9/15T8:46 News and Notes

RCM Comments:

I'm not going to post the obvious news today. You can read it all over the web that Lehman Bros. is filing chapter 11 and the board of BAC has proposed the acquisition of MER. We will just have to wait an see if the shareholders are dumb enough to approved the deal. Don't forget this is the same board that eagerly proposed buying Countrywide Financial only a few months ago and that has been an albatross around the neck of BAC.

NEWS:

China cuts 1-year lending rate; reduces lending curb - Bloomberg.com
Bloomberg.com reports China cut interest rates for the first time in six years and reduced the amount of cash that some banks are required to set aside after economic growth slowed and amid tumult on Wall Street. The People's Bank of China cut the one-year lending rate to 7.20% from 7.47%, effective tomorrow, and lowered the reserve ratio by 1% point at some banks. The changes were in a statement on the central bank's Web site today. Cooling inflation has given the central bank more room to move, while global financial turmoil adds to the risk of bigger slowdowns in China's export markets. Policy makers want to protect jobs and prevent a slump in the world's fourth-biggest economy after four quarters of slowing growth.

Fed expands lending facilities in bid for stability - WSJ
The Wall Street Journal reports the Federal Reserve will expand its lending facilities in the wake of the likely demise of Lehman Brothers (LEH), taking a wider array of securities, including equities, as collateral for its loans, the central bank said late Sunday. After the collapse of Bear Stearns in March, the Fed said it would make short-term emergency loans to investment banks under a lending facility called the Primary Dealer Credit Facility. Late Sunday, the Fed said it would take a broader array of collateral from firms for the facility, including equities. Another facility, in which firms can swap risky securities for safe Treasury bonds, was also expanded. As of Wednesday, no firms had used the primary facility since July. But amidst the uncertainty created by the likely demise of Lehman Brothers and the deal for Merrill Lynch (MER) by Bank of America (BAC), there could be a rush to borrow from the Fed as trading resumes Monday. Bankers say the unwinding of Lehman Brothers' many trading positions could create a large need for short-term funds.

Emergency trading session aims to limit damage - Financial Times
Financial Times reports Wall Street dealers held an unprecedented emergency trading session yesterday afternoon in a frantic effort to prepare for the possible bankruptcy of Lehman Brothers (LEH) and limit the knock-on losses of its collapse on other financial institutions. After meetings with New York's Federal Reserve that ended in the early hours of Sunday, dealers decided to hold the special session so they could take on new positions offsetting the risks from derivatives trades they have with Lehman. The special afternoon trading session was scheduled to last two hours but was extended to four so banks could hedge in case Lehman filed for bankruptcy later in the day. The trades covered credit derivatives as well as other parts of the over-the-counter derivatives market. The contracts were due to expire at midnight last night if Lehman did not file for bankruptcy. The International Swaps and Derivatives Association said the trading was for "risk reduction" and would involve credit, equity, interest rate, foreign exchange and commodity derivatives. According to one industry executive briefed on events, meetings were held at the Fed until the early hours of yesterday morning to discuss steps the derivatives market should take to limit the damage of a default of Lehman. Talks resumed later in the day amid uncertainty on whether Lehman would find a buyer.

Full Consortium of commercial and investment banks takes series of actions to help enhance liquidity and mitigate volatility in capital markets
A group of commercial and investment banks, including Bank of America (BAC), Barclays (BCS), Citibank (C), Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), JP Morgan (JPM), Merrill Lynch (MER), Morgan Stanley (MS), and UBS (UBS), initiate a series of actions to help enhance liquidity and mitigate the volatility and other challenges affecting global equity and debt markets. Specifically, the banks are working together to do the following: First, to assist in maximizing market liquidity through their mutual commitment to their ongoing trading relationships, dealer credit terms and capital committed to markets. Second, to establish a collateralized borrowing facility, which ten banks (Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley, and UBS) have committed to fund for $7 bln each ($70 bln in total). The facility will be available to these participating institutions for liquidity up to a maximum of one third of the facility for any one bank. It is anticipated that the size of the facility may increase as other banks are permitted to join the facility. Third, to help facilitate an orderly resolution of OTC derivatives exposures between Lehman Brothers and its counterparties. This effort included opening the OTC derivatives market for trading Sunday afternoon

RCM Comment:

In the midst of all the Financial news today a couple of economic numbers have come out that show a real slowdown and recession is upon us, but of course the news is not being spoken of anywhere this morning. What a great day for the government to release terrible economic news, nobody is listening.
ECONX August Industrial Production -1.1% vs -0.3% consensus; Capacity Utilization 78.7% vs 79.6% consensus
ECONX September Empire Manufacturing -7.4 vs 1.0 consensus