- Will $180B do the trick? The world's central banks unveiled an initiative to flood global money markets with dollars, in the hopes of pumping liquidity into frozen short-term lending. The U.S. Fed increased its dollar swap line with foreign CBs by $180B - $60B of which will be funnelled to the ECB, $60B to the BoJ, $40B to the BoE and $10B to the Bank of Canada. In an expensive game of musical chairs, banks have become increasingly wary of lending one another - with each worrying it'll be caught with outstanding loans when the music stops. On Wednesday, the cost of insuring U.S. government debt against default soared to new records, as did three-month inter-bank loan rates. In overnight trading, the cost of borrowing dollars (Libor) tumbled 1.19% to 3.84% as markets welcomed the liquidity boost.
- Wachovia, others sniff out Morgan. Morgan Stanley (NYSE:MS) is in talks to sell itself to Wachovia (NASDAQ:WB), sources say, after shares fell 24% Wednesday. Just 10 days ago, CEO John Mack said he was not thinking about selling the firm. Other suitors may include HSBC (HBC), Banco Santander (STD), Nomura (NYSE:NMR), Chinese Citic Bank, and Bank of New York Mellon (NYSE:BK). It may, of course, decide to stay independent - especially if the Fed's new measures serve to calm frazzled markets. In a Wednesday internal memo, Mack addressed employees: "What's happening out there? It's very clear to me -- we're in the midst of a market controlled by fear and rumors, and short sellers are driving our stock down." Meanwhile rival banks including Deutsche Bank (NYSE:DB), UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) are working overtime to snatch up MS's prime-brokerage business from hedge funds.
- Stalking WaMu's deposit base. Sources say three banks - JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) - may bid for parts or all of troubled U.S. savings and loan WaMu (NYSE:WM). Bank deals are happening fast and furious, spurred by the need to consolidate to overcome a global credit crunch, and by shares that trade at unprecedented low levels. WaMu's market cap is down 85% on subprime losses. Potential buyers are unlikely to take on its mortgage-related investments, which the bank estimates will lose $19B over coming years, but are covetous of its 2,300 branches and $143B in deposits. On Wednesday, TPG - which led a $7B cash infusion at WaMu in April, waived its right to increase its stake, removing a potential roadblock.
- British banks bond. Lloyds TSB (NYSE:LYG) agreed to buy HBOS, the U.K.'s largest mortgage lender, for £12.2B ($22.2B). HBOS lost half its market value this week on capitalization concerns following Lehman's (LEH) failure. Until recently, U.K. regulators would have stonewalled a merger. Now, in fear of outright failure, the deal will likely be fasttracked. Lloyds fell 5% in London trading, but analysts were unphased: "They are buying a bank at significantly below its tangible book value," one London-based analyst said. "In the coming weeks it will prove to be a highly attractive deal."
- SEC vs. naked shorts, take II. The SEC issued new rules aimed at thwarting short-selling abuses, covering all publicly traded companies. Starting Thursday, traders who short shares must deliver the securities within three days. Separately, SEC Chairman Christopher Cox wants to require hedge funds and other large investors to disclose their short positions daily. The combination of trading and disclosure rules hopes to address growing concern short sellers are intentionally deflating share prices in target stocks. "This needed to be done yesterday," ABA's Edward Yingling said. "We're in a very dangerous situation."
- SanDisk buyout a thorny proposition. Notwithstanding SanDisk's (SNDK) rejection of its $5.8B unsolicited offer, Samsung's proposal will likely face close regulatory scrutiny - due to the combo's strong position in the NAND flash memory market, in addition to U.S. national security concerns. Another show-stopper could be SNDK's reliance on Toshiba (OTCPK:TOSBF) - a bitter Samsung rival - for its NAND cartridges. Samsung is the #1 global NAND flash maker, followed by Toshiba, then SanDisk.
- CDS costs recede. The cost of insuring banks' debt, a.k.a. credit-default swaps, tumbled overnight on news of the central-bank liquidity injection, and word Morgan Stanley (MS) may merge with Wachovia (WB).
- Gold rush. Gold futures soar another 4% overnight (high: $897.30) after gaining 11%+ Wednesday as investors finally remember their long-lost safehaven from market jitters. "Conditions are still supportive for gold and it's very possible to see gold over $1,000 again," Fortis precious-metals trader Wallace Ng said.
- AIG takeover. Some details of the government's AIG (NYSE:AIG) bailout emerge: Directors say they were 'stunned' and 'violated' by the Fed's onerous proposal - an $85B bridge loan in exchange for surrendering control of the company, and an order to replace CEO Robert Willumstad. Ultimately, they bit the bullet: "We are faced with two bad choices," Willumstad told his board. "File for bankruptcy tomorrow morning or take the Fed's deal tonight." Much more here.
- The U.S. current-account deficit increased to $183.1B in Q2 from $175.6B (revised) in Q1. Consensus was for $180B.
- August housing starts came in at 895,000 - a 17-year low and a full 55,000 below consensus, sending homebuilder shares diving. streetTRACKS SPDR Homebuilders ETF (NYSEARCA:XHB) was off 7.7%. Much-watched permits came in at 854K vs. July's revised 937K.
- MBA Mortgage Applications surged 33.4% vs. a week ago, during which they grew 9.5%. 30-year fixed rate mortgages averaged 5.82%, down from 6.06%, as the GSE rescue and shrinking Treasury yields pressured rates. "Renewed financial concerns should keep long-term Treasury yields low and translate to lower mortgage rates in the near term despite some widening in mortgage spreads. We expect to see meaningful increases in mortgage demand in coming weeks on both the purchase and refi sides," MBA's Orawin Velz said.
- Russia markets still locked. Stock trading in Russia remains suspended as the government tries to stem the plunge of share prices. Russia central-bank officials also announced measures to ease the strain on banks, including reducing reserve requirements by 4% - freeing up 300B rubles ($11.8B). "We hope that banks will spend these funds not on long-term crediting or other kinds of crediting of clients," chairman Sergei Ignatiev said, "but on the maintenance of the necessary volume of their liquidity and on making settlements."
Earnings: Thursday Before Open
- ConAgra Foods (NYSE:CAG): FQ1 EPS of $0.27 beats by $0.03. Revenue of $3.07B vs. $2.83B. [PR]
- FedEx (NYSE:FDX): FQ1 EPS of $1.23 in-line. Revenue of $9.97B (+8.4%) in-line. Sees FQ2 EPS of $1.40-1.60 vs. $1.35, and full-year EPS of $4.75-5.25 vs. $5.18. Shares +1.6%. [PR]
- Pier 1 Imports (NYSE:PIR): Q2 EPS of -$0.34 misses by $0.10. Revenue of $320.5M (-7.0%) vs. $325.3M. [PR]
Earnings: Wednesday After Close
- CKE Restaurants (CKR): Q2 EPS of $0.23 beats by $0.03. Revenue of $352.5M in-line. [PR]
- Dress Barn (DBRN): FQ4 EPS of $0.34 beats by $0.04. Revenue of $382M vs. $372M. [PR]
- Herman Miller (NASDAQ:MLHR): FQ1 EPS of $0.60 beats by $0.05. Revenue of $479M vs. $489M. [PR]
- ProLogis (NYSE:PLD): Sees 2008 FFO of $4-4.35 vs. a prior $4.65-4.85 and $4.75 consensus. Sees 2009 FFO of $4.10-4.35 vs. $4.91 consensus. [PR]
- Asia markets closed in the red Thursday. Nikkei -2.22% to 11,489. Hang Seng -0.03% to 17,632. Shanghai -1.72% to 1,896. BSE +0.4% to 13,316.
- Europe is higher at midday. London +1.7%. Paris +1.3%. Frankfurt +1.3%.
- U.S. futures are broadly higher in overnight trading. Dow +0.92%. S&P +1.29%. Nasdaq +1.02%. Crude +2.4% to $99.32. Gold +4.9% to $881.50.
Thursday's Economic Calendar
8:30 Jobless Claims
10:00 Leading Indicators
10:00 Philadelphia Fed Survey
10:35 EIA Natural Gas Report
4:30 PM Money Supply
- Notable earnings before Thursday's open: CAG, CCL, FDX, PIR
- Notable earnings after Thursday's close: CTAS, ORCL, PALM
Seeking Alpha editor Rachael Granby contributed to this post.
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