "
By Adam Haigh
"Sept. 15 (Bloomberg) -- U.K. stocks tumbled the most in six months, led by financial companies, after Lehman Brothers Holdings Inc. said it was filing for bankruptcy."
"Barclays Plc, which pulled out of talks to buy Lehman yesterday, slid 12 percent, the steepest retreat since 1988. HBOS Plc, the biggest mortgage lender in Britain, slumped a record 19 percent and Royal Bank of Scotland Group Plc dropped 9 percent."
"``The problem when you have a crisis is the notion of fear and that is what you have this morning,'' Piers Hillier, the London-based head of European equities at WestLB Mellon Asset Management who oversees the equivalent of $8.8 billion, said in a Bloomberg Television interview. ``The fact that Lehman has gone to the wall does raises a lot of questions. The concern is that we haven't been able to address the problem,'' he added."
"The FTSE 100 index tumbled 200.1, or 3.7 percent, to 5,216.6 at 11:03 a.m. in London, the steepest slump since March 17, extending the measure's 19 percent slide this year. The FTSE All- Share Index lost 3.6 percent today, and Ireland's ISEQ Index slid 4.7 percent."
"The cost to protect corporate bonds from default surged as Lehman's bankruptcy, the biggest in U.S. history, and the emergency sale of Merrill Lynch & Co. to Bank of America Corp. heightened concern the subprime crisis will cause more bank failures and add to $514 billion of credit losses and asset writedowns worldwide."
"Barclays lost 12 percent to 307.75 pence. HBOS dropped 19 percent to 228 pence and Royal Bank, the second-largest U.K. bank, slid 9 percent to 212 pence."
"``It seems like everyone is trying to get out of their positions on this news,'' said Joshua Raymond, market strategist at City Index Ltd. in London. ``It's taken a turn for the worst and we are continuing now on a downward trend.''"
The following stocks also rose or fell in the U.K. markets. Stock symbols are in parentheses.
"Heritage Oil Ltd. (HOIL LN), a U.K.-based explorer with interests in Africa, rose 13.5 pence, or 6.5 percent, to 222.75 after winning government approval to take a working interest in Dominion Petroleum Ltd. licenses in Tanzania."
"J Sainsbury Plc (SBRY LN), the third largest U.K. supermarket chain, fell 14 pence, or 3.8 percent, to 351 pence after Chief Executive Officer Justin King told the Financial Times that consumer sentiment is ``worse than it has ever been.''"
To contact the reporter on this story: Adam Haigh in London at email@example.com
"Last Updated: September 15, 2008 06:31 EDT"
"German Stocks Fall to Two-Year Low; Allianz, Deutsche Bank Drop "
By Stefanie Haxel
"Sept. 15 (Bloomberg) -- German stocks plunged to the lowest in almost two years after Lehman Brothers Holdings Inc. said it will file for bankruptcy and Bank of America Corp. agreed to buy Merrill Lynch & Co., the world's biggest brokerage firm."
"Allianz SE, Europe's largest insurer, slumped the most since January, and Deutsche Bank AG slid to the lowest in two months. TUI AG sank to the lowest in more than five years after Spiegel reported Europe's largest travel company may merge its airlines unit with Air Berlin Plc."
"The DAX Index plunged 237.55, or 3.8 percent, to 5,997.34 as of 12:50 p.m. in Frankfurt, the lowest since October 2006. DAX futures expiring in September dropped 4 percent. The HDAX Index of the country's 110 biggest companies slumped 3.9 percent."
The DAX has fallen 26 percent this year as credit losses and writedowns at financial firms worldwide topped $500 billion and slowing economic growth damped the outlook for earnings.
"``Within days, two of the biggest financial firms disappeared,'' said Matthias Joerss, an analyst at Sal. Oppenheim Jr. & Cie. in Frankfurt. ``That's a dangerous situation adding to uncertainty which should weigh especially on weaker financial stocks. We are seeing a final sell-out and I expect the market to drop further near-term.''"
"Lehman, once the fourth-largest U.S. investment bank, said it will file for protection from creditors after Barclays Plc and Bank of America abandoned talks to buy the crippled firm. Bank of America agreed to acquire Merrill Lynch for about $50 billion as the credit crisis claimed another of America's oldest financial companies."
"Allianz, Deutsche Bank"
"Allianz lost 7.92 euros, or 7.2 percent, to 102.73. Deutsche Bank, Germany's biggest bank, dropped 4.30 euros, or 7.4 percent, to 53.60 euros, the lowest since July 16. Commerzbank AG, the second-largest, retreated 1.56 euros, or 8.9 percent, to 15.93, the lowest since January 2005."
"Deutsche Postbank AG dropped 2.95 euros, or 6.9 percent, to 39.95. WestLB lowered its recommendation for Germany's biggest consumer bank by clients to ``hold'' from ``buy.''"
"TUI dropped 85 cents, or 6.9 percent, to 11.55 euros, the lowest since May 2003. The company may merge its TUIfly carrier with Air Berlin, Europe's third-biggest discount airline, as talks over an alternative alliance stall, Spiegel magazine reported, citing the heads of the two companies."
"Air Berlin slipped 17 cents, or 4.2 percent, to 3.85 euros. Separately, a flight from the southern Spanish city of Malaga to Nuremberg in southern Germany was forced to turn around in the air and return to the airport after a technical fault, Agence France-Presse reported."
"Deutsche Boerse AG decreased 4.24 euros, or 6.7 percent, to 59.20. Europe's largest exchange by market value started to apply so-called fast trading rules in electronic trading, extending volatility and mistrade ranges, according to a statement in on its Web site."
The following stocks also rose or fell in German markets. Symbols are in parentheses.
"Arcandor AG (ARO GY) fell 28 cents, or 6.3 percent, to 4.17 euros, the lowest in 16 years. Euler Hermes AG capped credit guarantees for suppliers to three units of Arcandor, owner of Germany's largest department-store chain, Frankfurter Allgemeine Sonntagszeitung reported yesterday."
"BASF SE (BAS GY) lost 1.59 euros, or 4.2 percent, to 36.22, the lowest since January 2007. BASF sank after the world's largest chemical maker agreed to buy Ciba Holding AG for 6.1 billion Swiss francs ($5.5 billion.)"
"HeidelbergCement AG (HEI GY) fell for a fourth day, losing 1.41 euros, or 1.9 percent, to 73.20. UniCredit Markets & Investment Banking cut its recommendation on the cement maker owned by billionaire Adolf Merckle to ``hold'' from ``buy.''"
"Hochtief AG (HOT GY), Germany's largest builder, sank 3.83 euros, or 7.5 percent, to 47.08. Workers at Budapest Airport, majority-owned by Hochtief, may strike after labor talks failed, Hungary's MTI news agency reported."
"IVG Immobilien AG (IVG GY) retreated 28 cents, or 2.9 percent, to 9.50 euros, the lowest in almost four years. Wolfhard Leichnitz resigned as chief executive officer of Germany's largest commercial property company for personal reasons."
"Solon AG fuer Solartechnik (SOO1 GY) slumped 3.08 euros, or 7.9 percent, to 36.06, snapping a two-day advance. Goldman Sachs Group Inc. reduced its recommendation for the solar company to ``sell'' from ``neutral,'' and added the stock to its ``conviction sell'' list."
To contact the reporter on this story: Stefanie Haxel in Frankfurt at firstname.lastname@example.org.
"Last Updated: September 15, 2008 06:57 EDT"
South African Rand Falls Versus Dollar on Financial Market Woes
By Garth Theunissen
"Sept. 15 (Bloomberg) -- South Africa's rand fell against the dollar and euro after Lehman Brothers Holdings Inc. filed for bankruptcy, prompting investors to sell higher-yielding emerging- market assets."
"The rand also snapped a two-day advance after Merrill Lynch & Co., the world's biggest brokerage firm, agreed to sell itself to Bank of America Corp. South Africa's benchmark stock index dropped the most in four days, tracking a decline in equity markets around the world."
"``High-yielding currencies are bearing the brunt of the trouble in financial markets,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``Emerging-market currencies have sold off due to risk aversion that has been triggered by the uncertainty surrounding the state of the U.S. financial system.''"
"The rand dropped as much as 2.4 percent to 8.1820 per dollar and was at 8.1595 by 12:25 p.m. in Johannesburg, from 7.9913 on Sept. 12. It weakened versus all 16 major currencies monitored by Bloomberg, losing 2.3 percent to 11.6275 per euro."
"``Chaos in financial markets means global risk aversion has increased,'' said Kay Walsh, an economist and currency researcher at Rand Merchant Bank in Johannesburg. ``With so much uncertainty around, investors are disposing of riskier assets, and unfortunately the rand falls into the risky category.''"
"Lehman, which was the biggest underwriter of mortgage-backed securities at the peak of the U.S. real-estate market, lost 94 percent of its market value this year due to credit-related losses. The 158-year-old firm was forced into bankruptcy after two suitors, Barclays Plc and Bank of America Corp., abandoned takeover talks yesterday."
"Instead, Bank of America, the largest U.S. consumer bank, agreed to buy Merrill Lynch for about $50 billion, according to a statement today."
"The MSCI World Index of equities has slumped 19 percent this year as the worst U.S. housing recession since the Great Depression caused the subprime-debt market to collapse, widening credit spreads and weighing on global economic growth. South Africa's FTSE/JSE Africa All Share Index fell as much as 3 percent, its biggest drop since Sept. 9. Europe's Dow Jones Stoxx 600 Index slumped 4 percent."
"South African government bonds fell, with the yield on the benchmark 13.5 percent security due September 2015 rising 5 basis points to 9.15 percent. Yields move inversely to bond prices."
"The rand is the worst-performing major currency this year, having fallen about 16 percent against the dollar and almost 14 percent versus the euro."
To contact the reporter on this story: Garth Theunissen in Johannesburg email@example.com
"Last Updated: September 15, 2008 06:44 EDT"
Cosan Plans to Boost Sugar Inventory on Price Outlook (Update2)
By Carlos Caminada
"Sept. 12 (Bloomberg) -- Cosan SA Industria e Comercio, the world's biggest sugar producer, plans to boost inventories and reduce sales to take advantage of expected price increases."
"Cosan will add to growing sugar stockpiles in the next nine to 12 months, Chief Financial Officer Paulo Diniz said on a conference call today, without giving more details. The Piracicaba, Brazil-based company also plans to increase the proportion of sugar cane it turns into ethanol, he said."
"Reduced output from countries including Brazil, the world's biggest producer, may lead to demand outpacing supply, supporting prices above 14 cents a pound next year, Diniz said. Sugar, which has sold for an average of 12.5 cents a pound this year, closed above 14 cents six times in the past six weeks, including today."
"``The company has started a program of intense stockpile accumulation,'' Diniz said. ``Cosan also intensified even more its efforts to favor ethanol production.''"
"Sugar futures for March delivery rose 0.45 cent, or 3.3 percent, to 14.06 cents a pound on ICE Futures U.S., the former New York Board of Trade. The sweetener has gained 30 percent this year, the best performance on the Reuters/Jefferies CRB Index of 19 raw materials."
"A rebounding dollar and rising sugar prices may make Cosan profitable next year, Vice Chairman Pedro Mizutani said."
"Cosan rose for a second day, gaining 60 centavos, or 3.2 percent, to 19.60 reais in Sao Paulo trading. The shares fell 14 percent this week, the biggest such drop since Nov. 23, and are down 5.8 percent this year."
Cosan yesterday reported its third-straight unprofitable quarter. The loss of 58.1 million reais ($32.2 million) in the three months ended July 31 compares with a profit of 13.7 million reais a year earlier. The loss was wider than the 27 million-real average forecast of four analysts in a Bloomberg survey.
Above-average rainfall that delayed harvesting in Brazil and pared sugar-cane yields pushed up production expenses. Rising prices for fertilizer and fuel also increased spending.
"Costs climbed 14 percent from a year earlier to 626 million reais, Cosan said. Net sales rose 8.1 percent to 639.6 billion reais."
"The Brazilian real's rally against the dollar reduced the value of exports when converted back into the local currency, eroding Cosan's profit margins. The real gained 13 percent against the greenback in the first seven months of this year."
"In the three months ended July 31, the real was an average of 19 percent higher against the dollar than in the same period a year earlier. Since July 31, the real has fallen 12 percent against the dollar."
"Cosan said it sold sugar for an average $354.70 a ton in the quarter, up 10 percent from a year earlier."
"Sugar next year likely will surpass 14 cents a pound, the price Cosan needs to be profitable, as output in India and other countries drops, Mizutani said in an interview on Aug. 13."
To contact the reporter on this story: Carlos Caminada in Sao Paulo at at firstname.lastname@example.org
"Last Updated: September 12, 2008 18:06 EDT"
"Oil Falls More Than $7 as Lehman Fails, Ike Spares Refineries "
By Grant Smith
Sept. 15 (Bloomberg) -- Crude oil fell more than $7 to a seven-month low as Lehman Brothers Holdings Inc. filed for bankruptcy and refineries along the Gulf of Mexico escaped major damage from Hurricane Ike.
"Futures dropped on speculation turmoil on Wall Street and the worsening credit crisis may slow the global economy, cutting energy demand. ICE Futures, the exchange for Brent oil, suspended Lehman's access. Refiners said preparations are under way to restart plants in the Houston area, home to more than 20 percent of U.S. refining capacity."
"``Oil has fallen because Ike's legacy will not be long- lasting, but also because of the carcasses on Wall Street,' said Rob Laughlin, senior broker at MF Global Ltd. in London. ``The ramifications of the Lehman fallout will be felt for some days.''"
"Crude oil for October delivery declined as much as $7.05, or 7 percent, to $94.13 a barrel in electronic trading on the New York Mercantile Exchange. That's the lowest since Feb. 14. The contract was at $95 at 12:38 p.m. in London."
Crude has declined 33 percent from a record $147.27 a barrel on July 11 as high prices and slowing global economic growth reduce energy demand.
"Oil dropped even as Nigeria's main rebel group, the Movement for the Emancipation of the Niger Delta, said today its fighters destroyed a Royal Dutch Shell Plc flow station in a third day of attacks against oil installations."
"Brent crude oil for October settlement fell as much as $6.41, or 6.6 percent, to $91.17 a barrel on London's ICE Futures Europe exchange. It was trading at $91.70 a barrel at 12:38 p.m. in London. Prices have tumbled 13 straight days."
"A total of 14 Texas and Louisiana refineries, with combined crude processing capacity of 3.57 million barrels a day, are shut because of Ike."
"Gasoline for October delivery fell 22.51 cents, or 8.1 percent, to $2.5445 a gallon in New York at 12:31 p.m. in London. New York Mercantile Exchange electronic trading opened early yesterday to allow traders to respond to Ike."
"Valero Energy Corp., the largest U.S. refiner, said it found ``no significant structural damage'' at three Houston-area refineries shut before the storm."
"Exxon Mobil Corp. said its Baytown refinery, the largest in the U.S., has power and damage appears ``limited,'' while it is checking its Beaumont, Texas, plant, which is without power."
Royal Dutch Shell Plc said it was assessing its Texas plants and it was too early to say when they will restart.
"ConocoPhillips said its Sweeny, Texas refinery has power and its condition is being assessed. LyondellBasell Industries' Houston refinery will be down for at ``least several days,'' said David Harpole, a company spokesman. Marathon Oil Corp. and Motiva Enterprises LLC said they were evaluating their plants."
"Hedge-fund managers and other large speculators cut their net-long position in New York crude-oil futures in the week ended Sept. 9, according to U.S. Commodity Futures Trading Commission data."
"Speculative long positions, or bets prices will rise, outnumbered short positions by 6,336 contracts on the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 7,995 contracts, or 56 percent, from a week earlier."
To contact the reporter on this story: Grant Smith in London at email@example.com.
"Last Updated: September 15, 2008 07:40 EDT"
"Nickel Leads Metals Lower in London on Stockpiles, Falling Oil "
By Rachel Graham
"Sept. 15 (Bloomberg) -- Nickel fell, leading all industrial metals down in London trading, as increased stockpiles fueled concern a housing and construction slump is hurting demand. Tin and lead also slid as crude oil pulled commodities lower."
"Nickel inventories monitored by the London Metal Exchange rose 0.9 percent, figures from the exchange show. Crude oil fell below $100 a barrel on the New York Mercantile Exchange to the lowest in more than six months."
"The decline in the metal ``is related to stockpiles,'' Randy North, a trader at RBC Capital Markets in London, said by phone. ``Oil has been under pressure. That could cap things.''"
"The LME suspended Lehman Brothers Holdings Inc. from trading on the bourse's electronic system after the U.S. bank filed for bankruptcy protection. The suspension on Select, the electronic platform, was confirmed by LME spokesman Thom Lant in London."
"Nickel for three-month delivery fell $750, or 3.9 percent, to $18,500 a metric ton as of 9:51 a.m. on the LME."
"Among other metals traded on the exchange, copper fell $147, or 2.1 percent, to $6,975 a ton, aluminum fell $45, or 1.7 percent, to $2,620 a ton and tin fell $700, or 3.6 percent, to $18,750 a ton."
To contact the reporter on this story: Rachel Graham in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 04:58 EDT"
"Fed Widens Collateral, Banks Set Up $70 Billion Fund (Update4) "
By Craig Torres and Liz Capo McCormick
Sept. 15 (Bloomberg) -- The Federal Reserve widened the collateral it accepts for loans to securities firms to include stocks in an effort to help Wall Street weather Lehman Brothers Holdings Inc.'s plans for bankruptcy.
"The Fed also yesterday boosted its program for lending Treasuries to bond dealers by $25 billion, bringing it to $200 billion. At the same time, a group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
"Central bankers and banking leaders acted after three days of emergency talks led by Treasury Secretary Henry Paulson and New York Fed President Timothy Geithner on the mounting turmoil in financial markets. Yesterday's steps may spur speculation the Fed may take further action, including lowering interest rates, to stem a deepening in the yearlong credit crisis."
"It is ``critically important to put in a firebreak to an already weakened system,'' said Saumil Parikh, who helps oversee $688 billion at Pacific Investment Management Co. in Newport Beach, California. Policy makers are aiming to prevent a ``broad run on the U.S. financial system,'' he said."
The European Central Bank and the Bank of England today pumped emergency funds in their financial systems. The U.K. central bank loaned an additional 5 billion pounds ($9 billion) for three days. The operation attracted bids for 24.1 billion pounds. The ECB said it injected 30 billion euros ($43 billion) for one day after bids totaled 90.27 billion euros. The central banks of Switzerland and Australia also provided extra funds.
Bear Stearns Legacy
"The Fed's announcement came late on a Sunday evening following news of Barclays Plc and Bank of America Corp. abandoning talks to buy Lehman, the investment bank that lost 77 percent of its value last week. Bank of America separately agreed to acquire Merrill Lynch & Co. for about $50 billion, according to a statement by the company today."
The offer of loans on easier terms adds to efforts by the central bank to ensure liquidity and alleviate a jump in funding costs this year. The program for loans to the primary dealers in Treasuries was set up in March in the aftermath of the collapse of Bear Stearns Cos.
"Speculation may climb that the Fed will now consider lowering interest rates further to offset the impact of a tighter credit crunch on the faltering economy. As recently as Aug. 5, the rate- setting Federal Open Market Committee ``generally anticipated'' the next move in rates would be an increase. There is an 86 percent chance the Fed will pare its key rate by a quarter-point tomorrow, up from 12 percent at the end of last week, according to futures prices."
"Government figures last week showed that retail sales fell in August, a month when the U.S. unemployment rate climbed to 6.1 percent, the highest level in five years."
"Liquidity moves ``by the Fed can only go so far,'' said Mark Spindel, chief investment officer at Potomac River Capital LLC, a Washington DC investment firm. ``It just might be that firms and investors might have to take more losses, and maybe what the economy and markets need are lower rates.''"
Fed Chairman Ben S. Bernanke said in yesterday's statement that the Fed has been in touch with other central banks ``to monitor and share conditions in financial markets and firms around the world.''
"Talks held at the New York Fed Friday evening, Sept. 12, through late yesterday were aimed at identifying ``potential market vulnerabilities in the wake of an unwinding of a major financial institution.''"
Lehman Bankruptcy Plan
"Lehman plans to file a Chapter 11 petition in the U.S. Bankruptcy Court for the Southern District of New York, the firm in a statement today. The filing will be by the holding company and won't include any of its subsidiaries, Lehman said."
"The Fed will now accept equities in the Primary Dealer Credit Facility, its program for lending cash directly to securities firms, in addition to investment-grade debt. Collateral for the Term Securities Lending Facility, which auctions loans of Treasuries, will now include all investment-grade debt securities."
"Fed officials have already made direct loans to commercial banks more attractive this year in an effort to ease funding strains. They lowered the cost to a quarter-point more than the benchmark federal funds rate, down from 1 percentage point historically. In March, the so-called discount-window loans were extended to 90 days."
"Direct loans to commercial banks hit record levels in six of the past eight weeks, reaching $23.5 billion as of Sept. 10. There were no PDCF loans to the 19 primary Treasuries dealers outstanding."
"Paulson and the Fed were against using government funds to prevent Lehman's collapse, seeking to draw a line for bailouts after the rescues of Bear Stearns and the mortgage companies Fannie Mae and Freddie Mac."
The Securities and Exchange Commission separately said yesterday it's ``taking action'' to protect Lehman's customers and will keep staff on-site at the firm ``in coming weeks.''
"Changes to the Fed collateral for securities dealers will make it closely match ``collateral that can be pledged in the tri- party repo systems.'' Banks use tri-party repos, or repurchases, for short-term financing amongst each other."
"In effect, the Fed is assuring that if investors pull away from brokers, they will be able to access cash through the PDCF with the same wide set of collateral used in tri-party repo, including stocks."
"The Fed also granted an exemption on a rule that limits banks' transactions with their brokerage subsidiaries, a move that provides securities dealers with another source of funding if they need it for market making this week."
"The group of 10 banks said that any member can borrow up to a third of the fund, to which each is contributing $7 billion. Participants also include Bank of America, Barclays PLC, Citigroup Inc., Credit Suisse, Merrill Lynch, Morgan Stanley and UBS AG."
"``These initiatives will be critical to facilitating liquid, smooth functioning markets, and addressing potential concerns in the credit markets,'' Treasury Secretary Henry Paulson said in a separate statement."
To contact the reporters on this story: Craig Torres in Washington at email@example.com; Liz Capo McCormick in New York at Emccormick7@bloomberg.net
"Last Updated: September 15, 2008 07:33 EDT"
Bulgarian Economic Growth Accelerates to 3-Year High (Update1)
By Elizabeth Konstantinova
"Sept. 15 (Bloomberg) -- Bulgaria's economic growth accelerated to its fastest pace in three years in the second quarter, driven by consumption, investment and agriculture."
"The Balkan country's $40 billion economy expanded 7.1 percent, from 7 percent in the first three months, the statistics office in Sofia said at a news conference today. The result beat the median estimate of 6.5 percent by eight economists surveyed by Bloomberg."
"Bulgaria, the European Union's poorest member with a per- capita gross domestic product that is 37 percent of the EU average, is counting on investment and economic growth to help raise living standards in the former communist country. A lending boom extending over the past three years spurred consumption and investment."
"``Low taxes and cheap labor continue to attract investors, consumption remains high and industrial output is good,'' Georgi Angelov, a senior economist at the Open Society Institute in Sofia, said before the data release. ``The agricultural sector showed the first signs of recovery in the beginning of the harvest season.''"
"Agricultural output rose 6.7 percent in the second quarter, after a 1.6 percent decline in the previous quarter and a 36.4 percent drop in the fourth quarter, data showed. Services were up 5.8 percent after an 8.3 percent increase, while industrial output gained 8.4 percent in the second quarter from 7.7 percent."
The nation of 7.8 million ships about 65 percent of its exports to major economies in the EU. The euro-area's economy contracted 0.2 percent in the second quarter from the first as faltering sales undermined investment by companies and soaring costs eroded consumers' spending power.
"Bulgarian import growth more than doubled to 13.7 percent from 5.8 percent, while exports began to show the impact of the slowing EU economy, rising 5.1 percent in the second quarter after a 9.2 percent increase in the previous three months, the statistics office said."
"Economic growth will be between 6.2 percent and 6.5 percent this year, buoyed by a rebound in the harvest this year after unfavorable weather conditions devastated crops in 2007, Bulgarian Economy Minister Petar Dimitrov said on Aug. 8."
"End-user individual consumption growth was 5.3 percent, down from 5.7 percent in the previous quarter. Public consumption fell 0.3 percent after a 5.8 percent decline in the first quarter, according to the statistics office."
To contact the reporter on this story: Elizabeth Konstantinova in Sofia at firstname.lastname@example.org
"Last Updated: September 15, 2008 04:59 EDT"
"Citic Resources Profit Soars as Oil Output, Prices Increase "
By Winnie Zhu
"Sept. 15 (Bloomberg) -- Citic Resources Holdings Ltd., a unit of China's fourth-biggest oil producer, said profit jumped almost fourfold in the first half as oil output increased while prices soared to records."
"Net income climbed to HK$520.1 million ($67 million), or 9.84 cents a share, from HK$138.3 million, or 2.83 cents a share, a year earlier, the company said in a statement to the Hong Kong stock exchange today. Sales gained 83 percent to HK$9.49 billion."
The metals producer is turning into a supplier of oil to capitalize on rising energy demand from the world's fastest- growing major economy.
"Citic Resources bought a Kazakhstan oil field from its parent last year, adding to output in Indonesia where the Chinese government-backed company acquired its first energy asset in 2006."
"Crude production at the Kazakhstan field is targeted to rise 13 percent this year. Output will climb to 40,000 barrels a day this year from 35,500 barrels a day in 2007, Chief Executive Officer Sun Xinguo said on June 2."
"The Karazhanbas field in western Kazakhstan holds an estimated 363.8 million barrels of oil reserves. The company also has a 51 percent stake in the Non-Bula Block in Indonesia's Maluku province. Crude prices, currently 27 percent higher than a year earlier, reached a record of $147.27 a barrel on July 11."
"Citic Resources also increased its stake in Macarthur Coal Ltd. to more than 20 percent, becoming the coal producer's biggest shareholder, Macarthur said in July. Supply constraints and rising Asian demand boosted prices of power-station coal at Australia's Newcastle port, the world's biggest harbor exporting the fuel, to all-time highs."
"This year's contract price, which rose 125 percent to a record $125 a ton, may increase 36 percent to $170 next year, Merrill Lynch & Co. said in a Sept. 5 report. Prices at the New South Wales port were at $161.35 a ton in the week ended Sept. 5, according to the globalCOAL NEWC Index."
"Citic Resources said this month it plans to spin off its manganese unit to boost the capital it needs for expansion as the company focuses on its energy business. Its stake in Citic Dameng Holdings Ltd. will drop to below 50 percent after the proposed listing, from 80 percent."
"As much as $800 million may be raised by selling shares in the manganese unit, the South China Morning Post said in April, citing people it didn't identify."
"The shares of Citic Resources fell 70 percent this year, compared with a 30 percent slump in the benchmark Hang Seng Index."
To contact the reporter on this story: Winnie Zhu in Shanghai at email@example.com
"Last Updated: September 15, 2008 06:46 EDT"
Sri Lanka Raises $60 Million From Sale of Development Bonds
"Sept. 15 (Bloomberg) -- Sri Lanka raised $60 million selling two-year dollar-denominated bonds, less than the $70 million it had planned, according to the central bank."
"The island nation sold the so-called Sri Lanka Development Bonds, or SLDBs, at a weighted average yield of 289.5 basis points more than the six-month London interbank offered rate, it said in an e-mailed statement today. It received bids for $75 million. A basis point is 0.01 percentage point."
The government is selling dollar bonds to pay maturing debt and take advantage of lower borrowing costs overseas as the central bank held local interest rates at the highest level since 2002 to cool Asia's third-fastest inflation.
The government raised $230.3 million in June by selling similar bonds at a weighted average yield of 294.92 basis points more than the six-month London interbank offered rate. It had planned to raise $200 million.
"The central bank today kept its benchmark lending rate at 10.5 percent for a 19th straight meeting. The 15.5 percent local- currency bond due August 2010 yielded 17.95 percent, according to Ceylinco Shriram Securities Ltd."
To contact the reporter on this story: Anusha Ondaatjie in Colombo at firstname.lastname@example.org.
Michelin Leads Auto Stocks Lower After Continental Cuts Target
By Laurence Frost
"Sept. 15 (Bloomberg) -- Michelin & Cie., the world's second-largest tiremaker, led automotive stocks lower after competitor Continental AG cut profit forecasts, citing a worsening economy."
"Michelin fell as much as 3.04 euros, or 6.1 percent, to 47 euros, its biggest decline since Aug. 13, and was down 5.4 percent at 10:43 a.m. in Paris. The stock has dropped 40 percent this year, paring the company's market value to 6.87 billion euros ($9.8 billion)."
"Continental, which makes auto parts and tires, said Sept. 13 it won't meet full-year profit goals because of rising raw-material prices and weaker demand for vehicles in Europe and the U.S. Hanover, Germany-based Continental forecast earnings before interest and taxes equivalent to 8.5 percent of revenue in fiscal 2008. That compares with an earlier estimated EBIT margin of at least 9.3 percent."
"Continental was 0.4 percent lower after falling as much as 1.53 euros, or 2.1 percent, to 72.40 euros in Frankfurt, cushioned by a 75 euro-a-share takeover offer from ball-bearing maker Schaeffler Group that expires tomorrow. Nokian Renkaat Oyj, the world's most profitable publicly traded tiremaker, plunged 5 percent in Helsinki."
"Renault SA, France's second-biggest carmaker, was down 3.5 percent, outpacing a 3 percent decline in the Dow Jones Stoxx 600 Automobiles & Parts index. Daimler AG was 3.4 percent lower in German trading, as was Bayerische Motoren Werke AG."
"Continental accepted Schaeffler's raised bid on Aug. 21 after resisting the approach. Schaeffler secured control of 28 percent of Continental with swaps agreements. Herzogenaurach, Germany-based Schaeffler said Sept. 2 that it controls 48.3 percent of Continental. Investors have until tomorrow to tender shares."
To contact the reporter on this story: Laurence Frost in Paris at email@example.com
"Last Updated: September 15, 2008 05:00 EDT"
Lehman Brothers Suspended From London Commodity Trade (Update1)
By Chanyaporn Chanjaroen and Alexander Kwiatkowski
"Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, was suspended from energy and commodities trading in London after Europe's biggest clearing house declared the company a defaulter."
"The London Metal Exchange, the world's largest copper bourse, the Liffe commodities exchange, and Intercontinental Exchange Inc.'s ICE Futures Europe, part of the second-biggest energy exchange, all suspended Lehman today. LCH.Clearnet Group Ltd., which clears trades, declared Lehman's European subsidiary a defaulter."
"``Lehman is an important counterparty in the commodity markets,'' Robin Bhar, a strategist at Calyon in London, said by phone. Still, the bank's positions on the LME are ``unlikely to be huge,'' he said."
"Lehman was forced to file for bankruptcy after two suitors, Barclays Plc and Bank of America Corp., abandoned takeover talks yesterday. It joins Bear Stearns Cos., Merrill Lynch & Co. and more than 10 banks that couldn't survive the credit crunch."
"The firm's value-at-risk to commodities, a measure of how much the bank estimates it could lose, averaged $15 million a day in the quarter ended Aug. 31, compared with $12 million in the previous quarter, according to a Sept. 10 statement."
"Lehman is a so-called category 2 member of the LME and eligible to issue and clear contracts. It can't trade on the floor of the exchange. It was suspended from trading on the bourse's Select electronic platform. The LME trades copper, aluminum, zinc, nickel, tin, lead, steel and plastics."
Winding Down Business
"The firm can still trade by phone, LME spokesman Thom Lant said. Each trade has to be approved by PricewaterhouseCoopers LLP, which is handling the winding down of the business, he said."
"Enron Corp.'s metals trading unit, now RBS Sempra Metals Ltd., was the most recent LME member to go into administration."
"Lehman's head of European commodities is Jason Tudor, a former head of metals at Barclays Capital. He joined Lehman in 2006."
"Intercontinental Exchange suspended Lehman's access to its ICE Futures Europe trading facilities. The exchange trades Brent crude oil, gasoil and other energy futures. Lehman also trades emissions on ICE."
"Liffe has commodities trading in coffee, sugar, cocoa in London. The move does not apply to trading in Paris because there has been no statement from LCH.Clearnet SA to say Lehman is in default, Liffe spokesman James Dunseat said."
"The London clearing house ``is managing the markets in an orderly manner,'' LCH.Clearnet spokeswoman Rachel Harper said today by phone."
"The London Bullion Market Association expects no impact from the bankruptcy of member Lehman, Chief Executive Officer Stewart Murray said. The LBMA, representing the wholesale gold and silver market in London, has 57 ordinary members this year, up from 55 last year and 52 in 2006, Murray said."
"``They're ordinary members, they're not market makers, they're not clearers,'' Murray said by phone from London today. The two banks' weighting within the London bullion market was ``quite small given the many number of ordinary members.''"
To contact the reporter on this story: Chanyaporn Chanjaroen in London at firstname.lastname@example.org; Alexander Kwiatkowski in London at email@example.com
"Last Updated: September 15, 2008 07:33 EDT"
"EU Shuns U.S.-Style `Active Role' on Growth, Banks (Update2) "
By Simon Kennedy and John Rega
Sept. 15 (Bloomberg) -- European finance ministers and central bankers said they had no plans to follow the U.S. in stimulating their economy and failed to agree on ways of rescuing any foundering financial institution.
"As U.S. officials chose to let Lehman Brothers Holdings Inc. file for bankruptcy rather than throw it a lifeline, European policy makers concluded talks in Nice, France, without breaking new ground on how they would share the cost of a bailout if a bank collapse threatened to spread across the region. They also signaled that restraining inflation and budget deficits was a better strategy to revive growth than trimming taxes and interest rates."
"``U.S. policy makers have generally taken a more active role in supporting the economy and stabilizing financial markets while the euro zone has opted for a less-interventionist stance,'' said Natacha Valla, a former economist at the European Central Bank and now at Goldman Sachs Group Inc. in Paris."
The transatlantic divide in monetary and fiscal policies may mean the economy of the 15-nation euro region takes longer to rebound after contracting 0.2 percent in the second quarter. The European Commission projects the weakest growth since 2003 this year as Germany and Spain slip into a recession and Italy and France stagnate.
"``Europe faces a long-lasting slowdown and only gradual recovery,'' said Dario Perkins, an economist at ABN Amro Holding NV in London."
"The lack of a cost-sharing plan means the pain would be even greater should a pan-European financial institution run into troubles similar to those that battered Lehman Brothers in the U.S., said Nicolas Veron, an economist at Bruegel, a Brussels-based research organization."
"Ministers have so far agreed only to knit bank supervisors closer together and pledged to cooperate in managing any crisis. Unwilling to commit taxpayer money up front, they resisted calls to devise a plan for splitting the bill should a bailout become necessary to prevent a collapse of the financial system."
"``The policy response would be slower and less efficient given the lack of a framework, and that would pose a significant cost to the economy if something happened,'' Veron said."
"By contrast, the U.S. has been able to step in swiftly to help ailing institutions. The government this month assumed control of Fannie Mae and Freddie Mac, while in March the Federal Reserve helped finance JPMorgan Chase & Co.'s purchase of Bear Stearns Cos. Still, as Lehman Brothers slid, U.S. Treasury Secretary Henry Paulson indicated that he didn't want to use taxpayer cash to ease a sale of the company."
"The U.S. has the advantage that the institutions it monitors are largely contained within its borders. Europe's biggest banks held an average of 24 percent of their assets in European countries other than their own in 2006, double the amount of 1997, according to Bruegel."
"European policy makers also face more constraints than their U.S. counterparts in responding to weakening growth. One is inflation, which remains above the ECB's 2 percent limit. Governments have their hands tied by EU rules that require budget deficits to be below 3 percent of gross domestic product."
"Neither restraint exists in the U.S., allowing the Fed to cut its benchmark rate to 2 percent and President George W. Bush to enact $168 billion of stimulus. Europe's strategy amounts to a bet that expansion can be better revived by controlling inflation and budgets than by pump-priming growth with short- term stimulus that generates higher prices and bigger deficits."
"Spending taxpayers' funds on fiscal programs to spark growth would be ``like burning money,'' German Finance Minister Peer Steinbrueck said. Luxembourg Finance Minister Jean-Claude Juncker questioned the success of the U.S. approach, and said declines in the still ``overvalued'' euro and oil price would help Europe."
"``This should calm the ECB a bit as it increasingly fears that fiscal easing would oppose the central bank's efforts to bring down inflation over time,'' said Juergen Michels, an economist at Citigroup Inc. in London."
"ECB President Jean-Claude Trichet, who has demanded governments control their budgets, said the test would be ``implementation in practice.'' Price stability remains the bank's ``fundamental concern,'' he said in Nice."
The ECB today sought to soothe financial markets spooked by Lehman's bankruptcy filing by awarding banks 30 billion euros ($43 billion) in a one-day money-market auction that was more than three times oversubscribed.
Not Sitting on Hands
"Rather than driving up deficits, the European officials said they plan to cushion their economy by allowing automatic stabilizers such as higher welfare payments to kick in. They also pledged to make their economies more flexible, increase financial-market transparency and lend more money to small- and medium-sized industries."
"``We're not going to sit on our hands,'' French Finance Minister Christine Lagarde said."
"Still, slowing growth alone will be enough to end four years of fiscal consolidation with JPMorgan predicting a budget deficit of 2 percent of GDP in the euro area next year, up from 0.6 percent last year."
"Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc, predicts an extended period of weak growth may prompt countries such as France and Italy to ``exploit'' a revised rule that allows a temporary breach of the limit in times of weak expansion. Italy, France, Ireland, Portugal and Greece are at risk of breaching the deficit ceiling next year, according to Commerzbank AG."
"In a report today, Cailloux said the ECB may also cut rates if the Fed does so again and its officials become ``convinced that credit markets have seized up or see a vicious downward spiral in equity markets.''"
"``The escape clause the ECB could use to explain its unexpected policy response would be the obvious rising risk of a feedback loop between the financial crisis and the real economy and the need to shore up confidence in financial markets,'' he said."
"To contact the reporters on this story: Simon Kennedy in Nice, France, at firstname.lastname@example.org; John Rega in Nice, France, at email@example.com."
"Last Updated: September 15, 2008 06:52 EDT"
CapitaLand Lead Singapore Developers Lower on China (Update1)
By Chen Shiyin
"Sept. 15 (Bloomberg) -- CapitaLand Ltd., Singapore's biggest developer by sales, plunged the most in six months in Singapore, leading property companies in the city-state lower on concern that demand for real estate in China is faltering."
"CapitaLand, which generated almost 30 percent of its revenue from China in 2007, fell 6.1 percent to close at S$4.03, its largest decline since March 13 and the lowest close since June 8, 2006. Yanlord Land Group Ltd., a Chinese developer of luxury homes, tumbled 11 percent to S$1.10, while Keppel Land Ltd., which also has projects in China, retreated 5.5 percent to S$3.25."
"China's property market could be headed for a ``meltdown'' as home prices and sales slump, Morgan Stanley analysts said on Sept. 12. Developers including China Vanke Co., the nation's biggest publicly traded real-estate developer, and Poly Real Estate Group Co. have reported falling sales amid government lending curbs."
"``Recent price cuts could further depress pricing of residential properties and lead to prolonged weakness in an already ailing China property market,'' Foo Sze Ming, a Singapore-based analyst at OCBC Investment Research, wrote in a report today. ``There are no signs of the Chinese government stepping out to halt the slump in the property market.''"
To contact the reporter on this story: Chen Shiyin in Singapore at firstname.lastname@example.org.
"Last Updated: September 15, 2008 06:08 EDT"
Colonial Agrees to 7 Billion-Euro Debt Restructuring (Update2)
"Sept. 15 (Bloomberg) -- Inmobiliaria Colonial SA, the Spanish property company that lost 84 percent of its market value this year, agreed to a 7 billion-euro ($10 billion) debt restructuring with lenders including Goldman Sachs Group Inc."
"Colonial will sell 33 percent of French unit Societe Fonciere Lyonnaise SA as part of the agreement, the Barcelona- based company said in a statement today. It also plans to sell its stake in builder Fomento de Construcciones y Contratas SA and mall developer Riofisa SA. The stock fell to a six-year low."
"Colonial, which relied on debt to buy rivals in 2007, is under pressure to refinance loans after banks declined to relax conditions on its borrowings in July. Real estate companies in Spain are struggling as the highest interest rates since 2000 and rising unemployment hurts demand for new homes, causing house prices to fall for the first time since 1998."
"``This is an oxygen tent for the company,'' said Francisco Salvador, a Madrid-based director at broker Venture Finanzas SA, who has an ``underweight'' recommendation on property stocks. ``Now the focus is the price Colonial gets from the asset sale.''"
"Colonial fell as much as 16 percent to 26 cents in Madrid, the lowest since October 2002. The stock was at 28 cents at 12 p.m., valuing the company at 489 million euros. Europe's Dow Jones Stoxx 600 Index slumped 3.6 percent as credit market turmoil forced U.S. investment bank Lehman Brothers Holdings Inc. to file for bankruptcy."
"Colonial will ask shareholders' approval to sell 1.4 billion euros of mandatory convertible bonds, according to the filing. Some lenders and shareholders have agreed to buy as much as 1.3 billion euros of the notes, which convert into company shares, according to the statement."
"Goldman, Calyon, Eurohypo and Royal Bank of Scotland Group Plc are among banks that agreed to extend the maturity on 6.5 billion euros of loans to five years, according to the statement. Some lenders of privately arranged loans accepted company assets as part repayment for the debt, the statement said."
"Banco Popular SA and La Caixa, both lenders and shareholders of Colonial, abandoned the shareholder group set up with other lenders in April after completing the refinancing agreement, Popular said in a regulatory filing today. Popular said they joined the group to pave the way for the debt restructuring accord to take place."
To contact the reporters on this story: Esteban Duarte in Madrid at email@example.com
"London Bullion Group Expects Little Effect From Lehman, Merrill "
By Marianne Stigset
"Sept. 15 (Bloomberg) -- The London Bullion Market Association expects no impact from the bankruptcy of member Lehman Brothers Holding Inc. or the sale of member Merrill Lynch & Co., Chief Executive Officer Stewart Murray said."
"``They're ordinary members, they're not market makers, they're not clearers,'' Murray said by phone from London today. The two banks' weighting within the London bullion market was ``quite small given the many number of ordinary members.''"
"Lehman Brothers, the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history. Merrill Lynch agreed to sell itself to Bank of America Corp."
"The LBMA, representing the wholesale gold and silver market in London, has 57 ordinary members this year, up from 55 last year and 52 in 2006, Murray said."
To contact the reporter on this story: Marianne Stigset in Oslo at firstname.lastname@example.org
"Last Updated: September 15, 2008 04:55 EDT"
India Stocks Slump on Lehman Bankruptcy; Reliance Leads Drop
By Pooja Thakur
"Sept. 15 (Bloomberg) -- Indian stocks plunged, with the Sensitive index falling to its lowest in a month, after Lehman Brothers Holdings Inc. filed for bankruptcy, deepening a global financial crisis."
"Reliance Industries Ltd., India's most valuable company, dropped 2.4 percent to its lowest in two weeks. ICICI Bank Ltd., the country's second-largest lender, fell 3.9 percent, to its lowest since July 29."
"``The pain is unfolding at a huge cost because of the erosion in value'' of U.S. investment banks, said A. Balasubramaniam, who oversees $8.7 billion in assets as chief investment officer at Birla Sun Life Asset Management Co. ``It's difficult to say how deep the problem is going to be.''"
"The Bombay Stock Exchange's Sensitive Index, or Sensex, declined 469.54, or 3.4 percent, to 13,531.27, its lowest since July 17, recouping 380.46 points from the day's low."
Stocks recouped some of their losses after China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside.
"The S&P CNX Nifty Index on the National Stock Exchange retreated 3.7 percent to 4,072.90, the biggest decline since July 15."
"Stocks sank in Australia, Taiwan and Southeast Asia after Lehman Brothers, the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis with the biggest bankruptcy filing in history. Also, American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to forestall credit downgrades that may hobble it."
"India's Sensex outperformed its Asian peers over the past two months, climbing 5.2 percent from its July 16 low while the MSCI Asia Pacific Index fell 4.6 percent."
"Bank of America Corp. separately agreed to buy Merrill Lynch & Co. for about $44 billion, a person with knowledge of the deal said, after shares of the third-biggest U.S. securities firm fell by more than 35 percent last week. That agreement came after Bank of America and Barclays Plc abandoned talks to buy Lehman."
"Stocks also fell after bomb blasts in the capital, New Delhi, killed 21 people on Sept. 13, the worst terrorist attack in the country since 50 people died in the western city of Ahmedabad in July."
"``The news of Lehman Brothers filing for bankruptcy and the Merrill Lynch takeover has shaken investor confidence,'' said Viswanathan Vasudevan, who manages about $400 million at Aquarius Investment Advisors Pte. from Singapore. ``Also, the blasts in New Delhi have added to the woes.''"
"Reliance fell 2.4 percent to 1,886.95 rupees, its lowest since Aug. 28. ICICI dropped 3.9 percent to 627.50 rupees, its lowest since July 29. The two account for about 22 percent of the Sensex's weight."
"India's rupee slumped to a two-year low on concern investors will dump riskier assets, including emerging-market securities. The rupee fell 0.5 percent to 45.9375 per dollar as of 3:55 p.m. in Mumbai, adding to last week's 2.3 percent loss, according to data compiled by Bloomberg."
"``Foreign institutional investor flows coming into India have been affected, and hence the stock market is showing some impact,'' Naina Lal Kidwai, chief executive officer of the India unit of HSBC Holdings Plc said from New Delhi today."
"Overseas investors sold a net 14.1 billion rupees ($307 million) of Indian stocks on Sept. 11, increasing their net outflow this year from equities to $7.8 billion, the nation's market regulator said."
"Satyam Computer Services Ltd., India's fourth-largest software services provider, had its biggest drop in more than five years after a report that the company may fire about 9 percent of its employees."
"Satyam dropped 9.5 percent to 368.50 rupees, the most since April 10, 2003. Satyam may cut as many as 4,500 jobs, the Economic Times reported today, citing unidentified people."
"As part of its appraisal process, Satyam said it identified ``around 5 percent'' of its employees for ``performance improvement.'' About half of them will leave ``voluntarily or involuntarily,'' Satyam said."
"Satyam led other software developers lower. Tata Consultancy Services Ltd. and Infosys Technologies Ltd., India's largest, fell 5.9 percent to 762.80 rupees and 4 percent to 1,578.15 rupees respectively."
To contact the reporters on this story: Pooja Thakur in Mumbai at email@example.com;
"Last Updated: September 15, 2008 07:04 EDT"
"Russian Stocks Decline, Led by Sberbank, VTB on Lehman Woes "
By William Mauldin
"Sept. 15 (Bloomberg) -- Russia's Micex Index slumped, led by Russia's biggest banks, as global credit market turmoil pushed Lehman Brothers Holdings Inc. into bankruptcy and Merrill Lynch & Co. to accept a takeover."
"The ruble-denominated Micex Index sank 2.3 percent to 1,111.29 at 11:27 a.m. in Moscow. The dollar-denominated RTS Index dropped 1.4 percent to 1,323.21."
"``The direction and strength of headwinds blowing hard from Wall Street as Lehman Brothers slips into bankruptcy are a great unknown and promise an extremely volatile and unpredictable session,'' Alfa Bank strategists Ron Smith and Erik DePoy wrote in a note today."
"Lehman Brothers, the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history. Bank of America Corp. cemented its status as the largest U.S. consumer bank by agreeing to acquire Merrill Lynch, the world's biggest brokerage firm."
"OAO Sberbank, Russia's biggest bank, tumbled 3.2 rubles, or 6.7 percent, to 44.60 rubles, the lowest in two years. VTB Group fell 0.36 kopeks, or 7.1 percent, to 4.75 kopeks, a record low."
"OAO Aeroflot, Russia's biggest airline, sank 2.45 rubles, or 3.8 percent, to 62.50 rubles. The company will ``halt collaboration'' with its Aeroflot Nord regional carrier, 51 percent owned by Aeroflot, after a crash in the city of Perm killed 88 people yesterday."
To contact the reporter on this story: William Mauldin in Moscow at firstname.lastname@example.org.
"Last Updated: September 15, 2008 03:38 EDT"
"AIG, Lehman Brothers, Merrill Lynch, WaMu: U.S. Equity Preview "
By Lu Wang
"Sept. 15 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading. Stock symbols are in parentheses, and share prices are as of 6:25 a.m. in New York unless stated otherwise."
American International Group Inc. (AIG US) plunged 25 percent to $9.07. The largest U.S. insurer by assets was working on plans late yesterday to raise capital and sell units to forestall credit downgrades from hobbling the company.
"Amylin Pharmaceuticals Inc. (AMLN US): Billionaire investor Carl Icahn raised his stake in the maker of the Byetta diabetes drug to 7.33 percent, according to a filing with the U.S. Securities and Exchange Commission. The stock rose 3.6 percent to $20.18 in regular trading Sept. 12."
Caterpillar Inc. (CAT US): The world's largest maker of construction equipment said it won a ruling that may help it block rivals from shipping hydraulic excavators to the U.S. The stock gained 1 percent to $65.46 in regular trading Sept. 12.
Lehman Brothers Holdings Inc. (LEH US) plunged 81 percent to 70 cents. The fourth-largest U.S. investment bank succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
"Longs Drug Stores Corp. (LDG US): The California retailer that received a $75-a-share offer from Walgreen Co. (WAG US) said it recommends shareholders accept CVS Caremark Corp.'s (CVS US) month-old, $71.50-a-share bid. Longs fell 0.1 percent to $71.66 in regular trading Sept. 12."
Magellan Midstream Partners LP (MMP US): The U.S. oil products distributor said two of its pipelines are shut because of Hurricane Ike. Magellan Midstream rose 3.3 percent to $35.46 in regular trading Sept. 12.
"Merrill Lynch & Co. (MER US) surged 37 percent to $23.30. Bank of America Corp. (BAC), the biggest U.S. consumer bank, agreed to buy Merrill Lynch for about $50 billion as the credit crisis claimed another of America's oldest financial companies. Bank of America will pay $29 a share, or 70 percent more than Merrill's closing price on Sept. 12. Bank of America retreated 12 percent to $29.75."
"M&T Bank Corp. (MTB US): The lender said it would take a third-quarter charge on holdings of Fannie Mae (FNM US) and Freddie Mac (FRE US), the mortgage buyers taken over by the government. The stock gained 4.1 percent to $78.17 in regular trading Sept. 12."
"McAfee Inc. (MFE US): The security software developer may gain 30 percent during the next year to $48 as the company posts better-than-estimated earnings and offers protection for corporate networks, Barron's reported, citing Jefferies & Co. analyst Katherine Egbert. The stock fell 3.5 percent to $36.22 in regular trading Sept. 12."
"Middleby Corp. (MIDD US): The maker of Toastmaster ovens and Pitco fryers may rise to $95 amid a slowing U.S. economy that curbs Americans' dining-out habits, Barron's reported, citing Roth Capital Partners analyst Anton Brenner. Middleby rose 0.7 percent to $55.89 in regular trading Sept. 12."
"Take-Two Interactive Inc. (TTWO US) fell 5.5 percent to $20.69 in Germany. Electronic Arts Inc. (ERTS US), the second- largest video-game publisher, said it ended discussions with Take-Two Interactive and won't make a proposal to buy the company. Electronic Arts lost 1.3 percent to $44.99 in regular trading Sept. 12."
"Textron Inc. (TXT US): The largest maker of business jets through its Cessna brand won a $250.1 million contract to provide armored security vehicles to the U.S. Army, the Department of Defense said on its Web site. The stock rose 0.4 percent to $38.92 in regular trading Sept. 12."
Washington Mutual Inc. (WM US) retreated 23 percent to $2.10. Its 75 percent slide in market value to $4.7 billion since March leaves the struggling lender valued at just above what JPMorgan Chase & Co. (JPM US) was willing to pay at the time to buy the firm.
To contact the reporter on this story: Lu Wang in New York at email@example.com
"Last Updated: September 15, 2008 06:29 EDT"
Sugar Falls as Lehman Customers May Seek to Get Out of Trades
By Claudia Carpenter
Sept. 15 (Bloomberg) -- Sugar fell the most in almost two weeks in London on speculation some Lehman Brothers Holdings Inc. clients may seek to get out of trades after the company's bankruptcy filing.
"Lehman Brothers International (Europe) was declared a ``defaulter'' today by the Liffe exchange. Lehman sought Chapter 11 protection in New York, listing more than $613 billion of debt in the biggest bankruptcy filing in history."
"``I don't think Lehman was a big commodity trader but they do clear a lot of positions for funds, and maybe some of their clients had to move their positions or liquidate,'' said David Sadler, manager of the sugar desk at brokerage Sucden (U.K.) Ltd. in London who has followed the commodities market for 40 years. ``Commodities overall don't look brilliant and the thinking may be it's better to have money than a wrong position.''"
"White, or refined, sugar for December delivery dropped as much as $12.90, or 3.3 percent, to $373.10 a metric ton, the steepest intraday decline since Sept. 2. The contract traded at $374.50 as of 11:10 a.m. local time on Liffe. Prices have climbed 19 percent this year."
"Robusta coffee for November delivery fell $5 to $2,146 a ton and cocoa for December delivery dropped 17 pounds to 1,465 pounds a ton."
To contact the reporter on this story: Claudia Carpenter in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 06:21 EDT"
Bank of America to Acquire Merrill as Crisis Deepens (Update1)
By David Mildenberg and Bradley Keoun
"Sept. 15 (Bloomberg) -- Bank of America Corp., the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co. for about $50 billion as the credit crisis claimed another of America's oldest financial companies."
"Bank of America will pay $29 a share for New York-based Merrill in stock, 70 percent more than the Sept. 12 closing price, the company said in a statement today. Merrill, battered by $52.2 billion in losses and writedowns from subprime-mortgage- contaminated securities, has plunged more than 80 percent from its peak of $97.53 at the start of last year."
"The takeover ends 94 years of independence for Merrill and gives Charlotte, North Carolina-based Bank of America a sales force with 16,690 brokers who manage $1.6 trillion for customers. Merrill, led by Chief Executive Officer John Thain, was in danger of becoming the next subprime casualty after Lehman Brothers Holdings Inc. filed for bankruptcy court protection earlier today."
"``If Bank of America can put a fence around the bad assets, that retail distribution is a powerhouse,'' said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors in Cincinnati, which oversees $16.5 billion in assets. ``The Merrill Lynch combination makes more sense than a Lehman deal.''"
"Merrill is the second bargain picked up this year by Bank of America Chief Executive Officer Kenneth Lewis tied to the collapse of the mortgage markets. The bank bought Countrywide Financial Corp. for $2.5 billion in stock last July to become the nation's biggest home lender. As recently as Sept. 12, Bank of America was considering making a bid for New York-based Lehman."
"Each Merrill share will be exchanged for 0.8595 shares of Bank of America stock, according to Bank of America's statement. That works out to $29 a share, based on Bank of America's closing price of $33.74 on Sept. 12. Because the payment is in stock, Merrill shareholders would get less if Bank of America's share price falls. The deal is scheduled to close in the first quarter of next year."
Bank of America slumped 13 percent to $29.50 in German trading and Merrill gained 37 percent to $23.30.
"``Acquiring one of the premier wealth management, capital markets, and advisory companies is a great opportunity for our shareholders,'' Lewis, 61, said in the statement."
"The Merrill takeover would be the largest in the financial- services industry this year, data compiled by Bloomberg show. It's the fifth-largest transaction since Bank of America bought FleetBoston Financial Corp. in 2003 for about $48 billion in 2003."
"The deal would mark the end of Merrill's almost century-long history as an independent company. According to Merrill's Web site, founder Charles Merrill solidified his reputation by advising clients to sell stocks prior to the crash of 1929. The firm went public in 1971 and in 1974 introduced its corporate logo -- a bull that Merrill executives say embodies one of the most recognizable brands in the world."
"Merrill's stock returned more than 13 percent a year from 2000 through 2006. Then last year, the housing market began to falter, and investments linked to the subprime mortgage market made under then-CEO Stan O'Neal tumbled in value. The firm posted a loss of more than $2 billion in last year's second quarter, and O'Neal was dismissed in October 2007."
"The board replaced him with Thain, 53, a former Goldman Sachs Group Inc. executive who earned the moniker ``Mr. Fixit'' for his stewardship of the New York Stock Exchange for four years beginning in January 2004. Thain took over Dec. 1."
"Lewis has made more than $100 billion of acquisitions since becoming CEO seven years ago, including the purchases of FleetBoston and credit-card issuer MBNA Corp."
"In Merrill's case, he's buying assets worth more than $40 a share, according to a Sept. 12 Citigroup Inc. analysis. The wealth management unit alone is worth $16 a share, said the report by Prashant Bhatia."
"Merrill also owns about half of BlackRock Inc., the New York-based money-management company that had a market value of $24 billion as of Sept. 12."
"Bank of America employed about 207,000 people at midyear, compared with Merrill Lynch's 61,900."
"``The fact that the biggest brokerage would be bought by the biggest retail bank is certainly historic,'' said John Medlin Jr., 74, retired chief executive officer at Wachovia Corp. ``Bank of America decided they weren't going to take on the Lehman risk, but they concluded the risk wasn't as severe at Merrill Lynch.''"
"Bank of America paid $3.3 billion in July 2007 for U.S. Trust Corp. to expand its wealth management business. The company had $589 billion in assets under management as of June 30 and its full-service brokerage, Banc of America Investments, employs about 5,600 financial advisers. The wealth management business contributed 14 percent of Bank of America's profit last year."
The bank said today it expects to cut $7 billion of costs by 2012.
"``B of A is known for making big cuts,'' said John Challenger at Challenger, Gray & Christmas Inc., the Chicago- based placement firm. ``They go in and thin it out,'' moving some functions to the bank's headquarters, he said."
"Fusing the two companies' investment banks transforms Bank of America into a bigger player in several of Wall Street's most lucrative businesses, CreditSights Inc. analyst David Hendler said yesterday in a report."
"Merrill is the world's sixth-biggest adviser on corporate mergers this year and Bank of America ranks 18th, Bloomberg data show. Together, Bank of America would climb to ninth, according to the statement. Bank of America is the biggest arranger of U.S. loans to companies with junk credit ratings, or those below investment grade. Merrill is the third-biggest stock underwriter."
Securities Unit Shakeup
"The Merrill purchase comes less than a year after Lewis, frustrated by proprietary trading losses at his company, said on a conference call, ``I've had all the fun I can stand in investment banking'' and vowed to scale back the unit."
"While he later said he regretted the comment because it made clients question his commitment to the business, Lewis replaced the head of investment banking and eliminated staff, citing slower demand for many capital markets businesses. He promoted former wealth management division leader Brian Moynihan as president of the corporate and investment bank."
"Moynihan has recruited more than two dozen people since March, including senior investment bankers and analysts from Bear Stearns Cos., Morgan Stanley and other Wall Street firms. The hires include David Glaser, former co-head of investment banking at Bear Stearns, and David Flannery, former head of leveraged capital markets at Deutsche Bank Securities."
"``It's a puzzle that Ken Lewis said he didn't want to be in the investment banking business and here he is jumping in with both feet,'' said Jack Ablin, who helps manage $65 billion as chief investment officer at Harris Private Bank, including shares of Merrill and Bank of America. ``Maybe by harnessing the brain power of Merrill they can become a player.''"
"Lewis's willingness to buy Merrill comes two and a half months after Bank of America completed its $2.5 billion purchase of Calabasas, California-based Countrywide, which was forced to sell due to mounting losses on subprime home loans -- the same assets that led to four straight quarterly losses at Merrill. Subprime loans go to home buyers with the weakest credit, and defaults are running at record rates."
"Because of its trading losses and slumping demand in capital markets, Bank of America's corporate and investment bank made up 4 percent of the company's profit last year, down from 25 percent in 2006. The company is the dominant U.S. retail bank, accounting for almost 10 percent of the nation's bank deposits and about one of every five newly issued home mortgages."
"Merrill posted a $9.8 billion loss in the fourth quarter, and Thain had to sell about $12 billion of equity in Merrill to bolster its capital base. At the time, Thain said he thought Merrill's troubles were mostly behind it."
"``We're very comfortable with our position,'' Thain said on Jan. 30."
"Merrill posted another $6.6 billion of losses in the first and second quarters, and in July Thain announced the sale of $31 billion of collateralized debt obligations for 22 cents on the dollar, resulting in another $4.4 billion of writedowns. With the prospect of more losses -- Oppenheimer & Co. analyst Meredith Whitney predicted last week Merrill would post a $6.87 billion deficit for the third quarter -- the stock plunged 36 percent to $17.05, adding pressure on Thain to act and avoid the fate of Bear Stearns, which collapsed in March, and Lehman."
"``The potential of a Bank of America-Merrill deal is very positive for the market,'' said Peter Kenny, a managing director at Knight Capital Group Inc., the Jersey City, New Jersey-based brokerage that handles about $1 trillion of stock transactions a quarter. ``It's a stronger balance sheet, and brings more certainty and confidence in the counterparty of trades.''"
To contact the reporter on this story: David Mildenberg in Charlotte at email@example.com; Bradley Keoun in New York at firstname.lastname@example.org;
"Last Updated: September 15, 2008 06:23 EDT"
SAP Gains Deutsche Postbank as Bank Software Client (Update1)
By Andreas Hippin
"Sept. 15 (Bloomberg) -- SAP AG, the world's largest maker of business-management software, said Deutsche Postbank AG started using its software to process payments."
"Betriebs-Center fuer Banken AG, a unit of Germany's biggest consumer bank by clients, is using the system it developed with SAP to handle high transaction volumes, SAP said in an e-mailed statement today. Financial terms of the deal were not disclosed."
"Postbank is the first customer to introduce SAP's core banking systems. The Walldorf, Germany-based software company aims to increase sales to the banking industry as lenders introduce standardized information technology to boost efficiency and cut costs. In a separate statement today, SAP said it won HSBC Holdings Plc as a new customer for software to automate corporate client services."
"``Our growth as an insourcer of back-office services in Europe now has no technical limitations,'' Mario Daberkow, a management board member of Deutsche Postbank, said in the statement. ``The payment engine has been developed to quickly implement future SEPA formats.''"
"Deutsche Postbank's BCB unit is the country's largest payment transaction company, servicing four out of Germany's five biggest banks, according to the statement. BCB sees the opportunity to expand its client base as European banks prepare to meet standards for the so-called Single European Payment Area, or SEPA."
Daberkow said by 2010 a ``significant volume'' of European payment transactions will be executed following the SEPA standard.
"Earlier this month, SAP won a contract to provide Banco Sabadell SA with human resources products. On June 26, SAP said it won Commerzbank AG, Germany's second-biggest lender, as a customer for its bank product."
To contact the reporter on this story: Andreas Hippin in Frankfurt at email@example.com.
"Last Updated: September 15, 2008 04:31 EDT"
Gulf's Top 20 Companies Fall as Global Markets Slump (Update1)
By Haris Anwar
"Sept. 15 (Bloomberg) -- Saudi Basic Industries Corp., Emaar Properties PJSC and the other 18 largest publicly traded companies in the Persian Gulf declined as global markets slumped on Lehman Brothers Holdings Inc.'s bankruptcy."
"Saudi Basic, the region's largest company, tumbled 4.7 percent to 106.25 riyals at 1:10 p.m. local time. Emaar, the Gulf's biggest property developer, fell 1.8 percent to 7.21 dirhams and Prince Alwaleed's Kingdom Holding Co., the Gulf's 15th-largest firm, lost 8.8 percent to 6.7 riyals."
"``For the first time, the local players are realizing that a large portion of these companies is vulnerable and they will have to face pressure on the margins as the global scenario weakens more and more,'' Shirish Saraf, president and founder of Samena Capital, said in a telephone interview today. ``All of them are going to face pressure as this correction will lead to far leaner and more efficient companies.''"
"Stocks in Europe and Asia tumbled, while U.S. futures and the dollar slumped as credit market turmoil pushed Lehman Brothers into bankruptcy and Merrill Lynch & Co. to accept a takeover from Bank of America Corp. Europe's Dow Jones Stoxx 600 Index declined 3.9 percent."
Saudi Arabia's Tadawul All-Share Index tumbled 5.8 percent and the Dubai Financial Market General Index lost 1.7 percent.
To contact the reporter on this story: Matthew Brown in Dubai at firstname.lastname@example.org
"Last Updated: September 15, 2008 06:26 EDT"
"Satyam Drops on Jobs Report, U.S. Financial Turmoil (Update2) "
By Harichandan Arakali
"Sept. 15 (Bloomberg) -- Satyam Computer Services Ltd., India's fourth-largest software services provider, fell the most in five years after a report that the company may fire about 9 percent of its employees."
"Satyam declined 9.5 percent to 368.5 rupees at the close of Mumbai trading, the most since April 2003, to become the second- worst performer on the benchmark Sensitive Index, which fell 3.4 percent today. Satyam led a decline in technology stocks on concern that the deepening credit crisis in the U.S. will force clients to cut back on orders."
"Hyderabad-based Satyam along with larger rivals Tata Consultancy Services Ltd. and Infosys Technologies Ltd. in July reported first-quarter profit growth slowed as Wall Street clients reduced orders and delayed new contracts. Since then, the deepening crisis has forced the U.S. Treasury to take over mortgage lenders Fannie Mae and Freddie Mac and losses and writedowns at financial firms have crossed $500 billion."
"Lehman Brothers Holdings Inc., once the fourth-largest U.S. investment bank, intends to file for bankruptcy after Barclays Plc and Bank of America Corp. abandoned talks to buy the crippled firm."
"Bank of America plans to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion."
"While Satyam was ``very concerned'' about the recent developments in the U.S. financial sector, Lehman's bankruptcy will not affect the Indian provider's business, Satyam Chief Financial Officer Srinivas Vadlamani said in an e-mailed statement. The U.S. bank contributed a ``small proportion'' of Satyam's revenue, Srinivas said."
"Satyam may cut as many as 4,500 jobs, the Economic Times reported earlier today, citing unidentified people."
"As part of its appraisal process, Satyam identifies ``around 5 percent'' of its employees for ``performance improvement,'' the company said in a separate statement by e- mail. About half of them leave ``either voluntarily or involuntarily,'' Satyam said, adding the company had completed its latest appraisal a few weeks ago."
"Tata Consultancy, India's biggest software services company, fell 5.9 percent to 762.8 rupees at the close; Infosys, the second-biggest, fell 4 percent to 1,578.15 rupees, and Wipro Ltd., the No. 3, fell 3.8 percent to 403.9 rupees."
To contact the reporter on this story: Harichandan Arakali in Bangalore at email@example.com.
"Last Updated: September 15, 2008 07:05 EDT"
"Olam to Invest in Nigerian Sugar Refinery, Wheat Mill (Update3) "
By Claire Leow
"Sept. 15 (Bloomberg) -- Olam International Ltd., the Singapore-based agricultural commodities supplier, plans to invest $128.4 million in sugar-refining and wheat-milling in Nigeria, boosting its presence in Africa's most-populous nation."
"The company will hold 49 percent stakes in two ventures with Lagos-based Modandola Group, Chief Executive Officer Sunny Verghese said today in an interview in Singapore. It is Olam's first expansion into wheat-milling, Verghese said."
"Olam has made 13 acquisitions since the start of 2007, according to data on the Bloomberg, and said Aug. 28 that more may follow in the next 12 months. Wheat rose to a record earlier this year amid concern there may be a global food shortage."
"``We view this as a positive development for Olam as the group continues to look to expand,'' Paul Yong, an analyst at DBS Securities (Singapore) Pte., wrote in a report. Olam should ``still have capacity for more acquisitions,'' said Yong, who has a ``buy'' rating on the stock."
"Olam shares were the fifth-best performers on the Straits Times Index, which sank 3.3 percent amid investors' concerns sparked by the bankruptcy of Lehman Brothers Holdings Inc. The stock fell 1.6 percent to close at S$1.80."
"``Nigeria is the largest consumer of sugar in Africa outside South Africa, and one of the fastest-growing populations in the world,'' Verghese said. ``Consumption grew 7 percent a year between 2003 and 2007. In next five years, it could be 2 million tons a year, and all that is imported.''"
"Olam will invest $91 million for the 49 percent stake in the new sugar refinery, which will have a capacity of 750,000 tons and be ready by January 2011, according to a company statement. The venture may contribute profit from the second half of the fiscal year ending June 2011, Verghese said."
"The company will pay $32.5 million for the 49 percent stake in Standard Flour Mills, paring Modandola's share to 51 percent, for a wheat mill operating at 1,200 tons a day. Olam will invest $4.9 million to raise that to 2,000 tons, Verghese added."
"Olam, which buys raw sugar in Brazil, will ship the sweetener for processing within Nigeria, taking advantage of tariff charges that encourage local processing, Verghese said. The African country imposes a 5 percent tariff on raw sugar and a 55 percent levy on refined sugar."
"Nigeria is the third-largest wheat importer in Africa and Olam, which is bidding for one of 17 licenses to trade in Australian hard wheat, will help meet its needs, he added."
"``Nigeria, due to its climate, cannot grow wheat,'' Verghese said. Olam may raise the stakes in both ventures to 51 percent if targets are met within three years, he added."
"Sugar futures in London have gained 41 percent in the past 12 months to $386 a ton. Wheat futures in Chicago, which touched a record $13.495 a bushel on Feb. 27, traded today at $7.195 a bushel."
To contact the reporter on this story: Claire Leow in Singapore at firstname.lastname@example.org
"Last Updated: September 15, 2008 06:09 EDT"
Lehman's Bondholders May Get 60 Cents on the Dollar (Update3)
By Patricia Kuo
"Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc.'s bondholders may get about 60 cents on the dollar if the U.S. securities firm is forced into liquidation, analysts at CreditSights Inc. said."
"Investors in the New York-based company's senior unsecured bonds are likely to get between 60 cents and 80 cents on the dollar after the securities traded as low as 32 cents, analysts led by David Hendler and Baylor Lancaster wrote in a research note. Holders of lower-ranked debt should expect a lot less."
"``We're entering into uncharted territory,'' said Bob Sahota, Sydney-based fund manager at Challenger Financial Services Group, which oversees A$2.5 billion ($2.1 billion) of fixed-income assets and doesn't hold Lehman bonds. ``Investors are very nervous that Lehman's bankruptcy will lead credit risk wider.''"
"Lehman, once the fourth-biggest U.S. investment bank, today filed for bankruptcy after Barclays Plc and Bank of America Corp. abandoned takeover talks. It owes its 10 largest unsecured creditors more than $157 billion, including $155 billion to bondholders, documents submitted to the bankruptcy court show. The filing is by the holding company and doesn't affect subsidiaries as the bank seeks to sell its broker-dealer and asset-management units, Lehman said in a separate statement."
"Citibank, Bank of New York"
"The largest single creditor in the Chapter 11 filing is Tokyo-based Aozora Bank Ltd., owed $463 million for a bank loan. The largest unsecured creditors are Citibank N.A. and The Bank of New York Mellon Corp. for their roles as trustees for bondholders. Lehman listed $613 billion of debt and $639 billion of assets."
"Recoveries for senior unsecured debt ``should trend more toward the bottom end of the range,'' at about 60 cents, the analysts at CreditSights, a New York-based research firm, said in their note yesterday. ``In our first cut analysis, subordinated debt and preferred stock seem to be nil.''"
"Credit investors are bidding up bond risk in Europe, Australia and Asia on concern Lehman won't be able to honor its derivative counterparty trade agreements."
"Banks and brokers yesterday held a session for netting derivatives transactions with Lehman, or canceling trades that offset each other, in case the New York-based firm filed for bankruptcy, according to the International Swaps and Derivatives Association. A group of banks including Bank of America, Citigroup Inc. and JPMorgan Chase & Co. also said they are putting up $70 billion for a borrowing fund aimed at ensuring market liquidity."
"The fund's goal is to assist an ``orderly liquidation'' of Lehman as well as to help ``craft a more overarching response to the financial sector crisis, which has potentially threatened to engulf other companies'' such as Merrill Lynch & Co. and American International Group Inc., CreditSights said."
"Lehman had about $60.2 billion of high-risk assets on its books at the end of the third quarter, including $49.8 billion in real estate and $10.4 billion in acquisition finance, according to CreditSights."
"``Things are unraveling very quickly,'' Hugh Young, managing director of Aberdeen Asset Management Asia Ltd., which oversees more than $40 billion of assets in the Asia-Pacific region, said from Singapore today. Lehman's bankruptcy represents ``a healthy yet painful clearing under the mechanism of capitalism''."
"The 158-year-old bank would have a capital shortfall of at least $8 billion that would not be covered even if it were able to sell its entire asset-management business, CreditSights said."
To contact the reporter for this story: Patricia Kuo in Hong Kong at email@example.com.
"Last Updated: September 15, 2008 05:22 EDT"
IOI Leads Malaysian Planters Lower as Crude Declines (Update1)
By Chan Tien Hin
"Sept. 15 (Bloomberg) -- IOI Corp., Malaysia's No. 2 palm oil grower, slumped to the lowest in more than 17 months in Kuala Lumpur, leading plantation stocks lower after crude oil slid, eroding the appeal of palm oil as an alternative fuel."
"Shares of IOI, based in Putrajaya, tumbled 5.1 percent to 4.06 ringgit at 10:23 a.m. local time, and are set for their lowest close since March 23, 2007. Sime Darby Bhd., Malaysia's largest planter, lost 1.6 percent, and Kuala Lumpur Kepong Bhd. dropped 2.9 percent. The declines accounted for about a third of the Kuala Lumpur's Composite Index's 1.5 percent slide."
"Palm oil, used in cooking and as an alternative fuel, often tracks the performance of crude oil, which slid to a six-month low as refineries along the Gulf of Mexico coast prepared to restart after escaping major damage from Hurricane Ike."
"Crude for October delivery fell as much as $2.72, or 2.7 percent, to $98.46 a barrel in after-hours electronic trading on the Nymex, the lowest since Feb. 26. The contract was at $99.62 at 10:27 a.m. in Kuala Lumpur."
To contact the reporter on this story: Chan Tien Hin in Kuala Lumpur firstname.lastname@example.org
"Last Updated: September 14, 2008 22:43 EDT"
Arcandor Declines to 16-Year Low on Supplier Credit (Update1)
By Joseph Mapother and Holger Elfes
"Sept. 15 (Bloomberg) -- Arcandor AG, owner of Germany's largest department-store chain, fell to the lowest in at least 16 years in Frankfurt trading on a report that credit insurer Euler Hermes AG capped credit guarantees for its suppliers."
"Arcandor slid as much as 10 percent, wiping about 106 million euros ($151 million) off its market value, to 3.99 euros, the lowest since at least August 1992. The stock was down 28 cents, or 6.3 percent, at 4.17 euros as of 12:31 p.m. local time. The benchmark DAX Index lost as much as 3.8 percent, led by financial shares as Lehman Brothers Holdings Inc. filed for bankruptcy."
"Euler Hermes, the world's biggest credit insurer, restricted credit for suppliers to Essen, Germany-based Arcandor's Karstadt, Quelle and Thomas Hahn units, the Frankfurter Allgemeine Sonntagszeitung newspaper reported yesterday. Euler Hermes, located in Paris, was reported by the U.K.'s Times newspaper in June to have withdrawn insurance from suppliers to Land of Leather Holdings Plc."
"``On a day like today, with bad news from the financial markets, this kind of information about restricted credit lines is hurting Arcandor's share price,'' Martina Noss, an analyst at Norddeutsche Landesbank in Hanover, Germany, said by telephone."
"The restrictions were imposed by Euler Hermes because Arcandor is in talks with banks on its credit lines, Gerd Koslowski, a spokesman for the retailer, said today by telephone. Arcandor, which has debt of 1.5 billion euros, expects the talks to succeed this week, he said."
To contact the reporters on this story: Joseph Mapother in Frankfurt at email@example.com; Holger Elfes in Dusseldorf at firstname.lastname@example.org.
"Last Updated: September 15, 2008 06:34 EDT"
"South African Stocks: Gold Fields, Old Mutual, Sasol Shares "
By Janice Kew
"Sept. 15 (Bloomberg) -- South Africa's FTSE/JSE Africa All Share Index fell 661.35, or 2.5 percent, to 25,493.62 at 10:30 a.m. in Johannesburg, the steepest slide in almost a week."
The following are among the most active stocks in the South African market today.
"Gold Fields Ltd. (GFI SJ), the world's fourth-largest gold producer by sales, climbed for a third day, advancing 2.40 rand, or 3.9 percent, to 64.80 rand. Harmony Gold Mining Co. (HAR SJ) rallied 4.25 rand, or 7.4 percent, to 62, the biggest gain since Jan. 3. The precious metal rose for a second session in London after Lehman Brothers Holdings Inc.'s said it was filing for bankruptcy, prompting investors to seek a hedge against financial market risk."
"Old Mutual Plc (OML SJ) slumped 66 cents, or 4.7 percent, to 13.38, the steepest drop since Aug. 6. The U.K. insurer that replaced its chief executive officer last week after adding to U.S. losses, was downgraded to ``underperform'' from ``in line'' at Cazenove."
"Sasol Ltd. (SOL SJ), the world's biggest maker of motor fuel from coal, retreated 9.01 rand, or 2.5 percent, to 351, the biggest decline in almost a week. Crude oil for delivery in three months fell 2.6 percent to $98.57 a barrel."
"Spar Group Ltd. (SPP SJ) dropped 1.15 rand, or 2.1 percent, to 54.05 rand, its biggest decline since Aug. 4. Investec cut its 2008 earnings-per-share estimate on the grocery and liquor retailer to 3.72 rand. Investec also cut its 2009 and 2010 earnings-per-share estimate."
To contact the reporters on this story: Janice Kew in Johannesburg at email@example.com.
"Last Updated: September 15, 2008 05:42 EDT"
"AIG Seeking Capital, May Sell Units to Help Ratings (Update2) "
By Hugh Son
"Sept. 15 (Bloomberg) -- American International Group Inc., the largest U.S. insurer by assets, was working on plans late yesterday to raise capital and sell units to forestall credit downgrades from hobbling the company."
"AIG asked the Federal Reserve for a $40 billion bridge loan after rejecting an offer from J.C. Flowers & Co. that would have given the buyout firm an option to acquire the whole company, the New York Times said, citing an unidentified person. AIG may get access to the Fed's borrowing window in an ``extreme liquidity scare,'' Citigroup Inc. analyst Joshua Shanker said Sept. 12."
"Chief Executive Officer Robert Willumstad is under pressure to raise capital after three quarterly losses totaling $18.5 billion. AIG fell 40 percent in early U.S. trading on investor concern the New York-based insurer can't raise enough cash to withstand further writedowns from credit-default swaps, contracts AIG sold to protect fixed-income investors."
"``The driving force in this is to raise capital to give them more of a cushion to stave off a downgrade,'' said Janet Tavakoli, president of Chicago-based Tavakoli Structured Finance."
Standard & Poor's said Sept. 12 it may downgrade AIG's credit ratings because the share declines may crimp the insurer's access to capital.
"AIG slumped to $8.84 by 11:12 a.m. in Germany, after closing at $12.14 on the New York Stock Exchange on Sept. 12. The stock has fallen 79 percent this year in New York."
`The Public Good'
"A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said."
"``We would not be surprised to see the Federal Reserve open its borrowing window to AIG,'' Shanker said in a note to investors Sept. 12. ``The Fed could argue the action is for the public good as it protects the security of many housing loans.'' AIG has units that originate, guarantee and invest in mortgages."
AIG spokesman Nicholas Ashooh and the Fed's Michelle Smith didn't return phone calls seeking comment.
The Federal Reserve yesterday widened the collateral it accepts for loans to Wall Street bond dealers as the financial industry braced for a Lehman Brothers Holdings Inc. bankruptcy filing. The 158-year-old securities firm filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today.
"``The steps we are announcing today, along with significant commitments from the private sector, are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement released in Washington yesterday."
"The insurer was in discussions with buyout firms including KKR & Co. and J.C. Flowers to raise $20 billion in capital, said people familiar with the situation. The firms met with AIG executives in New York, said one of the people, who declined to be named because the talks were private. AIG is said to be working with advisers JPMorgan Chase & Co., Citigroup Inc. and Blackstone Group LP."
"J.C. Flowers had offered $8 billion for a stake in the insurer that would have given the firm an option to buy the rest of AIG, the Times said."
"The insurer may also seek $20 billion through asset sales, said a person familiar with AIG's planning."
"American General Finance, AIG's consumer lender, could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.2 billion, based on the Sept. 12 share price."
"Bank of America Corp. analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp. which could sell for $7 billion to $14 billion."
"The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said Aug. 7."
"New York Governor David Paterson and Insurance Superintendent Eric Dinallo have been ``very, very closely involved,'' in AIG's planning, said David Neustadt, a spokesman for Dinallo, in an interview yesterday. ``We've spent the last two days at AIG headquarters.''"
"AIG's former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, wasn't involved in the company's planning this weekend and has ``repeatedly offered'' to assist the firm, said spokesman Glen Rochkind."
"Greenberg, 83, saw the holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings."
To contact the reporter on this story: Hugh Son in New York at firstname.lastname@example.org
"Last Updated: September 15, 2008 05:25 EDT"
Chile and Peru: Latin America Bond and Currency Preview
By Andrea Jaramillo
Sept. 15 (Bloomberg) -- The following events and economic reports may influence trading in Latin American local bonds and currencies today. Bond yields and exchange rates are from the previous day's session.
Chile: Central bank President Jose De Gregorio said policy makers may lift interest rates at a quicker pace than economists expect in a bid to stem the fastest inflation in more than 13 years.
"``The base scenario of this monetary policy report considers that the monetary policy rate will follow a course that will be steeper, in the short term, than that implied by various measures in the private sector,'' De Gregorio said on Sept. 12."
The peso rose 0.08 percent to 529.63 per dollar.
"The yield on the Chile's peso bonds due in March 2013 rose 24 basis points, or 0.24 percentage point, to 7.94 percent, according to Chile's Commerce Exchange."
"Peru: The economy likely expanded at annual 8.5 percent rate in July after growing 11.5 percent a month earlier, according to the median forecast of eight economists surveyed by Bloomberg News. The national statistics institute is to release the GDP report at 11:30 a.m. New York time."
"Peru's unemployment rate rose to 8.2 percent in August, up from 8.1 percent the previous month, according to the median estimate of six economists surveyed by Bloomberg News."
The sol closed little changed at 2.9746 per dollar.
"The yield on Peru's 8.6 percent bond maturing August 2017 rose 3 basis points to 8.03 percent, according to according to Citigroup Inc.'s unit in Lima."
To contact the reporter on this story: Andrea Jaramillo in Bogota at email@example.com
"Last Updated: September 15, 2008 00:00 EDT"
China Cuts One-Year Lending Rate; Lowers Banks' Reserve Ratio
By Li Yanping
"Sept. 15 (Bloomberg) -- China cut its one-year lending rate by 27 basis points and lowered the reserve ratio by 1 percentage point at some of the banks, according to People's Bank of China."
To contact the reporter on this story: Li Yanping in Beijing at firstname.lastname@example.org
"Last Updated: September 15, 2008 05:19 EDT"
"Italy Stocks Update: Generali, UniCredit, Geox, Tenaris Shares "
By Armorel Kenna
"Sept. 15 (Bloomberg) -- Italy's S&P/MIB Index fell for a third day, losing 105, or 3.7 percent, to 27,326. Futures expiring in September dropped 101, or 3.6 percent, to 27,355."
The following were among the most active stocks on the Italian market today. Share symbols are in parentheses.
"Italian banking and insurance stocks slipped after Lehman Brothers Holdings Inc. said it would file for bankruptcy and Bank of America Corp. agreed to acquire Merrill Lynch & Co., the world's biggest brokerage firm."
"Assicurazione Generali SpA (G IM), Italy's biggest insurer, fell for the third day, declining 71 cents, or 3.1 percent, to 21.94 euros. UniCredit SpA (UCG IM), the country's biggest bank, fell for the fourth day in five, 5.7 percent, to 3.53 euros. Intesa Sanpaolo SpA, Italy's second-largest bank, fell 4.4 percent to 3.74 euros. Banca Popolare di Milano Scarl (BPM IM) fell 4.6 percent to 6.45 euros."
"Geox SpA (GEO IM), the Italian shoemaker that patented ventilated soles, was cut to ``neutral'' from ``buy'' at UBS AG. Geox fell 30 cents, or 3.8 percent, 7.74 euros. Geox shares fell for the third day, declining 35 cents, or 4.5 percent, to 7.39 euros."
Energy-related stocks fell after oil slid to a six-month low in New York.
"Eni SpA (ENI IM), Europe's fourth-largest oil company, slipped for the first time in three days, falling 81 cents, or 3.9 percent, to 20.02 euros. Saipem SpA (SPM IM), Europe's biggest oil-field services contractor by market value, fell 4.9 percent to 22.65 euros."
"Tenaris SA (TEN IM), the world's largest supplier of pipes for the oil and gas industries, fell 3.5 percent to 16.08 euros."
To contact the reporter on this story: Armorel Kenna in Milan at email@example.com
"Last Updated: September 15, 2008 04:47 EDT"
U.K. Pound Pares Gains Against Dollar to Trade at $1.7912
By Andrew MacAskill
Sept. 15 (Bloomberg) -- The pound pared gains against the dollar and fell versus the euro.
"The British currency was at $1.7912 as of 11:16 a.m. in London, from $1.7942 at the end of last week. Against the euro, the pound snapped a seven-day gain, slipping to 79.46 pence, from 79.31 pence."
"U.K. government bonds rose, with the 10-year gilt yield sliding 18 basis points to 4.41 percent. The 5 percent security due March 2018 climbed 1.44, or 14.4 pounds per 1,000-pound ($1,791) face amount, to 104.51."
The yield on the two-year note sank 26 basis points to 4.27 percent. Bond yields move inversely to prices.
To contact the reporter on this story: Andrew MacAskill in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 06:29 EDT"
Swiss Franc Rises as Lehman's Collapse Sparks Aversion to Risk
By Lukanyo Mnyanda
"Sept. 15 (Bloomberg) -- The Swiss franc rose against the euro and dollar as Lehman Brothers Holdings Inc.'s collapse into bankruptcy boosted demand for the safest assets, causing investors to reduce so-called carry trades."
"The franc had its biggest one-day gain in six months against the dollar as stocks in Europe and Asia slumped, and U.S. futures dropped. European government bonds and Treasuries surged as traders turned to fixed-income assets after Lehman triggered a record jump in the cost of protecting corporate debt from default. The yen rose versus all 16 major currencies as investors cut holdings of higher-yielding securities financed in Japan, which has the lowest interest rates among industrialized nations."
"``The franc is strengthening with the yen on the Lehman news,'' said Daragh Maher, deputy head of global currency strategy in London at Calyon, the investment-banking arm of France's Credit Agricole SA. ``It's all about risk at the moment.''"
"Against the dollar, the franc rose as much as 2.2 percent to 1.1057, the biggest gain since March 17, and was at 1.1154 by 11:28 a.m. in Zurich. It climbed 1.1 percent to 1.5892 per euro, from 1.6075 on Sept. 12, and may advance to 1.58 per euro this week, Maher predicted."
"The Swiss Market Index of equities slid as much as 3.3 percent, the most since March, declining with other European indexes. The Dow Jones Euro Stoxx 600 Index, a benchmark for the euro region, slipped 3.8 percent."
"Credit-default swaps on the benchmark Markit iTraxx Crossover index soared 57 basis points to 599, and earlier traded at 635, according to JPMorgan Chase & Co. prices at 8:35 a.m. in London. During an unprecedented trading session in New York yesterday the Markit CDX North America Investment Grade index reached a record 200 basis points from 152.5 on Sept. 12."
"Investors also bought safer assets as the so-called TED spread, the difference between what the U.S. government and banks pay to borrow in dollars for three months, stayed near the widest in almost a month. The gap was at 131 basis points today, from 135 on Sept. 12, which was the most since Aug. 21."
"The decline in financial-market confidence encouraged investors to seek safer alternatives to carry trades, where they borrow in a currency at a low interest rate and convert the proceeds into one they can lend out for a higher return. They take the risk currency fluctuations will erode their profits."
"Switzerland's benchmark rate is the industrialized world's third-lowest, and compares with 0.5 percent in Japan and 4.25 percent for the 15 nations using the euro."
The franc gained even as a government report showed Swiss producer and import-price inflation eased from the fastest pace in more than 19 years in August as oil retreated from a record.
"Prices for factory and farm goods and imports rose 4 percent in the year after rising 4.9 percent in July, the fastest pace since May 1989, the Federal Statistics Office said today."
"Swiss government bonds surged, with the yield on the 3 percent note due January 2018 falling 13 basis points to 2.66 percent. A basis point is 0.01 percentage point. Yields move inversely to bond prices."
To contact the reporter on this story: Lukanyo Mnyanda in London at email@example.com
"Last Updated: September 15, 2008 06:10 EDT"
Treasuries Soar as Lehman Boosts Bets Fed Will Lower Key Rate
By Agnes Lovasz and Wes Goodman
"Sept. 15 (Bloomberg) -- Treasuries surged, sending two-year notes up by the most since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc. filed for bankruptcy and traders forecast the Federal Reserve will cut interest rates."
The gains pushed the yield below 2 percent for the first time since April after Barclays Plc and Bank of America Corp. withdrew from talks to acquire Lehman. Bank of America agreed to buy Merrill Lynch & Co. for about $50 billion. The dollar fell the most in a decade against the yen. European and Asian stocks tumbled and gold gained as much as 2.6 percent.
"``It's a big knee-jerk reaction to the events overnight,'' said Sean Maloney, a fixed-income strategist in London at Nomura International Plc. ``It's very hard to see the safe-haven theme unwinding any time soon. It's a panic-driven market and in that sort of environment we're very prone to a big overshoot.''"
"The yield on two-year notes dropped 37 basis points, or 0.36 percentage point, to 1.84 percent as of 7 a.m. in New York, according to bond broker BGCantor Market Data. It fell 53 basis points two days after the 2001 attacks on New York and Washington. The 2.375 percent security due August 2010 rose 22/32, or $6.88 per $1,000 face amount, to 101 1/32."
Ten-year yields declined 21 basis points to 3.51 percent.
"The difference in yield, or spread, between two- and 10- year notes widened to 167 basis points, the most in five months, as short-dated debt, more sensitive to the interest-rate outlook, outperformed. That steepened the so-called yield curve, a chart of bonds of different maturities."
"The Fed expanded its lending facilities to support financial markets, increased the size of its Treasuries lending program to $200 billion and widened the collateral it accepts for loans to Wall Street bond dealers."
"The steps ``are intended to mitigate the potential risks and disruptions to markets,'' Fed Chairman Ben S. Bernanke said in a statement yesterday in Washington."
"A group of 10 banks that includes JPMorgan Chase & Co., Goldman Sachs Group Inc. and Citigroup Inc. formed a $70 billion fund to ensure market liquidity."
"``The dynamics have shifted to such an extent over the weekend that you couldn't rule out further gains'' in Treasuries, Maloney said."
"Two-year yields may drop towards 1.24 percent in coming days, he predicted, a level last reached on March 17, and the lowest since the 1950s. That was the day after the Fed cut the discount rate at an emergency weekend meeting and backed JPMorgan Chase & Co.'s deal to buy Bear Stearns Cos."
"U.S. notes gained as the MSCI World Index of equities fell 1.4 percent. The dollar declined 2.4 percent against the yen and dropped 0.2 percent versus the euro. Markets in Japan, Hong Kong and China were closed for holidays."
"Treasuries, considered the safest among government securities, outperformed German notes. The yield spread between two-year U.S. notes and comparable European securities widened to 188 basis points, the biggest gap since Sept. 4, from 176 basis points on Sept. 12."
"Investors turned less bearish on Treasuries before a Fed policy meeting tomorrow, according to a survey by Ried, Thunberg & Co. for the week ended Sept. 12. The company's end-of-December sentiment index rose to 47, from 43 the week before. A reading below 50 means investors anticipate lower prices. The 28 fund managers surveyed by the company, another ICAP unit, manage a combined $1.4 trillion."
"Futures contracts on the Chicago Board of Trade showed a 76 percent chance the Fed will cut its 2 percent target rate for overnight lending between banks by at least a quarter point tomorrow, from zero a week ago."
"``Trading started with a bang,'' said Andrew Brenner, co- head of structured products in New York at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. ``Banks are no longer lending. All this is going to get people talking about a Fed ease.''"
"The cost of protecting European, Australian and Asian corporate bonds from default jumped, according to traders of credit-default swaps."
"Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 79 basis points to 625, according to JPMorgan Chase & Co. prices. The index is a benchmark for the cost of protecting bonds against default and an increase indicates deterioration in the perception of credit quality."
During an unprecedented trading session in New York yesterday the Markit CDX North America Investment Grade index reached a record 200 basis points from 152.5 on Sept. 12.
U.S. bond prices show Henry Paulson's ``bazooka'' fired blanks when he took over beleaguered mortgage-finance companies Fannie Mae and Freddie Mac.
"Instead of instilling confidence in the credit markets, the Treasury secretary's plan to place the government-sponsored enterprises in conservatorship on Sept. 7 only served to underscore weakness in the world's biggest economy and the plight of U.S. financial institutions. American International Group Inc. and Washington Mutual Inc. joined Lehman and Merrill in plunging last week."
"AIG may seek help from the Fed, the Wall Street Journal reported. The insurer has turned down a private-equity investment because it would have meant turning over control of the company, the Journal said on its Web site, citing unnamed people familiar with the situation."
"For the first time since May, bond investors from New York to Tokyo are piling into Treasuries on speculation the Fed will cut interest rates by year-end."
"``We're still concerned about credit tightening by U.S. banks,'' said Masataka Horii, one of four managers of the $52 billion Kokusai Global Sovereign Open fund in Tokyo. ``The government GSE rescue plan will help, but it is not sufficient.''"
"Kokusai Global, the second-biggest actively managed bond fund behind Gross' $132 billion Pimco Total Return Fund, increased its Treasury holdings to 27 percent of assets in August, the most since April 2007, from 20 percent in March, Horii said."
To contact the reporters on this story: Agnes Lovasz in London at firstname.lastname@example.org; Wes Goodman in Singapore at email@example.com
"Last Updated: September 15, 2008 07:03 EDT"
"Swinging Real, Won Point to More Pain Amid Slowdown (Update2) "
By Liz Capo McCormick
Sept. 15 (Bloomberg) -- Swings in emerging-market currencies may foreshadow further losses for traders already suffering from the broadest declines this decade.
"Volatility in options covering currencies from the Brazilian real to the South Korean won is rising at a faster rate than those for the euro and pound, according to JPMorgan Chase & Co. indexes. Rising volatility was an element of past financial market upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst."
"The trigger this time is speculation that developing nations can no longer withstand simultaneous slowdowns in the economies of the U.S., Europe and Japan and the resulting lower appetite for high-risk assets. The 26 emerging-market currencies tracked by Bloomberg are down an average 5.5 percent since June, compared with an increase of 2.2 percent in the first half of 2008."
"``Anyone who still believes strongly in the decoupling theory on an economics basis has to throw that book out the window now,'' Mike Moran, senior currency strategist at Standard Chartered Bank in New York, said. ``This has been a second awakening for the currency markets, with the first being that the secular dollar weakness the past couple years has clearly come to an end.''"
"Morgan Stanley, the second-biggest U.S. securities firm, is advising clients to sell emerging currencies in Asia, Latin America, Eastern Europe and the Middle East, and buy the dollar. Stock valuations suggest that earnings in emerging markets will drop as much as in 2001-2002, when profits fell 18 percent from their peak, New York-based Morgan Stanley estimated."
"``Any of these emerging currencies could move down another 5 percent to 10 percent,'' said Stephen Jen, the global head of currency research at Morgan Stanley in London. ``This is a three-month story already, and it's getting worse and worse. What we are dealing with is the aftermath of an energy shock and a credit crunch that is hitting every single economy.''"
"Emerging-market currencies led by the South African rand and Turkish lira dropped today as Lehman Brothers Holdings Inc. filed for bankruptcy, boosting demand for the safest assets."
"The global economy will expand 2.8 percent in 2009, just 0.3 percentage point above the pace deemed a worldwide recession and last witnessed in 2001, according to a report released by Zurich-based UBS AG on Sept. 11. Back then, the currencies of developing economies fell an average 6.8 percent."
"The biggest losers since June in emerging markets have been the Icelandic krona, Hungarian forint, Czech koruna and Polish zloty. Each has fallen more than 10 percent. Only China's yuan has appreciated, gaining 0.15 percent."
"Sell Rupee, Won"
"India's rupee and South Korea's won may decline the most because the ability to buy and sell financial assets such as stocks is easier for foreign investors in those countries than in most other developing nations, Jen said."
"The rupee today touched 46.0050 per dollar, a two-year low, and has weakened more than 6 percent since mid-year. The won, which has tumbled 8.7 percent since July, was trading at 1,108.70 against the U.S. currency as of 6:01 p.m. in Singapore. It reached 1,159 on Sept. 3, the lowest level since August 2004."
"Now, rising volatility may extend declines in emerging- market currencies. Traders use implied volatility to gauge expectations for currency swings and in setting options prices."
"Volatility was an element of past upheavals, including the global slump in stock markets from 2000 through 2002 after the technology bubble burst. Swings in developing-nation exchange- rates then outpaced those of the major economies by almost 6 percentage points, according to New York-based JPMorgan indexes."
"``Movements in implied volatility are better than any backward looking indicator,'' said Gordian Kemen, a fixed-income strategist at Lehman Brothers Inc. in New York. ``It's very forward looking. When volatility goes up it many times becomes a driving factor on its own.''"
"Options indicate traders expect the currencies to fluctuate at an annualized rate of 11.91 percent, compared with 8.71 percent on July 25. That's just below the peak of 12.5 percent going back through 2000, when JPMorgan began tracking the data."
"What's more, volatility implied from emerging-market options surpassed that of major currencies this month for the first time since June."
"JPMorgan's implied volatility index for emerging economies three-month options, was 11.91 percent at the end of last week; while its index for developed nations was 11.57 percent. That's a switch from the past year, when volatility in developed nations averaged 1 percentage point more than emerging markets as investors bet a rise in commodity prices produced in places like Brazil, India and Russia would allow their economies to weather a U.S.-led slowdown."
"One-month implied volatility on options for the won more than doubled to almost 23 percent, the highest since 1999, from 10 percent in July. Implied volatility on the rupee more than tripled to about 13 percent from 4 percent in February."
"The rise in commodities prices has bolstered the reserves of many emerging markets, meaning they may fare better now than in prior bouts of economic weakness, according to Alex Patelis, head of international economics for Merrill Lynch & Co."
"``Yes, it's not pleasant, but it's not as bad as it used to be,'' Patelis said in a Bloomberg Radio interview. ``The reason is the shock is emanating from the United States this time around, rather than from emerging markets themselves.''"
"Foreign-exchange reserves in Brazil have risen 27 percent over the past year, compared with increases of 43 percent in Russia, 36 percent in China and 25 percent in India, according to data compiled by Bloomberg."
The potential for a snap-back in stock markets may limit any declines in exchange rates.
"Declines in oil, nickel and wheat from records have pushed the MSCI Emerging Market Index down by more than a third since October, leaving the index 25 percent below its 200-day moving average. Over the past two decades, the difference grew this wide only in the aftermath of Sept. 11, the $40 billion Russian default and Mexico's currency devaluation in 1994. Each time, the index rallied 20 percent or more in the next three months."
"While the International Monetary Fund expects growth in emerging markets may slow to 6.7 percent next year from 6.9 percent in 2008, that's better than advanced economies, which are likely to decelerate to 1.4 percent from 1.7 percent."
"And though volatility is rising, some strategists still anticipate gains in emerging markets. The rupee is forecast to rebound to 43.53 per dollar, while the won will trade at 1,109 per dollar by year-end, according to estimates of at least 24 contributors surveyed by Bloomberg."
"Working against emerging-market currencies is an easing of inflation pressures as commodities including gold and oil decline, meaning central banks have scope to leave interest rates unchanged, or even cut them, said Standard Chartered's Moran."
"Brazil's real fell to the lowest level since February on Sept. 11, weakening to 1.8374 per dollar, after central bankers split on whether to raise borrowing costs further. The currency is little changed versus the dollar since December, after almost doubling in the previous five years."
"``Emerging market volatility is playing catch-up,'' said Naomi Fink, a Tokyo-based strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. ``There is going to be a further re-pricing of risk that will affect emerging markets. Credit was plentiful in the emerging market countries too.''"
To contact the reporters on this story: Liz Capo McCormick in New York at firstname.lastname@example.org
"Last Updated: September 15, 2008 06:05 EDT"
"Emerging Market Bonds, Stocks Drop on Lehman Collapse (Update1) "
By Denis Maternovsky
Sept. 15 (Bloomberg) -- Financial markets from Moscow to Mumbai tumbled as the bankruptcy of Lehman Brothers Holdings Inc. drove investors to sell all but the safest assets.
"The extra yield investors demand to own developing nations' bonds instead of U.S. Treasuries jumped the most in 13 months, rising 29 basis points to 3.59 percentage points, the widest spread in three years, according to JPMorgan Chase & Co.'s EMBI+ index. The MSCI Emerging Markets Index of stocks, which lost a third of its value this year, dropped 2.1 percent to 837.90, the lowest since November 2006."
"``The Lehman collapse is likely to trigger a significant spike in risk aversion, and it will likely take months for the emerging markets to recover, rather than weeks,'' said Ivailo Vesselinov, senior economist at Dresdner Kleinwort in London."
"Lehman, once the fourth-biggest U.S. investment bank, filed the largest bankruptcy in history today, with debts of more than $157 billion to its 10 biggest creditors. Prices for gold and U.S. Treasuries rallied."
"The yield on the Russian government's 30-year dollar bonds jumped 24 basis points to 6.22 percent, or 2 percentage points more than similar-maturity U.S. notes, the widest spread since October 2004. Yields on two-year U.S. Treasuries fell below 2 percent for the first time since April."
"The cost of protecting emerging-market bonds against default soared, with credit-default swaps on ICICI Bank Ltd., India's second-largest lender, rising 35 basis points to a record 400, Barclays Capital prices show."
"Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements."
"``We are in midst of a very, very big unwind of leveraged trades and until this has come to an end, fundamental issues, such as earnings and growth potential, will not be taken into consideration,'' said Matthias Siller, who manages about $4 billion at Barings Asset Management in London and focuses on emerging markets."
"Stock prices in the MSCI gauge for developing countries average 9.8 times forecast earnings for the next 12 months, the cheapest in a decade versus reported profits. Valuations have fallen even as developing economies are projected to expand 6.7 percent next year, double the average rate during the 1990s, with one-tenth the inflation, according to the Washington-based International Monetary Fund."
"India's Sensitive Index of stocks slumped 3.4 percent to 13,531.27 and Indonesia's Jakarta Composite Index tumbled 4.7 percent, Asia's biggest decline. Russia's Micex Index fell 5.4 percent to 1,075.62."
"PT Bank Mandiri, the biggest Indonesian bank, sank 8.2 percent, while Cathay Financial Holding Co., Taiwan's largest financial services company, fell 6.9 percent, and state-owned OAO Sberbank, Russia's biggest lender, lost 6.8 percent to 44.57 rubles at 2:52 p.m. in Moscow."
"Emerging-market currencies also dropped. The rupee touched the lowest since September 2006 at 45.995 per dollar, and was down 0.5 percent to 45.93 in Mumbai, Bloomberg data show. The rupiah fell 0.3 percent to 9,460 in Jakarta. Financial markets were closed in South Korea, China and Hong Kong for public holidays."
"Investors turning to safer assets pushed up gold for immediate delivery by as much as $15.85 to $785.70 an ounce, with prices at $769.09 an ounce as of 12:46 p.m. in London."
To contact the reporter on this story: Denis Maternovsky in Moscow at email@example.com
"Last Updated: September 15, 2008 08:04 EDT"
Gold Climbs as Investors Seek Haven After Lehman Bankruptcy
By Feiwen Rong and Glenys Sim
"Sept. 15 (Bloomberg) -- Gold advanced for a second day as investors sought the metal as a haven after Lehman Brothers Holdings Inc. said it will file for bankruptcy, and Bank of America Corp. agreed to buy Merrill Lynch & Co. for $50 billion."
"Bullion gained as the U.S. currency fell against the euro and yen, and equities tumbled. The credit market turmoil pushed American International Group Inc. to seek a $40 billion bridge loan from the Federal Reserve, the New York Times reported, citing an unidentified person."
"``Gold is benefiting from investment flows on worries about stresses in the U.S. financial system,'' Sydney-based David Moore, commodity strategist at Commonwealth Bank of Australia, said by phone today."
"Gold for immediate delivery gained as much as $20.20, or 2.6 percent, to $785.70 an ounce today before trading at $780.83 at 2:28 p.m. in Singapore. Silver for immediate delivery advanced 1.3 percent to $11.02 an ounce."
"The dollar index, a weighted measure against the euro, yen, pound and three other major currencies, tumbled 0.9 percent to 78.234 at 2:32 p.m. Singapore time. The MSCI Asia Pacific excluding Japan Index lost 1.7 percent to 348.14, with all 10 industry groups declining. Stock markets in Japan, South Korea, Hong Kong and China are closed for holidays, tempering losses."
"Gold may ``make a very volatile market this week'' with more news unfolding in the U.S. financial market, Charles Dowsett, head of structuring and trading of precious metals at ABN Amro Holding NV, said by phone from Sydney today."
December-delivery gold was up 2.3 percent at $782.10 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 2:38 p.m. Singapore time.
To contact the reporters on this story: Feiwen Rong in Singapore at firstname.lastname@example.org; Glenys Sim in Singapore at email@example.com
"Last Updated: September 15, 2008 02:42 EDT"
European Bonds Surge as Lehman Woes Spur Demand for Safe Assets
By Anchalee Worrachate
"Sept. 15 (Bloomberg) -- European bonds surged as investors sought the safety of government securities after Lehman Brothers Holdings Inc. filed for bankruptcy, fueling speculation central banks will need to cut interest rates."
"The gain drove yields on two-year notes down by the most in six months as traders raised bets the financial turmoil will force the Federal Reserve to cut its benchmark rate at a meeting tomorrow. The dollar fell by the most in a decade against the yen, stocks tumbled and gold gained as much as 3.7 percent."
"``This is the mother of all Mondays,'' said Ciaran O'Hagan, a fixed-income strategist in Paris at Societe Generale SA. ``This is bad news for the economy. The question is with Lehman in its final throes and AIG about to go belly up, who is next? This will have major ramifications on banks' ability to lend. Yields will have to go lower.''"
"The yield on the two-year note declined as much as 28 basis points, the sharpest drop since March 17, the day after the Fed cut its emergency discount rate. It was down 23 basis points at 3.74 percent as of 11:12 a.m. in London. The price of the 4 percent note maturing in September 2010 climbed 0.42, or 4.2 euros per 1,000 euros ($1,430) face amount to 100.49."
"The yield on the 10-year note fell 17 basis points to 4.02 percent, the biggest decline since June 9. Bond yields move inversely to prices."
Banks Pull Out
"Lehman last week reported the biggest loss in its history and said it planned to sell a majority stake in its asset- management unit, spin off real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence. The company, founded in 1850, filed a Chapter 11 petition after potential buyers including Barclays Plc and Bank of America Corp. pulled out."
"Banks and financial institutions have posted almost $515 billion of losses and writedowns since the start of last year as the fallout from the subprime-mortgage market spread around the world. American International Group Inc., the insurer struggling to avoid credit downgrades, is seeking a $40 billion loan from the Fed as it tries to sell assets, the New York Times said."
"``It's a very nervous market out there,'' said Charles Berry, a bond trader in Stuttgart at Landesbank Baden- Wurttemberg, Germany's biggest state lender by assets. ``We don't know when the crisis will end. The spread between bid and ask prices in the cash bond market is quite wide. What that tells you is people are worried that their counterparties might not be there in coming weeks.''"
"Today's gains drove the difference in yield, or spread, between two-year notes, which are more sensitive to the interest-rate outlook, and 10-year notes to 29 basis points, the widest since May 8, steepening the so-called yield curve in the European government bond market. O'Hagan said he favors ``steepener'' trades as investors seek shorter-dated bonds on expectations for rate cuts."
"European stocks declined, stoking demand for the safest assets. The Dow Jones Euro Stoxx 600 Index, a benchmark for the euro region, tumbled 2.6 percent. The U.K.'s FTSE 100 Index dropped 2.8 percent."
"Bonds also rose as the cost of protecting European corporate bonds from default soared. Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 84 basis points to 630, according to JPMorgan Chase & Co. The index is a benchmark for the cost of protecting bonds against default and an increase indicates deterioration in the perception of credit quality."
"``At this point, people don't care about the return on their money, but rather the return of their money,'' said David Keeble, London-based head of fixed-income strategy at Calyon, the investment-banking unit of Credit Agricole SA. ``Investors will need to buy riskless assets in this environment. What we need is every central banker around the planet talking and talking as though they are looking at this in a concerted way.''"
Bonds stayed lower after the European Central Bank said it will offer financial institutions as much money as they need after Lehman's bankruptcy filing.
"Investors are betting for the first time since August that the ECB will lower interest rates, derivatives trading showed. The chances of the ECB cutting its main refinancing rate rose to the highest since March 18, according to a Credit Suisse Group index of probability based on overnight index-swap rates."
"The implied yield on the December Euribor contract dropped 8 basis points to 5.03 percent today, snapping three successive gains. The central bank's key rate is 4.25 percent."
"Treasuries outperformed European bonds on speculation that the interest rates in the U.S. will fall at a faster pace than those in the euro region. The yield spread between 10-year Treasury notes and German bunds widened to 52 basis points, from 46 basis points last week, the most since July 24."
To contact the reporter on this story: Anchalee Worrachate in London at firstname.lastname@example.org
"Last Updated: September 15, 2008 06:26 EDT"
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