- Market players around the world are grappling with a radically altered Wall
Street landscape this morning. In its latest attempt to calm markets, the Fed
allowed Goldman Sachs and Morgan Stanley to become bank holding companies on
Sunday night, implicitly abandoning the traditional investment banking business
model. Markets are predictably unsettled, with the all three of the major
indices off more than 1.5% in early trading. "This decision marks the end
of Wall Street as we know it" has been the recurring quote, as multiple
commentators weigh in on this significant change. The move places the firms
under the direct regulation of the Fed, paves the way for them to rely more
heavily on deposits and likely means leverage levels will fall substantially.
Morgan Stanley CEO John Mack says the new
structure will leave MS in the strongest possible position, and "...offers
the marketplace certainty about the strength of our financial position and our
access to funding." Deal news is also moving Morgan Stanley's stock this
morning: before the open, reports circulated that Mitsubishi UFJ would buy a
stake that would eventually reach 20% in the firm. The price has not been
settled as of yet, but will be based on MS's book value as agreed upon
following ongoing due diligence. Mitsubishi UFJ says it intends to invest up to
JPY900B. In addition, the FT reported that MS's talks with WB-9% may be
scrapped this week, although the firm is continuing discussions with China
Investment Corporation. MS is up 10% in early trading, while GS is down 4%. The
rest of the leading financials are under pressure, down 5-10%. WM-20% has
returned to the downside after recent strength over uncertainty regarding plans
to sell the company; this morning CNBC reported WM may wait until after the
details of the government bailout become clear to make any decision on a sale,
while the WSJ reported several scenarios overnight. AIG is up nearly 30%; CEO
Liddy told CNBC this morning that he plans to publish a list of assets to be
sold in seven to ten days. LM-18% is under serious pressure after the New York
Post reported the firm is mulling going private; the company denied the reports
after the open.
- The deeper ramifications of the short selling ban are surfacing this morning
as firm after firm announces plans to undertake large stock buybacks now that
there is a much-diminished threat from the shorts. HPQ has authorized an $8B
share buyback (6.7% of market cap), NKE has ok'ed a $5B share repurchase
program (20% of market cap), SYY is buying back 20M shares (3.3% of shares
outstanding) while MSFT has authorized a whopping $40B buyback (17% of market
cap) and boosted its dividend by 18%. SJI, RFIL, CVA and PCTI have also
announced share buybacks this morning. In addition, S&P assigned an
industrials AAA rating with a stable outlook to MSFT+4%. In other news,
used-car outfit KMX-3% is under pressure after missing EPS and revenue targets
this morning and reporting that same-store sales declined 17% for the quarter
y/y. AZO is up modestly after reporting in-line with estimates. MAR-3% after a
bomb leveled one of its hotels in Pakistan
over the weekend.
- Commodities continue to exhibit some relative strength on Greenback weakness
and continued demand for physical assets. WTI crude is trading around $108
while Dec gold has moved back above $900. Front-month silver and platinum have
gained more than 7% while copper is trading at $3.25. Grains are trading up
3-4% across the board led by wheat while the CRB has added roughly 2%.
- In currencies, the carry-related pairs moved higher as dealers watched risk
aversion ease off thanks to the government's bailout of US
financial sector. Asian currencies JPY and CHF were a touch softer as numerous US
equity names launched share buyback throughout the morning. The level of
financial market stress remains elevated however, as shown by today's Libor
fixings. The three-month USD Libor came in at 3.20% compared to Friday's level
of 3.21%. Overall the greenback remains softer among the major pairs thanks to
concerns over the gigantic price tag of the bailout and its implications for
the government's debt ceiling. USD weakness is helping commodities move higher.
- The ECB's Nowotny reiterated his view that central bank has no bias on
interest rates, adding that while inflation may be declining it remains above
target following August. In addition, he said Europe
will likely suffer from lower growth in 2009 given that global markets are
going through a period of extreme volatility. The ECB's Trichet reiterated his
familiar hawkish concerns over inflation, again repeating that price stability
remained his top priority. Trichet promised that the ECB will remain on alert
to sooth volatility in credit markets.
- Treasury prices have been under pressure from the onset of floor trading. In
late morning trade the yield curve is actually a bit flatter reversing the
overnight trend. The 2-year yield is back above 2.20% and athe 10-year is
nearing 3.90%. Dec Gilts -85 ticks at 110.08; Dec Bunds -68 ticks at 113.05.
Euro Stoxx 50 index -0.6% at 3,234; FTSE 100 Index -1.25%; CAC 40 Index -1.2%
and DAX Index -2%.
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