BofA Buys out Merrill Lynch, AIG asks Fed for $40 Billion, and Lehman Bros Bankrupt

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http://www.marketwatch.com/news/sto...x?guid={DC571A72-68A2-4318-83A0-A060355956E9}

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Lehman Brothers said it would file for Chapter 11 bankruptcy protection after a frantic weekend of negotiations failed to produce a buyer for the group. Lehman said it will continue to explore the sale of its broker and investment-management units and other strategic alternatives. Bank of America reportedly pulled out of deal talks after federal officials balked at committing taxpayers funds to help save the Wall Street giant.
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After reportedly dropping out of talks over Lehman, Bank of America instead agreed to buy Merrill Lynch in an all-stock deal valuing the broker at $50 billion. The $29-a-share deal creates the world's No. 1 securities brokerage with more than 20,000 advisers and $2.5 trillion in client assets. Under the deal, Merrill Lynch investors will swap each of their shares for around 0.86 shares in Bank of America. The effective deal price is a 71% premium to Merrill's closing price of $16.96 on Friday.
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American International Group Inc. , beset by a record stock slump, is seeking a $40 billion bridging loan from the Federal Reserve, according to a New York Times report. AIG is scrambling to avoid a threatened downgrade from credit-rating agencies the report said. It added the firm may only survive 48 to 72 hours after such a downgrade, citing a person close to the company. Separately The Wall Street Journal reported AIG may sell its aircraft leasing business and other assets. Shares in AIG slumped nearly 50% in pre-market trading.
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Oil futures dropped sharply after Lehman Brothers said it would file for bankruptcy and Hurrican Ike caused limited damage to refineries in the Gulf of Mexico. The October-dated light crude contract fell $6.31 to $94.87 a barrel.
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The Federal Reserve expanded its loan programs and said it would accept a broader range of collateral for its loans. Chairman Ben Bernanke said the initiatives were designed to mitigate the potential risks and disruptions to the market.
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A group of global investment banks, including J.P. Morgan Chase and Goldman Sachs, late Sunday announced a $70 billion loan program that financial companies can tap to help ease the credit shortage threatening markets. Participating banks can get a cash infusion up to a third of the total size of the pool.
Click to expand...


That's a whole lot of shitty news for financial markets, and everyone, to open the week up with.
Thoughts?

I particularly hate the $40 Billion loan that AIG is more than likely going to get.
 
Hooray for short positions!;)

Seriously this is a lot of bad news but we really to get all this crap flushed out of the system ASAP and this is a step in the right direction. We haven't seen the panic bottom yet, the flood of high volume sellings that sends the VIX blasting through 30 toward the 35+ level.

The AIG situation is worrisome though as their assets and capital structure are quite different from the other failures that we have thus far from the investment banks.

Edit....I also think BAC made a mistake offering 29 for MER. If they had waited until today to make the offer they could easily seen MER trading at $10 or less and offered $13-$15. But over the long term, I like the prospects for a combined BAC/MER.
 
[quote name='CaseyRyback']Hooray for deregulation![/QUOTE]
Markets across Europe are down 5+%, compared to 2.5% max here in the US.

So yes, hooray!
 
[quote name='Moxio']Hey government, I'm $40 bil. in the hole. Bail me out. :cool:[/QUOTE]

Get in line, the automakers are standing behind all the financials.
 
[quote name='CaseyRyback']Hooray for deregulation![/quote]

If you're implying that this was caused because of deregulation I have a sinking suspicion you've never taken an economics class.
 
Deregulation might help. I wish corporations would stop operating like they expect the govt. to bail them out. It seems like they blow all their cash when times are good and whine about things when the economy heads south. Instead of loaning money to qualified people, they gave money away to anyone with a pulse.

Instead of making fuel-efficient cars, American auto makers made cars that would only sell as long as gas was cheap. Didn't they see the same models that showed that China and India would start sucking up gasoline at record levels starting around 2005?
 
[quote name='Ikohn4ever']lets all talk about lipstick on pigs, its much more productive.[/quote]

Damn straight.

If I ever see a tornado barreling towards me, I'm so putting my deadbolt on.

Today's loss on the DOW is almost as bad as 9/11. Nice perspective, huh?
 
[quote name='DarkSageRK']If you're implying that this was caused because of deregulation I have a sinking suspicion you've never taken an economics class.[/QUOTE]

I sure am. No one was watching what kind of loans that these companies were making and since others were getting rich off risky loans than it led to others taking such stupid risks.


Every time we end up loosening government regulations on industries they end up standing right in line for a bailout, which gets handed to them.
 
[quote name='CaseyRyback']I sure am. No one was watching what kind of loans that these companies were making and since others were getting rich off risky loans than it led to others taking such stupid risks.


Every time we end up loosening government regulations on industries they end up standing right in line for a bailout, which gets handed to them.[/QUOTE]

This.

Now if only I could convince the wife that investing some of our cash in the Euro is a good idea...
 
[quote name='BillyBob29']Hooray for short positions!;)

Seriously this is a lot of bad news but we really to get all this crap flushed out of the system ASAP and this is a step in the right direction. We haven't seen the panic bottom yet, the flood of high volume sellings that sends the VIX blasting through 30 toward the 35+ level.

The AIG situation is worrisome though as their assets and capital structure are quite different from the other failures that we have thus far from the investment banks.
[/QUOTE]

VIX almost hit 32 today. Hopefully capitulation comes tomorrow--with the Fed meeting, GS earnings and CPI it could be the day.

I doubt they'd let AIG go under. Way too big.
 
[quote name='DestroVega']"The economy is STRONG" - Bush 8 months ago.[/QUOTE]

"The fundamentals of this economy are strong." - John McCain today.
 
Besides AIG, which is on the verge of banruptcy there are 2 others that are very close. One is Washington Mutual, I forgot the name of the third.
 
[quote name='keithp']VIX almost hit 32 today. Hopefully capitulation comes tomorrow--with the Fed meeting, GS earnings and CPI it could be the day.

I doubt they'd let AIG go under. Way too big.[/QUOTE]

Yeah and the VIX was over 33 this morning but still no panic selling, no massive capitulation selling. Very orderly and kind like business as usual. This is not the action of a final bottom.

News hitting the tape now is that the Fed is putting government money on the table for AIG now. No much for the "no more bailouts" statement.......from yesterday.;)

It is still early in the day but this feels like just a typical oversold rally.
 
[quote name='ryanbph']Besides AIG, which is on the verge of banruptcy there are 2 others that are very close. One is Washington Mutual, I forgot the name of the third.[/QUOTE]

LOL.....pretty much everyone but BAC, WFC and JPM.;)
 
Looks like instead of $40 Billion the New York Feds will give them $85 Billion in exchange for 80% of the company. So another company gets bailed out by the government. Ultimately the end result will be all my dollars become worthless. Maybe I should ask to be paid in Euros?

http://money.cnn.com/2008/09/16/news/companies/AIG/?postversion=2008091620

Hey BillyBob since you seem to be checking back on this thread let me ask you something. Why do you think Merril Lynch is trading at 22 when Bank of America had offered 29 for it over the weekend? The only thing I can think of is maybe because it is a all stock deal and people expect BofA shares to keep dropping. Either that or people don't expect the deal to go through.

I was thinking now might be a good time to start considering financial companies. I've been looking at CB and STI and of course USB (backed by the full faith of Warren Buffett lol). I've been tracking the more famous names too and waiting for a good time to jump in. Right now most financial stocks are still to expensive.
 
I'd be wary of the Euro... once the European markets start seriously hitting their slowdown, the Euro will flux just as much as the dollar.
 
[quote name='cletus']
Hey BillyBob since you seem to be checking back on this thread let me ask you something. Why do you think Merril Lynch is trading at 22 when Bank of America had offered 29 for it over the weekend? The only thing I can think of is maybe because it is a all stock deal and people expect BofA shares to keep dropping. Either that or people don't expect the deal to go through.

[/QUOTE]

A combination of those 2 ideas is likely, obviously the price of MER will move based on how BAC moves since it is an all stock deal. However, I really don't think the street has a lot of faith in the deal. Personally, I think the deal was crappy for BAC shareholders, like me. Had they waited until Monday to approach MER I really think they could have picked it up for $10 or less.

That being said, I do think the prospects for a MER/BAC combo will be good in 5-10 years. On the financials side, BAC and WFC are my favorites with WFC looking the best from a technical perspective. But at the same time we are not at the end of this financial crisis so these things are going to continue to be volitile for some time to come so trade accordingly.
 
WFC, BAC and USB stand to rise from the ashes when all is said and done. Who else? Only (insert favorite deity/higher power here), knows.
 
[quote name='BillyBob29']A combination of those 2 ideas is likely, obviously the price of MER will move based on how BAC moves since it is an all stock deal. However, I really don't think the street has a lot of faith in the deal. Personally, I think the deal was crappy for BAC shareholders, like me. Had they waited until Monday to approach MER I really think they could have picked it up for $10 or less.

That being said, I do think the prospects for a MER/BAC combo will be good in 5-10 years. On the financials side, BAC and WFC are my favorites with WFC looking the best from a technical perspective. But at the same time we are not at the end of this financial crisis so these things are going to continue to be volitile for some time to come so trade accordingly.[/QUOTE]

Ok I was wondering what you thought since you usually have intelligent things to say about the market. Even thought you are a technical trader I won't hold that against you. :) I had thought BAC should just wait a few weeks and pick up MER for >$10 per share too. I'm sure MER's CEO was fearing the same thing and that's why he worked this deal over the weekend. For now I'm just watching the market and enjoying the ride. Personally I'm more of a fundamental trader. I currently only have a few long positions and 1 short position. I'm (still) waiting for a good time to start buying.
 
For long term positions I use both technical and fundamental analysis but for short term and swing trades the market moves on technical analysis.

As for survivors, I agree with the three dopa listed and would add JPM and GS although WFC continues to be my favorite play. GS is interesting down here. If held 100 pretty well. If it trades down, tests and holds that level again tomorrow I will be a buyer, using the lows of today as a low risk stop point for a reversal play. But I'm expecting the easy money to be in the commodity and energy plays the next few days. A lot of them, along with the ag plays like POT, displayed a great deal of relative strength today even with the market dropping like a rock.

C is still a big wildcard, IMO, the company has been very quite through this recent downdraft and I really think they may be the next target of the massive shorts.....even moreso than they already have been.

Cletus, what are you waiting for to start buying? Is there a specific signal or event that you want to see? I keep hearing the fundamentalists shout "fair value / undervalued" etc but watching the markets daily you can clearly see that they aren't buying. If things are really so undervalued I wonder what is keeping them on the sidelines. I haven't been buying for my long term accounts but I am looking to add to positions here in the next few days like GE, PM, BAC and possibly enter new long term oriented positions in plays like BA and AAPL.
 
Sometimes it seems like there is a war between technical and fundamental analysts which was what I was joking about. I personally will use whatever tools available that will make money, I just have a preference for the fundamentalists way of thinking. I will take into account the simpler indicators like support/resistance, volume, moving average, and so on. It is just the more complex stuff like Elliot wave theory, Gann angles, Fibonacci lines etc which I disregard. I think they are little better then financial hocus pocus. I usually take a long term view of stocks and mostly use technical indicators to help decide on a entry and exit point. I don't think I have the temperament to be a technical trader anyway.

As for what I'm waiting for, I am much more interested in what the SEC and the Feds plan to do about all this. I have a feeling short sellers are causing most of the turmoil but no one wants to admit it. Right now the market is running on fear and the public is demanding action. The government may be forced to intervene which I am positive will cause more disruptions and problems. So currently I am making conservative bets and keeping my trading account in mostly cash. I've got a list of possible companies to buy into waiting for later. Also I will be having some surgery later this month so I don't want to enter any risky positions right now.

BTW I've almost forgotten how nice it is to talk to someone about stocks, especially someone who knows what he is talking about. Whenever I try to discuss this IRL people's eyes will sorta glaze over and they zone out. To bad I don't have more free time to devote to this right now.
 
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