Weak U.S. Economic Data; Merrill Loss

123jump.com Staff
16 Oct, 2008
New York City

U.S. stocks edge lower. Merrill Lynch reported its fifth quarterly loss. Peabody surged on earnings and eBay estimated lower fourth quarter revenue. Switzerland offered $60 billion bailout package to UBS to bolster its balance sheet. Credit Suisse plans to raise $10 billion.

[R]10:20AM New York – U.S. stocks edged lower. Consumer prices held steady in September but industrial production fell. Switzerland offers $60 billion bailout to UBS. Credit Suisse raises Sfr 10 billion.[/R]

U.S. stocks rebounded at the opening on flat consumer price index data for September and $60 billion bailout Swiss bailout package for UBS. The rally failed to take hold after the release of industrial production data.

Economic Review

Consumer Price Index was flat in September after falling 0.1% in August. For the twelve months ending in September the index rose 4.9% after 5.4% rise in the previous 12-month period.

Industrial production declined in September by 2.8% after falling revised 1% in August, according to the Labor Department data. The hurricanes and strike at Boeing Company contributed to the decline. The largest decline in 24 years was largely on the 2.6% fall in factory output.

Earnings Review

Peabody Energy ((BTU)) rose 20% or $4.80 to $29.02 after it reported third quarter earnings of $1.38 a share on higher prices for metallurgical coals and more volume sales.

eBay declined 9% or $1.39 to $8.87 after the Internet auction, telephony and ecommerce site lowered fourth quarter revenue forecast to between $2.02 and $2.17 billion, lower than $2.18 in the year ago period. The auction volume fell 1% from a year ago in the third quarter, first decline in since company began.

Merrill Lynch ((MER)) reported third quarter net loss surged 110% to $5.15 billion or $5.58 a share compared to $2.24 billion or $2.82 a share. Revenue at the brokerage unit fell 8% to $3 billion and the broker took a write down of $5.7 billion in CDO portfolio and $3.8 billion linked to Fannie and Freddie issues loan portfolio and real estate related assets.

John Thain, chief executive of the company was forced to sell Merrill to Bank of America after he miscalculated the extent of the mortgage market related losses. Thain went on to say in March of this year on the television show Nightly Business Report on PBS that Merrill has very insignificant exposure to the subprime linked loans after the release of first quarter results. Since then Merrill has declared losses for three quarters in a row and in all fifth sequential quarterly loss.

UBS Bailout

Switzerland acted today to provide capital and takeover risky bonds from UBS. This week the central bank in coordination with the Fed agreed to provide unlimited dollar liquidity to local institutions, in preparation of the current bailout. UBS will transfer nearly $60 billion of illiquid, subprime-linked mortgage securities to a fund controlled by the Swiss National Bank.

The SNB will loan $54 to the new fund that will hold the assets and will receive a share in profit on the sale of securities and interest rate of 2.5% above the one-month London Interbank Offered Rate.

UBS AG will also sell Sfr 6 billion in mandatory convertible notes with 12.5% interest rates which will convert to 9.3% stake in the private banking group.

Marcel Rohner, chief executive in a presentation to investors said that after the transfer the bank will hold $4.7 billion of loans to leveraged buyouts and $4.3 billion contracts linked to bond insurance.

Credit Suisse Raises Capital

Credit Suisse reported a loss of Sfr 1.3 billion for the quarter ending in September on a loan loss of Sfr 2.4 billion in leveraged loans. The banker plans to sell Sfr 3.2 billion in shares, Sfr 1.7 billion in bonds and Sfr 5.5 billion in hybrid bond that is part of its reserve capital. In all the investment banker will raise from the existing shareholders a total of Sfr 10.4 billion.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 1,089.02 or 11.41% to 8,458.45, Hang Seng index in Hong Kong decreased 767.78 or 4.80% closed to 15,230.52. CSI 300 index in China lower 93.45 or 4.88% closed to 1,820.90. ASX 200 index in Australia decreased 286.60 or 6.67% to close 4,013.40. The KL Composite index in Malaysia lower 29.86 or 3.14% closed to 920.02.

The Kospi Index in South Korea decreased 126.50 or 9.44% to close at 1,213.78. SET index in Thailand closed lower 3.77 or 0.78% to 477.73, and JSE Index in Indonesia decreased 57.16 or 3.76% to 1,463.25. The Sensex index in India decreased 227.63 or 2.11% closed to 10,581.49.

Europe Markets Review

In London FTSE 100 Index traded lower 103.40 or 2.53% to 3,976.10, in Paris CAC 40 Index decreased 107.29 or 3.17% to 3,273.78 and in Frankfurt DAX index traded lower 89.37 or 1.84% to 4,772.26. In Zurich trading SMI decreased 58.66 or 0.99% to 5,852.51.