World stock markets sink on Wall Street crisis

AP
Published: September 15, 2008, 13:03

London: Asian and European stock markets were down sharply on Monday amid growing alarm over the world's financial system after a shake-up on Wall Street, with Lehman Brothers saying it would file bankruptcy and Merrill Lynch being sold to Bank of America.

In Europe, the FTSE was down 2.72 per cent in London, the Paris CAC-40 was off 3.52 per cent and Germany's DAX 30 index of blue chips sagged 2.99 per cent.

The dollar sank against euro, which rose to $1.4299 from $1.4215 late on Friday in New York. The pound rose against the dollar to $1.8052 from $1.7937.

Asia's biggest stock exchanges in Japan, Hong Kong and South Korea were closed for holidays, but every market open was deep in the red.

India's Sensex tumbled 5.4 per cent, Taiwan's benchmark plummeted 4.1 per cent, Australia's key index was down 2 per cent and Singapore dropped 2.9 per cent.

The declines came as Wall Street and the US government took a series of steps aimed at bringing an end to the credit crisis.

Troubled US investment bank Lehman Brothers Holdings Inc. announced it would file for bankruptcy after prospective buyers, including Barclays PLC, backed away from a deal over the weekend.

Also, Bank of American Corp. said in a statement early on Monday that it would acquire Merrill Lynch & Co. in an all-stock transaction worth about $50 billion.

Additionally, giant US insurance company American International Group Inc. said on Sunday it was discussing options with outside parties to improve its business.

The Wall Street Journal said on its website Sunday that AIG may announce a turnaround plan Monday that would involve selling assets such as its aircraft leasing business.

A global consortium of banks, meanwhile, announced late Sunday a $70 billion pool of funds to lend to ailing financial companies.

The shake-up was needed to restore confidence in the markets, said Lorraine Tan, director at Standard & Poor's equity research in Singapore.

"A lot of people are getting burned," she said. "It's better to get this out of the system. Hopefully for the US this could be it as far as potential failures of investment banks."

US stock index futures were down sharply, suggesting that shares would drop when trading opened in New York Monday morning.

AP

Bank of America buys Merrill Lynch for $50 billion

Bloomberg
Last updated: September 15, 2008, 09:28

New York: Bank of America Corp. cemented its status as the largest US consumer bank by agreeing to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion.

The bank will swap 0.8595 shares of its stock for New York- based Merrill Lynch, according to a statement from Bank of America on Monday. On Sunday, the bank pulled out of talks to acquire Lehman Brothers Holdings Inc., the beleaguered securities firm.

The sale would mean 94-year-old Merrill, led by John Thain and known for its familiar bull logo, won't become the next casualty of the global credit crisis, which pushed Lehman to the brink of failure.

While Merrill has suffered almost $19 billion in net losses tied to mortgages, Bank of America would gain the firm's the 16,690-person staff of advisers managing about $1.6 trillion for retail customers.


“If Bank of America can put a fence around the bad assets, that retail distribution is a powerhouse,” said Peter Sorrentino, senior portfolio manager at Huntington Asset Advisors in Cincinnati, which manages $16.5 billion in assets. “The Merrill Lynch combination makes more sense than a Lehman deal.”

Merrill Lynch is the second bargain picked up this year by Bank of America Chief Executive Officer Kenneth Lewis tied to the collapse of US mortgage markets.

Bank of America paid $2.5 billion in stock last July for Countrywide Financial Corp., making the Charlotte, North Carolina-based bank the nation's biggest home lender. Merrill Lynch has plunged more than 80 per cent from its January 2007 high of $97.53.

Merrill's Value

Lewis, 61, has been CEO for seven years, a tenure that has included more than $100 billion in acquisitions, including FleetBoston Financial Corp. and credit-card issuer MBNA Corp.

In Merrill's case, he's buying assets worth more than $40 a share, according to a Sept. 12 Citigroup Inc. analysis. The wealth management unit alone is worth $16 a share, said the report by Prashant Bhatia.

Merrill also owns about half of BlackRock Inc., the New York-based money-management company that had a market value of $24 billion as of Sept. 12. The total value of the Bank of America bid includes stock options, restricted stock units and convertible securities, the person familiar with the deal said.

“The fact that the biggest brokerage would be bought by the biggest retail bank is certainly historic,” said John Medlin Jr., 74, retired chief executive officer at Wachovia Corp. “Bank of America decided they weren't going to take on the Lehman risk, but they concluded the risk wasn't as severe at Merrill Lynch.”

this is the 9/11 of banking...friends of mine who started work at lehman are out of jobs and a friend who works at merrill doesn't know if he has one or not....meltdown monday is what they are calling this....its huge....i think the dow lost 2.5 percent at the start of trading this morning....craziness.

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Mortgage se ab yahan par I think washington mutual was in trouble as well though I hope that they come out of it!

Such much me yeh ishaq darr type economics lag rahi hai!

its very simple man...they overdid the lending...without sufficient investigation into the borrowers' credit worthiness...and of course the complex financial instruments tha were based simply on mathematical models and the sensitivity analysis for those bonds did not take into account issues of recessionary symptoms.

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This hasnt hit the Canadian markets as hard as i predicted, Thank God. The next two days will be horrible for trading, lets see how this new fiasco turns out. I am surprised the US government didnt bail them out

govt wud have pushed the deal for merryl lynch as it was much bigger..esp on learning that leahman brothers have filled for bankruptcy.

around 5000 are getting laid off, suposedly, in UK itself..and leahman brothers has an aprox of 40,000 staff worldwide. OUCH!!!

and AIG shares fell a whooping 70%

waisai luk on the bright side...oil prices have come down

dow jones down 500 points...canadian markets are going bonkers mate....its been down 163 points. thats 4 % ....dow jones went down 5 %

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hey im not very good at economics, its been 2 years since my last course (i aced it so shut it!). but how exactly are stock market numbers going down going to affect me?

depends on what you are going to do...anyone graduating in '09 looking for i-banking jobs is well and truly f-ed. apart from that there will be a whole paradigm shift in the way financing is done...for the housing industry, IPOs etc. for new firms, everything. Lending protocols will also change...which probably means it will hard for people to finance spending.

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ohhh i see so uh student loans are gonna be problem 2 i assume?

Fannie and Freddie got bailed out by the Treasury because Chinese had invested heavily in mortgages of both of these firm. Since chinese lends money to US to finance their deficit, US had no option but to help both of these firms from banktrupcy.

Credit cards is one way u could still finance your education. The main problem with this method is the accruing of large amounts of interest.