Lehman Bros Leads Banks Lower

Elena
28 Aug, 2007
New York City

Wall Street declined at opening for a second day Tuesday, with investors nervous before a likely drop in consumer confidence and commentary from the Fed Reserve. Market sentiment was additionaly hurt by losses in the shares of three giant investment banks. Citigroup, Lehman Bros and Bear Stearns declined after Merrill Lynch cut its rating on the stocks to neutral from buy, citing the impact of debt market exposure.

[R]09:45AM Wall Street opened lower ahead of consumer-confidence data. Bank stocks weighed.[/R]

Wall Street declined at opening for a second day Tuesday, with investors nervous before a likely drop in consumer confidence and commentary from the Fed Reserve. The FOMC is expected to release the minutes of its Aug. 7 policy-setting meeting, which could give a clue about the central bank's intentions before its next meeting in September.

At the last meeting, policymakers kept rates steady and pointed out that inflation remains its main concern despite credit-market turmoil and slowing housing market. The Fed has recently lowered the discount rate, the interest it charges banks.

Market sentiment was additionally hurt by losses in the shares of three giant investment banks. Citigroup ((C)) dropped 4.1%, Lehman Bros ((LEH)) fell 2.3% and Bear Stearns ((BSC)) declined 2.3% after Merrill Lynch cut its rating on the stocks to neutral from buy, citing the impact of debt market exposure. Street ((STT)) was another notable mover in the sector, falling 3.3% on a report it has exposure to $22 billion of asset-backed commercial paper conduits

In earnings-related news, Coronthian College ((COCO)) lost 0.4% after it reported a lower Q4 profit. Borders Group ((BGP)) is also expected to report a Q2 loss, due to stiff competition from rivals including Wal-Mart Stores and Amazon.com.

In the first hour of trading, the Dow Jones industrial average fell 69.58, or 0.52% to 13,252.55. The Standard & Poor's 500 index was down 10.23, or 0.70%, at 1,456.56, and the Nasdaq composite index shed 19.20, or 0.75%, to 2,542.05.


[R]09:00AM U.S. stock futures pointed to lower opening ahead of data.[/R]

U.S. stock futures looked inclined to lower opening Tuesday, reflecting nervousness ahead of consumer-confidence data and fears that financial markets turmoil will spill over into the broad economy. The Conference Board''s gauge is expected to have dropped sharply. A broker downgrade of three giant investment banks further weighed sentiment down.

Citigroup ((C))) lost 1.2%, Lehman Bros ((LEH)) dropped 2.6%, and Bear Stearns ((BSC)) slipped 2.9% after Merrill Lynch ((MER)) cut its rating on the stocks to neutral from buy, citing the impact of debt market exposure.

The broker said Bear Stearns and Lehman are dependent on the debt markets to a larger extent than other firms. Consequently, earnings are likely to suffer from a slowdown in securitization and mortgage business. Merrill cut its 2008 profit outlook for Lehman by 22% and for Bear Stearns by 16%. The broker cut its earnings forecast for Citigroup by 5% only as the group''s broader business mix is expected to soften the earnings shortfall.

Among other pre-market highlights, State Street ((STT)) fell 2.8% on a report it has exposure to $22 billion of asset-backed commercial paper conduits, the highest exposure to conduits of any European or American bank.

In merger-and-acquisitions news, PolyMedica ((PLMD)) climbed 14% after MedcoHealth Solutions ((MSH)) agreed to buy it in a $1.5 billion all-cash deal. Companies expected to release quarterly earnings included Borders ((BGP)) and Corinthian Colleges ((COCO)). S&P 500 futures fell 6.7 points at 1,463.10 and Nasdaq 100 futures declined 7.5 points at 1,943.00. Dow industrials futures fell 60 points.


[R]8:00AM MedcoHealth Solutions agreed to buy PolyMedica for $1.5.[/R]

MedcoHealth Solutions ((MHS)), pharmacy benefits management company announced Tuesday it will acquire diabetes treatment supplier PolyMedica Corp. ((PLMD)) in a $1.5 billion cash deal, or $53 per share. The purchase price represents a 17% premium to PolyMedica''s closing stock price Monday.

The transaction, which is expected to complete late this year, was unanimously approved by the boards of both companies. It is also subject to the approval of PolyMedica shareholders and other customary closing conditions. Lazard served as financial advisor to Medco, while PolyMedica received financial advice from Deutsche Bank Securities.

The combined company, Medco-PolyMedica, will serve 3.8 million diabetes patients under treatment. PolyMedica serves nearly 1 million diabetes patients through its Liberty Healthcare division. The company said that it will retain its patient engagement and service model along with its Liberty brand. MedcoHealth expects the transaction will slightly contribute to its earnings in 2008.