Monday, September 15, 2008

Monday Morning Meltdown

How the day ended

A 500 point drop. The worst drop since 2001
Now...about the CEO
So how does an 158 year old business go from a record net profit in 2007 to a bankruptcy in 2008.
Dow Jones 1 Year Chart
Lehman Brothers 1 Year Chart

Well it's another Black Monday at least as far as the markets are concerned. Triggered by Lehman Brother's inability to find a buyer and subsequent filing for Chapter 11 the Dow is down around 300 points.
In the past 15 months, Merrill and Lehman have both had tens of billions of dollars worth of risky, hard-to-sell assets carried on balance sheets that were piled high with debt. When the credit crunch hit in mid-2007, the assets kept deteriorating in value and couldn't easily be sold, eating into both firms' capital cushions. Recently, Lehman's balance sheet topped $600 billion and Merrill's $900 billion.

Meanwhile Merrill Lynch, also not in stellar shape, is being bought by Bank of America.

The deal shows how the credit crisis has created opportunities for financially sound buyers. At $50 billion, Merrill is being sold at about two-thirds of its value of one year ago and half its all-time peak value of early 2007.
"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."
Goldman Sachs and Morgan Stanley aren't going bankrupt but...
Both firms are due to report their fiscal third-quarter results in the next few days and are expected to try to make the case that they're very different from Lehman and Merrill. Analysts are expecting each to stay in the black but are bracing for write-downs of $1 billion to $2 billion each at Goldman and Morgan Stanley.
And the good news for the day...
Oil has dropped to below $97.

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