Date registered: Apr 2004
Location: The BlueGrass State
Mentioned: 0 Post(s)
Quoted: 2 Post(s)
Yeppers, JP Morgan Chase just bought Bear Stearns for $2 per share. In January 2007, BS was at $170.
And the Dominoes are starting to look a bit shaky.
This was written just before the announcement.
Wall Street waits for the next domino to fall
By Francesco Guerrera and Michael Mackenzie in New York
Published: March 16 2008 20:22 | Last updated: March 16 2008 20:22
A big Bear Stearns-shaped cloud will be hanging over Wall Street this week.
As investment banks including Goldman Sachs, Lehman Brothers and Morgan Stanley kick off the first quarter reporting season, investors’ already-frayed nerves have been strained to breaking point by the crisis surrounding Bear.
Bankers say last week’s near-collapse of one of the most feared and influential US brokerage firms could not have come at a worse time for a sector battered by bad news and huge losses.
“Banks were going to report bad results anyway, but the Bear situation will put further pressure on share prices and management,” says a senior Wall Street banker.
“Short-sellers could have a field day with bank stocks this week,” he said.
The S&P 500 index of financial stocks has already lost one fifth of its value this year and shares in many investment and commercial banks, such as Citigroup, Morgan Stanley and Lehman Brothers have shouldered even bigger losses
With Bear now on life support in the form of emergency funding from the Federal Reserve and JPMorgan – and likely to be bought or liquidated in the next few days – the hunt is on for the next piece to fall in Wall Street’s shaky domino line.
“The most pressing question on investors’ minds: who’s next?” said Jeffrey Rosenberg, head of credit strategy at Banc of America Securities. Analysts expect US banks to report some $50bn in additional losses in the first half of this year – in addition to the $100bn-plus in writedowns announced so far – as key markets such as leveraged loans, home equity and real estate continued to deteriorate.
Bear reports its own first-quarter results on Monday but the numbers are likely to shed little extra light on the liquidity crunch that pushed it to the brink of disaster late last week. The crucial day in determining investors’ sentiment towards the financial sector will be on Tuesday, as both Goldman Sachs and Lehman Brothers report first-quarter earnings.
Lehman has been a focus of attention because it has a large fixed-income business and was a major player in the market for mortgage-backed securities. Last week, in a sign of investors’ rising concerns, the cost of buying credit insurance on Lehman jumped to a record.
However, on Friday, Lehman said it had closed a three-year unsecured credit line of $2bn from 40 banks. BofA analysts said that Lehman’s previous experience of enduring a liquidity crunch in 1998 “could mean it is better prepared to weather the current storm”.
Lehman is likely to report $500m in additional writedowns, mostly from its exposure to leveraged loans, according to Citigroup analysts. Goldman Sachs has fared better than most rivals during the credit crunch, partly because of its ability to hedge exposures to mortgage-backed and other subprime-related securities.
However, the first quarter of the year is expected to have been tough. Mike Mayo, an analyst at Deutsche Bank, is forecasting a $3.5bn writedown by Goldman during the period due to its exposure to leveraged loans and commercial mortgage-backed securities.
Being smart is knowing the difference, in a sticky situation between a well delivered anecdote and a well delivered antidote - bear.