Britannia Radio

TELEGRAPH  15.9.08
Statement by Jeff Randall, Editor at Large
(transcribed from live)
"This is not just another bad day at the office says the Financial 
Services industry.
This is the moment when the world's regulators have decided to call 
the bluff of those who say that if 'another goes down, well, the roof 
will fall in on the financial system'  .
Lehman has been thrown to the wolves; others aren't waiting to find 
out if it's going to get any worse.
Merrill Lynch has sold itself to Bank of America in what looks like a 
desperate move to jump into a lifeboat while they still exist.
Not since the Wall Street crash [1929 -cs]  have we seen such drama - 
such crisis"
===========================
FINANCIAL TIMES   15.9.08 at 1510 hrs
Wall Street crisis deepens
By Francesco Guerrera in London, Krishna Guha in Washington and Greg 
Farrell in New York

Wall Street was in turmoil on Monday after Lehman Brothers filed for 
bankruptcy protection and Merrill Lynch agreed a $50bn takeover by 
Bank of America.

Confidence in financial institutions around the world was shaken as 
central banks introduced a series of emergency measures to ease the 
crisis in the global financial system.

Equity markets fell heavily and debt spreads widened as banks, 
investment managers and insurance companies came under heavy selling 
pressure.
BofA's bold bid for Merrill came as the world's top banks abandoned 
efforts to save Lehman and set out to build a firewall against 
further financial chaos with a $70bn liquidity pool to support other 
vulnerable institutions.

The moves capped a weekend of high drama that could lead to one of 
the most radical reshapings in Wall Street history.

The Federal Reserve said it was making it easier for financial 
institutions to access Fed liquidity by easing terms on its borrowing 
facilities and accepting a much wider range of assets as collateral. 
The Fed meets to decide on interest rates on Tuesday.

It widened the set of assets eligible as collateral for loans of 
Treasuries to include all investment grade paper, and raised the size 
of these Treasury loans to $200bn.

The Fed also suspended rules that prohibit banks from using deposits 
to fund their investment banking subsidiaries.

The Fed's intervention was followed on Monday by the European Central 
Bank and the Bank of England.

The ECB allotted ?30bn ($42.04bn) in one-day liquidity at a marginal 
rate of 4.30 per cent and an average rate of 4.39 per cent. 
Altogether 51 banks bid ?90.27bn.

Meanwhile, the Bank of England said it would offer extra reserves to 
help stabilise conditions in sterling money markets. The Bank said it 
would auction £5bn through an exceptional fine tuning open market 
operation.
The weekend's dramatic events undermined confidence in financial 
stocks across Europe. Banks and insurance companies were the heaviest 
fallers on Monday while gold prices jumped higher as investors sought 
the safety of the precious metal.

The Markit iTraxx Crossover index, which measures the cost of 
insuring European junk-rated credit derivatives, widened 17 per cent 
on Monday to 640 basis points as the likelihood of defaults was 
perceived to be higher.

Monday's market reaction will be closely watched by regulators and 
banking executives to gauge investor sentiment towards the credit 
crunch that has wreaked havoc on the financial sector for more than a 
year.

BofA's rapid U-turn, which saw it abandon talks to buy Lehman and 
move to Merrill in the space of a few hours, will throw the spotlight 
on Morgan Stanley and Goldman Sachs. The two could soon become the 
only independent investment banks in the US.

Merrill's board voted on Sunday night to approve BofA's takeover all-
stock bid, which was pitched at $29 a share. That is a premium of 70 
per cent on Friday's closing price of $17.05. Merrill's shares have 
fallen nearly 70 per cent this year.

The sudden turn of events came at the end of a weekend which saw top 
Wall Street executives locked in increasingly desperate talks over 
the future of Lehman and the state of the financial sector with Hank 
Paulson, US Treasury secretary, and Tim Geithner, president of the 
New York Federal Reserve.

However, bankers familiar with the talks said a rescue plan for 
Lehman had been seriously undermined after suitors Barclays of the UK 
and BofA, had walked away. Barclays pulled out in the afternoon after 
the US government refused to provide a guarantee to enable Lehman to 
continue trading until a deal had been completed.

Lehman said during the New York night that it would file for bankruptcy.
The filing is likely to cause thousands of job losses among Lehman's 
25,000-strong staff. On Sunday night a number of employees were seen 
leaving Lehman's Manhattan headquarters with boxes stacked with their 
possessions, stationery and even some paintings.

In a separate move, regulators had prepared the ground for a Lehman 
bankruptcy by asking its derivatives counterparties to settle trades 
between themselves in a special trading session in the afternoon.
Merrill's decision to enter talks with BofA, which has long coveted 
its rival's large retail brokerage business, came after it became 
apparent that Lehman's woes could spread to the rest of the 
investment banking sector in the coming weeks.

John Thain, Merrill's chief executive, who was attending the Lehman 
crisis talks, approached some rivals asking them whether they would 
be interested in bidding for his firm, according to people close to 
the situation.
Morgan Stanley, BofA and some foreign banks were contacted but many 
of them declined to pursue the talks because they had insufficient 
time to pore over Merrill's complex trading books, they added. 
Merrill, Morgan Stanley and BofA declined to comment.

A takeover of Merrill would be a victory for Ken Lewis, BofA's chief 
executive, who has long wanted to combine the lender's commercial 
banking operations with Merrill's army of retail brokers.

However, a deal could saddle BofA with more troubled assets. The bank 
bought the stricken mortgage-lender Countrywide and a purchase of 
Merrill would force it to clean up the bank's trading books, which 
have already cost Merrill some $52bn in writedowns and credit losses.

Mr Thain, the former Goldman Sachs executive and former head of the 
New York Stock Exchange who joined Merrill last year after the 
departure of Stan O'Neal, is almost certain to leave the firm if the 
BofA takeover goes
through.

He is a fervent supporter of John McCain, the Republican presidential 
candidate, and some experts expect him to seek a political career.

===========================
BBC ONLINE   15.9.08
Meltdown Monday
. Robert Peston
. 15 Sep 08, 06:53 AM

There has never been a weekend like it in my 25 years as a financial 
journalist.

For Wall Street, it has probably been the most extraordinary 24 hours 
since the late 1920s.

As I said would happen yesterday evening, Lehman has announced that 
it is filing for bankruptcy protection under Chapter 11.

To prevent contagion to the next most vulnerable investment bank, 
mighty Bank of America is buying Merrill Lynch for about $50bn.
That Merrill is steering itself into safe harbour, no longer 
confident of its future as an independent, is almost as shocking as 
Lehman's demise.

And one of the world's biggest insurers, AIG, is reeling from losses 
on its exposure to real estate and credit default swaps, or 
complicated financial insurance - and, according to the New York 
Times, is seeking a $40bn bridging loan from the Fed.

As for the US central banking system, the Fed, it is endeavouring to 
minimise the damage to the financial system from these shocks by 
allowing securities firms to swap shares for short-term loans, to 
tide them over.

The Fed is also increasing by $25bn the amount it is prepared to lend 
to bond dealers.

And a group of 10 banks, including Citigroup, JP Morgan and Goldman 
Sachs, have created a $70bn collaborative fund, to try to prevent 
market liquidity from evaporating in the coming anxious hours.

The global financial economy has never in recent years been tested by 
quite such a combination of accidents and jolts to confidence.
In a way it's fortunate that most Asian markets have been shut today. 
But the dollar has inevitably fallen in what little trading there's 
been, Australian stocks have fallen, and futures prices are pointing 
to a very weak opening on Wall Street.

For most investors and bankers anywhere in the world, today will be a 
day to endure and survive.
=-=-=-=-=-==-=-=-=-

UPDATE, 11:30AM:
Probably the most positive development in the past 24 hours is that 
10 of the biggest US banks are pooling their cash in a collaborative 
effort to prevent any of them running out of funds in an emergency.

Each of them is contributing $7bn and each can borrow up to $23bn 
from the common pool.

The members of this liquidity consortium include our own Barclays, 
along with Citigroup, Goldman Sachs, JP Morgan, UBS and others 
exposed to the fallout from the collapse of Lehman.

The initiative represents an outbreak of common sense among the banks 
- because in this time of chronic market dislocation, it's a way of 
ensuring that cash gets to where it's most needed.

The crisis in the global financial economy doesn't stem from their 
being too little cash in aggregate. It's simply that much of it isn't 
where it's most needed.

A useful analogy would be Eric Morecombe's protest to Andre Previn in 
the classic sketch that he was playing all the right notes of Grieg's 
Piano Concerto, but not necessarily in the right order.

It wouldn't do any harm for the US cash cooperative to be replicated 
over here by our banks.

There's a time for cut throat competition between banks, and this 
probably isn't it.