Sunday, September 14, 2008

Weekend Wall Street turmoil: Merrill Lynch may be acquired; Lehman may be liquidated; AIG may be restructured


The Wall Street Journal print weekend paper yesterday was moderately alarming in its discussions of several major investment banks and insurance holding companies. The details of the printed stories were less disturbing than the headlines.

But Sunday afternoon, even as the Washington Redskins pulled out a win to redeem themselves at home and keep us distracted, the gremlins at WSJ were playing. Now the headline is “Will Street Firms Scramble to Avert Crisis.”

First, Bank of America may buy Merrill Lynch. (Is Bank of American buying everything? Remember when it was taken over and renamed by Nations Bank in Charlotte, NC, now apparently the banking center for the nation.) The WSJ article is subscription only, but CNN Money has a story here (as linked today from Yahoo!) There is some talk that a deal could be struck over the weekend. Lehman Brothers may be liquidated, as Barclays backed out of the supposed “private rescue” that the Treasury wanted to broker. The WSJ story (by Carrick Mollenkamp, Matthew Karnitschnig and Serena Ng) is available to the public on this item. Another WSJ preview (subscription) says that American International Group will announce a major restructuring Monday morning.

I am a retiree of ING, a competitor of AIG, and ING appears to be doing well. I’m watching their news closely, to see whether AIG’s problems and probable credit downgrade are specific to this one company. Right now, it seems so.

I also have a CMA and IRA portfolio with Merrill Lynch. The company’s website for account holders did not contain any new stories today yet. But previously the company has discussed the issue of the safety of consumer accounts. I wrote about that on this blog on July 17, 2008 (see Archives).

Lehman’s crisis may have been exacerbated by the way short selling has been practiced recently, another detailed WSJ story has reported.

CNN Money also offers a Fortune report by Allan Sloan and Roddy Boyd, "The Lehman Lesson: What went wrong with the storied investment-banking firm is a warning for all of Wall Street". That is, taking too many risks with its own money in an area that has much less regulation from the Fed than most people realize. The link is here.

CNBC reports that, without being purchased immediately, Merrill Lynch would be "attacked" by short sellers on Monday because it is next on the list. The short selling system, as it is designed, would appear to encourage instability, although that itself would make a good debate on policy.

Stay tuned to media reports, as more may be revealed this evening.

9 PM EDT

Home runs are flying out of the park. There is too much breaking news to go over here in detail. Merrill Lynch-BA is a done deal, forced by the Fed. AIG went to the Fed and demanded a bridge loan, an unprecedented move for a large insurance company. It's disturbing that an insurance company would do this (just to protect its credit rating). I don't know if this sets a precedent that could destabilize other companies in the industry, including one upon which I somewhat depend. Watch CNBC!

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