Troubled Wachovia Seeks Out a Merger

By ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK
Wachovia Corp. has entered into preliminary talks with a handful of possible buyers — the latest in a parade of banks to look for safety in the arms of a suitor amid concerns that the weak economy is pushing them deeper into peril.

The talks came as Washington Mutual Inc.’s late-Thursday failure rattled the shares of other troubled banks. Shares in Wachovia fell 27% on Friday as investors fretted about its massive mortgage portfolio.

People walk by a Wachovia branch in New York City

Investors are growing concerned that a host of banks nationwide, both large and small, could come under fresh pressure to either raise more capital or else find someone willing to buy them. The trouble stems in part from the fact that a broad range of borrowers, not just mortgage holders, are now starting to default on their debt. For instance, about 2.4% of payments on credit cards are more than 90 days overdue, according to the Federal Deposit Insurance Corp., the highest level since 1991.

Wachovia is talking to potential buyers including Wells Fargo & Co., Banco Santander SA of Spain and Citigroup Inc., according to people familiar with the situation. Wachovia officials don’t believe they need to rush into a deal, and the bank isn’t feeling immediate pressure on its financial condition, people familiar with the company said.

WaMu Is Seized, Sold Off to J.P. Morgan, In Largest Failure in U.S. Banking History

By ROBIN SIDEL, DAVID ENRICH and DAN FITZPATRICK

In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.

Pedestrians walk past a Washington Mutual branch in downtown Seattle.

The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country’s financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund.

Instead, J.P. Morgan agreed to pay $1.9 billion to the government for WaMu’s banking operations and will assume the loan portfolio of the thrift, which has $307 billion in assets. The full cost to J.P. Morgan will be much higher, because it plans to write down about $31 billion of the bad loans and raise $8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $30 billion in debt and preferred stock will likely see little if any recovery.

Oil spikes $16 in single biggest one-day jump

Mon Sep 22, 2008 4:56pm EDT
By Richard Valdmanis

NEW YORK (Reuters) – Oil prices soared nearly 16 percent to over $120 a barrel on Monday — the biggest one-day gain on record — in a rally sparked by the expiry of the front-month futures contract and weakness in the U.S. dollar.

The gains extend oil’s climb from a low near $90 last week after the United States unveiled a sweeping rescue plan for its battered financial sector, improving the outlook for energy demand in the world’s biggest consumer nation.

U.S. crude for October delivery, which expires on Monday, settled up $16.37, or 15.7 percent, at $120.92 per barrel. The contract for delivery in November, which was much more actively traded, was up only $6.62 at $109.37.

London Brent crude settled up $6.43 at $106.04.

Goldman, Morgan Stanley to become regulated banks

By Krishna Guha in Washington
Published: September 22 2008 03:04 | Last updated: September 22 2008 07:34

Goldman Sachs and Morgan Stanley, the last surviving big investment banks on Wall Street, have become regulated banks.

In a statement issued at 9.30pm Sunday, the Federal Reserve said it had approved their applications to become bank holding companies, subject to regulation by the Fed.

During the transition period, the Fed will make loans to both entities and to the broker-dealer subsidiary of Merrill Lynch against collateral acceptable for posting either by a bank or a securities firm.

The Fed will also lend to Goldman, Morgan and Merrill’s London-based broker dealer subsidiaries directly.
The Fed approval is subject to a five-day waiting period for potential antitrust issues.

Bailout Timeline

Global write-downs and credit losses

Goldman, Morgan Stanley abandon investment banking model

Mon Sep 22, 2008 5:31am EDT
By Kevin Drawbaugh and Mark Felsenthal

WASHINGTON (Reuters) – Goldman Sachs and Morgan Stanley sought shelter with the Federal Reserve to survive a financial storm that has destroyed their rivals, effectively killing off the Wall Street investment banking model of the past two decades.

The move is Washington’s latest effort to restore calm to chaotic markets and follows frantic talks between the Bush administration and Congress on a $700 billion bailout to prevent the crisis from pushing the economy into severe recession.

By agreeing to much tighter Fed regulation as bank holding companies, Goldman and Morgan Stanley moved to avoid the fate of rivals that either collapsed or were taken over in the worst financial crisis to sweep Wall Street since the Great Depression.

Economists see financial bailout as necessary

By MARTIN CRUTSINGER, AP Economics Writer

The economy could suffer a massive hangover from the government’s efforts to rescue the financial system in the form of a soaring debt burden. But the alternatives look infinitely worse.

The $700 billion the administration is seeking from Congress as the upper bounds of what it will need to take a mountain of bad loans off the books of financial firms is certainly an eye-popping figure.

To get the funds to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring.

The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year’s $168 billion economic stimulus program are already doing to the government’s books.

The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president’s first year in office, will hit $482 billion, a record in dollar terms.

Bush team, Congress negotiate $700B bailout

By JULIE HIRSCHFELD DAVIS and DEB RIECHMANN, Associated Press Writers

The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression.

The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion.

Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation.

Congressional aides and administration officials are working through the weekend to fill in the details of the proposal. The White House hoped for a deal with Congress by the time markets opened Monday; top lawmakers say they would push to enact the plan as early as the coming week.

Economic officials: Bailout an economic necessity

By ANDREW TAYLOR, Associated Press Writer
Sat Sep 20, 2:45 PM ET
Ben Bernanke didn’t sugarcoat the situation. He couldn’t.

Financial market conditions had degenerated to a full panic, credit is frozen, money market funds are losing money. Even strong institutions such as Wall Street’s remaining investment banks were under extraordinary pressure, the Federal Reserve chairman told House Republicans in a briefing Friday.

Leave things unchecked, he said, and face deep and extended recession, according to notes taken by a House GOP aide at the session.

At one remarkable meeting in the Capitol on Thursday night and in a series of conference calls the next day, Bernanke and Treasury Secretary Henry Paulson laid out nothing less than a nightmare scenario if Congress failed to pass a plan to use breathtaking amounts of taxpayer money to bail out the financial markets.

Fear is a great motivator — and it helps explain lawmakers’ quick bipartisan embrace of the massive federal intervention in the markets.