Bond Markets jump as Equity falls down

Following Lehman’s bankruptcy, Merrill’s demise and AIG’s restructuring plans it seems investors’ confidence was faded away. There was a huge demand for fixed income securities in the US market. The prices went up so high that the yields touched 2001 lows. The investors wanted to put their money in safe government bonds as the equity market tumbled down and there are no signs of immediate recovery.

"For markets, the question is whether the liquidation of Lehman’s illiquid assets … will force other dealers to mark down the value of their holdings, resulting in another wave of write-downs and fire-sales that could destabilize markets," said BMO Capital Markets analysts. Read more

September 15, 2008 | Filed Under Market Analysis | Leave a Comment

American International Group (AIG) share price tumbles

The largest investment insurance company of the world, US based American International Group (AIG) seems to be following the path of investment banks. The share price was down 52% in the opening hours of the trading session on Monday 15th September 2008. Questions were raised about its capital base when the Fortune 18th company requested Federal Reserve for $40 billion in bridge financing to help come out of liquidity crisis and ratings downgrades.

The shares tumbled to a low of $5.82 from the Friday’s close of $12.14. It lost more than 80% from the peeks at the beginning of the year. The company had been reporting losses from the past three quarters. The company reported $18 bn loss in the past few quarters. The loss was mainly from the mortgage derivatives business of the company. The stock meltdown started on Friday when Standard and Poor (S&P, a credit rating agency in US) put the company’s credit rating on negative watch. S&P stood on same lines for Lehman Brothers before it filed for bankruptcy. Read more

September 15, 2008 | Filed Under Market Analysis | Comments Off

Bank of America acquires Merrill Lynch

Bank of America Corp (BoA), the largest US retail bank buys Merrill Lynch, the world’s largest broker and investment bank. As per the $50 bn deal BoA will swap 0.8595 of its shares; it’s equivalent to $29 price per share as per Friday’s close price of Merrill. It’s a huge premium to its closing price on Friday of $17. But don’t forget that Merrill’s share price had fallen freely in recent times.

This acquisition will start giving benefits to BoA after 2012. BoA which has $154bn market capitalization had abandoned talks with Lehman as there were not enough supportive assurances from the Federal bank and as a consequence Lehman chose to file for bankruptcy. Read more

September 15, 2008 | Filed Under Market Analysis | Leave a Comment

Lehman Brothers’ Bankruptcy

Lehman Brothers Holdings Inc, a 158 year old investment bank of USA filed for bankruptcy. The fourth biggest investment bank said that it had to file for bankruptcy in order to protect its assets and maximize value and the move was authorized by board of directors.

It had no other option as Bank of America Corp and Barclays Plc moved out of talks to buy the company. On the other hand bank of America acquired Merrill Lynch. Lehman said that its broker-dealer subsidiaries would not be part of bankruptcy filing. It said that it was exploring sale of its broker-dealer operations and it was in advanced talks with potential buyers for investment management division. Read more

September 15, 2008 | Filed Under Market Analysis | 2 Comments

Indian Markets Next week September 15th 2008

Last week Sensex started with a positive note following Nuclear Suppliers Group (NSG)’s nod to Indo-US nuclear deal without India signing the Nuclear Non-Proliferation treaty. It touched a high of 15,107 before falling down consecutively for four trading sessions. It touched a low of 13,934 and ended at 14,000. Sensex could not sustain the high levels despite lower inflation figures and higher IIP numbers.

Wholesale Price Index (WPI) based inflation dipped to 12.10 per cent for the week ended August 30 against 12.34 per cent for the week ended August 23rd. The manufacturing index number actually increased by 0.3% and is a cause for worry.

Spot Crude oil prices came down to $96 per barrel on account of strengthening dollar and week global economy. The rupee fell on Friday to a fresh 23 month low of 45.76/77, against the US currency. Read more

September 14, 2008 | Filed Under Market Analysis | Leave a Comment

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