Top Stories of the Week
Harry Maurer
Panic Still Reigns on the Bourses
Fear in the markets is ricocheting from the U.S. to Asia to Europe, feeding on itself and picking up momentum. After dizzying drops in Asia and Europe, Wall Street found itself in the midst of another wildly volatile day, with the Dow first down sharply, then recovering somewhat, then dropping again. The index stood at down more than 500 points, nearly 6%, around 3 p.m., threatening to extend a seven-day losing streak during which it had already plunged nearly 21%. In Asia, Tokyo fell 9.6% and Hong Kong 7.2%. In Europe, London ended down 7%, while Paris and Frankfurt fell around 6%.
The Group of Seven began a meeting in Washington today, with numerous proposals circulating for how governments could take coordinated action to stem the crisis. Washington is reported to be considering a massive guarantee of bank debt, following Britain’s lead, and temporarily extending insurance to all bank deposits, as some nations in Europe have done. The U.S. may also take ownership stakes in major banks.
Source: BusinessWeek
Bush Tries to Reassure the Nation
Promising that “we’ll get through this together,” President Bush addressed the nation this morning and asked Americans to remain calm in the face of the global financial meltdown. “Anxiety can feed anxiety, and make it hard to see all that is being done” to ease the crisis, he said. He offered no new proposals or actions, saying the government already has all the tools it needs.
Source: Washington Post
Morgan Stanley and Goldman Sachs Under Fire
The two investment banks continued to come under heavy selling pressure as investors questioned their ability to survive the crisis. Morgan especially looked shaky, its stock having fallen 26% yesterday and down an additional 40% by midafternoon, while Goldman was down 20%. Yesterday, Moody’s said it was considering lowering its rating on $200 billion in long-term Morgan debt, and cut its outlook on Goldman’s long-term debt to negative.
Source: New York Times
Big Payouts on Lehman Credit-Default Swaps
Sellers of credit-default insurance on debt from bankrupt Lehman Brothers will have to pay out 90.25 cents on the dollar to holders under the initial terms of an auction, setting up the biggest payout ever in the $55 trillion credit-default swap market. Based on the results of the auction, sellers of the protection may have to fork over $270 billion, and some funds that sold protection may have to dump assets if they don’t have the necessary cash.
Source: Wall Street Journal
Citi O.K.’s Wachovia, Wells Fargo Tie-up
Citigroup will not stand in the way of a merger between Wachovia and Wells Fargo, but will continue to seek legal damages of $60 billion from Wachovia after a deal to purchase it fell through.
Source: New York Times
Japan’s Yamato Life Files for Bankruptcy
Yamato Life Insurance has become the first Japanese insurer to file for bankruptcy protection in seven years after liabilities exceeded assets by about $116 million.
Source: Dow Jones Marketwatch
Oil Could End Week with Worst Drop in Four Years
Tumbling commodity markets could result in the worst weekly plunge in oil prices since 2004 as crude oil plunged another $4 in Asian trading on Friday to $82 a barrel for November delivery.
Source: Bloomberg
Central Banks Cut Rates Around the World
In an unprecedented coordinated global action, central banks from the Americas to Europe cut their key lending rates early Oct. 8 in a bid to kickstart economic growth and ease investor anxiety that’s verging on panic. The rate cuts by the Federal Reserve, Bank of Canada, Bank of England, and European Central Bank didn’t, however, prompt positive response from many stock markets, which mainly fell Oct. 8.
Source: Wall Street Journal
England Unveils Huge Bank Bailout Plan
The beleaguered British government rolled out a surprisingly ambitious plan to bolster Britain’s top banks. The program includes $88 billion to help rebuild capital reserves via government stakes in the banks, and as much as $800 billion to short up short- and medium-term loans between banks.
Source: The Guardian, BusinessWeek
A.M.D. to Split Into Two Operations
Advanced Micro Devices plans to announce Tuesday that it will split into two companies — one focused on designing microprocessors and the other on the costly business of manufacturing them — in a drastic effort to maintain its position as the only real rival to Intel. In addition, the company said two Abu Dhabi investment firms would inject at least $6 billion into the two firms.
Source: New York Times
Shedding Staff at eBay
The online giant said it will lay off 10% of its global workforce, about 1,000 employees and several hundred temps, as the company tries to offset the impact of slower growth of the auction business. It also lowered its revenue forecast for the third quarter and announced it’s acquiring two companies, online payment outfit Bill Me Later for $945 million, and two Danish sites for $390 million.
Source: MarketWatch.com
ImClone to Accept $6.1 Billion Eli Lilly Takeover
The boards of both ImClone Systems and Eli Lilly and Co. have approved a $6.1 billion bid for ImClone, according to sources familiar with the situation. By valuing ImClone at $70 a share, Eli Lilly tops a rival bid from Bristol-Myers Squibb that had valued the maker of cancer drug Erbitux at $62 a share.
Source: Reuters
Conversation of the Day: Venture Capital Tremors
Reader Fred Wilson Writes: “Venture capital has a very long lag time because the funds we raise are 10-year funds and partners have to stick around and manage them.”
Tell us What You Think: What Will the Crisis Mean for Venture Capital?
Hot Topic on the Business Exchange: Credit Crunch
Henry Blodget says this Economist article is a must-read.
