Lehman Spillover; BASF Buys Ciba

123jump.com Staff
15 Sep, 2008
New York City

European markets participated in a global sell-off as the U.S. financial crisis broadens. Lenders, brokerage houses and other financial companies declined in Europe and UK. Lehman Brothers after seeking bankruptcy protection in the U.S. was forced out from energy and commodities tradig in London. Separately, BASF agreed to acquire Ciba for Sfr 3.45 billion.

[R]9:00PM Frankfurt, 4:00PM New York –Lehman bankruptcy, AIG liquidity crunch and a forced sale of Merrill Lynch dragged European and world markets lower. BASF agrees to buy Ciba at 32% premium.[/R]

Financial markets in Europe dropped as the news of Lehman Brothers bankruptcy stoked another wave of pessimism in the region and around the world. The U.S. financial crisis widened offered no signs of recovery as more U.S. companies are ensnared in the crisis.

Lehman Europe Grinds to Halt

The fallout for the investment bank, its employees and lenders was swift. Australian Securities Exchange dropped the bank from making markets in local securities, in Tokyo the regulator FSA ordered it to maintain assets in the country that at least matches with its local loans and in the UK, London Metals Exchange, ICE Futures Europe and Liffe commodities exchange suspended Lehman from trading. The clearing firm LCH.Clearnet Group declared Lehman subsidiary as a defaulter and prevented it from participating any future trades.

Weekend Maneuvers

The regulator and executives of banks and brokerage companies gathered this weekend to discuss and resolve the fast developing crisis that is already affecting beyond its national borders. Merrill Lynch over the weekend, in what appears to be a forced sale, agreed to sell the company at a discount to Bank of America in stocks deal that involved no cash. Merrill only few months ago had offered a healthy outlook for its financial future and raised several billion dollars by selling securities at $28 and earlier in the fourth quarter of last year at $48.

AIG Struggles, Seeks Cash

AIG, the largest U.S. insurance company by the assets, is facing liquidity crisis and seeking $20 billion emergency cash and is looking to sell $20 billion of assets. The New York State Governor allowed the insurer to seek capital from its subsidiaries to ride over the liquidity crunch. AIG plunged 50%.

BASF Buys Ciba

BASF agreed to pay Sfr 3.45 billion or $3.12 billion in cash for Ciba Holdings AG or Sfr 50 for each share of Ciba. The offer values the company stock at 32% premium from the Friday closing price. The deal with two specialty chemical companies will create a world leader in plastic additives and second largest in pigments and dyes market. In July, Dow Chemical purchased Rohm & Haas at $19 billion with investment from Warren Buffet controlled Berkshire Hathaway.

European Market Movers

Of the 102 stocks in FTSE 100 index, 89 declined, 12 rose and 1 was unchanged. Friends Provident led the decliners in the index with a loss of 18% followed by declines in HBOS plc of 17.6%, in Kazakhmys of 14%, in ICAP plc of 11% and in Cairn Energy of 10.6%.

Capital Group led the gainers in the FTSE 100 index with a rise of 2.4% followed by gains in Thomas Cook Group of 1.9%, in Carnival plc of 1.6% and British Airways of 1.4%.

Of the stocks in DAX 30 index, 4 gained and 26 declined. Commerzbank AG led the decliners in the index with a loss of 9% followed by declines in Deutsche Bank of 8.3%, in Allianz Bank SE of 7.2%, in Deutshce Postbank of 7.1% and in Deutsche Telekom of 5.4%. SAP led the gainers in the index with a rise of 2.4% followed by Bayer with a gain of 2.2%, Henkel of 1.7% and Adidas AG of 0.9%.

Banks in London and in Europe dropped sharply. Barclays dropped 13% to 303 pence, Royal Bank of Scotland declined 13% to 203.75 and HBOS plc plunged 27% to 207 pence.

Mining companies in London fell as copper, aluminum, zinc and lead prices declined in the region. Copper dropped 3%. BHP Billiton dropped 5.3% to 1,429 pence, Anglo American declined 6% to 2,355 pence and Rio Tinto plc fell 7% to 4,194 pence. Kazakhmys plc fell 14% to 780 pence and Vedanta Resources plunged 5.8% to 1,492 pence.

Retailer J Sainsbury declined dropped 3.8% to 351 pence after its chief executive commented to Financial Times that consumer sentiment is weakest in recent times.

Europe Markets Review

In London FTSE 100 Index closed lower 212.50 or 3.92% to 5,204.20, in Paris CAC 40 Index decreased 163.69 or 3.78% to close at 4,168.97 and in Frankfurt DAX index lower 170.73 or 2.74% to close at 6,064.16. In Zurich trading SMI decreased 276.39 or 3.83% to close at 6,939.11.