Bailout uncertainty sinks Wall Street

NEW YORK - Stocks tumbled on Monday as investors worried a US$700 billion bailout for the financial sector may not resuscitate a slumping economy, while a record spike in oil prices renewed concern about consumer spending.

Banks, home builders and big manufacturers were among the biggest decliners as negotiations over the government's rescue plan to mop up bad mortgage debt on banks' balance sheets heated up in Washington.

A Wall Street analyst downgrade hit shares of JPMorgan Chase, the No 3 US bank, which fell 13.3 per cent, making it the top drag on both the Dow and the S&P 500. Wells Fargo dropped 11.6 per cent.

The S&P financial index shed 8.5 per cent, while an index of airline stocks fell 9.4 per cent.

Monday's market swoon wiped out nearly all the gains seen on Friday when the bailout announcement sparked Wall Street's best one-day advance since 1987. Only 2 of the Nasdaq 100 stocks end higher.

Investors cited uncertainties about the rescue plan's details and concern about whether it would provide a lift for the US economy, which many fear is already in recession.

The Dow Jones industrial average dropped 372.75 points, or 3.27 per cent, to 11,015.69. The Standard & Poor's 500 Index slid 47.99 points, or 3.82 per cent, to 1,207.09. The Nasdaq Composite Index fell 94.92 points, or 4.17 per cent, to 2,178.98.

The Bush administration is pressing Congress to approve one of the costliest US bailouts for financial companies since the Great Depression, but debate about the particulars of the plan continues on Capitol Hill.

Source: Singapore Business Times - 23 Sep 2008

Short-selling ban stuns hedge funds
Many lose a fortune and could fold up in the coming months

HEDGE fund short sellers, caught in Friday's bear squeeze, are believed to have lost fortunes. Many of them are expected to close down in coming months, analysts say.

Although a minority of hedge funds and traders made fortunes when Wall Street, London and other global markets soared, bears were caught unawares by the dual action of the US Securities and Exchange Commission (SEC) and the UK's Financial Services Authority (FSA). Both regulators, followed by Ireland and other European countries, clamped down on short selling.

Hedge funds, investment proprietary traders and other speculators had borrowed shares and sold them, aiming to profit from further price declines. Futures, options and other derivatives were also used to profit from a further market slide.

Instead, the short-selling ban caused an acute bear squeeze, forcing hedge funds and other bears to buy back shares.

Prices opened sharply higher as selling dried up and the bears scrambled to cover their short positions. Banks, insurance companies and other financial shares rose between 30 per cent and 60 per cent at one point, before falling back when the market began to settle down.

The bear squeeze and exceedingly volatile markets in recent weeks have now placed a question mark on the viability of some hedge fund businesses.

George Ball, chairman of Sanders Morris Harris Group, a large American asset manager, is predicting that 1,000 hedge funds will fail in the coming 12 months. This follows 350 failures in the first half of the year. The regulatory restrictions will crimp the flexibility of hedge fund managers, he says.

Hedge funds are likely to be under severe pressure for several reasons:

First, performance has been poor. In the year to Sept 18, before the huge rally on Friday, Hedge Fund Research's HFRX daily global hedge fund index was already down 9.7 per cent.

Relative value hedge fund strategies had fallen by 17 per cent while the HFRX long short hedge funds had declined by 11.6 per cent. Macro hedge funds, that trade all the markets, were still up by 4.6 per cent because of a good first half.

Second, withdrawals are accelerating and risk-averse investors have reportedly given hedge funds notice that they intend redeeming their investments by the end of the year.

Third, short-selling restrictions, tighter regulation and deleveraging are limiting hedge fund manager flexibility and trading.

Fourth, banks and prime brokers are expected to reduce loans to hedge funds. The borrowing and consequent leverage helped them profit in dull markets.

The regulatory moves to curb short selling received praise from companies and the expected criticism from AIMA, the hedge fund industry body. The regulators were accused of creating false markets in banking shares, but they countered that in the current crisis something had to be done to underpin faltering banks.

'The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets,' said SEC chairman Christopher Cox.

The SEC said it had banned short selling in 799 financial companies until Oct 2, while Britain's FSA has placed 33 companies on its banned list.

Ireland also outlawed short selling of its biggest banks but said the ban would be kept under 'continuous review'.

The Committee of European Securities Regulators warned further short-selling restrictions could be imposed across its 27 member states.

Source: Singapore Business Times - 22 Sep 2008

CLOSING MARKET REPORT
Extraordinary rescue effort spurs Wall Street rally

* Financial stocks lead on US plans to stabilise markets
* SEC imposes temporary ban on short sales
* US Treasury to back money market mutual funds
* Dow up 3.4%, S&P up 4%, Nasdaq up 3.4%

NEW YORK - Sweeping government measures to rescue the financial system and restore confidence in shaky markets spurred a huge relief rally in US stocks on Friday, ending a week when the financial landscape underwent the most dramatic reshaping since the Great Depression.

The benchmark S&P 500 index had its biggest two-day rally since October 21, 1987, two days after the 1987 stock market crash.

Led by US Treasury secretary Henry Paulson, officials are working on a solution to mop up hundreds of billions of dollars worth of bad mortgage debt.

In another extraordinary action, the United States joined the United Kingdom in temporarily banning bets that financial stocks will fall, while the Federal Reserve said it will use US$50 billion to back money-market mutual funds.

The moves came at the end of an agonizing week for Wall Street, in which Lehman Brothers filed for bankruptcy, insurer American International Group was bailed out by the government and Merrill Lynch was forced into a shotgun marriage with Bank of America. Investors had worried that the confluence of crises severely threatened the stability of the US economy.

But even with the furious two-day rally, stocks still ended essentially flat in a week marked by extreme volatility - with the Dow plummeting more than 500 points on Monday, only to rise on Tuesday and drop again on Wednesday.

An S&P index of financial stocks jumped 11.1 per cent.

Short sellers, who profit when stocks fall, have been blamed for contributing to the demise of Lehman Brothers and the steep declines in other financial stocks this year.

The Dow Jones industrial average closed up 368.75 points, or 3.35 per cent, at 11,388.44. The Standard & Poor's 500 Index advanced 48.56 points, or 4.03 per cent, to 1,255.07. The Nasdaq Composite Index shot up 74.80 points, or 3.40 per cent, to 2,273.90.

Shares of Washington Mutual surged 42.1 per cent to US$4.25 after the Wall Street Journal reported that Citigroup was considering making a bid for the US savings and loan.

Citigroup shares leaped 22.7 per cent to US$20.65 on the New York Stock Exchange (NYSE).

Shares of Morgan Stanley, punished earlier this week as investors fretted about the outlook for the last two remaining US investment banks, jumped 20.7 per cent to US$27.21. Shares of rival Goldman Sachs climbed 20.2 per cent to US$129.80.

Morgan Stanley's talks with Wachovia Corp, China Investment Corp and other institutions continue, a person familiar with the matter said, though the rebound in its securities gives the investment bank more time to consider its options. Wachovia's stock surged 29.3 per cent to US$18.75.

Trading was heavy on the NYSE, with about three billion shares changing hands, far above last year's estimated daily average of roughly 1.9 billion, while on Nasdaq, about 3.8 billion shares traded, also trouncing last year's daily average of 2.17 billion.

Source: Singapore Business Times - 20 Sep 2008

CLOSING MARKET REPORT
Wall Street rallies on crisis solution hopes

* Treasury mulling RTC-type solution to crisis: source
* Three major indexes jump the most since October 2002
* Dow up 3.9%, S&P up 4.3%, Nasdaq up 4.8%

NEW YORK - Wall Street had its best day in six years on Thursday as news the government is considering a more comprehensive solution to the financial crisis than the current piecemeal approach spurred a furious late rally.

Responding to the week's gut-wrenching upheaval of the financial system, US Treasury Secretary Henry Paulson has been shopping around a proposal to congressional lawmakers that would create an entity to deal with the billions of dollars of bad debt still clogging the financial system, a congressional aide said.

The idea has been compared to the Resolution Trust Corp formed in 1989 to fix the savings and loan industry collapse.

An index of beaten-down S&P financial stocks soared 11.7 per cent while economic bellwethers such as General Electric and Caterpillar also posted sharp gains.

The rally came on the back of steep declines after a frantic four days in which American International Group was bailed out, Lehman Brothers went bankrupt and Merrill Lynch was forced into a shotgun marriage with Bank of America.

The Dow Jones industrial average jumped 410.03 points, or 3.86 per cent, to 11,019.69, while the Standard & Poor's 500 Index climbed 50.12 points, or 4.33 per cent, to 1,206.51.

The Nasdaq Composite Index shot up 100.25 points, or 4.78 per cent, to 2,199.10.

For all three indexes, it was the biggest one-day percentage gain since October 2002 - when the last bull market was born.

Also helping the market were a flurry of headlines that seemed to point to a concerted global effort to clamp down on short sellers, who place bets that stocks will fall.

The latest developments came on the first day that the US Securities and Exchange Commission's new rules aimed against abusive short selling of stock in all publicly traded companies took effect.

Britain's Financial Services Authority said investors will be temporarily barred from taking new short positions in financial stocks from midnight on Thursday, Sept 18, which analysts said raised the possibility of a similar action in the United States.

Source: Singapore Business Times - 19 Sep 2008

CLOSING MARKET REPORT
Bank fears, AIG fallout fuel Wall Street sell-off

* Spike in inter-bank lending rate fuels worry
* US extends US$85b loan to bail out AIG
* Morgan Stanley, Goldman Sachs tumble
* Dow off 4.1%; S&P down 4.7%, Nasdaq off 4.9%

NEW YORK - US stocks tumbled to a three-year low on Wednesday as the US rescue of insurer AIG failed to calm a crisis of confidence in global markets and banks were scared to lend to each other.

The Dow fell almost 450 points and the Nasdaq fell nearly 5 per cent in its worst day since the aftermath of the Sept 11 attacks in 2001 as rattled investors worried about who could be the next victim of the global credit crisis.

Morgan Stanley shares sank 24.2 per cent to US$21.75 as investors worried whether it would survive as an independent investment bank in the current environment.

Shares of the other remaining major US investment bank, Goldman Sachs, dropped 13.9 per cent to US$114.50 and at one point fell below US$100 for the first time in more than three years.

The Dow Jones industrial average fell 449.36 points, or 4.06 per cent, to 10,609.66, its lowest level since November 2005. It was the blue-chip Dow average's biggest percentage drop since Monday, when it fell 504.48 points, or 4.42 per cent, the most since the aftermath of 9/11.

The S&P 500 fell 57.21 points, or 4.71 per cent, to 1,156.39, its lowest level since May 2005 and its biggest percentage drop since Sept 17, 2001, when the markets reopened after the Sept 11 attacks.

The Nasdaq also fell the most since Sept 17, 2001. It shed 109.05 points, or 4.94 per cent, to 2,098.85, its lowest level since August 2006.

The White House defended government actions to shore up troubled insurance company American International Group (AIG), saying it was to prevent broader harm and said it was 'concerned about other companies'.

Source: Singapore Business Times - 18 Sep 2008

CLOSING MARKET REPORT
Wall Street climbs on AIG rescue hopes

* Fed mulling loan package for AIG -Bloomberg report
* Fed keeps interest rates unchanged
* Dow up 1.3%, S&P up 1.8%, Nasdaq up 1.3%

NEW YORK - US stocks clawed back from their biggest drop in seven years on Tuesday on growing optimism that US authorities may finance a rescue of insurer American International Group (AIG).

A report late in the session that the Federal Reserve was considering a loan to AIG pulled the market out of a funk. The market had been lower after the US central bank disappointed investors by opting not to cut interest rates as many expected.

Financial shares, rebounding from their worst day ever on Monday, led the market higher after the Bloomberg report on possible Fed involvement in resolving the crisis surrounding AIG. The insurer's credit ratings were downgraded late on Monday, adding to concern about its ability to raise capital to help weather fast-mounting credit losses.

Adding to optimism, a source told Reuters that Barclays will buy the US broker-dealer business of Lehman Brothers Holdings, which filed for bankruptcy on Monday and helped trigger a global rout in equity markets.

The Federal Reserve held its key benchmark US interest rate steady on Tuesday, opting for the time being to soothe rattled financial markets with central bank lending facilities rather than rate cuts.

The Dow Jones industrial average rose 141.51 points, or 1.30 per cent, to 11,059.02, while the Standard & Poor's 500 Index gained 20.91 points, or 1.75 per cent, to 1,213.60. The Nasdaq Composite Index was up 27.99 points, or 1.28 per cent, at 2,207.90.

Financials continued to rally after the closing bell.

Morgan Stanley shares rose more than 7 per cent after reporting stronger-than-expected quarterly results.

AIG shares, under heavy pressure for days, hit a low of US$1.25 early in the session, but then pared the worst of its losses. It ended down 21.2 per cent at US$3.75.

At one time, AIG was the world's largest insurer based on market value.

Source: Singapore Business Times - 17 Sep 2008

CLOSING MARKET REPORT
Wall Sreett mauled by Lehman bankruptcy, AIG fears

* Wall Street has worst day since September 2001
* Lehman Brothers files for bankruptcy
* Bank of America buys Merrill Lynch
* AIG shares off over 60% on capital fears
* Dow off 4.4%, S&P down 4.7%, Nasdaq off 3.6%

NEW YORK - Wall Street had its worst day since markets reopened after the Sept 11 attacks as fears about the US financial system's stability surged on Monday after Lehman Brothers filed for bankruptcy and insurer AIG struggled for survival.

The day followed one of Wall Street's most agonizing weekends ever, which saw the demise of Lehman Brothers and forced Merrill Lynch to accept a takeover by Bank of America Corp (BOA).

But Sunday's barrage of shocking news was no exorcism for anxious investors and traders. As concerns about American International Group's (AIG) scramble for capital mounted, the Wall Street Journal reported that the US government has asked Goldman Sachs and JPMorgan Chase to lead a lending facility of US$70 billion to US$75 billion for the insurer.

Financial services companies' shares led a broad and steep decline in major indexes as investors worried about the impact of the latest twists in the credit crisis on the economy and the outlook for profits.

The benchmark Standard & Poor's 500 index fell 59.00 points, or 4.71 per cent, to 1,192.70 - posting its biggest percentage drop since the day that markets reopened after the Sept 11 attacks in 2001.

The S&P 500 also tumbled to its lowest close since October 2005, taking out a key technical support level as it fell.

The Dow Jones industrial average slid 504.48 points, or 4.42 per cent, to 10,917.51 - its biggest one-day point drop since September 2001.

The Nasdaq Composite Index dropped 81.36 points, or 3.60 per cent, to 2,179.91.

Lehman, weighed down by losses spawned by the US mortgage crisis, sought bankruptcy protection on Monday following a scramble over the weekend in which it failed to find a buyer.

Merrill Lynch, meanwhile, agreed to be bought by BOA, the No 2 US bank. Merrill's stock closed just 0.1 per cent higher at US$17.06, but BOA's shares dropped 21.3 per cent to US$26.55.

Source: Singapore Business Times - 16 Sep 2008

CLOSING MARKET REPORT
Wall Street ends flat amid Lehman vigil, oil a boost

* Financials drop as investors fret about Lehman
* Paulson 'adamant' no govt money in any Lehman deal
* Higher oil prices drive up energy shares
* August retail sales fall, but Sept consumer mood rises
* Dow off 0.1%, S&P up 0.2%, Nasdaq up 0.1%

NEW YORK - US stocks closed little changed on Friday in day of whipsaw moves as uncertainty over the fate of troubled investment bank Lehman Brothers kept investors anxious about the health of the US financial system.

But shares of natural resource companies and utilities gained as commodity prices rose, offsetting losses among financial and bank shares.

All three major indexes managed to finish the week higher.

Concerns about American International Group's large exposure to mortgages pushed the insurance company's shares down more than 30 per cent on Friday, making it the top drag on the Dow and S&P.

Lehman shares tumbled to a 14-year low amid uncertainty about what form a possible deal to rescue the firm would take, especially after a source said the Treasury was reluctant to provide financial backing in any deal.

A 5 per cent slide in General Electric (GE) shares added to the negative tone as investors feared the impact of ongoing financial sector turmoil on the conglomerate, which has a finance arm and commercial real estate interests. GE shares were a top drag on the Dow, falling to US$26.75.

The Dow Jones industrial average was down 11.72 points, or 0.10 per cent, at 11,421.99. The Standard & Poor's 500 Index was up 2.64 points, or 0.21 per cent, at 1,251.69. The Nasdaq Composite Index was up 3.05 points, or 0.14 per cent, at 2,261.27.

Source: Singapore Business Times - 13 Sep 2008