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The Unthinkable Happens
Old 09-14-2008, 06:41 PM   #1
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The Unthinkable Happens

September 15, 2008
In Frantic Day, Wall Street Banks Teeter
By ANDREW ROSS SORKIN, BEN WHITE and JENNY ANDERSON


In one the most extraordinary days in Wall Streetís history, Merrill Lynch is near an 11th-hour deal to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal.

The dramatic turn of events was prompted by the cataclysm of losses that has shaken the American financial industry over the last 14 months.

The moves came after a weekend of frantic negotiations between federal officials and Wall Street executives over how to avert a downward spiral in the markets. Questions still remain about how the market will react and whether other firms may still falter like A.I.G., the large insurer, and Washington Mutual, both of whose stocks fell precipitously last week.

Coming just a week after the government took control of mortgage lenders Fannie Mae and Freddie Mac, the magnitude of the industryís reshaping is staggering: two of the most powerful firms on Wall Street, Merrill Lynch and Lehman, will disappear.

The weekendís once unthinkable outcome came after a series of emergency meetings at the Federal Reserve building in downtown Manhattan in which the fate of Lehman hung in the balance. In the meeting Federal Reserve officials and the leaders of major financial institutions were trying to complete a plan to rescue the stricken investment bank.

But as the weekend unfolded, Barclays and Bank of America, which had both considered buying all or part of Lehman, decided that they could not reach a deal without financial support from the federal government or other banks.

As a result, people briefed on the matter said late Sunday that Lehman Brothers would file for bankruptcy protection, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.

excerpted from NYTimes
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Old 09-14-2008, 07:10 PM   #2
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September 15, 2008
In Frantic Day, Wall Street Banks Teeter
By ANDREW ROSS SORKIN, BEN WHITE and JENNY ANDERSON

Do you understand the 9/15 date? It is only 8pm in NYC on hte 14th-what gives here?
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Old 09-14-2008, 07:17 PM   #3
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The weekendís once unthinkable outcome
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Lehman Brothers would file for bankruptcy protection, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.
Cognitive dissonance time. The writers of this NYT article declare the failure of Lehman to have been unthinkable, then point out that a failure of similar magnitude happened a mere 18 years ago? Do they read what they write?
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Old 09-14-2008, 07:23 PM   #4
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Cognitive dissonance time. The writers of this NYT article declare the failure of Lehman to have been unthinkable, then point out that a failure of similar magnitude happened a mere 18 years ago? Do they read what they write?
No. Not part of journalism.

BTW- have markets in Japan opened yet? Can you give a report? Does AIG trade over there? How is it quoted?

ha
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Old 09-14-2008, 07:34 PM   #5
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BTW- have markets in Japan opened yet? Can you give a report?
Nope, today is a holiday -- Respect for the Aged Day.

Oddly though, looking at Bloomberg.com, the futures on the Nikkei seem to be pointing upwards.

Quote:
Does AIG trade over there? How is it quoted?
It does trade on the Tokyo Stock Exchange, but the only quote I see is Friday's close: Yahoo!•’•°•§• •ů•Ļ - 8685.t
Looks like it dropped from 8000 yen to 2000 yen over the course of Friday, according to the chart.
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Old 09-14-2008, 07:40 PM   #6
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No. Not part of journalism.

BTW- have markets in Japan opened yet? Can you give a report? Does AIG trade over there? How is it quoted?

ha
I think (but am not sure) that Japan is closed 9/15 (i.e. tonight) for a holiday. As of this 8:35pm ET, Australia is down about 1.4%, but with some banks and Investment Banking firms down much more. (For example, Macquarie Group Ltd is down 8.1% as of 8:18 ET.)
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Old 09-14-2008, 07:42 PM   #7
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Thanks guys for the reports.

Ha
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Old 09-14-2008, 07:48 PM   #8
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Bank of America just buys Merrill. I guess that is plus for the markets tomorrow.
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Old 09-14-2008, 07:58 PM   #9
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BAC paying a premium too ($29) since Friday's close was $17 or so on MER.
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Old 09-14-2008, 08:03 PM   #10
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Pre-Market: Stock Trading Before the Markets Open from CNNMoney.com
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Old 09-14-2008, 08:03 PM   #11
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BAC paying a premium too ($29) since Friday's close was $17 or so on MER.
How many more failures can BAC absorb? They might be getting a deal in the long run but I bet the FDIC is getting a bit concerned about their capital adequacy.
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Old 09-14-2008, 08:04 PM   #12
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Bank of America just buys Merrill. I guess that is plus for the markets tomorrow.
except for paper assets you can buy in BK court, what is the value in any of the ibanks? just a bunch of people you can hire away and clients you can steal
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Old 09-14-2008, 08:30 PM   #13
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except for paper assets you can buy in BK court, what is the value in any of the ibanks? just a bunch of people you can hire away and clients you can steal
The reason BOA bough Merrill is simple, they wanted their 20,000 brokers and all the client relationships they have. The retail business at Merrill is a huge cash machine which BOA will leverage to sell banking products to these clients. On it's own it would be a terrific business. In addition, Merrill recently sold most of their CDOs and crap loans.

Merrill also owns 40% of Blackrock which is the largest fixed income manager in the world, and now thanks to Merrill also had a huge equity business.

Lehman owns Neuberger Berman which is very profitable. They also have a very profitable business of licensing their indexes which no doubt will be hurt along with their name.
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Old 09-14-2008, 08:38 PM   #14
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Overnight US futures are down >2%. Oz is down 1.7%.

Lehman is toast. The banks have no money for an LTCM style bail-in without government help. When Lehman fails, their counterparties are gonna suffer. Morgan Stanley next?
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Behind The Scenes
Old 09-14-2008, 09:51 PM   #15
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Behind The Scenes

"If Bank of America acquired Merrill Lynch, its capital reserves would immediately fall below the minimum requirements for bank holding companies. Federal regulators,including the Federal Reserve,would have to show lenience for as long as it took the capital markets to regain their confidence which could be quite a while."

NYTimes Sept. 15, 2008
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Old 09-14-2008, 09:56 PM   #16
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The reason BOA bough Merrill is simple, they wanted their 20,000 brokers and all the client relationships they have. The retail business at Merrill is a huge cash machine which BOA will leverage to sell banking products to these clients. On it's own it would be a terrific business. In addition, Merrill recently sold most of their CDOs and crap loans.
Watch for massive defections by large Merrill brokers to independent firms like LPL and others. Banks are notorius for cutting payouts almost immediately, and all those FLPs managing billion dollar relationships are going to bail.........
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Old 09-15-2008, 07:14 AM   #17
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Merrill is no longer - BOA has bought it $50B.

Lehman goes bankrupt - Fed would not bite for a $$ bailout.

CNN-Business. Futures DOWN over 300 at 8:10 EST.

CNBC is going to be entertaining today (even if you do not usually watch it).

OBTW Oil is down to about $96 a barrel - but pump prices up to as much as $5+ (taking advantage of the situation at the pump?)!
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Old 09-15-2008, 09:55 AM   #18
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I wonder if AIG will survive? Looking pretty bleak at the moment. Just think of all the AIG annuity owners out there. I bet they are sweating it. People who bought them through Vanguard or Fidelity probably thought they were pretty safe. I know I have been somewhat open minded as to owning one someday, but this pretty much seals the deal for me. Only annuity I'm gonna own is through SS.

Maybe a deal will get done to shore up AIG or maybe they will sell off the annuity division to a solid company. I read that is one possibility.
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Old 09-15-2008, 10:28 AM   #19
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BAC paying a premium too ($29) since Friday's close was $17 or so on MER.
I have to wonder why BAC bought MER today at such a premium. Surely, they could have waited a few more days and gotten MER for less, maybe considerably less.
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Old 09-15-2008, 10:41 AM   #20
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I have to wonder why BAC bought MER today at such a premium. Surely, they could have waited a few more days and gotten MER for less, maybe considerably less.

I think they wanted to make sure that the deal would close without any trouble from Merrill shareholders. The hedge funds were also after Merrill in a bad way the last few weeks, they may not have lasted in their present form much longer.
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