Monday, October 13, 2008

U.S. to buy bank stakes; markets soar 936 points

By TIM PARADIS, AP Business Writer


Wall Street stormed back after its worst week ever and staged the biggest single-day stock rally since the Great Depression on Monday, catapulting the Dow Jones industrials to a 936-point gain and finally offering relief from eight consecutive days of stock market carnage.

While no one was saying the worst was over for the staggering financial system or troubled economy, buyers returned to the stock market with gusto, with some saying stocks had been driven down to fire-sale prices.


The surge came as executives from leading banks were summoned by the Bush administration to Washington to work out a plan to get loans, the lifeblood of the economy, moving again. And it followed signals that European governments would put nearly $2.3 trillion on the line to protect their own banks.

The Dow gained more than 11 percent, its biggest one-day rally since 1933, and by points it shattered the previous record for a one-day gain of 499, during during the waning days of the technology boom in 2000.

"My screen is completely green, and I love that," said John Lynch, chief market analyst for Evergreen Investments in Charlotte, N.C. "But I'm not doing any backflips yet. We still have many challenges up ahead."

Stocks opened sharply higher and never looked back. The Dow was up more than 400 points in the opening minutes of trading, and by lunch hour had crossed back through the same 9,000 level it crashed below last week.

The rally intensified in the final hour of trading. In the moments before the closing bell rang, boisterous traders sounded horns on the floor of the New York Stock Exchange, and raucous applause broke out.

"I would say this is closer to the bottom. I can't say this is the bottom," said Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pa. "I think it's more relief, the rally today."

For Wall Street, it came not a moment too soon. The dismal week before wiped out about $2.4 trillion in shareholder wealth. The eight-day losing streak drained 2,400 points from the Dow, or 22 percent — roughly equal to the 1987 crash and enough to establish a bear market all on its own.

U.S. stock market paper gains totaled $1.2 trillion Monday, according to the Dow Jones Wilshire 5000 Composite Index, which represents nearly all stocks traded in America.

The massive rebound also pushed the Nasdaq composite index higher by 195 points, or nearly 12 percent, its second-biggest gain in percentage terms. The Standard and Poor's 500, rose 104 points, its biggest point gain ever and an 11.5 percent gain, its greatest since 1933.

About 3,030 stocks advanced on the New York Stock Exchange, while only about 160 declined — a reversal from last week, when declining stocks overwhelmed the gainers. But the trading volume of 1.82 billion shares was lighter than it had been last week, suggesting there was less conviction in the buying than during last week's selling.

At the close, the Dow stood at 9,387.61. That's still a far cry from its peak of 14,165, set a little more than a year ago — and history suggests Wall Street could have a long climb back to the top of the mountain.

After the Black Monday crash of October 1987, it took the Dow until August 1989 to set a new all-time closing high, almost two years after its previous peak. The 1987 crash took stocks down 36 percent from their pick — comparable to the 40 percent decline in this round of turmoil.

The Bush administration said it was moving quickly to implement its financial rescue package, including consulting with law firms about the mechanics of buying ownership shares in a broad number of banks to help get lending going again.

Neel Kashkari, the assistant Treasury secretary in charge of the program, said Monday officials were also developing guidelines to govern the purchase of soured mortgage-related assets. He gave few details about how the program will actually buy bad assets and bank stock.

And Wall Street still has a lot to worry about, including a housing market that is still groping for a low point in prices and shoppers who are spooked by job losses and other ominous economic signs and are cutting back on their spending.

"I think we had enough negatives last week that if the government steps in we could have a pretty nice run," said Denis Amato, chief investment officer at Ancora Advisors. "Is it off to the races? No, I don't think so. We have a lot of stuff to work through."

It was also too soon to say for sure whether lending was finally loosening up. The sell-off on Wall Street last week was driven by fear that mistrustful banks were choking off the everyday loans that businesses use to buy supplies and pay their workers.

Monday was the Columbus Day holiday, and the U.S. bond markets and banks were closed, making it difficult to gauge the reaction of the credit markets to the measures taken by world governments.

The Bank of England said it would use up to $63 billion to help the three largest British banks strengthen their balance sheets. The Bank of England, the European Central Bank and the Swiss National Bank also jointly announced plans to work together to provide as much short-term money as necessary to help revive lending.

The heads of the five biggest U.S. banks — Goldman Sachs, Morgan Stanley, Citigroup, JPMorgan Chase and Bank of America — were meeting at the Treasury Department with officials from Treasury and the Federal Reserve. The discussions are aimed at finalizing details on the rescue package Congress passed Oct. 3.

That package started with the idea that the government would buy the bad mortgage-related debt off the books of banks. It now includes provisions for the government to buy ownership stakes in banks, among other steps.

It is coming together against the backdrop of a presidential election that has focused squarely on the economy. Sens. Barack Obama and John McCain are to meet for a final debate Wednesday night on Long Island, with the state of the nation's finances sure to be at the top of the list.

Consolidated volume on the New York Stock Exchange hit 7.1 billion shares, down from 11.2 billion during Friday's session but still very heavy.

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AP Business Writers Joe Bel Bruno and Stevenson Jacobs in New York contributed to this report.

Copyright © 2008 The Associated Press
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U.S. to buy bank stakes; markets soar

By Eddie Evans

The U.S. government agreed on Monday to take $25 billion stakes in several big banks in a bid to shore up the banking system and arrest the financial crisis, sources familiar with the situation said.

The move follows pledges by the governments of Britain, Germany, France and other European countries of more than 1 trillion euros ($1.36 trillion) to bolster their own banks.

U.S. officials will announce details of the U.S. plan at 8:30 a.m. on Tuesday, the Treasury Department said.
As Asian markets opened on Tuesday, Japan's Nikkei average soared 9 percent.

That followed the biggest one-day gain ever in the Dow Jones industrial average and the S&P 500 index, both up 11 percent on Monday. Wall Street recorded its worst week in history last week amid panic over collapsing banks and fears that major economies were headed toward recession.

Stocks worldwide added more than $1.7 trillion in value on Monday, based on a record 9.3 percent gain in the MSCI world equity index.


"Sometime last week it seemed like we faced Armageddon, so to have a coordinated plan on stabilizing banks is huge progress," Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said on Monday.

After talks with Wall Street bankers on Monday, Treasury Secretary Henry Paulson agreed to spend $250 billion on equity stakes in U.S. banks and to a three-year guarantee of bank-to-bank lending, sources familiar with the meeting said.

The government would take $25 billion in preferred stock in Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley and Bank of New York, the sources said.

All except Bank of America would have to raise $10 billion in matching capital to qualify, a source said.


This was an about-face from a previous U.S. focus on buying bad debt from banks, after world finance ministers coalesced around a British proposal at weekend meetings in Washington.

Britain's bank plan called for 37 billion pounds ($64 billion) of taxpayers' cash to bail out three major banks in a move that would likely make the government their main shareholder.

Germany, France, Italy and other European governments also announced rescue packages totaling hundreds of billions of dollars.

Also on Monday, investment bank Morgan Stanley reached a financing deal with Mitsubishi UFJ Financial Group Inc (MUFG), possibly with U.S. government support. Morgan shares soared 87 percent, after losing 58 percent last week.

And Banco Santander said it would acquire the remaining 75 percent stake in Sovereign Bancorp Inc it does not already own, as the euro zone's biggest bank hunted for bargains in the beaten-down financial sector.

In addition to the bank bailouts, the U.S. Federal Reserve, the European Central Bank, the Bank of England and the Swiss National Bank said they would lend commercial banks as much U.S. dollar liquidity they needed.

That had an instant impact on bank-to-bank lending rates, which eased, but there was still no clear evidence of funds cascading from banks to companies.

U.S. bond markets were closed on Monday for the Columbus Day holiday.

The euro and sterling gained strength on the European plans.

Oil rose more than $4 to $82 a barrel.

BROWN PROFILE RISES

British Prime Minister Gordon Brown called on world leaders to create a new financial architecture to replace the current system, which was set up at a conference in Bretton Woods, New Hampshire, in 1944.

"Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed," Brown said in a speech at the London offices of Thomson Reuters.

Iceland -- forced over the past week to take over three big banks, shut down its stock market and abandon attempts to defend its currency -- officially requested financing from the International Monetary Fund, an IMF official said.

"I'm slightly less terrified today than I was on Friday," Princeton University economist Paul Krugman said after he was named the winner of the Nobel prize in economics on Monday. "We're going to have a recession and perhaps a prolonged one but perhaps not a collapse.

Japan said on Monday it was considering whether to guarantee all bank deposits, while the central bank said it might join further global efforts to boost dollar funding to strained money markets.

The two men vying to succeed U.S. President George W. Bush after the November 4 election were formulating their own plans.

Democrat Barack Obama, leading in public opinion polls, proposed a 90-day moratorium on home foreclosures and other measures aimed at creating jobs.

Republican John McCain was also considering rolling out a new economic package.

($1=.5786 Pound)

($1=.7287 Euro)

(Reporting by Reuters bureaus around the world; Editing by Gary Hill)

Copyright © 2008 Reuters Limite

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Dow futures climb almost 350 after horrible week


Wall Street headed for huge rebound Monday with the Dow Jones industrial average futures up 348, or 4.2 percent, to 8,718. Standard & Poor's 500 index futures rose 42.90, or 4.81 percent, to 933.90. Nasdaq 100 index futures rose 56.50, or 4.41 percent, to 1,339.00.

Investors, hoping that the stock market is finding some footing after eight sessions of devastating losses, sent stock futures sharply higher.

The market appeared relieved by pledges of further coordinated actions by European and U.S. authorities to aid the crippled banking system, including plans by the Treasury to buy U.S. bank stocks.


Investors in Asia and later Europe were already buying, grabbing stocks after last week's rout and action by major governments over the weekend to bolster investor confidence.

Overseas, Hong Kong's Hang Seng index surged 10.2 percent. Markets in Japan were closed for a holiday. In afternoon trading, Britain's FTSE 100 jumped 3.83 percent, Germany's DAX index rose 6.84 percent, and France's CAC-40 jumped 4.37 percent.

Still, while the markets were upbeat early Monday, they were also well aware that there is much to be done to heal the banking system and the credit markets that have come to a virtual halt. Moreover, even if there is heavy buying when trading opens Monday, Wall Street can expect to see back-and-forth trading in the coming days and weeks as investors remain nervous.

Investors awaited details of the U.S. plan to resuscitate the financial system following word from the Bank of England that it would use up to $63 billion to the three largest British banks to help shore up their balance sheets.

The Bush administration is working on implementing its $700 billion financial rescue plan. The White House is consulting with six private law firms to determine the best way to buy ownership stakes in a broad number of banks. The plan to buy shares of banks is aimed at getting capital to financial institutions faster than purchasing their soured mortgage-backed assets.

Neel Kashkari, the assistant Treasury secretary who is interim head of the program, said officials have been developing rule to govern the purchase of soured assets.

The Federal Reserve also said it would make enough U.S. dollar funds were available to meet demand.

The Bank of England, the European Central Bank and the Swiss National Bank jointly announced plans to work together to provide as much short-term funding as necessary to help revive lending. The Bank of Japan said it was considering taking similar steps.

After a series of weekend meetings in Washington of heads of the Group of Seven nations, strong gains in markets in Asia and Europe signaled that investors found comfort from the actions and pledges coming from government officials.

Bond markets are closed for the Columbus Day holiday. The dollar was mixed against other major currencies.

The surge in stock futures comes after a dismal week on Wall Street that erased an estimated $2.4 trillion in shareholder wealth. The Dow, after eight consecutive daily losses that totaled just under 2,400, or 22.1 percent, finished at its lowest level since April 2003, and also suffered its worst weekly percentage loss ever, a fall of 18.2 percent.

Meanwhile, the S&P 500 lost 15.3 percent and the Nasdaq composite index fell 15.3 percent.

Investors worried that banks' reluctance to lend to one another would imperil economic activity by making it harder and more expensive for businesses and consumers to get a loan.

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Copyright © 2008 The Associated Press


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World stock markets soar after historic sell-off

By DAVID JOLLY and BETTINA WASSENER

PARIS — Banking stocks led equity markets higher Monday in Europe and Asia after European leaders announced plans to inject new capital into troubled financial institutions and guarantee interbank lending, and central banks announced new measures aimed at restarting frozen credit markets.

In early afternoon trading, the FTSE 100 index in London was up 4.86 percent and the CAC-40 added 6.1 percent in Paris. The DAX in Frankfurt rose 6.9 percent.

Trading in Standard & Poor’s 500 index futures suggested Wall Street stocks would gain as much as 6 percent at the opening. The bond market was closed Monday for the Columbus Day holiday.


Deutsche Bank rose nearly 25 percent in Frankfurt, while BNP Paribas and other major French banks rose more than 6 percent. Royal Bank of Scotland, which is raising billions of pounds worth of new equity with British government backing, rose more than 5 percent.

In Hong Kong, the Hang Seng index bounced 9.6 percent higher. The S&P/ASX 200 index in Sydney closed up 5.6 percent. Tokyo markets, which lost about a quarter of their value last week, were closed Monday for a national holiday.

In Moscow trading, the Micex index rose 4.5 percent.


“We’re extremely cautious,” Philippe Gijsels, senior equity strategist at Fortis Global Markets in Brussels, said. “This looks like the start of a typical bear-market rally.” He said measures Group of 7 countries announced over the weekend had helped banking stocks, but that the market had been due for a rally after major indexes posted some of their worst declines last week.

“To repair the market will take some time,” he said. “The problem is that the financial problem has now become a real economic problem. The damage has been done.”

“The G-7 was responding to a crisis of confidence,” David Thébault, head of derivative sales at Global Equities in Paris, said, comparing the new measures to “a defibrillator applied to a heart attack patient.” “We can see the end of the financial crisis, but at the price of an economic crisis,” he added. “But it’s better to have an economic crisis than to have the entire system endangered.”

Meeting in Paris late Sunday, officials European financial and political leaders agreed late Sunday to a plan that would inject billions of euros into their banks in a bid to restore confidence to the teetering financial system.

Taking their cue from a rescue plan announced last week by Britain, the European countries led by Germany and France pledged to take equity stakes in distressed banks and vowed to guarantee bank lending for periods up to five years. Both France and Germany were planning to unveil national rescue packages on Monday worth hundreds of billions of euros, officials said.

The Federal Reserve said early Monday in Washington that it would create swap lines with the Bank of England, the European Central Bank and the Swiss National Bank “to accommodate whatever quantity of U.S. dollar funding is demanded.”

The Bank of Japan, it said, will consider the introduction of similar measures.

Stocks in Sydney rose a day after Australian and New Zealand governments joined the scramble to calm markets, saying they would guarantee all bank deposits and some interbank lending.

Elsewhere, the Kospi index in South Korea rose 3.8 percent, the Straits Times index in Singapore rose 4.2 percent. In Hong Kong, financial secretary John Tsang warned of an increased risk of recession in 2009 because of the global financial crisis, and PCCW, a leading telecommunications company, on Sunday scrapped the planned partial sale of its HKT unit, citing the market upheaval. The company’s stock slumped nearly 9 percent to its lowest level since 1999.

The dollar lost ground against other major currencies. The euro rose to $1.3637 from $1.3408 late Friday in New York, while the British pound rose to $1.7151 from $1.7042. The dollar slipped to 100.58 yen from 100.68 and fell to 1.1345 Swiss francs from 1.1388.

U.S. crude oil for November delivery rose $3.96, or 3.1 percent, to $80.78 a barrel.

David Jolly reported from Paris and Bettina Wassener from Hong Kong.

http://www.nytimes.com/2008/10/14/business/14markets.html?_r=1&adxnnl=1&oref=slogin&exprod=myyahoo&pagewanted=print&adxnnlx=1223902902-yCzHyX/qycbqwe+cpyV0Lg

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