Goldman to Raise $10 Billion, AIG Falls

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

U.S. stocks trade sideways in the morning as financials got a boost after Warren Buffett purchased $5 billion preferred stock. AIG signed $85 billion loan that pays interest even when the credit facility is not used. The Fed offered $30 billion of liquidity to Australia, Norway, Sweden and Denmark.

[R]9:45AM New York – U.S. stocks trade sideways after lawmakers expressed skepticism and sought more details from the Treasury secretary and Fed chairman.[/R]

U.S. stocks edged higher in the morning after Warren Buffett decided to purchase preferred stocks from Goldman Sachs. The deal between the legendary investor and the recently converted to a depository institution endorses the view held by many that Goldman is likely to survive the current credit market crisis.

Berkshire Hathaway, controlled by Warren Buffett will invest $5 billion in the bank in exchange of preferred shares that will pay 10% dividend and warrant that can be exercised in five years for additional purchase of $5 billion of stock at a strike price of $115 a share.

Goldman on the back of the deal increased its capital raising plan to $10 billion from $7.5 billion. The deal news sent the stocks of financial companies higher. Goldman Sachs ((GS)) added $3.09 to $128.17 and Morgan Stanley ((MS)) increased 60 cents to $28.66.

Federal Reserve Bank added dollar liquidity by arranging $30 billion in currency swap lines with central banks of Australia, Denmark, Sweden and Norway. These new facilities will offer liquidity for as much as $10 billion each by the Reserve Bank of Australia and the Sveriges Riksbank and in amounts of up to $5 billion each by the Danmarks Nationalbank and the Norges Bank.

The $30 billion will be in addition to the $247 billion previously authorized temporary reciprocal currency arrangements with other central banks that includes $110 billion with European Central Bank, $60 billion with Bank of Japan, $40 billion with Bank of England, $27 billion with Swiss National Bank, and $10 billion with Bank of Canada.

AIG ((AIG)) signed with the Federal Reserve Bank of New York for a two year loan of $85 billion at interest rate of 3-month LIBOR plus 8.5%. The company will also pay a loan fee of 2% of the total facility and will also pay 8.5% interest on the undrawn amount.

Contrary to what was reported earlier in the media, the insurance company will issue convertible preferred share to the U.S. government and not the warrant to purchase 79.9% of the company in exchange for the debt.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed higher 24.44 or 0.20% to 12,115.03, Hang Seng index in Hong Kong increased 89.14 or 0.47% closed to 18,961.99. CSI 300 index in China higher 15.38 or 0.72% closed to 2,138.85. ASX 200 index in Australia increased 58.40 or 1.19% to close 4,981.90. The KL Composite index in Malaysia higher 2.22 or 0.22% closed to 1,028.40.

The Kospi Index in South Korea increased 14.61 or 0.99% to close at 1,495.98, SET index in Thailand closed lower 12.18 or 2.00% to 620.43 and JSE Index in Indonesia increased 10.45 or 0.56% to 1,883.55. The Sensex index in India increased 122.21 or 0.90% closed to 13,692.52.

Europe Markets Review

In London FTSE 100 Index traded lower 24.20 or 0.47% to 5,111.90, in Paris CAC 40 Index decreased 11.70 or 0.28% to 4,128.12 and in Frankfurt DAX index traded lower 0.07 or 0.00% to 6,068.46. In Zurich trading SMI increased 25.35 or 0.37% to 6,830.88.