Underperforming Banks and Thrifts Most Likely to Fail, ex-Bailouts

CyclePro has updated his list of banks and thrifts which he feels are most likely to fail. You can view his methodology here: CyclePro

The inclusion of Bank of America and Goldman Sachs among the big banks is surely a gutsy call. But remember this list is ex-bailouts and Federal support. Both banks seem to have reserved place settings at the public trough.

His analysis is always interesting, but alas like most good things infrequently available. We have it among the links on this site's sidebar.

His blog is worth watching, and scrolling down through prior posts to see some of the gems there. We have referenced his long term chart and analysis of the deflated DJIA before. Its a pretty grim picture.

Central Banks Soothe Nervous Markets

Kumbaya My Lord, Kumbaya

Someone's cratered Lord, Kumbaya

Need a Rate Cut Lord, Kumbaya

Oh Lord Kumbaya


ECB, Bank of England Join Fed in Soothing Markets After Lehman
By John Fraher

Sept. 15 (Bloomberg) -- The European Central Bank and the Bank of England joined the Federal Reserve in taking action to sooth financial markets spooked by Lehman Brothers Holdings Inc.'s bankruptcy filing.

The ECB said it awarded banks 30 billion euros ($43 billion) in a one-day money-market auction that was more than three times oversubscribed. The Bank of England loaned banks 5 billion pounds ($9 billion) for three days. Earlier, the Federal Reserve widened the collateral it accepts for loans to securities firms.

Stocks plunged and bonds surged after Lehman became the latest victim of a yearlong credit squeeze. Financial institutions worldwide have reported more than $500 billion in losses and writedowns and the credit-market turmoil has erased $11 trillion from global stocks in the past year.

``It remains to be seen whether today's operation will be sufficient to restore market confidence,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc. ``The ECB will likely wait for the U.S. open to consider more aggressive action. Key will be how credit and equity markets develop in the coming days.''

ECB President Jean-Claude Trichet told reporters in Frankfurt as he arrived for an award ceremony that he had nothing to add to today's statement. The ECB said it injected the funds at a marginal rate of 4.30 percent. The Swiss central bank offered liquidity through its overnight facility for the first time since Feb. 22.

The ECB and the Bank of England may nevertheless hold off cutting rates right away as they seek to curb inflation. The ECB has spent much of the past year arguing that it can use its money market operations to tackle the credit crisis and doesn't need to resort to rate cuts.

``Rate cuts are only likely to be forthcoming if financial markets melt down in the coming days or weeks,'' said David Mackie, chief European economist at JPMorgan Chase & Co. ``For the time being, European policy makers look like they will continue to hold the line on the separation of powers. At some point though, that line could be reached.''

The cost of borrowing on money markets may also jump. The so- called OIS spread, the gap between three month dollar funds and traders' bet on the Fed's daily effective federal funds will rate, widened to 105 basis points today, the most since Dec. 6. That compares with 87 basis points at the end of last week.

Story of a Firm Offer for Merrill Lifted Stock Index Futures Off Lows

No source and the companies refuse to discuss, but it looks a little more likely than it did two hours ago. Its hard to believe that the WSJ would print this as fact without qualification if they did not have it from good sources.

But then again....

Keep an eye on the progress with Lehman and Merrill, but don't forget about AIG and Washington Mutual, aka Fatman and Little Boy. And then there's Morgan Stanley and Goldman Sachs....

Wall Street Journal
Bank of America Reaches Deal for Merrill
By MATTHEW KARNITSCHNIG, CARRICK MOLLENKAMP and DAN FITZPATRICK
September 15, 2008

In a rushed bid to ride out the storm sweeping American finance, 94-year-old Merrill Lynch & Co. agreed late Sunday to sell itself to Bank of America Corp. for roughly $44 billion.

The deal, which was being worked out in 48 hours of frenetic negotiating, could instantly reshape the U.S. banking landscape, making the nation's prime behemoth even bigger. The boards of the two companies approved the deal Sunday evening, according to people familiar with the matter.

Driven by Chief Executive Kenneth Lewis, Bank of America has already made dozens of acquisitions large and small, including the purchase of ailing mortgage lender Countrywide Financial Corp. earlier this year. In adding Merrill Lynch, it would control the nation's largest force of stock brokers as well as a well-regarded investment bank.

A combination would create a bank of vast reach, involved in nearly every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, merger advice and wealth management.

It would also show how the credit crisis has created opportunities for financially sound buyers.At $44 billion, or roughly $29 a share, Merrill would be sold at about two-thirds of its value of one year ago, and half its all-time peak value of early 2007. Merrill shares changed hands at $17.05 each on Friday, after falling sharply in the wake of Lehman's looming demise.

"Why would Bank of America do this?" said analyst Nancy Bush at NAB Research LLC in Annandale, N.J. "Ken Lewis always likes to buy the biggest thing he can. So why not this? You are master of the universe, basically."

Bank of America and Merrill Lynch wouldn't comment on any discussions.

Merrill would give Bank of America strength around the world, including emerging markets such as India. And Merrill is also strong in underwriting, an area Bank of America identified last week at an investors' conference where it would like to be more aggressive. ...

AIG to Sell Assets, Seeks $40 Billion to Avoid Bankruptcy, Bridge Loan from the Fed

Yves Smith of Naked Capitalism tees this one up beautifully:

This is truly unbelievable. Even as little as a week ago, the idea that AIG, the world's biggest insurer, would go begging the Fed for help would have seemed daft. But that's now an element of the meltdown in progress.

And AIG is a major credit default swaps writer, bigger than Bear. If Bear could not be allowed to fail, AIG certainly can't go asunder. But how can the Fed extend a lifeline to a party it doesn't regulate, or even have as a counterparty? The Primary Dealer Credit Facility was a clever move, but was not in place soon enough to save Beasr. This is even more of a stretch, and on an even more pressured timetable.

AIG May Seek Help From Federal Reserve, WSJ Says
By Hugh Son

Sept. 14 (Bloomberg) -- American International Group Inc., the insurer seeking to stave off credit downgrades, may seek help from the Federal Reserve, the Wall Street Journal said.

The insurer has turned down a private-equity investment because it would have meant turning over control of the company, the Journal said on its Web site, citing unnamed people familiar with the situation.

Chief Executive Officer Robert Willumstad, 63, is under pressure to raise capital after three quarterly losses totaling $18.5 billion and a 79 percent stock slide this year. Investors are concerned the New York-based insurer can't raise enough cash to cushion against future writedowns from credit-default swaps, which are contracts AIG sold to protect fixed-income investors.

A ratings cut may have ``a material adverse effect on AIG's liquidity'' and trigger more than $13 billion in collateral calls from debt investors who bought the swaps, the insurer said in an Aug. 6 filing. AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps that may cause $4.6 billion in payments, AIG said.

AIG spokesman Nicholas Ashooh didn't immediately return a phone call seeking comment.

September 15, 2008
Rush Is On to Prevent A.I.G. From Failing
By GRETCHEN MORGENSON and MARY WILLIAMS WALSH
NY Times

The American International Group, the insurance company, is planning a major reorganization and a sale of its aircraft leasing business and other units to stabilize its finances, a person briefed on the company’s strategy said on Sunday.

A.I.G. became one of the focuses at an emergency gathering of Wall Street executives over the weekend, and was trying to arrange a capital infusion in the face of possible credit downgrades.

It was unclear whether A.I.G. would succeed in its capital search, but a person briefed on the discussions said it was seeking more than $40 billion even as it tried to sell assets to shore up its financial footing. Among the businesses likely to be sold is A.I.G.’s aircraft leasing business, the International Lease Finance Corporation. Founded in 1973, the business has nearly 1,000 planes in its fleet.

Investors, afraid that A.I.G. would have to absorb further write-downs in its already damaged mortgage securities and collateralized debt obligations, have driven down the company’s shares in recent days. The stock closed Friday at $12.14 a share, a decline of 46 percent for the week.

Several private equity firms were at A.I.G.’s headquarters in downtown Manhattan on Sunday, and may inject billions of dollars in capital into the firm, a person briefed on the matter said.

A.I.G.’s problems are not new. The company lost $13.2 billion in the first six months of 2008, largely owing to declining values in mortgage-related securities held in its investment portfolio and collateralized debt obligations it owns.

But the company’s outlook grew grimmer last week when Standard & Poor’s warned that it was considering downgrading the company’s debt as a result of further write-downs it might have to take....