The global financial crisis intensified overnight, with a major UK bank forced into a rescue by merging with a rival, two big US financial groups were looking to be taken over and the Russian stockmarket and financial system froze.
Bloomberg reckoned some $US3.6 trillion of value has been wiped from stockmarkets: the loss in value in credit markets is even greater.
In Australia the ASX is down 141 points, 2.9%, the lowest since December 2005. The Australian dollar edged higher, past 79 US cents as investors climbed into gold and oil. Macquarie group is being hammered and the $US150 billion bid by BHP Billiton for Rio Tinto was looking less and less likely. It’s not a case of the bailout of AIG failing: it’s a case of the credit crunch continuing to power its way through all parts of the markets, destroying leverage, asset values and whoever is holding them.
In the US, the main market regulator, the SEC revealed it was considering forcing all hedge funds with $US100 million or more in shares to reveal their short positions in stocks on a daily business, a move which naturally had hedge fund operators up in arms as they continued to drive much of the carnage in financial stocks. The SEC also brought in regulations that force stocks to be actually transferred when borrowed. A headline in the Financial Times summed it all up — Panic grips credit markets.
Cross border lending dried up as yields short term US Government securities fell to their lowest levels (0.4% for three month T-notes) since the dark days of 1941, banks stopped lending across the Atlantic, forcing the short term LIBOR rate in London up to near record level. Gold and oil surged as investors sought any haven away from the stockmarkets and financial stocks in particular.
Gold had its biggest one day rise in 26 years as it surged up $US87an ounce to $US882. Investors chased oil as a haven of safety, forcing its price up more than $US6 a barrel to over $US97 and hating this week’s sharp slide. Oil isn’t the most stable of assets — it can evaporate, breakdown and be burned. Investors don’t care at the moment about those niceties.
Wall Street fell by over 4%, our market is off close to 4% and interest rates are volatile as the Reserve Bank pumped another $A3 billion into the money markets this morning to try and ease the squeeze and allow cash rates to trade around the 7% official mark. That took the RBA’s support for the week to over $11 billion as it floods the markets with more money than the system needs each day.
The exchange settlement account was boosted to more than $6.1 billion overnight Wednesday, the highest since late last December as banks maintained enough liquidity in the event of a foreign bank failing during the night. It is a sign of just how fragile the confidence levels are at the moment.
In Tokyo this morning the Bank of Japan injected $A18 billion in extra funds into the financial system, to take its total support this week to more than $A80 billion.
In the US media reports said the second last independent bulge bracket investment bank, Morgan Stanley, was hawking itself to a Chinese wealth fund, HSBC or a couple of smaller US banks. It is now clear Morgan Stanley is looking to follow Merrill Lynch in finding the safe arms of larger better capitalised commercial bank.
Washington Mutual, the troubled US Savings and Loan was reportedly setting up a process to be sold. It has $US143 billion in retail deposits. Big shareholders who had pumped in $US7 billion in May, relaxed restrictions that prevented the group from selling itself without paying a $US500 million financial penalty. It is said to be talking to the likes of JPMorgan and Citigroup (which itself has been badly crunched).
In London HBOS, the country’s biggest home lender and a major savings bank, was forcibly merged into Lloyds TSB and in Russia, the stockmarket was shut for a third day in a row, but this time didn’t re-open as rumours swirled of a medium sized broker in trouble and a bank reportedly failed to settle some payments.
Rupert Murdoch‘s exiting of his Moscow outdoor advertising business in a sale to a French group will be much tougher as a result.
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