- Buffett to the rescue. Goldman Sachs (NYSE:GS) gets a vote of confidence in the form of a $5B investment from Warren Buffett's Berkshire Hathaway (BRK.A) in exchange for perpetual preferred stock with a 10% dividend. Berkshire will also receive warrants to buy $5B of common stock at $115/share at any time during the next five years, which already nets Berkshire a $437M paper profit from yesterday's $125.05 close. Goldman, which will try to sell at least $2.5B in common stock to the public, saw its shares jump 7.8% in after-hours trading.
- Sumitomo may join peers with Goldman stake. Japanese media say Sumitomo Mitsui Financial Group [SMFG] plans to take a stake of 'several percent' in Goldman Sachs (GS), investing up to $2.8B; the two have a long-standing alliance. However a source familiar with the matter says that while SMFG would consider an injection if asked, no request has been made. Earlier this week, Mitsubishi UFJ Financial Group (NYSE:MTU) agreed to pay up to $8.5B for a stake in Morgan Stanley (NYSE:MS), while Nomura (NYSE:NMR) bought Lehman's Asia and European operations.
- Lawmakers uneasy about Paulson's plan. Congress had promised quick, bipartisan approval for the Treasury's $700B rescue plan but the first day of Congressional testimony yesterday made clear the plan has opponents on both sides of the political aisle and approval will be anything but speedy. Democratic leaders want to include homeowners support and capped executive pay, and are weighing possible revisions, including limiting the rescue to an initial $150B or preventing the Treasury from using the full $700B before Pres. Bush leaves office in January. Republican leaders, concerned about a sky-high budget-deficit, say serious questions remain and refuse to simply "rubber-stamp" the bill. With elections six weeks away, many lawmakers are hesitant to back a Wall Street bailout that a majority of Main Street voters don't support.
- An uphill Hill fight. Facing broad skepticism in Congress, Treasury's Paulson and the Federal Reserve's Bernanke stressed the critical nature of an expedient rescue plan, with Paulson saying the bill needs to be passed this week. Bernanke warned that failure to act could push the economy into a recession, and already-fragile markets could become even less stable. Bernanke admitted that the "best design" for executing a rescue is still unknown, but Paulson said the plan needs to be large, loosely restricted and intentionally vague to have maximum impact on the economy. Meanwhile, the dollar continued to fall against the euro and pound as the rescue plan delay fueled market uncertainty, and U.S. stocks sank in the afternoon. Both Paulson and Fed's Bernanke are scheduled to testify again today. [Read yesterday's testimonies - I, II]
- FBI launches subprime probe. In an investigation of the collapse of the subprime mortgage market, the FBI has begun reviewing 26 companies, including Fannie Mae (FNM), Freddie Mac (FRE), Lehman Brothers and AIG (NYSE:AIG), for possible signs of mortgage fraud. With over $500B in losses and writedowns for global financial firms, the FBI has been under pressure to hold companies accountable. FBI Director Robert Mueller testified in Congress last week that he would "pursue these cases as far up the corporate chain as necessary to ensure those responsible receive the justice they deserve."
- Yahoo rekindles AOL talks. Meeting for the first time in a long time, Yahoo's (NASDAQ:YHOO) board approved a new round of discussions with Time Warner's (NYSE:TWX) AOL. CEO Jeff Bewkes says he hopes to reach a decision on AOL's future soon, as the unit continues to weigh on TWX's performance. Still, new YHOO board member Carl Icahn seems fixated on a Microsoft (NASDAQ:MSFT) deal, telling CNBC last week Yahoo has "to do something with Microsoft or Google (NASDAQ:GOOG) is going to kill them." Some see Microsoft's recent $40B share buyback announcement as a signal to Yahoo that if it still wants to deal, now's the time.
- Bristol-Myers rebuffed, again. ImClone (IMCL) chairman Carl Icahn knocked Bristol-Myers (NYSE:BMY) improved bid of $4.7B, or $62/share, calling the $2/share bid increase "absurd." He reiterated that a large Pharma company is offering $70/share, subject to due diligence which will wrap up this Sunday.
- More global liquidity. The Federal Reserve pumped a combined U.S. $30B into Australia, Sweden, Denmark and Norway.
- BoJ injects $30B. The Bank of Japan offered to supply U.S. $30B to the short-term money market in one-month funds, the first time it has ever injected U.S. dollars. The move is intended to ensure liquidity after markets tightened following recent Wall Street upheaval, and comes after the BoJ's $60B swap agreement with the Fed last week.
- Retail sales weaken. ICSC retail chain-store sales fell 1% from a week ago, and gained 1.3% Y/Y. Concerns about the recent financial turmoil held back already-weak consumer spending. Redbook showed national chain store sales fell 1.2% in the first three weeks of September vs. the previous month, but gained 1.2% vs. a year ago.
- Investor confidence ebbs... The State Street Investor Confidence Index showed investor confidence at its third-lowest level in ten years. The September reading was taken before the $700B rescue plan was announced. It's unclear whether confidence will go up or down as Congress debates the terms of the rescue.
- ...as consumer confidence holds steady. ABC's Consumer Comfort Index remained at -41 this week. While no worse than last week's readings, it marks the 59th consecutive week of negative double-digits, and is a far cry from the 20-year average of -10.
- U.S. home values fall. Ofheo's House Price Index fell 0.6% in July, bringing the twelve-month total to -5.3%.
- Manufacturing drops. The Richmond Fed's Manufacturing Index fell to -18 in September from -16. Among the index's components, shipments were -3 to -16, new orders -1 to -23, and jobs -1 to -13.
- Recession hits Europe. Data released yesterday shows the Euro-zone has entered at least a technical recession with two quarters of GDP contraction, as private sector output shrank in September for the fourth month in a row. The survey data alone is consistent with stagnation but the results excluded hard-hit construction and retailing sectors.
Earnings: Tuesday After Close
- Worthington Industries (NYSE:WOR): FQ1 EPS of $0.94 beats by $0.39. Revenue of $913M (+20.3%) vs. $916M. [PR]
- Asia markets closed slightly up. Nikkei +0.2% to 12,115. Hang Seng +0.5% to 18.962. Shanghai +0.7% to 2,217. BSE +1.2% to 13,729.
- In Europe at midday, London +0.01%. Paris -0.2%. Frankfurt -0.1%.
- U.S. futures: Dow +0.6%. S&P +0.8%. Nasdaq +0.8%. Crude +2.2% to $108.98. Gold +0.4% to $894.50.
Wednesday's Economic Calendar
7:00 MBA Mortgage Applications
10:00 Existing Home Sales
10:00 Bernanke testifies on economy before Joint Committee
10:35 EIA Oil and Gas Inventories
2:30 PM Bernanke and Paulson testify on markets before Financial Services Committee
7:00 PM Fed's Lacker speaks on foreclosures
- Notable earnings after Wednesday's close: BBBY, NKE, PAYX, RHT
Seeking Alpha editor Eli Hoffmann contributed to this post.
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