Sunday, October 5, 2008

Weekend Bailout/Merger/Banking Alert

Germany's Hypo Real will receive a new 50 billion euro "rescue package" after a bailout package negotiated last weekend failed to materialize.  The German government and the Bundesbank have claimed that Germany's second-biggest property lender is too big to fail.  Meanwhile, BNP Paribas will buy 75% of Fortis Bank Belgium from the government for 8.25 billion euros in stock and purchase the Belgian insurance operations.  BNP Paribas will also acquire 66 percent of Fortis's bank in Luxembourg.  
In the US, Citigroup and Wells Fargo spent the weekend in court battling over Wachovia, the US bank that was ordered to merge last weekend with a bank, any bank, just merge before the opening bell on Monday.  The FDIC threatened to seize Wachovia if a merger was not forthcoming.  If you missed the action, here's a quick summary:  Citi bid $2 billion for parts of Wachovia on Monday.  Wells Fargo offered to pay nearly 7x Citi's bid on Friday for the entire bank.  This really pissed off Vikram Pandit so much that he filed suit against Wells Fargo.  He even called the Wall Street Journal and told them to replace the stock photo of him grinning like a loon with one where he looks angry, because he's not fooling around.  It appeared as if Citi won a victory in court on Saturday when it persuaded a New York state trial-court judge to extend the exclusivity agreement between Wachovia and Citigroup until Friday.  However, Sunday a state appeals-court judge overturned the extension of the exclusivity agreement.  Meanwhile, the Fed has jumped into the fray and asked the battling banks to make nice and work out a deal.  According to the Wall Street Journal, Citi and Wells are being asked to carve up Wachovia along geographic lines.  I would bet that a carving up of the bank will not pan out despite the Fed's best efforts and Wells will more than likely wind up owning Wachovia.
As an aside, I must note how amazed I am at how quickly the court system in America works when something "very important" is on the docket.  I spent six weeks serving as a juror on a very brutal murder trial this summer.  The murder happened in 2002 and it took six years to come to trial.  The prosecution had ample evidence for a conviction and the jury found the defendant guilty.  During the six weeks of my service, the court never met on a Friday, much less the weekend.  So I have to ask, how did Wells Fargo and Citigroup get to argue their case over the weekend in two different court rooms?    
A weekend's worth of more bailout negotiations by banks and governments around the globe have only served to intensify fears over the soundness of the banking sector.  Markets that have opened are already falling again this Monday, while S&P futures point to a lower open in the US after a brutal week for equities last week.  The good news in all of this?  The short-sale ban expires on Wednesday, so investors can line up their orders for Thursday morning.  Longs have three more days to sell their stocks which makes me wonder if the market will go down more at the beginning of the week as longs try to front-run the shorts.  Furthermore, with hedge funds having their worst September ever, is there anyone left who can still afford to short?  

1 comment:

Dr. John Maszka said...

This bailout is just one more example of the indivisible handjob stroking irresponsible CEOs and CFOs with billions so that they can run the American economy even further into the ground. So much for Keynesian economics. If the goal is to stimulate the economy, why not give the money directly to the American taxpayers? We could do twice as much good for the economy by giving half as much money directly to hardworking American taxpayers. A bird in the hand is worth two in the bush administration.