By Lilian Karunungan and Kim Kyoungwha
Sept. 16 (Bloomberg) -- South Korea's won fell by the most since at least August 1998 after Lehman Brothers Holdings Inc. filed the biggest bankruptcy in history, fueling speculation global investors will step up sales of local shares and repatriate funds. Taiwan's dollar weakened.
The currency, the biggest loser among 26 emerging-market currencies tracked by Bloomberg, approached a four-year low and the nation's Kospi stock index tumbled as much as 6.5 percent. Vice Finance Minister Kim Dong Soo said the government may provide funds to help stabilize financial markets.
``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''
The won fell 3.8 percent to 1,152.55 against the dollar as of 12:20 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It reached 1,159 on Sept. 3, the weakest since August 2004. Taiwan's currency fell as much as 0.5 percent to NT$32.216, the weakest since Feb. 1, according to Taipei Forex Inc.
``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' South Korea's Kim said before an emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''
Global investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data.
Risk Aversion
Taiwan's dollar slumped as the Taiex index plunged 4.4 percent, bringing this month's slide to 18 percent, and the government instructed its four major funds and state-owned banks to buy shares to help arrest the losses. Lehman's bankruptcy left the island's companies with NT$80 billion ($2.5 billion) at risk, the financial regulator said in a statement last night.
``Financial markets are still trying to digest the events that happened over the weekend,'' said Christy Tan, a currency strategist at Bank of America in Singapore. ``We're still seeing risk aversion, and financial shares are the brunt of the sell- off. I think it'll lead to a higher U.S. dollar against Taiwan's currency in the near term.''
The Taiwan dollar was little changed yesterday after the central bank sold more than $500 million in the currency market, the Commercial Times reported today, citing traders it didn't identify.
AIG Rescue
The Philippine peso declined for a second day as the MSCI Asia-Pacific Index of stocks slumped the most in eight months. The index headed for its lowest since August 2006 after American International Group Inc. sought capital to prevent a collapse. Foreign investors sold $605 million more Philippine stocks than they bought this year, according to stock exchange data.
``People are waiting for further news from AIG,'' said Catherine Tan, head of foreign exchange at Thomson Financial Asia in Singapore. ``If the rescue falls through, there will be much more blood on the street and there will be more selling of currencies. When you have risk aversion, the peso is one of the currencies being hit in Asia.''
The local currency dropped 0.4 percent to 47.265 per dollar in Manila, according to Tullett Prebon Plc. The peso has fallen 12 percent in the past six months.
AIG, which had its credit ratings cut by Standard & Poor's and Moody's Investors Service, is seeking as much as $75 billion in loans to boost capital, according to people familiar with the situation.
Elsewhere, the Singapore dollar rose 0.1 percent to S$1.4326 against the U.S. currency. The Thai baht gained 0.6 percent to 34.38. The Malaysian ringgit and Indonesia's rupiah were little changed versus the dollar at 3.4525 and 9,465, respectively. Vietnam's dong traded at 16,585 versus 16,590 yesterday.
To contact the reporters on this story: Lilian Karunungan in Singapore at lkarunungan@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net
Read more...
Tuesday, September 16, 2008
Korean Won Falls Most Since 1998 on Credit Woes; Bonds Advance
By Kim Kyoungwha and Judy Chen
Sept. 16 (Bloomberg) -- South Korea's won fell the most since August 1998 as global investors accelerated sales of Asian equities in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing.
Korea's policy makers held an emergency meeting to discuss intervention in financial markets and government bonds rallied on speculation the central bank will cut interest rates. The won fell 19.6 percent this year, the worst among the 10 most-active Asian currencies outside Japan, as foreign investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data.
``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''
The won fell 4.4 percent to 1,160 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. That was the weakest level since 2004.
South Korea may provide additional money to help stabilize financial markets, Vice Finance Minister Kim Dong Soo said today. The nation's Kospi stock index tumbled as much as 7.1 percent.
``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' Kim said before the emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''
Remarks this morning by Choi Jong Ku, director general of the finance ministry's international bureau, that the currency's declines are ``excessive'' did little in curbing the won's loss.
``Excessive Reaction''
``Our foreign-exchange market reaction to the U.S. financial markets instability is excessive,'' Choi said in a statement in Gwacheon. ``An excessive reaction can cause a drastic adjustment.''
Goldman Sachs Group Inc. lowered its forecast for the won's level in three months to 1,130 from an earlier estimate of 1,040, citing ``large refinancing needs of Korean banks.''
The won will then climb to 1,110 and 1,090 over six and 12- month horizons, Economist Kwon Goohoon wrote in a report today.
``We continue to believe that the recent spike to around 1,150 is an overshoot,'' Kwon said. ``That said, we expect the won to remain under pressure in the short term. Korean banks will likely be net buyers of the dollar due to large foreign-exchange debts falling due within a year.''
External borrowings that mature in a year almost tripled to $175.65 billion as of June 30, official figures show.
Bonds Advance
Local currency bonds rose on speculation deepening instability in financial markets will persuade the central bank to cut interest rates.
``There's a flurry of bids for flight to quality,'' said Kong Dong Rak, a fixed-income strategist with Hana Daetoo Securities Co. in Seoul. ``The central bank, though not immediately, could lower interest rates in coming months.''
The yield on the 5.5 percent benchmark bond due June 2011 fell 14 basis points to 5.51 percent, according to the Korea Exchange. The price rose 0.38, or 38 won per 10,000 won face amount, to 101.44. A basis point is 0.01 percentage point.
The finance ministry sold 1.12 trillion won ($971 million) of 10-year government debt today at a yield of 5.73 percent.
To contact the reporters on this story:
Kim Kyoungwha in Beijing at
kkim19@bloomberg.net;
Judy Chen in Shanghai at xchen45@bloomberg.net
Read more...
Sept. 16 (Bloomberg) -- South Korea's won fell the most since August 1998 as global investors accelerated sales of Asian equities in the wake of Lehman Brothers Holdings Inc.'s bankruptcy filing.
Korea's policy makers held an emergency meeting to discuss intervention in financial markets and government bonds rallied on speculation the central bank will cut interest rates. The won fell 19.6 percent this year, the worst among the 10 most-active Asian currencies outside Japan, as foreign investors sold more Korean shares than they bought every day except six since Aug. 1, according to Korea Exchange data.
``There's panic selling for the won as investors' sentiment is badly bruised by Lehman's bankruptcy,'' said Lee Myung Hoon, a currency dealer with Industrial Bank of Korea in Seoul. ``A global share tumble is taking a toll on the local equity market. We are not sure how far the won will drop.''
The won fell 4.4 percent to 1,160 against the dollar as of the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. That was the weakest level since 2004.
South Korea may provide additional money to help stabilize financial markets, Vice Finance Minister Kim Dong Soo said today. The nation's Kospi stock index tumbled as much as 7.1 percent.
``There's a concern in the short term that global stocks, bonds and currency markets will be more volatile,'' Kim said before the emergency meeting today with counterparts from the central bank and the financial regulator in Seoul. ``We will try to manage liquidity in a stable manner through measures such as open market operations.''
Remarks this morning by Choi Jong Ku, director general of the finance ministry's international bureau, that the currency's declines are ``excessive'' did little in curbing the won's loss.
``Excessive Reaction''
``Our foreign-exchange market reaction to the U.S. financial markets instability is excessive,'' Choi said in a statement in Gwacheon. ``An excessive reaction can cause a drastic adjustment.''
Goldman Sachs Group Inc. lowered its forecast for the won's level in three months to 1,130 from an earlier estimate of 1,040, citing ``large refinancing needs of Korean banks.''
The won will then climb to 1,110 and 1,090 over six and 12- month horizons, Economist Kwon Goohoon wrote in a report today.
``We continue to believe that the recent spike to around 1,150 is an overshoot,'' Kwon said. ``That said, we expect the won to remain under pressure in the short term. Korean banks will likely be net buyers of the dollar due to large foreign-exchange debts falling due within a year.''
External borrowings that mature in a year almost tripled to $175.65 billion as of June 30, official figures show.
Bonds Advance
Local currency bonds rose on speculation deepening instability in financial markets will persuade the central bank to cut interest rates.
``There's a flurry of bids for flight to quality,'' said Kong Dong Rak, a fixed-income strategist with Hana Daetoo Securities Co. in Seoul. ``The central bank, though not immediately, could lower interest rates in coming months.''
The yield on the 5.5 percent benchmark bond due June 2011 fell 14 basis points to 5.51 percent, according to the Korea Exchange. The price rose 0.38, or 38 won per 10,000 won face amount, to 101.44. A basis point is 0.01 percentage point.
The finance ministry sold 1.12 trillion won ($971 million) of 10-year government debt today at a yield of 5.73 percent.
To contact the reporters on this story:
Kim Kyoungwha in Beijing at
kkim19@bloomberg.net;
Judy Chen in Shanghai at xchen45@bloomberg.net
Read more...
EU Ministers Welcome Dollar's Gains Against Euro Amid Slowdown
By Sandrine Rastello
Sept. 16 (Bloomberg) -- European Union officials regard the dollar's advance against the euro as welcome respite for their economies at a time when several countries are close to a recession, according to a draft of an internal EU document.
``Excessive volatility on exchange-rate markets is undesirable for economic growth,'' ministers from the 27 EU nations said in the document, which was agreed to three days ago at a meeting of finance ministers and central bankers in Nice, France. ``The recent re-appreciation of the U.S. dollar vis-a-vis the euro and other European currencies is welcome,'' according to the draft, which was obtained by Bloomberg News.
The euro has fallen more than 10 percent since reaching a record $1.6038 on July 15. While the drop in crude oil prices is also providing support, the region's economy shrank in the second quarter and is still struggling amid slowing global demand and the continuing credit squeeze.
The ``near-term outlook for growth remains relatively weak'' and inflationary pressures should ease ``in the next few months,'' according to the document, which is a summation of the talks on Sept. 12-13 in Nice and will be the basis for discussions at the finance ministers' next meeting in early October in Luxembourg.
The European Commission on Sept. 10 lowered its economic- growth forecast for the 15-nation euro area and predicted a recession this year for Germany and Spain, as well as the U.K., which does not use the euro. The region's economy probably won't grow in the current quarter after the first contraction since the euro was introduced in 1999, according to the commission.
`Remains Overvalued'
``The depreciation of the euro is welcome even if the euro remains overvalued,'' Luxembourg Finance Minister Jean-Claude Juncker, who chairs the group of counterparts from the euro region, said on Sept. 12 in Nice.
``I'm pleased that today the euro is slightly below $1.40,'' French Finance Minister Christine Lagarde said Sept. 11 in Nice. Belgium's Didier Reynders said the currency now reflected ``fundamentals.''
The ministers also said it's ``crucial'' to let the ``necessary adjustment'' in exchange rates occur ``in some emerging economies with large and growing current-account surpluses,'' citing China specifically. The Chinese yuan has gained 10 percent against the euro since the start of the third quarter, following a 2.5 percent gain in the second quarter and a 3.2 percent decline in the first.
Currency Developments
The EU will ``closely'' monitor currency developments, including through a continuing dialogue between European and Chinese officials, according to the document. Juncker said in July that he and other EU officials will probably next meet their counterparts from Beijing around the time of the EU-China summit on Dec. 1 in Lyon, France.
The document calls for a ``coordinated response at the EU level'' to the economic slowdown. In it, ministers repeat a pledge to pursue fiscal discipline and to continue structural changes to their economies and demand further efforts to boost transparency in financial markets.
It also confirms the European Investment Bank will lend up to 15 billion euros ($21.3 billion) through 2009 to support small- and medium-sized enterprises.
To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net.
Read more...
Sept. 16 (Bloomberg) -- European Union officials regard the dollar's advance against the euro as welcome respite for their economies at a time when several countries are close to a recession, according to a draft of an internal EU document.
``Excessive volatility on exchange-rate markets is undesirable for economic growth,'' ministers from the 27 EU nations said in the document, which was agreed to three days ago at a meeting of finance ministers and central bankers in Nice, France. ``The recent re-appreciation of the U.S. dollar vis-a-vis the euro and other European currencies is welcome,'' according to the draft, which was obtained by Bloomberg News.
The euro has fallen more than 10 percent since reaching a record $1.6038 on July 15. While the drop in crude oil prices is also providing support, the region's economy shrank in the second quarter and is still struggling amid slowing global demand and the continuing credit squeeze.
The ``near-term outlook for growth remains relatively weak'' and inflationary pressures should ease ``in the next few months,'' according to the document, which is a summation of the talks on Sept. 12-13 in Nice and will be the basis for discussions at the finance ministers' next meeting in early October in Luxembourg.
The European Commission on Sept. 10 lowered its economic- growth forecast for the 15-nation euro area and predicted a recession this year for Germany and Spain, as well as the U.K., which does not use the euro. The region's economy probably won't grow in the current quarter after the first contraction since the euro was introduced in 1999, according to the commission.
`Remains Overvalued'
``The depreciation of the euro is welcome even if the euro remains overvalued,'' Luxembourg Finance Minister Jean-Claude Juncker, who chairs the group of counterparts from the euro region, said on Sept. 12 in Nice.
``I'm pleased that today the euro is slightly below $1.40,'' French Finance Minister Christine Lagarde said Sept. 11 in Nice. Belgium's Didier Reynders said the currency now reflected ``fundamentals.''
The ministers also said it's ``crucial'' to let the ``necessary adjustment'' in exchange rates occur ``in some emerging economies with large and growing current-account surpluses,'' citing China specifically. The Chinese yuan has gained 10 percent against the euro since the start of the third quarter, following a 2.5 percent gain in the second quarter and a 3.2 percent decline in the first.
Currency Developments
The EU will ``closely'' monitor currency developments, including through a continuing dialogue between European and Chinese officials, according to the document. Juncker said in July that he and other EU officials will probably next meet their counterparts from Beijing around the time of the EU-China summit on Dec. 1 in Lyon, France.
The document calls for a ``coordinated response at the EU level'' to the economic slowdown. In it, ministers repeat a pledge to pursue fiscal discipline and to continue structural changes to their economies and demand further efforts to boost transparency in financial markets.
It also confirms the European Investment Bank will lend up to 15 billion euros ($21.3 billion) through 2009 to support small- and medium-sized enterprises.
To contact the reporter on this story: Sandrine Rastello in Paris at srastello@bloomberg.net.
Read more...
Australia, N.Z. Dollars Slide as Carry Trades Fall Out of Favor
By Candice Zachariahs
Sept. 16 (Bloomberg) -- The New Zealand dollar dropped to the weakest in more than four years against the yen and Australia's slid to a 2 1/2-year low as a global stocks rout curbed demand for the nations' higher-yielding assets.
The currencies, favorites of so-called carry trades, also fell against the U.S. dollar after the Standard & Poor's 500 Index had its steepest decline since the September 2001 terrorist attacks on concerns more financial institutions will fail after Lehman Brothers Holdings Inc. filed for bankruptcy.
``Everything's been driven by the equity markets,'' said David Forrester, a currency economist at Barclays Capital Inc. in Singapore. The currencies ``expected to do the worst are Kiwi and Aussie. These are considered risky assets,'' he said referring to the currencies by their nicknames.
New Zealand's currency slid 1.9 percent to 67.90 yen at 4:42 p.m. in Sydney, from 69.21 yen late in Asia yesterday. It touched 67.70, the weakest since June 2004. It bought 65.14 U.S. cents from 65.71.
The Australian dollar fell 3 percent to 82.35 yen. The currency earlier reached 82.15 yen, the weakest since March 2006. It fell 2 percent to 79.02 U.S. cents and touched 78.76 cents, the lowest since August 2007.
The currencies fell as Lehman filed for the biggest bankruptcy in history yesterday and American International Group Inc.'s credit ratings were downgraded, threatening efforts to raise emergency funds and keep the company afloat.
Asian stocks plunged the most in eight months today and Mitsubishi UFJ Financial Group Inc. and Aozora Bank Ltd., two of Lehman's biggest creditors, led the steepest decline by Japanese banks since 1987.
Worst Performers
The Australian and New Zealand dollars are the worst performers this quarter among the 16 most-traded currencies against the yen, sliding 19 percent and 16 percent respectively. They've also posted drops of 10 percent and 6.8 percent versus the Swiss franc.
``As this crisis rolls on, the Aussie and Kiwi will lose more ground to safer currencies,'' said Tony Morriss, a senior currency strategist with ANZ Banking Group Ltd. in Sydney.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 31.70 yesterday, the highest since March 17.
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.
Bonds Gained
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them favorites with investors seeking higher returns.
Australian government bonds gained. The yield on the 10- year note fell 12 basis points, or 0.12 percentage points, to 5.448 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.965, or A$9.65 per A$1,000 face amount, to 98.433. Bond yields move inversely to prices.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.8 percent, its lowest since April 2006, from 6.84 on Sept. 12.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Read more...
Sept. 16 (Bloomberg) -- The New Zealand dollar dropped to the weakest in more than four years against the yen and Australia's slid to a 2 1/2-year low as a global stocks rout curbed demand for the nations' higher-yielding assets.
The currencies, favorites of so-called carry trades, also fell against the U.S. dollar after the Standard & Poor's 500 Index had its steepest decline since the September 2001 terrorist attacks on concerns more financial institutions will fail after Lehman Brothers Holdings Inc. filed for bankruptcy.
``Everything's been driven by the equity markets,'' said David Forrester, a currency economist at Barclays Capital Inc. in Singapore. The currencies ``expected to do the worst are Kiwi and Aussie. These are considered risky assets,'' he said referring to the currencies by their nicknames.
New Zealand's currency slid 1.9 percent to 67.90 yen at 4:42 p.m. in Sydney, from 69.21 yen late in Asia yesterday. It touched 67.70, the weakest since June 2004. It bought 65.14 U.S. cents from 65.71.
The Australian dollar fell 3 percent to 82.35 yen. The currency earlier reached 82.15 yen, the weakest since March 2006. It fell 2 percent to 79.02 U.S. cents and touched 78.76 cents, the lowest since August 2007.
The currencies fell as Lehman filed for the biggest bankruptcy in history yesterday and American International Group Inc.'s credit ratings were downgraded, threatening efforts to raise emergency funds and keep the company afloat.
Asian stocks plunged the most in eight months today and Mitsubishi UFJ Financial Group Inc. and Aozora Bank Ltd., two of Lehman's biggest creditors, led the steepest decline by Japanese banks since 1987.
Worst Performers
The Australian and New Zealand dollars are the worst performers this quarter among the 16 most-traded currencies against the yen, sliding 19 percent and 16 percent respectively. They've also posted drops of 10 percent and 6.8 percent versus the Swiss franc.
``As this crisis rolls on, the Aussie and Kiwi will lose more ground to safer currencies,'' said Tony Morriss, a senior currency strategist with ANZ Banking Group Ltd. in Sydney.
The VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, rose to 31.70 yesterday, the highest since March 17.
In carry trades, investors get funds in a country with low borrowing costs and invest in another with higher interest rates, earning the spread between the two. The risk is that currency market moves can erase those profits.
Bonds Gained
Benchmark interest rates are 7 percent in Australia and 7.5 percent in New Zealand, compared with 2 percent in the U.S. and 0.5 percent in Japan, making them favorites with investors seeking higher returns.
Australian government bonds gained. The yield on the 10- year note fell 12 basis points, or 0.12 percentage points, to 5.448 percent. The price of the 5.25 percent bond maturing in March 2019 rose 0.965, or A$9.65 per A$1,000 face amount, to 98.433. Bond yields move inversely to prices.
New Zealand's two-year swap rate, a fixed payment made to receive floating rates, fell to 6.8 percent, its lowest since April 2006, from 6.84 on Sept. 12.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net
Read more...
Standard Chartered Closes Bet to Sell Euro on `Extreme' Markets
By Ron Harui
Sept. 16 (Bloomberg) -- Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia, closed its recommendation to sell the euro against Australia's dollar, given the ``current extreme conditions'' in the global markets.
The European currency rose to a five-year high versus Australia's as Lehman Brothers Holdings Inc.'s filing of the largest bankruptcy in history boosted speculation that credit- market losses will increase, prompting investors to sell higher- yielding assets. Standard Chartered closed its bet that the euro would fall versus the Australian dollar with a loss of 2.76 percent, according to the bank.
``Recent trading conditions have been extreme, suggesting risk should be minimized,'' wrote Callum Henderson, Singapore- based head of foreign-exchange strategy at Standard Chartered, in a client note today. ``Our short euro-Aussie trade recommendation was stopped out, forcing us to close it,'' he said, referring to Australia's currency by its nickname.
The euro rose 2.2 percent to 1.8040 against Australia's dollar as of 2:31 p.m. in Tokyo from 1.7658 late in New York yesterday. It touched 1.8070, the strongest since June 2003.
Standard Chartered had advised its clients to sell the euro on Sept. 12 at 1.7436 versus the Australian dollar, and place an automatic order to buy back the currency should it trade at 1.7700 on a daily closing basis. A short position is a bet on a decline in an asset's price.
``We had put on this recommendation of selling the euro- Aussie on the view that markets would look for rate spreads to narrow in favor of the Australian dollar as the euro zone continued into a recession,'' Henderson wrote.
VIX Volatility Index
Europe's single currency gained for a second day, as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, surged to as high as 31.87 percent yesterday, the highest since March 18.
Australia's benchmark interest rate of 7 percent compares with 4.25 percent in the 15-nation region sharing the euro, making the nation a popular destination for international investors seeking higher returns.
The euro also climbed versus the Aussie as the yield advantage of two-year Australian government bonds over similar- maturity European debt narrowed to 1.63 percentage points today from 1.99 percentage points yesterday.
To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net
Read more...
Sept. 16 (Bloomberg) -- Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia, closed its recommendation to sell the euro against Australia's dollar, given the ``current extreme conditions'' in the global markets.
The European currency rose to a five-year high versus Australia's as Lehman Brothers Holdings Inc.'s filing of the largest bankruptcy in history boosted speculation that credit- market losses will increase, prompting investors to sell higher- yielding assets. Standard Chartered closed its bet that the euro would fall versus the Australian dollar with a loss of 2.76 percent, according to the bank.
``Recent trading conditions have been extreme, suggesting risk should be minimized,'' wrote Callum Henderson, Singapore- based head of foreign-exchange strategy at Standard Chartered, in a client note today. ``Our short euro-Aussie trade recommendation was stopped out, forcing us to close it,'' he said, referring to Australia's currency by its nickname.
The euro rose 2.2 percent to 1.8040 against Australia's dollar as of 2:31 p.m. in Tokyo from 1.7658 late in New York yesterday. It touched 1.8070, the strongest since June 2003.
Standard Chartered had advised its clients to sell the euro on Sept. 12 at 1.7436 versus the Australian dollar, and place an automatic order to buy back the currency should it trade at 1.7700 on a daily closing basis. A short position is a bet on a decline in an asset's price.
``We had put on this recommendation of selling the euro- Aussie on the view that markets would look for rate spreads to narrow in favor of the Australian dollar as the euro zone continued into a recession,'' Henderson wrote.
VIX Volatility Index
Europe's single currency gained for a second day, as the VIX volatility index, a Chicago Board Options Exchange gauge reflecting expectations for stock market price changes and a barometer of risk aversion, surged to as high as 31.87 percent yesterday, the highest since March 18.
Australia's benchmark interest rate of 7 percent compares with 4.25 percent in the 15-nation region sharing the euro, making the nation a popular destination for international investors seeking higher returns.
The euro also climbed versus the Aussie as the yield advantage of two-year Australian government bonds over similar- maturity European debt narrowed to 1.63 percentage points today from 1.99 percentage points yesterday.
To contact the reporter on this story: Ron Harui in Tokyo at rharui@bloomberg.net
Read more...
U.K. Pound Slides Against Dollar, Euro Before Inflation Report
By Andrew MacAskill
Sept. 16 (Bloomberg) -- The British pound fell against the dollar and snapped an eight-day gain versus the euro before a government report that may show inflation accelerated last month to more than double the central bank's target.
Consumer prices rose 4.6 percent from a year earlier, according to the median forecast of 30 economists surveyed by Bloomberg. That would be the fourth month the rate topped the government's 3 percent upper limit.
``Inflation is going to spike and then come down and that is going to allow the Bank of England to cut interest rates soon,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``We are going to see sterling cede further ground.''
The British currency dropped to $1.7941 as of 8:15 a.m. in London, from $1.8007 yesterday, when it rose for the third day. Against the euro, the pound declined to 79.35 pence, from 79.16 pence, paring a 3.2 percent gain during the streak.
The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, was little changed at 86.75, according to Deutsche Bank AG. The measure is down 8.4 percent this year.
Britain's Office for National Statistics is scheduled to report the inflation figures at 9:30 a.m. in London. Inflation in July increased at a 4.4 percent rate, the most since comparable records began in 1997. August retail price index statistics will also be reported today.
Bonds Advance
The U.S. Federal Reserve will decide interest rates today, with futures showing a 68 percent chance it will cut the key rate by a quarter-point.
The Federal Open Market Committee is predicted to keep its benchmark rate at 2 percent, according to the median of 105 economists surveyed by Bloomberg. The announcement is scheduled for 2:15 p.m. in Washington.
U.K. government bonds advanced, with the yield on the two- year note, which is more sensitive to interest-rate expectations, falling 6 basis points to 4.27 percent. The 4.75 percent security due June 2010 climbed 0.09, or 90 pence per 1,000-pound ($1,795) face amount, to 100.78.
The 10-year gilt yield slid 6 basis points to 4.40 percent. Bond yields move inversely to prices.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
Read more...
Sept. 16 (Bloomberg) -- The British pound fell against the dollar and snapped an eight-day gain versus the euro before a government report that may show inflation accelerated last month to more than double the central bank's target.
Consumer prices rose 4.6 percent from a year earlier, according to the median forecast of 30 economists surveyed by Bloomberg. That would be the fourth month the rate topped the government's 3 percent upper limit.
``Inflation is going to spike and then come down and that is going to allow the Bank of England to cut interest rates soon,'' said Neil Mellor, a currency strategist in London at Bank of New York Mellon Corp. ``We are going to see sterling cede further ground.''
The British currency dropped to $1.7941 as of 8:15 a.m. in London, from $1.8007 yesterday, when it rose for the third day. Against the euro, the pound declined to 79.35 pence, from 79.16 pence, paring a 3.2 percent gain during the streak.
The pound's trade-weighted index, a gauge of the currency's performance against Britain's major trade partners, was little changed at 86.75, according to Deutsche Bank AG. The measure is down 8.4 percent this year.
Britain's Office for National Statistics is scheduled to report the inflation figures at 9:30 a.m. in London. Inflation in July increased at a 4.4 percent rate, the most since comparable records began in 1997. August retail price index statistics will also be reported today.
Bonds Advance
The U.S. Federal Reserve will decide interest rates today, with futures showing a 68 percent chance it will cut the key rate by a quarter-point.
The Federal Open Market Committee is predicted to keep its benchmark rate at 2 percent, according to the median of 105 economists surveyed by Bloomberg. The announcement is scheduled for 2:15 p.m. in Washington.
U.K. government bonds advanced, with the yield on the two- year note, which is more sensitive to interest-rate expectations, falling 6 basis points to 4.27 percent. The 4.75 percent security due June 2010 climbed 0.09, or 90 pence per 1,000-pound ($1,795) face amount, to 100.78.
The 10-year gilt yield slid 6 basis points to 4.40 percent. Bond yields move inversely to prices.
To contact the reporter on this story: Andrew MacAskill in London at amacaskill@bloomberg.net
Read more...
Dollar May Fall as Low as 101.45 Yen on Chart, BNP Paribas Says
By Ron Harui
Sept. 16 (Bloomberg) -- The dollar may fall to 101.45 yen after it dropped below so-called support at 104.95 yen, according to Andrew Chaveriat, a technical analyst at BNP Paribas SA in New York.
Support at 104.95 yen is a 38.2 percent retracement of the dollar's climb from the March low of 95.76 yen to the August high of 110.66 yen, based on a series of numbers known as the Fibonacci sequence. Momentum indicators such as the weekly stochastic oscillator chart also show the ``medium-term bias is negative,'' Chaveriat wrote in a research note yesterday.
The dollar's ``sell-off got the ball rolling down hill, cracking and closing below the 38.2 percent retracement of the March-August rise at 104.95,'' Chaveriat wrote. ``The important bearish development for dollar-yen, suggesting medium-term losses ahead, is the presence of very strong negative weekly momentum.''
The U.S. currency weakened to 104.28 yen as of 11:30 a.m. in Tokyo from 104.66 yen late in New York yesterday. It earlier reached 104.04 yen, the lowest since July 16. The dollar has fallen 5.8 percent since the Aug. 15 high of 110.66 yen.
This ``bearish'' weekly momentum provides ``powerful downside thrust,'' Chaveriat said. ``We see scope for a correction to the 50 percent and potentially 61.8 percent retracement at 103.20 and 101.45,'' he wrote.
A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall.
Fibonacci analysis is a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of one indicates a currency may move to the next. A failure suggests a trend may stall. Other Fibonacci points include 50 percent and 61.8 percent.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
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Sept. 16 (Bloomberg) -- The dollar may fall to 101.45 yen after it dropped below so-called support at 104.95 yen, according to Andrew Chaveriat, a technical analyst at BNP Paribas SA in New York.
Support at 104.95 yen is a 38.2 percent retracement of the dollar's climb from the March low of 95.76 yen to the August high of 110.66 yen, based on a series of numbers known as the Fibonacci sequence. Momentum indicators such as the weekly stochastic oscillator chart also show the ``medium-term bias is negative,'' Chaveriat wrote in a research note yesterday.
The dollar's ``sell-off got the ball rolling down hill, cracking and closing below the 38.2 percent retracement of the March-August rise at 104.95,'' Chaveriat wrote. ``The important bearish development for dollar-yen, suggesting medium-term losses ahead, is the presence of very strong negative weekly momentum.''
The U.S. currency weakened to 104.28 yen as of 11:30 a.m. in Tokyo from 104.66 yen late in New York yesterday. It earlier reached 104.04 yen, the lowest since July 16. The dollar has fallen 5.8 percent since the Aug. 15 high of 110.66 yen.
This ``bearish'' weekly momentum provides ``powerful downside thrust,'' Chaveriat said. ``We see scope for a correction to the 50 percent and potentially 61.8 percent retracement at 103.20 and 101.45,'' he wrote.
A stochastic oscillator chart measures the closing price of a security relative to its highs and lows during a particular period to try to predict whether it will rise or fall.
Fibonacci analysis is a mathematical formula based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break of one indicates a currency may move to the next. A failure suggests a trend may stall. Other Fibonacci points include 50 percent and 61.8 percent.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Resistance is where sell orders may be clustered, while support is where there may be buy orders.
To contact the reporter on this story: Ron Harui in Singapore at rharui@bloomberg.net
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Dollar Volatility Rises to Six-Month High After Lehman, Merrill
By Stanley White
Sept. 16 (Bloomberg) -- Volatility implied by dollar-yen options expiring in one month rose to the highest in six months after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to acquire Merrill Lynch & Co.
Traders bought options known as straddles to hedge against declines in the dollar on speculation credit-market losses will prompt a reduction in so-called carry trades, said Takeharu Miki, currency options manager at Bank of Tokyo-Mitsubishi UFJ Ltd. The premium for dollar put options that grant the right to sell over call options that allow purchases widened to the most in two months, showing more risk of weakness in the U.S. currency.
``People are in a panic to buy volatility,'' said Miki of Bank of Tokyo-Mitsubishi UFJ, a unit of Japan's biggest publicly listed lender by assets. ``News on Lehman and Merrill is pretty bearish for the dollar and bullish for the yen. I've been in the market for 15 years and I've never seen a counterparty the size of Lehman completely disappear.''
The dollar fell to 104.04 yen, the lowest since July 16, and traded at 104.39 yen at 12:47 p.m. in Tokyo from 104.66 late yesterday in New York and 107.94 at the end of last week.
In carry trades investors borrow in countries with low interest rates and buy higher-yielding assets elsewhere. The risk is that currency market moves erase those profits. Japan's 0.5 percent benchmark rate compares with 2 percent in the U.S.
Implied volatility for one-month dollar-yen options rose to 17.86 percent, the highest since March 19, and was last quoted at 17.61 percent from 17.24 percent late yesterday. Volatility may rise to 20 percent should the dollar approach 100 yen, Miki said.
The one-month 25-delta risk reversal rate widened to minus 4.07 percent, the largest premium on dollar puts over calls since July 16. Delta measures the rate of change in an option's value relative to moves in the underlying currency.
`Caught Out'
Traders bought one-month straddles, call and put options with the same strike price and duration, for a volatility of 18.3 percent, Miki said. Holders of straddles benefit from large moves in the underlying currencies. Dealers quote implied volatility, a measure of expectations for future price swings, as part of pricing options.
Traders also entered three-month risk reversals by selling dollar calls and buying puts at a 4.7 percent premium, he said.
``People in the interbank market who were short in dollar puts got caught out,'' Miki said. ``The dollar is down three yen from the end of last week, and that's quite a surprise.''
Lehman, a 158-year-old firm, filed for the biggest bankruptcy in history yesterday after Bank of America and Barclays Plc pulled out of talks to buy the New York-based bank. Bank of America, the biggest U.S. consumer bank, instead agreed to acquire Merrill Lynch for about $50 billion, as losses on difficult-to-value securities tied to mortgages claimed another of America's oldest financial companies.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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Sept. 16 (Bloomberg) -- Volatility implied by dollar-yen options expiring in one month rose to the highest in six months after Lehman Brothers Holdings Inc. filed for bankruptcy and Bank of America Corp. agreed to acquire Merrill Lynch & Co.
Traders bought options known as straddles to hedge against declines in the dollar on speculation credit-market losses will prompt a reduction in so-called carry trades, said Takeharu Miki, currency options manager at Bank of Tokyo-Mitsubishi UFJ Ltd. The premium for dollar put options that grant the right to sell over call options that allow purchases widened to the most in two months, showing more risk of weakness in the U.S. currency.
``People are in a panic to buy volatility,'' said Miki of Bank of Tokyo-Mitsubishi UFJ, a unit of Japan's biggest publicly listed lender by assets. ``News on Lehman and Merrill is pretty bearish for the dollar and bullish for the yen. I've been in the market for 15 years and I've never seen a counterparty the size of Lehman completely disappear.''
The dollar fell to 104.04 yen, the lowest since July 16, and traded at 104.39 yen at 12:47 p.m. in Tokyo from 104.66 late yesterday in New York and 107.94 at the end of last week.
In carry trades investors borrow in countries with low interest rates and buy higher-yielding assets elsewhere. The risk is that currency market moves erase those profits. Japan's 0.5 percent benchmark rate compares with 2 percent in the U.S.
Implied volatility for one-month dollar-yen options rose to 17.86 percent, the highest since March 19, and was last quoted at 17.61 percent from 17.24 percent late yesterday. Volatility may rise to 20 percent should the dollar approach 100 yen, Miki said.
The one-month 25-delta risk reversal rate widened to minus 4.07 percent, the largest premium on dollar puts over calls since July 16. Delta measures the rate of change in an option's value relative to moves in the underlying currency.
`Caught Out'
Traders bought one-month straddles, call and put options with the same strike price and duration, for a volatility of 18.3 percent, Miki said. Holders of straddles benefit from large moves in the underlying currencies. Dealers quote implied volatility, a measure of expectations for future price swings, as part of pricing options.
Traders also entered three-month risk reversals by selling dollar calls and buying puts at a 4.7 percent premium, he said.
``People in the interbank market who were short in dollar puts got caught out,'' Miki said. ``The dollar is down three yen from the end of last week, and that's quite a surprise.''
Lehman, a 158-year-old firm, filed for the biggest bankruptcy in history yesterday after Bank of America and Barclays Plc pulled out of talks to buy the New York-based bank. Bank of America, the biggest U.S. consumer bank, instead agreed to acquire Merrill Lynch for about $50 billion, as losses on difficult-to-value securities tied to mortgages claimed another of America's oldest financial companies.
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.net
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AIG's Ratings Cut by S&P, Moody's, Threatening Quest for Funds
By Hugh Son
More Photos/Details
Sept. 16 (Bloomberg) -- American International Group Inc.'s credit ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.
The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
AIG Chief Executive Officer Robert Willumstad has tried to raise cash to prevent the cuts, which may trigger more than $13 billion in collateral calls from debt investors who bought swaps, the insurer said in an Aug. 6 filing. AIG's shares plunged 61 percent yesterday in New York trading, dragging the company's market value to $12.8 billion.
Wall Street's biggest firms convened at the New York Federal Reserve for a fourth consecutive day, this time to discuss AIG, which sold the banks and other investors protection on $441 billion of fixed-income assets, including $57.8 billion in securities tied to subprime mortgages.
``I don't know of a major bank that doesn't have some significant exposure to AIG,'' said Kenneth Lewis, chief executive officer of Bank of America Corp., in a CNBC interview. An AIG collapse would ``be a much bigger problem than most that we've looked at,'' he said.
AIG has declined 92 percent this year in New York trading, making it the worst performer in the Dow Jones Industrial Average.
Credit Ratings Cut
The MSCI Asia-Pacific Index declined 4.4 percent, the biggest drop since January today, as investors fled to the safety of Treasuries. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''
The ratings assessor also lowered AIG's short-term counterparty credit rating by two levels to A-2 from the top A-1+ rating, and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries by three notches to A+ from AA+. The ratings remain on watch for a possible further downgrade, S&P said.
AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3. Moody's said in a statement that its decision was made ``in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures.'' Moody's placed AIG's long-term and Prime-1 short- term ratings on review for possible downgrades.
Calling for Collateral
``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''
A downgrade of AIG's long-term senior debt ratings to A1 by Moody's and A+ by S&P would permit counterparties to make additional calls for up to approximately $13.3 billion of collateral, while a downgrade to A2 by Moody's, and to A by S&P would permit counterparties to call for approximately $1.2 billion of additional collateral, AIG said in the Aug. 6 filing.
``If either of Moody's or S&P downgraded AIG's ratings to A1 or A+, respectively, the estimated collateral call would be for up to approximately $10.5 billion, while a downgrade to A2 or A, respectively, by either of the two rating agencies would permit counterparties to call for up to approximately $1.1 billion of additional collateral,'' the filing said.
AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps with $4.6 billion in payments, AIG had said.
$20 Billion Lifeline
The Fed urged AIG to seek private capital and discouraged the insurer from expecting a loan from the central bank, according to two people with knowledge of the discussions. Goldman and JPMorgan are working with AIG to determine how much the New York-based insurer needs, said two more people, all of whom declined to be identified because negotiations are private.
The loan would involve temporary financing, a so-called bridge loan, through a syndicate of banks, and there's no assurance an agreement will be worked out, one of the people said.
``We're still working on a number of alternatives,'' said Nicholas Ashooh, spokesman for AIG. JPMorgan's Brian Marchiony and Goldman's Lucas van Praag declined to comment.
AIG was given special permission to access $20 billion of capital in its subsidiaries to free liquidity, New York Governor David Paterson said yesterday. The move gives the insurer time to work on securing more capital, he said.
Writedowns
The insurer ``needs immediate access to capital'' and will be able to swap illiquid assets to free up holdings at its subsidiaries, Paterson said. Each time AIG uses assets as collateral for cash loans, the insurance department will examine the transaction to protect policyholders.
``We have seen some of the companies that serve as the bedrock of our financial system unraveling before our eyes,'' Paterson said.
The Fed has hired Morgan Stanley to examine alternatives for AIG, a person familiar with the situation said. Morgan Stanley will review what role, if any, the government should play in helping the insurer, said the person, who declined to be identified because the talks are confidential.
``The bigger problem here is that AIG is a bigger balance sheet, the tentacles go further and we don't have the same relationship between the Fed and an insurance company as we do with some of the others,'' said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. in a Bloomberg Television interview.
Disposals Expected
AIG may report writedowns of $30 billion resulting in its ``worst quarter yet'' for the period ending Sept. 30 if Lehman Brothers Holdings Inc.'s bankruptcy leads to distressed sales of mortgage assets, providing lower market values for AIG's holdings, Citigroup Inc. analyst Joshua Shanker said yesterday in a note. He downgraded AIG to ``hold'' from ``buy.''
The company may consider selling units including American General Finance, AIG's consumer lender, which could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.25 billion, based on today's share price.
Bank of America analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp., which could sell for $7 billion to $14 billion.
Fannie, Freddie
AIG rejected investments from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co., people familiar with the talks said. Billionaire Warren Buffett's Berkshire Hathaway Inc., is no longer talking with AIG about an investment in the insurer, CNBC reported today, citing people familiar with the situation it didn't identified.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said on Aug. 7.
Last week, the U.S. Treasury seized Fannie Mae and Freddie Mac, the two biggest sources of funding for U.S. mortgages, wiping out most of the value of their shares. AIG had $550 million to $600 million of preferred shares in the companies, said a person who declined to be identified because the insurer hadn't made a formal announcement.
Hurricane Ike, which struck Texas Sept. 13, may also pressure AIG, costing insurers $6 billion to $18 billion, the most since the record storm season of 2005, according to firms that specialize in gauging the effects of disasters.
AIG's former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, has ``repeatedly offered'' to assist the firm, his spokesman Glen Rochkind said yesterday.
Greenberg, 83, saw his holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
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More Photos/Details
Sept. 16 (Bloomberg) -- American International Group Inc.'s credit ratings were downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.
The ratings reductions occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
AIG Chief Executive Officer Robert Willumstad has tried to raise cash to prevent the cuts, which may trigger more than $13 billion in collateral calls from debt investors who bought swaps, the insurer said in an Aug. 6 filing. AIG's shares plunged 61 percent yesterday in New York trading, dragging the company's market value to $12.8 billion.
Wall Street's biggest firms convened at the New York Federal Reserve for a fourth consecutive day, this time to discuss AIG, which sold the banks and other investors protection on $441 billion of fixed-income assets, including $57.8 billion in securities tied to subprime mortgages.
``I don't know of a major bank that doesn't have some significant exposure to AIG,'' said Kenneth Lewis, chief executive officer of Bank of America Corp., in a CNBC interview. An AIG collapse would ``be a much bigger problem than most that we've looked at,'' he said.
AIG has declined 92 percent this year in New York trading, making it the worst performer in the Dow Jones Industrial Average.
Credit Ratings Cut
The MSCI Asia-Pacific Index declined 4.4 percent, the biggest drop since January today, as investors fled to the safety of Treasuries. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''
The ratings assessor also lowered AIG's short-term counterparty credit rating by two levels to A-2 from the top A-1+ rating, and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries by three notches to A+ from AA+. The ratings remain on watch for a possible further downgrade, S&P said.
AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3. Moody's said in a statement that its decision was made ``in light of the continuing deterioration in the U.S. housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures.'' Moody's placed AIG's long-term and Prime-1 short- term ratings on review for possible downgrades.
Calling for Collateral
``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''
A downgrade of AIG's long-term senior debt ratings to A1 by Moody's and A+ by S&P would permit counterparties to make additional calls for up to approximately $13.3 billion of collateral, while a downgrade to A2 by Moody's, and to A by S&P would permit counterparties to call for approximately $1.2 billion of additional collateral, AIG said in the Aug. 6 filing.
``If either of Moody's or S&P downgraded AIG's ratings to A1 or A+, respectively, the estimated collateral call would be for up to approximately $10.5 billion, while a downgrade to A2 or A, respectively, by either of the two rating agencies would permit counterparties to call for up to approximately $1.1 billion of additional collateral,'' the filing said.
AIG has already posted $16.5 billion in collateral through July 31. A downgrade could also set off early termination of swaps with $4.6 billion in payments, AIG had said.
$20 Billion Lifeline
The Fed urged AIG to seek private capital and discouraged the insurer from expecting a loan from the central bank, according to two people with knowledge of the discussions. Goldman and JPMorgan are working with AIG to determine how much the New York-based insurer needs, said two more people, all of whom declined to be identified because negotiations are private.
The loan would involve temporary financing, a so-called bridge loan, through a syndicate of banks, and there's no assurance an agreement will be worked out, one of the people said.
``We're still working on a number of alternatives,'' said Nicholas Ashooh, spokesman for AIG. JPMorgan's Brian Marchiony and Goldman's Lucas van Praag declined to comment.
AIG was given special permission to access $20 billion of capital in its subsidiaries to free liquidity, New York Governor David Paterson said yesterday. The move gives the insurer time to work on securing more capital, he said.
Writedowns
The insurer ``needs immediate access to capital'' and will be able to swap illiquid assets to free up holdings at its subsidiaries, Paterson said. Each time AIG uses assets as collateral for cash loans, the insurance department will examine the transaction to protect policyholders.
``We have seen some of the companies that serve as the bedrock of our financial system unraveling before our eyes,'' Paterson said.
The Fed has hired Morgan Stanley to examine alternatives for AIG, a person familiar with the situation said. Morgan Stanley will review what role, if any, the government should play in helping the insurer, said the person, who declined to be identified because the talks are confidential.
``The bigger problem here is that AIG is a bigger balance sheet, the tentacles go further and we don't have the same relationship between the Fed and an insurance company as we do with some of the others,'' said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co. in a Bloomberg Television interview.
Disposals Expected
AIG may report writedowns of $30 billion resulting in its ``worst quarter yet'' for the period ending Sept. 30 if Lehman Brothers Holdings Inc.'s bankruptcy leads to distressed sales of mortgage assets, providing lower market values for AIG's holdings, Citigroup Inc. analyst Joshua Shanker said yesterday in a note. He downgraded AIG to ``hold'' from ``buy.''
The company may consider selling units including American General Finance, AIG's consumer lender, which could fetch more than $6 billion if the unit sold for twice its book value. AIG Investments could sell for more than $3 billion if it sold for 2.5 percent of clients' assets under management. The company's stake in reinsurer Transatlantic Holdings Inc. is worth about $2.25 billion, based on today's share price.
Bank of America analyst Alain Karaoglan said Willumstad, 63, should reconsider the decision to keep its aircraft-leasing unit, International Lease Finance Corp., which could sell for $7 billion to $14 billion.
Fannie, Freddie
AIG rejected investments from buyout firms KKR & Co., TPG Inc. and J.C. Flowers & Co., people familiar with the talks said. Billionaire Warren Buffett's Berkshire Hathaway Inc., is no longer talking with AIG about an investment in the insurer, CNBC reported today, citing people familiar with the situation it didn't identified.
The insurer raised $20.3 billion in May by selling debt and equity, diluting the holdings of long-time investors. It's ``very hard to predict'' if AIG will need more capital, Willumstad said on Aug. 7.
Last week, the U.S. Treasury seized Fannie Mae and Freddie Mac, the two biggest sources of funding for U.S. mortgages, wiping out most of the value of their shares. AIG had $550 million to $600 million of preferred shares in the companies, said a person who declined to be identified because the insurer hadn't made a formal announcement.
Hurricane Ike, which struck Texas Sept. 13, may also pressure AIG, costing insurers $6 billion to $18 billion, the most since the record storm season of 2005, according to firms that specialize in gauging the effects of disasters.
AIG's former CEO and Chairman Maurice ``Hank'' Greenberg, who controls the largest stake in the insurer, has ``repeatedly offered'' to assist the firm, his spokesman Glen Rochkind said yesterday.
Greenberg, 83, saw his holdings decline by $3.1 billion last week. He controls 11 percent of AIG shares through two investment firms and personal holdings.
To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net
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Yen Rises to Two-Month High on Signs Credit Losses May Spread
By Stanley White and Ron Harui
Sept. 16 (Bloomberg) -- The yen rose to a two-month high against the dollar and the Swiss franc advanced for a third day as American International Group Inc. had its credit ratings lowered, fueling concern that financial turmoil will spread after the collapse of Lehman Brothers Holdings Inc.
The yen jumped to the highest in more than two years against the Australian and New Zealand dollars as a global stocks rout encouraged investors to cut so-called carry trades, in which they fund purchases of higher-yielding assets overseas with Japan's currency. Asian stocks fell the most in eight months and U.S. shares yesterday posted their biggest decline since the September 2001 terrorist attacks.
``Yen gains look set to continue,'' said Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo and a former Bank of Japan currency trader. ``News flow from the financial sector is a negative for risk assets and will lead to more downside for carry trades.''
The yen rose to 103.93 versus the dollar at 8:02 a.m. in London from 104.66 late in New York yesterday, breaching the 104 level for the first time since July 16. Yamamoto forecast the currency may strengthen to 102 this week. Against the euro, the yen rose 0.8 percent to 147.92.
The dollar was at $1.4226 per euro from $1.4243 yesterday, when it reached $1.4481, the lowest since Sept. 4. It weakened to 1.1118 against the Swiss franc from 1.1159.
South Korea's won slumped as much as 4.9 percent to 1,166.20 per dollar, a four-year low, on speculation overseas investors will sell more of the nation's stocks and repatriate funds. The Kospi share index dropped 6.1 percent, the most since August 2007.
`End of the World'
The yen gained 2.8 percent to 82.06 versus the Australian dollar and 1.9 percent to 67.67 against the New Zealand dollar as investors reduced carry trades on concern currency-market moves will erase their profits.
Japan's 0.5 percent target lending rate compares with 4.25 percent in Europe, 7 percent in Australia and 7.5 percent in New Zealand. The MSCI Asia-Pacific Index of regional stocks fell 3.7 percent on speculation credit losses will slow global growth.
``It's the end of the world as we know it, at least that is how it feels,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The main beneficiary has been the yen, which is not a surprise being the typical risk aversion play and the prospect that Japanese outflow to foreign markets dries up.''
Futures on the Chicago Board of Trade showed a 68 percent chance the Federal Reserve will lower its 2 percent target rate for overnight lending between banks by a quarter-percentage point when it meets today, compared with no chance a week ago. Policy makers are scheduled to announce their decision at 2:15 p.m. in Washington.
Yield Spreads
Treasuries extended the biggest rally since the Sept. 11 attacks, pushing the 10-year note's yield down 3 basis points to 3.38 percent. The yield advantage of the benchmark 10-year note over comparable-maturity Japanese government securities decreased to 1.85 percentage points today, the narrowest since October 1993, making the U.S. securities less attractive.
Lehman filed for bankruptcy after Bank of America Corp. and Barclays Plc pulled out of talks to buy the New York-based bank. Bank of America, the biggest U.S. consumer bank, instead agreed to acquire Merrill Lynch & Co. for about $50 billion, as the credit crisis claimed another of America's oldest financial companies.
``It's hard to imagine anything more cataclysmic than this,'' said Alan Ruskin, head of international currency strategy at RBS Greenwich Capital Markets in Greenwich, Connecticut. ``It will be hard to top that kind of news flow. The yen hasn't looked so good for quite a while.''
Currency Volatility
AIG, the largest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. after it was turned away by the Fed, according to people familiar with the situation. S&P cut the insurer's long-term counterparty rating to A- from AA-.
Implied volatility on one-month euro-dollar options reached 14.46 percent today, the highest level since the aftermath of the Sept. 11, 2001, terrorists attacks, indicating traders see more price fluctuation in the next month. Volatility on one- month dollar-yen options touched 18.28 percent today, the highest since March 19.
The dollar rose 1.9 percent to 1.8149 Brazilian real yesterday and 1.4 percent to 10.7424 Mexican pesos as U.S. investors repatriated capital and bought Treasuries.
``The vicious cycle of the credit crunch causing a slowdown in the U.S. economy will continue,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital, Britain's third- biggest lender. ``For the dollar, there will be a flight to quality into Treasuries.''
The dollar has gained about 11 percent since touching an all-time low of $1.6038 per euro on July 15, sliding as the European economy slowed and crude oil dropped more than a third from its July peak of $147.27 a barrel.
``The appetite for the U.S. dollar has not reversed,'' said Jack Spitz, a managing director of foreign exchange at National Bank of Canada in Toronto. ``Risk reduction provides support.''
To contact the reporter on this story: Stanley White in Tokyo at swhite28@bloomberg.netRon Harui in Tokyo at rharui@bloomberg.net
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Gold Falls as Investors Seek Cash Amid U.S. Financial Turmoil
By Feiwen Rong and Glenys Sim
Sept. 16 (Bloomberg) -- Gold declined for the first day in three as some investors sold the precious metal to raise cash after U.S. stocks tumbled on increased speculation that credit- market losses and the economic slowdown will worsen.
Bullion dropped from its highest in a week after U.S. stocks slumped yesterday by the most since the September 2001 terrorist attacks. The precious metal had jumped 5.4 percent in the past two days.
``In the short-term when disaster happens, some people rush to the door to liquidate whatever they can, be it gold or other assets to raise cash or to cover margin calls,'' Ellison Chu, manager of precious metals at Standard Bank Asia Ltd., said today by phone from Hong Kong.
Gold for immediate delivery fell 1.4 percent to $775.40 an ounce at 12:43 p.m. in Singapore after earlier rising to $788.10 an ounce, the highest in a week. Silver for immediate delivery fell 3.1 percent to $10.77 an ounce.
``Bullion will trade in a volatile range,'' Chu added. ``The whole Lehman bankruptcy news made people worry about the U.S. dollar, which is supportive for gold.''
The dollar traded near a two-month low against the yen on speculation the Federal Reserve will cut the target lending rate today after Lehman filed for bankruptcy.
December-delivery gold fell 1.3 percent to $776.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 1:02 p.m. in Singapore.
Gold for August delivery traded in Tokyo was down 0.7 percent at 2,600 yen a gram ($774 an ounce) at the same time, while Shanghai gold for December delivery was higher at 172.60 yuan a gram ($786 an ounce).
To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net
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Sept. 16 (Bloomberg) -- Gold declined for the first day in three as some investors sold the precious metal to raise cash after U.S. stocks tumbled on increased speculation that credit- market losses and the economic slowdown will worsen.
Bullion dropped from its highest in a week after U.S. stocks slumped yesterday by the most since the September 2001 terrorist attacks. The precious metal had jumped 5.4 percent in the past two days.
``In the short-term when disaster happens, some people rush to the door to liquidate whatever they can, be it gold or other assets to raise cash or to cover margin calls,'' Ellison Chu, manager of precious metals at Standard Bank Asia Ltd., said today by phone from Hong Kong.
Gold for immediate delivery fell 1.4 percent to $775.40 an ounce at 12:43 p.m. in Singapore after earlier rising to $788.10 an ounce, the highest in a week. Silver for immediate delivery fell 3.1 percent to $10.77 an ounce.
``Bullion will trade in a volatile range,'' Chu added. ``The whole Lehman bankruptcy news made people worry about the U.S. dollar, which is supportive for gold.''
The dollar traded near a two-month low against the yen on speculation the Federal Reserve will cut the target lending rate today after Lehman filed for bankruptcy.
December-delivery gold fell 1.3 percent to $776.50 an ounce in after-hours electronic trading on the Comex division of the New York Mercantile Exchange at 1:02 p.m. in Singapore.
Gold for August delivery traded in Tokyo was down 0.7 percent at 2,600 yen a gram ($774 an ounce) at the same time, while Shanghai gold for December delivery was higher at 172.60 yuan a gram ($786 an ounce).
To contact the reporters on this story: Feiwen Rong in Singapore at frong2@bloomberg.net; Glenys Sim in Singapore at gsim4@bloomberg.net
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Asian Stocks, Dollar Drop, Japanese Bonds Gain, on Lehman, AIG
By Chua Kong Ho and Shani Raja
More Photos/Details
Sept. 16 (Bloomberg) -- Asian stocks plunged, the dollar fell and Japanese bonds rose as debt-rating downgrades threatened American International Group Inc.'s efforts to survive a credit-market slump.
Mitsubishi UFJ Financial Group Inc. and Aozora Bank Ltd. led the steepest decline by Japan's banks since 1987's ``Black Monday'' on concern the bankruptcy of Lehman Brothers Holdings Inc. will add to loan losses. AIG plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since the September 2001 terrorist attacks. Oil fell to a seven-month low and the cost to protect corporate bonds from default surged.
``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide.''
The MSCI Asia Pacific Index declined 4.2 percent to 110.79 at 3:01 p.m. in Tokyo, the biggest decline since Jan. 22. Benchmark indexes in Japan, Hong Kong, South Korea, Taiwan and the Philippines retreated more than 4 percent. The dollar fell 0.8 percent to 103.82, the lowest since July 16. It was little changed at $1.4244 per euro.
South Korea's Kospi Index tumbled 6.1 percent. The won slumped 4.6 percent to 1,160 per dollar, leading declines in emerging-market currencies. Vice Finance Minister Kim Dong Soo said the government may provide more funds to help stabilize financial markets.
Policy Makers Act
Taiwan's government instructed its four major funds and state-owned banks to buy shares, the Bank of Japan added 2.5 trillion yen ($24 billion) to the financial system and China yesterday cut interest rates for the first time in six years.
Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, meaning investors had their first opportunity to react to Lehman's bankruptcy today. At least seven Japanese banks lent the company a total of $1.62 billion, according to the Chapter 11 filing by Lehman.
Mitsubishi UFJ fell 7.7 percent to 792 yen, while Aozora Bank dropped 16 percent to 171 yen. The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after the ``Black Monday'' global stock market crash. U.S. stocks tumbled yesterday, pushing the Standard & Poor's 500 Index down 4.7 percent. S&P 500 futures lost 0.4 percent today.
Lehman Exposure
In South Korea, Kookmin Bank, the nation's largest, dropped 8 percent to 55,300 won, while Woori Finance Holdings Co., which controls the nation's second-biggest bank, fell 14 percent to 13,050 won. South Korea's Financial Services Commission said yesterday the country's firms have invested about $720 million in loans and securities linked to Lehman.
Oil fell 3.8 percent to $92.08 on the New York Mercantile Exchange, sending energy producers lower. Inpex Holdings Inc., Japan's largest oil explorer, plunged 11 percent to 894,000 yen. Woodside Petroleum Ltd., Australia's second-biggest oil and gas producer, slid 3.2 percent to A$50.36.
AIG, the biggest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation. S&P cut the insurer's long-term counterparty rating to A- from AA-.
`Brave Souls'
``Any brave souls who step up out there and buy today may well be seen as heroes in two or three years time,'' said Prasad Patkar, who helps manage the equivalent of about $1.8 billion at Platypus Asset Management in Sydney. ``There's an old saying which says `sell when the victory bugles are sounding, and buy when the canons are firing.' Well, the canons are firing.''
Japanese five-year government bond yields fell 7.5 basis points to 1.04 percent. Yields on U.S. two-year notes dropped 1 basis point, or 0.01 percentage point, to 1.72 percent, according to bond broker BGCantor Market Data. Futures contracts on the Chicago Board of Trade indicate the odds of a quarter- point Fed rate cut today surged to 68 percent from zero percent a week ago.
The cost to protect Japanese company debt from default increased the most since 2004, credit default swaps show. The Markit iTraxx Japan index rose 45 basis points to 175 compared with the end of trading on Sept. 12, Morgan Stanley data shows.
Credit-default swaps protect bonds against default and traders use them to speculate on changes in credit quality. They pay the buyer face value in exchange for the underlying securities should a company fail to adhere to debt agreements.
``The financial crisis continues to look worse and not better,'' said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, who helps invest $2.8 billion. ``The Fed will cut to try to calm the financial waters. I see yields falling.''
The Australian and New Zealand dollars dropped to the weakest in more than two years against the yen as investors lost appetite for higher-yielding assets. The Australian dollar fell 2.8 percent to 82.51 yen, from 84.91 yen in late Asian trading. New Zealand's currency declined to 67.99 yen from 69.21 yen.
``It's the end of the world as we know it, at least that is how it feels,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The main beneficiary has been the yen.''
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
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More Photos/Details
Sept. 16 (Bloomberg) -- Asian stocks plunged, the dollar fell and Japanese bonds rose as debt-rating downgrades threatened American International Group Inc.'s efforts to survive a credit-market slump.
Mitsubishi UFJ Financial Group Inc. and Aozora Bank Ltd. led the steepest decline by Japan's banks since 1987's ``Black Monday'' on concern the bankruptcy of Lehman Brothers Holdings Inc. will add to loan losses. AIG plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since the September 2001 terrorist attacks. Oil fell to a seven-month low and the cost to protect corporate bonds from default surged.
``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide.''
The MSCI Asia Pacific Index declined 4.2 percent to 110.79 at 3:01 p.m. in Tokyo, the biggest decline since Jan. 22. Benchmark indexes in Japan, Hong Kong, South Korea, Taiwan and the Philippines retreated more than 4 percent. The dollar fell 0.8 percent to 103.82, the lowest since July 16. It was little changed at $1.4244 per euro.
South Korea's Kospi Index tumbled 6.1 percent. The won slumped 4.6 percent to 1,160 per dollar, leading declines in emerging-market currencies. Vice Finance Minister Kim Dong Soo said the government may provide more funds to help stabilize financial markets.
Policy Makers Act
Taiwan's government instructed its four major funds and state-owned banks to buy shares, the Bank of Japan added 2.5 trillion yen ($24 billion) to the financial system and China yesterday cut interest rates for the first time in six years.
Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, meaning investors had their first opportunity to react to Lehman's bankruptcy today. At least seven Japanese banks lent the company a total of $1.62 billion, according to the Chapter 11 filing by Lehman.
Mitsubishi UFJ fell 7.7 percent to 792 yen, while Aozora Bank dropped 16 percent to 171 yen. The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after the ``Black Monday'' global stock market crash. U.S. stocks tumbled yesterday, pushing the Standard & Poor's 500 Index down 4.7 percent. S&P 500 futures lost 0.4 percent today.
Lehman Exposure
In South Korea, Kookmin Bank, the nation's largest, dropped 8 percent to 55,300 won, while Woori Finance Holdings Co., which controls the nation's second-biggest bank, fell 14 percent to 13,050 won. South Korea's Financial Services Commission said yesterday the country's firms have invested about $720 million in loans and securities linked to Lehman.
Oil fell 3.8 percent to $92.08 on the New York Mercantile Exchange, sending energy producers lower. Inpex Holdings Inc., Japan's largest oil explorer, plunged 11 percent to 894,000 yen. Woodside Petroleum Ltd., Australia's second-biggest oil and gas producer, slid 3.2 percent to A$50.36.
AIG, the biggest U.S. insurer by assets, may be propped up by $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co., according to people familiar with the situation. S&P cut the insurer's long-term counterparty rating to A- from AA-.
`Brave Souls'
``Any brave souls who step up out there and buy today may well be seen as heroes in two or three years time,'' said Prasad Patkar, who helps manage the equivalent of about $1.8 billion at Platypus Asset Management in Sydney. ``There's an old saying which says `sell when the victory bugles are sounding, and buy when the canons are firing.' Well, the canons are firing.''
Japanese five-year government bond yields fell 7.5 basis points to 1.04 percent. Yields on U.S. two-year notes dropped 1 basis point, or 0.01 percentage point, to 1.72 percent, according to bond broker BGCantor Market Data. Futures contracts on the Chicago Board of Trade indicate the odds of a quarter- point Fed rate cut today surged to 68 percent from zero percent a week ago.
The cost to protect Japanese company debt from default increased the most since 2004, credit default swaps show. The Markit iTraxx Japan index rose 45 basis points to 175 compared with the end of trading on Sept. 12, Morgan Stanley data shows.
Credit-default swaps protect bonds against default and traders use them to speculate on changes in credit quality. They pay the buyer face value in exchange for the underlying securities should a company fail to adhere to debt agreements.
``The financial crisis continues to look worse and not better,'' said Marc Fovinci, head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon, who helps invest $2.8 billion. ``The Fed will cut to try to calm the financial waters. I see yields falling.''
The Australian and New Zealand dollars dropped to the weakest in more than two years against the yen as investors lost appetite for higher-yielding assets. The Australian dollar fell 2.8 percent to 82.51 yen, from 84.91 yen in late Asian trading. New Zealand's currency declined to 67.99 yen from 69.21 yen.
``It's the end of the world as we know it, at least that is how it feels,'' said Greg Gibbs, a currency strategist at ABN Amro Holdings NV in Sydney. ``The main beneficiary has been the yen.''
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
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Palm Oil Drops for Second Day to 17-Month Low as Crude Declines
By Jae Hur and Yoga Rusmana
Sept. 16 (Bloomberg) -- Palm oil futures in Malaysia fell for a second day to the lowest in 17 months after crude oil tumbled below $92 a barrel, eroding demand prospects for biofuel made from vegetable oil.
Crude oil declined for a second day to the lowest in seven months on concern that turmoil on Wall Street may hurt the global economy and reduce demand for fuels and raw materials. Vegetable oils, used mostly in food and biofuels, often track the performance of crude.
``This is a natural consequence of demand concern,'' said James Gruber, an analyst at CLSA Asia Pacific Markets, in Jakarta. ``Deflation is the biggest risk right now for the global economy and that has a direct impact on the demand side of commodities.
Futures for November delivery dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton on the Malaysian Derivatives Exchange, the lowest since April 2007. The contract was at 2,095 ringgit at the midday break, more than halving from the record 4,486 ringgit in March.
The drop today is ``mainly because of the decline in crude oil prices and also negative sentiment on the commodity markets that we have seen in the past weeks,'' Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas, said in Jakarta.
Crude oil had its biggest two-day drop in almost four years after Lehman Brothers Holdings Inc., once the fourth-biggest U.S. investment bank, yesterday sought bankruptcy protection. Merrill Lynch & Co., the world's biggest brokerage firm, also agreed to sell itself to Bank of America Corp.
China, the world's biggest vegetable oil consumer, imported 360,000 tons of palm oil in August, the country's customs office said today, citing preliminary data. Palm oil imports were 491,255 tons in July and 533,897 tons in August last year, Bloomberg data shows.
State Trading Corp., India's second-biggest government- owned trading company, called bids to import as much as 12,000 tons of palm oil. STC is seeking refined, bleached and deodorized palm olein between Sept. 20 and Oct. 10.
To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net
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Sept. 16 (Bloomberg) -- Palm oil futures in Malaysia fell for a second day to the lowest in 17 months after crude oil tumbled below $92 a barrel, eroding demand prospects for biofuel made from vegetable oil.
Crude oil declined for a second day to the lowest in seven months on concern that turmoil on Wall Street may hurt the global economy and reduce demand for fuels and raw materials. Vegetable oils, used mostly in food and biofuels, often track the performance of crude.
``This is a natural consequence of demand concern,'' said James Gruber, an analyst at CLSA Asia Pacific Markets, in Jakarta. ``Deflation is the biggest risk right now for the global economy and that has a direct impact on the demand side of commodities.
Futures for November delivery dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton on the Malaysian Derivatives Exchange, the lowest since April 2007. The contract was at 2,095 ringgit at the midday break, more than halving from the record 4,486 ringgit in March.
The drop today is ``mainly because of the decline in crude oil prices and also negative sentiment on the commodity markets that we have seen in the past weeks,'' Merlissa Paramitha Trisno, an analyst at PT Mandiri Sekuritas, said in Jakarta.
Crude oil had its biggest two-day drop in almost four years after Lehman Brothers Holdings Inc., once the fourth-biggest U.S. investment bank, yesterday sought bankruptcy protection. Merrill Lynch & Co., the world's biggest brokerage firm, also agreed to sell itself to Bank of America Corp.
China, the world's biggest vegetable oil consumer, imported 360,000 tons of palm oil in August, the country's customs office said today, citing preliminary data. Palm oil imports were 491,255 tons in July and 533,897 tons in August last year, Bloomberg data shows.
State Trading Corp., India's second-biggest government- owned trading company, called bids to import as much as 12,000 tons of palm oil. STC is seeking refined, bleached and deodorized palm olein between Sept. 20 and Oct. 10.
To contact the reporters on this story: Jae Hur in Singapore at jhur1@bloomberg.net; Yoga Rusmana in Jakarta at yrusmana@bloomberg.net
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Crude Oil Drops Below $92 as Lehman Adds to Demand Concern
By Christian Schmollinger
Sept. 16 (Bloomberg) -- Crude oil tumbled below $92 a barrel, its biggest two-day drop in almost four years, on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials.
Oil fell as much as 4.3 percent today after Lehman Brothers Holdings Inc., once the fourth-largest U.S. investment bank, yesterday sought bankruptcy protection, sending U.S. stocks to their steepest drop since the September 2001 terrorist attacks. Gold fell for the first day in three.
``It's just total panic,'' said Jonathan Kornafel, a director for Asia at Hudson Capital Energy in Singapore. ``People are paring down positions thinking this is just a big meltdown. Everyone is saying the world is coming to an end and there will be no more demand for oil.''
Crude oil for October delivery fell as much as $4.15, or 4.3 percent, to $91.56 a barrel. It was at $92.43 at 2:38 p.m. Singapore time on the New York Mercantile Exchange, the lowest intraday price since Feb. 11. Oil has declined 4.4 percent this year and dropped 38 percent from the record $147.27 a barrel reached on July 11.
Gasoline for October delivery fell for a second day, declining as much as 8.52 cents, or 3.3 percent, to $2.4762 a gallon in New York.
``Prices were too high because we're looking at a recession, we're looking at demand dropping,'' Peter Beutel, president of energy consultants Cameron Hanover Inc. in Stamford, Connecticut, said in an interview with Bloomberg Television. ``Oil is not a safe haven.''
Lehman Suspended
CME Group Inc., the world's largest futures market, and its Nymex unit, said Lehman ``continues to meet all of its obligations'' and is operating as normal. Options Clearing Corp., which guarantees all trades in the $1.6 trillion U.S. options market, also said Lehman remains in good standing.
Lehman Brothers was suspended from energy and commodities trading in London.
The plunge in oil, cotton and copper led to the Reuters/Jefferies CRB Index of 19 commodities erasing its gains for the year. The CRB index fell 3.3 percent to 348.26 yesterday, down 2.9 percent for the year.
Gold declined as some investors sold the precious metal to raise cash after U.S. stocks tumbled.
Gold for immediate delivery fell 1 percent to $778.63 an ounce at 9:49 a.m. in Singapore after earlier rising to $788.10 an ounce, the highest in a week. Silver for immediate delivery dropped 1.8 percent to $10.93 an ounce.
Pessimistic Sentiment
``We're seeing extremely pessimistic investor sentiment on the backdrop of the further deterioration of the global economic outlook,'' Yingxi Yu, a commodity analyst with Barclays Capital in Singapore, said in an interview with Bloomberg Television.
Brent crude oil for November settlement fell as much as $4.44, or 4.7 percent, to $89.80 a barrel on London's ICE Futures Europe exchange. It was at $91.03 a barrel at 2:41 p.m. Singapore time.
Prices have dropped 14 straight days, the longest stretch since Brent futures were introduced in 1988.
Texas oil refiners may need weeks to restore normal operations as utilities struggle to restore power after Hurricane Ike swept through the region.
Exxon Mobil Corp., the world's biggest oil company, said its Beaumont, Texas, refinery took the ``most serious hit'' of its plants, from a wall of water pushed ashore by Ike. Marathon Oil Corp.'s Texas City, Texas, plant is without power and water.
Production Idled
A total of 14 Texas and Louisiana refineries, with combined crude-oil processing capacity of 3.57 million barrels a day, are shut because of Ike, the U.S. Energy Department said yesterday.
The International Energy Agency, an energy adviser to 27 industrialized countries, said it is analyzing the impact of Ike on oil, gas and refinery output and may release emergency stockpiles if called upon. The IEA coordinated the release of crude oil and fuel supplies after Hurricanes Katrina and Rita struck the U.S. Gulf Coast in 2005.
U.S. crude-oil and fuel inventories probably fell last week because of Ike, a Bloomberg News survey of analysts showed. The Energy Department is scheduled to release its weekly petroleum supply report on Sept. 17.
To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.
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Corn, Soybeans Drop For Second Day on AIG Woes, Lehman Collapse
By Jae Hur
Sept. 16 (Bloomberg) -- Corn and soybeans fell for a second day amid concern the ratings downgrade of American International Group Inc. will worsen turmoil that led to the collapse of Lehman Brothers Holdings Inc. and reduce demand for food and fuel.
Corn for December delivery lost as much as 2.1 percent and soybeans for fell 1.7 percent in after-hours electronic trading in Chicago. Oil tumbled below $92 a barrel to a seven-month low, reducing the appeal for grains as a source of biofuels. Asian stocks plunged the most in eight months and the dollar fell the most since July 16.
``Like other commodities, grains are capped by growing concern over the financial market,'' said Shuji Sugata, research manager at Mitsubishi Corp. Futures & Securities Ltd. in Tokyo. ``That has prompted investors to take money out from risk assets and fundamentals will play only after this concern calms down.''
AIG plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since Sept. 11 terrorist attacks. The UBS-Bloomberg Constant Maturity Commodity Index of 26 raw materials fell as much as 3.2 percent yesterday to the lowest since Jan. 28 after Lehman sought court protection and Bank of America Corp. agreed to buy Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion in shares.
Corn futures lost as much as 12.25 cents to $5.4975 a bushel and was at $5.505 at 1:26 p.m. Singapore time. Futures have fallen 31 percent from a record $7.9925 on June 27.
Soybeans for November delivery traded at $11.53. The futures, which declined 1.9 percent yesterday, have slid 30 percent from a peak $16.3675 on July 3.
Crude for October delivery declined as much as 4.3 percent to $91.56 a barrel, the lowest since Feb. 11, and was at $91.65.
Wheat for December delivery dropped 0.7 percent to $7.19 a bushel by 1:29 p.m. Singapore time. Futures have fallen 47 percent from a record $13.495 set on Feb. 27.
Australia, the world's sixth-largest wheat exporter, may harvest 5 percent less of the grain than forecast because of dry weather. Production may be 22.5 million tons, the Australian Bureau of Agricultural and Resource Economics said today. That compares with its June forecast of 23.7 million tons and last year's drought-reduced crop of 13 million tons.
To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net
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Hong Kong Stocks Fall to Two-Year Low on AIG Downgrade, Lehman
By Hanny Wan
Sept. 16 (Bloomberg) -- Hong Kong stocks fell, dragging the benchmark index to the lowest level in two years, after credit turmoil caused a debt-rating downgrade of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.
HSBC Holdings Plc, Europe's biggest bank, lost 3.2 percent as Lehman's Hong Kong units suspended their operations and the head of the city's monetary authority warned of a ``severe crisis.'' Cnooc Ltd., China's third-largest oil company, declined 8.5 percent after crude-oil prices dropped to a seven-month low.
Investors are ``aggressively moving cash to the safest places to be,'' said Adam Tejpaul, head of Asia investments at JPMorgan Chase & Co.'s private bank unit, which oversees more than $400 billion in global assets. ``It's not yet time to buy. You'll continue to see a bit of volatility in the coming days.''
The Hang Seng Index lost 943.81, or 4.9 percent, to 18,409.09 as of 2:59 p.m. local time, headed for its lowest close since Oct. 31, 2006. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies, slid 6 percent to 9,374.97.
HSBC retreated 3.2 percent to HK$118.20. Sino Land Co., a real-estate developer, plunged 9.3 percent to HK$10.16, set for its lowest close since Jan. 9, 2006. China Shenhua Energy Co., the country's biggest coal producer, sank 12 percent to HK$19.18. Industrial & Commercial Bank of China Ltd., the nation's biggest bank by market value, lost 7.1 percent to HK$4.46.
Biggest Bankruptcy Filing
AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. The downgrades occurred after two people familiar with the situation said the company is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
Lehman, the fourth-largest U.S. investment bank, became the latest victim of the subprime mortgage crisis after it was forced into the biggest bankruptcy filing in history.
Three Lehman units suspended operations in Hong Kong with immediate effect, it said in a statement. Operations have been halted, including trading on the city's securities and futures exchanges, at Lehman Brothers Asia Ltd., Lehman Brothers Securities Asia Ltd. and Lehman Brothers Futures Asia Ltd., an e- mailed statement said. Lehman Brothers Asset Management Ltd., ``will continue to operate on a business as usual basis.''
``This is a severe crisis,'' said Joseph Yam, chief executive of the Hong Kong Monetary Authority. ``There'll be a negative impact on the Hong Kong financial market for sure. We expect to see volatility in prices but there should be no structural problems.''
Oil Plummets
Cnooc lost 8.5 percent to HK$8.57. PetroChina Co., the nation's largest oil producer, retreated 6.6 percent to HK$8.03.
Crude oil futures plunged 5.4 percent to $95.71 a barrel in New York yesterday, the lowest settlement price since Feb. 15. The contract was recently at $92.42 in after-hours trading.
All stocks on the 43-member Hang Seng Index declined. September futures slipped 4.6 percent to 18,424.
The following stocks rose or fell. Stock symbols are in brackets after company names.
Chinese real-estate companies: Shimao Property Holdings Ltd. (813 HK), the Chinese developer controlled by billionaire Xu Rongmao, sank 61 cents, or 10 percent, to HK$5.30, the steepest slump since March 17. China Overseas Land & Investment Ltd. (688 HK), a developer controlled by China's construction ministry, lost 35 cents, or 3.8 percent, to HK$8.78.
Property prices in China grew at the slowest pace in 18 months, the nation's top economic planning agency said. Prices in 70 major cities across the nation rose by 5.3 percent in August from a year earlier, compared with 7 percent growth in July, the National Development and Reform Commission said.
Hanny Holdings Ltd. (275 HK), a computer-products maker, tumbled 4 Hong Kong cents, or 60 percent, to 2.7 cents, after a three-day suspension. The company will consolidate every 50 shares into one new share, and then offer stockholders four new shares for each consolidated share held, raising as much as HK$231.2 million ($34 million) for ``general working capital'' purposes, according to a stock exchange filing dated Sept. 12.
Mongolia Energy Corp. (276 HK), a minerals explorer, retreated 10 cents, or 2.3 percent, to HK$4.34, after climbing as much as 8.6 percent. The company agreed July 31 to take a 20 percent stake in a group tendering for the Ergel XII oil and gas exploration block in Mongolia. The group won the bid to explore the area, measuring 1.2 million hectares, in the East Govi Basin near the border with China, the Hong Kong-based company said Sept. 12.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net.
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Sept. 16 (Bloomberg) -- Hong Kong stocks fell, dragging the benchmark index to the lowest level in two years, after credit turmoil caused a debt-rating downgrade of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.
HSBC Holdings Plc, Europe's biggest bank, lost 3.2 percent as Lehman's Hong Kong units suspended their operations and the head of the city's monetary authority warned of a ``severe crisis.'' Cnooc Ltd., China's third-largest oil company, declined 8.5 percent after crude-oil prices dropped to a seven-month low.
Investors are ``aggressively moving cash to the safest places to be,'' said Adam Tejpaul, head of Asia investments at JPMorgan Chase & Co.'s private bank unit, which oversees more than $400 billion in global assets. ``It's not yet time to buy. You'll continue to see a bit of volatility in the coming days.''
The Hang Seng Index lost 943.81, or 4.9 percent, to 18,409.09 as of 2:59 p.m. local time, headed for its lowest close since Oct. 31, 2006. The Hang Seng China Enterprises Index, which tracks so-called H shares of Chinese companies, slid 6 percent to 9,374.97.
HSBC retreated 3.2 percent to HK$118.20. Sino Land Co., a real-estate developer, plunged 9.3 percent to HK$10.16, set for its lowest close since Jan. 9, 2006. China Shenhua Energy Co., the country's biggest coal producer, sank 12 percent to HK$19.18. Industrial & Commercial Bank of China Ltd., the nation's biggest bank by market value, lost 7.1 percent to HK$4.46.
Biggest Bankruptcy Filing
AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat. The downgrades occurred after two people familiar with the situation said the company is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
Lehman, the fourth-largest U.S. investment bank, became the latest victim of the subprime mortgage crisis after it was forced into the biggest bankruptcy filing in history.
Three Lehman units suspended operations in Hong Kong with immediate effect, it said in a statement. Operations have been halted, including trading on the city's securities and futures exchanges, at Lehman Brothers Asia Ltd., Lehman Brothers Securities Asia Ltd. and Lehman Brothers Futures Asia Ltd., an e- mailed statement said. Lehman Brothers Asset Management Ltd., ``will continue to operate on a business as usual basis.''
``This is a severe crisis,'' said Joseph Yam, chief executive of the Hong Kong Monetary Authority. ``There'll be a negative impact on the Hong Kong financial market for sure. We expect to see volatility in prices but there should be no structural problems.''
Oil Plummets
Cnooc lost 8.5 percent to HK$8.57. PetroChina Co., the nation's largest oil producer, retreated 6.6 percent to HK$8.03.
Crude oil futures plunged 5.4 percent to $95.71 a barrel in New York yesterday, the lowest settlement price since Feb. 15. The contract was recently at $92.42 in after-hours trading.
All stocks on the 43-member Hang Seng Index declined. September futures slipped 4.6 percent to 18,424.
The following stocks rose or fell. Stock symbols are in brackets after company names.
Chinese real-estate companies: Shimao Property Holdings Ltd. (813 HK), the Chinese developer controlled by billionaire Xu Rongmao, sank 61 cents, or 10 percent, to HK$5.30, the steepest slump since March 17. China Overseas Land & Investment Ltd. (688 HK), a developer controlled by China's construction ministry, lost 35 cents, or 3.8 percent, to HK$8.78.
Property prices in China grew at the slowest pace in 18 months, the nation's top economic planning agency said. Prices in 70 major cities across the nation rose by 5.3 percent in August from a year earlier, compared with 7 percent growth in July, the National Development and Reform Commission said.
Hanny Holdings Ltd. (275 HK), a computer-products maker, tumbled 4 Hong Kong cents, or 60 percent, to 2.7 cents, after a three-day suspension. The company will consolidate every 50 shares into one new share, and then offer stockholders four new shares for each consolidated share held, raising as much as HK$231.2 million ($34 million) for ``general working capital'' purposes, according to a stock exchange filing dated Sept. 12.
Mongolia Energy Corp. (276 HK), a minerals explorer, retreated 10 cents, or 2.3 percent, to HK$4.34, after climbing as much as 8.6 percent. The company agreed July 31 to take a 20 percent stake in a group tendering for the Ergel XII oil and gas exploration block in Mongolia. The group won the bid to explore the area, measuring 1.2 million hectares, in the East Govi Basin near the border with China, the Hong Kong-based company said Sept. 12.
To contact the reporter on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net.
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France Stocks Update: CAC 40 Falls 64.34 to 4,104.63
By Daniel Hauck
Sep. 16 (Bloomberg) -- France's benchmark stock index, the CAC 40, fell 1.54 percent at 9:05 a.m.
The index of 39 companies traded on the Paris Bourse fell 64.34 to 4,104.63. Among the stocks in the index, 3 rose and 36 fell.
Declines in the CAC 40 were led by Total Sa, Bnp Paribas and Gdf Suez. About 4.85 million shares traded in the CAC 40.
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Sep. 16 (Bloomberg) -- France's benchmark stock index, the CAC 40, fell 1.54 percent at 9:05 a.m.
The index of 39 companies traded on the Paris Bourse fell 64.34 to 4,104.63. Among the stocks in the index, 3 rose and 36 fell.
Declines in the CAC 40 were led by Total Sa, Bnp Paribas and Gdf Suez. About 4.85 million shares traded in the CAC 40.
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Japan Stocks Dive to 3-Year Low on Lehman, AIG Capital Concern
By Masaki Kondo and Toshiro Hasegawa
Sept. 16 (Bloomberg) -- Japanese stocks plunged to a three- year low after growing credit turmoil caused the failure of Lehman Brothers Holdings Inc. and endangered a plan to raise emergency capital by American International Group Inc.
Aozora Bank Ltd. tumbled 16 percent, the most since its listing, after a filing showed it was Lehman's biggest creditor. Tokio Marine Holdings Inc. led a gauge of insurers to the biggest drop since Oct. 20, 1987, the day after ``Black Monday,'' after AIG's debt ratings were cut as it sought fresh funding. Inpex Holdings Inc., Japan's biggest oil explorer, fell by a record after crude sank to a seven-month low.
The Nikkei 225 Stock Average dropped 605.04, or 5 percent, to close at 11,609.72 in Tokyo, a level not seen since July 2005. The broader Topix index fell 59.63, or 5.1 percent, to 1,117.57, the lowest since May 2005. All 33 Topix industry groups declined. Japan's market was closed yesterday for a national holiday.
``If AIG collapses, the impact would be much bigger than that of Lehman's failure,'' said Tomokatsu Mori, who oversees about $935 million at Fukoku Capital Management Inc. ``AIG is a lender to businesses and is very close to the heart of the U.S. financial system. Nobody can buy back into the market until uncertainty surrounding AIG is cleared.''
Lehman, once the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history yesterday, becoming the latest casualty of the subprime mortgage crisis. Its Japanese unit filed for protection today with 3.4 trillion yen ($33 billion) in liabilities.
AIG, the largest U.S. insurer by assets, had its credit ratings cut by Standard & Poor's and Moody's Investors Service. The downgrades occurred after two people familiar with the situation said AIG is seeking as much as $75 billion in loans.
Lehman Creditors
Aozora dived 16 percent, the most since its November 2006 listing, to 171 yen, even after saying its exposure to Lehman was overstated in the U.S. company's bankruptcy filing. Shinsei Bank Ltd., which was owed $231 million by Lehman, tumbled 16 percent to 314 yen. The Topix Banks Index fell the most since May 2004.
At least seven Japanese banks lent a total of $1.62 billion to Lehman, according to the U.S. company's Chapter 11 filing. Among the largest unsecured creditors are Aozora, which was owed $463 million, and Mizuho Corporate Bank Ltd., a unit of Mizuho Financial Group Inc., according to Lehman's filing.
``Investors feel there is no way out of this stalemate,'' said Hideo Arimura, who oversees the equivalent $1.9 billion at Mizuho Asset Management Co. in Tokyo. ``Nobody knows exactly how Lehman's failure will affect financial institutions globally. That's why Japanese banks are being sold.''
Tokio Marine, Japan's biggest insurance group, tumbled 13 percent to 3,230 yen, while closest rival T&D Holdings Inc. lost 6.3 percent to 5,220 yen. Sompo Japan Insurance Inc. slid 11 percent to 849 yen. Insurers as a group lost the most since ``Black Monday'' in October 1987 when global stock markets plunged.
Tumbling Oil
Inpex lost 11 percent to 894,000 yen, its sharpest retreat since its April 2006 listing and the lowest value since October 2006. Mitsui & Co., a trading company that gets half its profit from commodities, declined 12 percent to 1,429 yen.
Crude oil tumbled below $92 a barrel to a seven-month low on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels.
Canon Inc., Japan's biggest office-equipment maker, plummeted 10 percent, the steepest decline since October 1998, to 3,840 yen. Canon will probably post a 12 percent drop in annual profit this year, the Nikkei newspaper reported on Sept. 13.
Train operator Odakyu Electric Railway Co. rose 5.5 percent to 792 yen, making it the second-biggest winner on the Nikkei 225, and Tobu Railway Co. gained 3.2 percent to 516 yen. Yakult Honsha Co., Japan's biggest maker of fermented milk drinks, advanced 4.6 percent to 3,220 yen, the sharpest jumped since Jan. 25.
``With the situation deteriorating to this degree, the only measure investors can take is to buy defensive shares'' such as food makers, Mizuho Asset's Arimura said.
Nikkei futures expiring in December retreated 5.6 percent to 11,580 in Osaka and slumped 5.1 percent to 11,600 in Singapore.
To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.
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Sept. 16 (Bloomberg) -- Japanese stocks plunged to a three- year low after growing credit turmoil caused the failure of Lehman Brothers Holdings Inc. and endangered a plan to raise emergency capital by American International Group Inc.
Aozora Bank Ltd. tumbled 16 percent, the most since its listing, after a filing showed it was Lehman's biggest creditor. Tokio Marine Holdings Inc. led a gauge of insurers to the biggest drop since Oct. 20, 1987, the day after ``Black Monday,'' after AIG's debt ratings were cut as it sought fresh funding. Inpex Holdings Inc., Japan's biggest oil explorer, fell by a record after crude sank to a seven-month low.
The Nikkei 225 Stock Average dropped 605.04, or 5 percent, to close at 11,609.72 in Tokyo, a level not seen since July 2005. The broader Topix index fell 59.63, or 5.1 percent, to 1,117.57, the lowest since May 2005. All 33 Topix industry groups declined. Japan's market was closed yesterday for a national holiday.
``If AIG collapses, the impact would be much bigger than that of Lehman's failure,'' said Tomokatsu Mori, who oversees about $935 million at Fukoku Capital Management Inc. ``AIG is a lender to businesses and is very close to the heart of the U.S. financial system. Nobody can buy back into the market until uncertainty surrounding AIG is cleared.''
Lehman, once the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history yesterday, becoming the latest casualty of the subprime mortgage crisis. Its Japanese unit filed for protection today with 3.4 trillion yen ($33 billion) in liabilities.
AIG, the largest U.S. insurer by assets, had its credit ratings cut by Standard & Poor's and Moody's Investors Service. The downgrades occurred after two people familiar with the situation said AIG is seeking as much as $75 billion in loans.
Lehman Creditors
Aozora dived 16 percent, the most since its November 2006 listing, to 171 yen, even after saying its exposure to Lehman was overstated in the U.S. company's bankruptcy filing. Shinsei Bank Ltd., which was owed $231 million by Lehman, tumbled 16 percent to 314 yen. The Topix Banks Index fell the most since May 2004.
At least seven Japanese banks lent a total of $1.62 billion to Lehman, according to the U.S. company's Chapter 11 filing. Among the largest unsecured creditors are Aozora, which was owed $463 million, and Mizuho Corporate Bank Ltd., a unit of Mizuho Financial Group Inc., according to Lehman's filing.
``Investors feel there is no way out of this stalemate,'' said Hideo Arimura, who oversees the equivalent $1.9 billion at Mizuho Asset Management Co. in Tokyo. ``Nobody knows exactly how Lehman's failure will affect financial institutions globally. That's why Japanese banks are being sold.''
Tokio Marine, Japan's biggest insurance group, tumbled 13 percent to 3,230 yen, while closest rival T&D Holdings Inc. lost 6.3 percent to 5,220 yen. Sompo Japan Insurance Inc. slid 11 percent to 849 yen. Insurers as a group lost the most since ``Black Monday'' in October 1987 when global stock markets plunged.
Tumbling Oil
Inpex lost 11 percent to 894,000 yen, its sharpest retreat since its April 2006 listing and the lowest value since October 2006. Mitsui & Co., a trading company that gets half its profit from commodities, declined 12 percent to 1,429 yen.
Crude oil tumbled below $92 a barrel to a seven-month low on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels.
Canon Inc., Japan's biggest office-equipment maker, plummeted 10 percent, the steepest decline since October 1998, to 3,840 yen. Canon will probably post a 12 percent drop in annual profit this year, the Nikkei newspaper reported on Sept. 13.
Train operator Odakyu Electric Railway Co. rose 5.5 percent to 792 yen, making it the second-biggest winner on the Nikkei 225, and Tobu Railway Co. gained 3.2 percent to 516 yen. Yakult Honsha Co., Japan's biggest maker of fermented milk drinks, advanced 4.6 percent to 3,220 yen, the sharpest jumped since Jan. 25.
``With the situation deteriorating to this degree, the only measure investors can take is to buy defensive shares'' such as food makers, Mizuho Asset's Arimura said.
Nikkei futures expiring in December retreated 5.6 percent to 11,580 in Osaka and slumped 5.1 percent to 11,600 in Singapore.
To contact the reporters for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.
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Asian Stocks Extend Global Rout on AIG Downgrade; Banks Fall
By Chua Kong Ho and Shani Raja
Sept. 16 (Bloomberg) -- Asian stocks plunged the most in eight months, extending a global rout, as credit turmoil caused a debt-rating downgrade of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.
Mitsubishi UFJ Financial Group Inc. slumped 7.7 percent, leading the steepest decline by Japanese banks since 1987, on concern loan losses will increase. Babcock & Brown Ltd., among Australia's biggest losers from the credit crisis, sank 34 percent. AIG, seeking funds to avoid bankruptcy, plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since September 2001. Nippon Mining Holdings Inc. lost 7.1 percent as oil and copper dropped.
``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide because commodities were down quite sharply last night too.''
The MSCI Asia Pacific Index declined 4.47, or 3.9 percent, to 111.14 at 3:49 p.m. in Tokyo, the biggest drop since Jan. 22. All 10 industry groups fell on the measure, which was set for its lowest close since Nov. 15, 2005. Japan's Nikkei 225 Stock Average dropped 5 percent to 11,609.72, its lowest since July 8, 2005. All Asian markets open for trading fell.
South Korea's Kospi Index tumbled 6.1 percent and index futures plunged, prompting a five-minute halt in program trading. The country said it may provide more funds to help stabilize financial markets. Taiwan asked funds and banks to buy shares to boost the island's equities.
Global Rout
The Bank of Japan added 1.5 trillion yen ($14.4 billion) into the financial system, while China cut interest rates for the first time in six years as weakening exports dimmed the outlook for growth. Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, when the MSCI Asia Pacific excluding Japan Index retreated 1.9 percent.
U.S. stocks tumbled, pushing the Standard & Poor's 500 Index down 4.7 percent, the most since the Sept. 11, 2001 terrorist attacks. S&P 500 futures lost 0.4 percent today.
Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis.
At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman. Mitsubishi UFJ fell 7.7 percent to 792 yen, while Sumitomo Mitsui Financial Group Inc. declined 9.8 percent to 619,000 yen.
Lehman Investments
The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after ``Black Monday,'' when stock markets crashed around the world.
Babcock & Brown tumbled 34 percent to A$1.05. The stock has lost 96 percent this year after global credit markets seized up, cutting off access to cheap loans to finance acquisitions of ports, power stations and airports, which Babcock bundles into funds it manages.
Woori Finance Holdings Co., which controls South Korea's second-biggest bank, plunged a record 14 percent to 13,050 won. The country's firms have invested about $720 million in loans and securities linked to Lehman, regulators said yesterday.
Taiwan's Cathay Financial Holding Co. tumbled by its 6.9 percent limit to NT$51.30. The island has NT$80 billion ($2.5 billion) tied to Lehman-related securities.
AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.
`Systemic Risk'
The ratings downgrades occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''
Nippon Mining, Japan's biggest copper producer, dropped 7.1 percent to 459 yen. Korea Zinc Co., the world's second-biggest zinc refiner, retreated 4.4 percent to 108,000 won, the lowest since Jan. 30 in Seoul. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, fell 3.2 percent to A$50.36.
Crude oil in New York tumbled in after-hours trading by as much as $4.15 a barrel to a seven-month low of $91.56 a barrel. Copper fell 2 percent, adding to yesterday's 1.8 percent drop. The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 2.5 percent, erasing this year's gain.
PT Astra Agro Lestari, Indonesia's largest publicly traded plantation company, sank 12 percent to 10,800 rupiah, the biggest loss since October 2002. PT Perusahaan Perkebunan London Sumatra Indonesia, the second biggest, declined 10 percent to 2,825 rupiah. Palm oil futures dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton in Kuala Lumpur.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
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Sept. 16 (Bloomberg) -- Asian stocks plunged the most in eight months, extending a global rout, as credit turmoil caused a debt-rating downgrade of American International Group Inc. and the collapse of Lehman Brothers Holdings Inc.
Mitsubishi UFJ Financial Group Inc. slumped 7.7 percent, leading the steepest decline by Japanese banks since 1987, on concern loan losses will increase. Babcock & Brown Ltd., among Australia's biggest losers from the credit crisis, sank 34 percent. AIG, seeking funds to avoid bankruptcy, plunged 61 percent yesterday in New York, part of the biggest tumble in U.S. stocks since September 2001. Nippon Mining Holdings Inc. lost 7.1 percent as oil and copper dropped.
``You're going to get a massive flight to safety,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``Banking stocks are guilty by association. There's no place to hide because commodities were down quite sharply last night too.''
The MSCI Asia Pacific Index declined 4.47, or 3.9 percent, to 111.14 at 3:49 p.m. in Tokyo, the biggest drop since Jan. 22. All 10 industry groups fell on the measure, which was set for its lowest close since Nov. 15, 2005. Japan's Nikkei 225 Stock Average dropped 5 percent to 11,609.72, its lowest since July 8, 2005. All Asian markets open for trading fell.
South Korea's Kospi Index tumbled 6.1 percent and index futures plunged, prompting a five-minute halt in program trading. The country said it may provide more funds to help stabilize financial markets. Taiwan asked funds and banks to buy shares to boost the island's equities.
Global Rout
The Bank of Japan added 1.5 trillion yen ($14.4 billion) into the financial system, while China cut interest rates for the first time in six years as weakening exports dimmed the outlook for growth. Markets in Japan, China, Hong Kong and South Korea were shut for public holidays yesterday, when the MSCI Asia Pacific excluding Japan Index retreated 1.9 percent.
U.S. stocks tumbled, pushing the Standard & Poor's 500 Index down 4.7 percent, the most since the Sept. 11, 2001 terrorist attacks. S&P 500 futures lost 0.4 percent today.
Lehman, the fourth-largest U.S. investment bank, was forced into the biggest bankruptcy filing in history, becoming the latest victim of the subprime mortgage crisis.
At least seven Japanese banks lent a total of $1.62 billion, according to the Chapter 11 filing by Lehman. Mitsubishi UFJ fell 7.7 percent to 792 yen, while Sumitomo Mitsui Financial Group Inc. declined 9.8 percent to 619,000 yen.
Lehman Investments
The 84-stock Topix Banks Index fell as much as 10 percent, the most since October 20, 1987, the day after ``Black Monday,'' when stock markets crashed around the world.
Babcock & Brown tumbled 34 percent to A$1.05. The stock has lost 96 percent this year after global credit markets seized up, cutting off access to cheap loans to finance acquisitions of ports, power stations and airports, which Babcock bundles into funds it manages.
Woori Finance Holdings Co., which controls South Korea's second-biggest bank, plunged a record 14 percent to 13,050 won. The country's firms have invested about $720 million in loans and securities linked to Lehman, regulators said yesterday.
Taiwan's Cathay Financial Holding Co. tumbled by its 6.9 percent limit to NT$51.30. The island has NT$80 billion ($2.5 billion) tied to Lehman-related securities.
AIG, the biggest U.S. insurer by assets, had its credit ratings downgraded by Standard & Poor's and Moody's Investors Service, threatening efforts to raise emergency funds to keep the company afloat.
`Systemic Risk'
The ratings downgrades occurred after two people familiar with the situation said that the biggest U.S. insurer by assets is seeking $70 billion to $75 billion in loans arranged by Goldman Sachs Group Inc. and JPMorgan Chase & Co. to replenish capital.
``AIG poses a systemic risk because it's a large counterparty in the financial system,'' said Prasad Patkar, who helps manage the equivalent of $1.8 billion at Platypus Asset Management in Sydney. ``It's too big to be allowed to fail.''
Nippon Mining, Japan's biggest copper producer, dropped 7.1 percent to 459 yen. Korea Zinc Co., the world's second-biggest zinc refiner, retreated 4.4 percent to 108,000 won, the lowest since Jan. 30 in Seoul. Woodside Petroleum Ltd., Australia's No. 2 oil and gas producer, fell 3.2 percent to A$50.36.
Crude oil in New York tumbled in after-hours trading by as much as $4.15 a barrel to a seven-month low of $91.56 a barrel. Copper fell 2 percent, adding to yesterday's 1.8 percent drop. The Reuters/Jefferies CRB Index of 19 raw materials declined as much as 2.5 percent, erasing this year's gain.
PT Astra Agro Lestari, Indonesia's largest publicly traded plantation company, sank 12 percent to 10,800 rupiah, the biggest loss since October 2002. PT Perusahaan Perkebunan London Sumatra Indonesia, the second biggest, declined 10 percent to 2,825 rupiah. Palm oil futures dropped as much as 6.7 percent to 2,090 ringgit ($605) a metric ton in Kuala Lumpur.
To contact the reporter for this story: Chua Kong Ho in Shanghai at kchua6@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
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BASF, Deutsche Bank, Siemens, Lufthansa: German Equity Preview
By Holger Elfes and Stefanie Haxel
Sept. 16 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.
DAX Index futures expiring in September dropped 103, or 1.7 percent, to 5,946.5 as of 8:08 a.m. in Frankfurt. The DAX fell 2.7 percent to 6,064.16.
BASF SE (BAS GY): Moody's Investors Service is reviewing long-term credit ratings on the world's largest chemical maker for downgrade after BASF agreed to buy Ciba Holding AG. The shares dropped 1.57 euros, or 4.2 percent, to 36.24.
Continental AG (CON GY): Credit Suisse Group AG lowered its recommendation for Europe's second-largest car-parts maker to ``neutral'' from ``outperform.'' Continental shares slipped 43 cents, or 0.6 percent, to 73.50 euros.
Daimler AG (DAI GY): The world's second-largest maker of luxury cars is being pressed by institutional investors to sell its truck unit, Handelsblatt said, citing SEB Asset Management and DWS fund managers. The shares declined 1.75 euros, or 4.3 percent, to 38.90.
Deutsche Bank AG (DBK GY): Germany's biggest lender is among European bank stocks that investors should avoid because they may be counterparties to bankrupt Lehman Brothers Holdings Inc., according to analysts at JPMorgan Chase & Co. Deutsche Bank shares fell 3.69 euros, or 6.4 percent, to 54.21 euros.
E.ON AG (EOAN GY): HSBC Holdings Plc rated Germany's biggest utility ``overweight'' in new coverage. The shares sank 79 cents, or 2.2 percent, to 35.72 euros.
Lufthansa AG (LHA GY): Europe's second-largest airline, which today agreed to buy 45 percent of Brussels Airlines, may be a preferred buyer for Alitalia SpA. Lufthansa shares dropped 20.5 cents, or 1.4 percent, to 14.835 euros.
Porsche SE (PAH3 GY): Credit Suisse upgraded the maker of the 911 sports car to ``outperform'' from ``underperform.'' The shares retreated 5.45 euros, or 6.1 percent, to 84.38 euros.
RWE AG (RWE GY): HSBC Holdings Plc rated the country's second-largest utility ``underweight'' in new coverage. The shares lost 90 cents, or 1.3 percent, to 66.28 euros.
SAP AG (SAP GY): Credit Suisse raised its recommendation for the world's largest maker of business-management software to ``outperform'' from ``neutral.'' The shares gained 86 cents, or 2.3 percent, to 38.15 euros.
Siemens AG (SIE GY): Europe's largest engineering company will sell its Machine Vision business to Spectris Plc, the U.K.'s largest maker of production-testing gear, by the end of the week. Siemens shares fell 89 cents, or 1.3 percent, to 68.57 euros.
To contact the reporter on this story: Holger Elfes in Dusseldorf at helfes@bloomberg.net; Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
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Sept. 16 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in Germany. Stock symbols are in parentheses, and share prices are from the previous close.
DAX Index futures expiring in September dropped 103, or 1.7 percent, to 5,946.5 as of 8:08 a.m. in Frankfurt. The DAX fell 2.7 percent to 6,064.16.
BASF SE (BAS GY): Moody's Investors Service is reviewing long-term credit ratings on the world's largest chemical maker for downgrade after BASF agreed to buy Ciba Holding AG. The shares dropped 1.57 euros, or 4.2 percent, to 36.24.
Continental AG (CON GY): Credit Suisse Group AG lowered its recommendation for Europe's second-largest car-parts maker to ``neutral'' from ``outperform.'' Continental shares slipped 43 cents, or 0.6 percent, to 73.50 euros.
Daimler AG (DAI GY): The world's second-largest maker of luxury cars is being pressed by institutional investors to sell its truck unit, Handelsblatt said, citing SEB Asset Management and DWS fund managers. The shares declined 1.75 euros, or 4.3 percent, to 38.90.
Deutsche Bank AG (DBK GY): Germany's biggest lender is among European bank stocks that investors should avoid because they may be counterparties to bankrupt Lehman Brothers Holdings Inc., according to analysts at JPMorgan Chase & Co. Deutsche Bank shares fell 3.69 euros, or 6.4 percent, to 54.21 euros.
E.ON AG (EOAN GY): HSBC Holdings Plc rated Germany's biggest utility ``overweight'' in new coverage. The shares sank 79 cents, or 2.2 percent, to 35.72 euros.
Lufthansa AG (LHA GY): Europe's second-largest airline, which today agreed to buy 45 percent of Brussels Airlines, may be a preferred buyer for Alitalia SpA. Lufthansa shares dropped 20.5 cents, or 1.4 percent, to 14.835 euros.
Porsche SE (PAH3 GY): Credit Suisse upgraded the maker of the 911 sports car to ``outperform'' from ``underperform.'' The shares retreated 5.45 euros, or 6.1 percent, to 84.38 euros.
RWE AG (RWE GY): HSBC Holdings Plc rated the country's second-largest utility ``underweight'' in new coverage. The shares lost 90 cents, or 1.3 percent, to 66.28 euros.
SAP AG (SAP GY): Credit Suisse raised its recommendation for the world's largest maker of business-management software to ``outperform'' from ``neutral.'' The shares gained 86 cents, or 2.3 percent, to 38.15 euros.
Siemens AG (SIE GY): Europe's largest engineering company will sell its Machine Vision business to Spectris Plc, the U.K.'s largest maker of production-testing gear, by the end of the week. Siemens shares fell 89 cents, or 1.3 percent, to 68.57 euros.
To contact the reporter on this story: Holger Elfes in Dusseldorf at helfes@bloomberg.net; Stefanie Haxel in Frankfurt at shaxel@bloomberg.net.
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Stocks in Europe, Asia Fall on AIG Debt Rating Cuts; UBS Drops
By Adria Cimino
Sept. 16 (Bloomberg) -- Stocks in Europe and Asia fell for a second day and U.S. index futures retreated after Standard & Poor's and Moody's Investors Service cut debt ratings for American International Group Inc., threatening efforts to keep the company afloat.
UBS AG, which took more than $43 billion of subprime-related writedowns, lost 10 percent, while Lloyds TSB Group Plc and Barclays Plc both fell more than 4 percent. Mitsubishi UFJ Financial Group Inc. slumped 8.5 percent. Rio Tinto Group, the world's third-biggest mining company, fell 2.3 percent, and Total SA, Europe's third-largest energy producer, slipped 1.7 percent, following metals and oil prices lower.
The MSCI World Index lost 0.9 percent to 1,225.86 at 8:05 a.m. in London as all 10 industry groups decreased. Futures on the Standard & Poor's 500 Index fell 0.5 percent, while Europe's Dow Jones Stoxx 600 Index declined 1.5 percent. The MSCI Asia Pacific Index decreased 3.8 percent as trading resumed in Japan, China, Hong Kong and South Korea after markets were shut for public holidays yesterday.
``None of the companies have come out and said we're trading fine, business is normal,'' Andy Brough, a fund manager at Schroder Investment Management in London, which has about $12.7 billion under management, said in a Bloomberg Television interview. ``AIG will be the next big test and then you look at the banks.''
The dollar fell against the yen and was little changed against the euro.
Fed Rates
Traders increased bets the U.S. Federal Reserve may cut borrowing costs today. Futures traders put the odds of a quarter point reduction in interest rates at 68 percent, up from zero a week ago.
U.S. stocks slid yesterday, pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.'s bankruptcy increased speculation that credit-market losses will worsen.
``Lehman is the latest episode in a series of dark events,'' said Jean Bruneau, head of sales trading at Societe Generale SA in Paris. ``In a healthy economic system, there is confidence --that confidence is gone.''
UBS lost 10 percent 18.09 francs. Lloyds TSB, the U.K.'s largest provider of checking accounts, lost 4.3 percent to 262 pence. Barclays, the U.K.'s third-biggest bank, retreated 4.4 percent to 302 pence.
Barclays said today it's in talks with Lehman on a possible purchase of certain assets. The bank said it would make a further announcement in due course.
Mitsubishi UFJ fell 8.5 percent to 786 yen, while Sumitomo Mitsui Financial Group Inc. declined 11 percent to 612,000 yen.
AIG Ratings
AIG's credit ratings were downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''
The ratings assessor also lowered AIG's short-term counterparty credit rating and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries. AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3.
Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by S&P because of the deteriorating housing market.
Rio Tinto, Total
Rio Tinto, the world's second-largest iron-ore producer, decreased 2.3 percent to 4,096 pence. Total, Europe's biggest oil refiner, lost 1.6 percent to 42.70 euros.
Copper declined for a second day in Asia. Gold and silver also fell.
Crude oil tumbled below $92 a barrel to a seven-month low and gasoline fell on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials. The contract for October delivery fell as much as 4.3 percent to $91.56 on the New York Mercantile Exchange.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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Sept. 16 (Bloomberg) -- Stocks in Europe and Asia fell for a second day and U.S. index futures retreated after Standard & Poor's and Moody's Investors Service cut debt ratings for American International Group Inc., threatening efforts to keep the company afloat.
UBS AG, which took more than $43 billion of subprime-related writedowns, lost 10 percent, while Lloyds TSB Group Plc and Barclays Plc both fell more than 4 percent. Mitsubishi UFJ Financial Group Inc. slumped 8.5 percent. Rio Tinto Group, the world's third-biggest mining company, fell 2.3 percent, and Total SA, Europe's third-largest energy producer, slipped 1.7 percent, following metals and oil prices lower.
The MSCI World Index lost 0.9 percent to 1,225.86 at 8:05 a.m. in London as all 10 industry groups decreased. Futures on the Standard & Poor's 500 Index fell 0.5 percent, while Europe's Dow Jones Stoxx 600 Index declined 1.5 percent. The MSCI Asia Pacific Index decreased 3.8 percent as trading resumed in Japan, China, Hong Kong and South Korea after markets were shut for public holidays yesterday.
``None of the companies have come out and said we're trading fine, business is normal,'' Andy Brough, a fund manager at Schroder Investment Management in London, which has about $12.7 billion under management, said in a Bloomberg Television interview. ``AIG will be the next big test and then you look at the banks.''
The dollar fell against the yen and was little changed against the euro.
Fed Rates
Traders increased bets the U.S. Federal Reserve may cut borrowing costs today. Futures traders put the odds of a quarter point reduction in interest rates at 68 percent, up from zero a week ago.
U.S. stocks slid yesterday, pushing the Standard & Poor's 500 Index to the steepest drop since the September 2001 terrorist attacks, as Lehman Brothers Holdings Inc.'s bankruptcy increased speculation that credit-market losses will worsen.
``Lehman is the latest episode in a series of dark events,'' said Jean Bruneau, head of sales trading at Societe Generale SA in Paris. ``In a healthy economic system, there is confidence --that confidence is gone.''
UBS lost 10 percent 18.09 francs. Lloyds TSB, the U.K.'s largest provider of checking accounts, lost 4.3 percent to 262 pence. Barclays, the U.K.'s third-biggest bank, retreated 4.4 percent to 302 pence.
Barclays said today it's in talks with Lehman on a possible purchase of certain assets. The bank said it would make a further announcement in due course.
Mitsubishi UFJ fell 8.5 percent to 786 yen, while Sumitomo Mitsui Financial Group Inc. declined 11 percent to 612,000 yen.
AIG Ratings
AIG's credit ratings were downgraded by S&P and Moody's, threatening efforts to raise emergency funds to keep the company afloat. S&P lowered AIG's long-term counterparty rating three grades to A- from AA-, citing a ``combination of reduced flexibility in meeting additional collateral needs and concerns over increasing residential mortgage-related losses.''
The ratings assessor also lowered AIG's short-term counterparty credit rating and cut its counterparty credit and financial strength ratings on most of AIG's insurance operating subsidiaries. AIG's senior unsecured debt rating was downgraded by Moody's to A2 from Aa3.
Washington Mutual Inc., the biggest U.S. savings and loan, had its credit rating cut to junk by S&P because of the deteriorating housing market.
Rio Tinto, Total
Rio Tinto, the world's second-largest iron-ore producer, decreased 2.3 percent to 4,096 pence. Total, Europe's biggest oil refiner, lost 1.6 percent to 42.70 euros.
Copper declined for a second day in Asia. Gold and silver also fell.
Crude oil tumbled below $92 a barrel to a seven-month low and gasoline fell on concern that turmoil on Wall Street may weaken the global economy and reduce demand for fuels and raw materials. The contract for October delivery fell as much as 4.3 percent to $91.56 on the New York Mercantile Exchange.
To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.
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U.K. Stocks Update: FTSE 100 Falls 77.00 to 5,127.20
By Daniel Hauck
Sep. 16 (Bloomberg) -- The U.K.'s benchmark stock index, the FTSE 100, fell 1.48 percent at 8:05 a.m.
The index of 102 stocks traded on the London Stock Exchange fell 77.00 to 5,127.20. Among the stocks in the index, 10 rose, 90 fell and 2 were unchanged.
Declines in the FTSE 100 were led by Hsbc Holdings Plc (Hsba Ln), Royal Bank Of Scotland Group Plc (Rbs Ln) and Anglo American Plc (Aal Ln). About 46.29 million shares traded in the FTSE 100.
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Sep. 16 (Bloomberg) -- The U.K.'s benchmark stock index, the FTSE 100, fell 1.48 percent at 8:05 a.m.
The index of 102 stocks traded on the London Stock Exchange fell 77.00 to 5,127.20. Among the stocks in the index, 10 rose, 90 fell and 2 were unchanged.
Declines in the FTSE 100 were led by Hsbc Holdings Plc (Hsba Ln), Royal Bank Of Scotland Group Plc (Rbs Ln) and Anglo American Plc (Aal Ln). About 46.29 million shares traded in the FTSE 100.
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Discovery Air, Virtek Vision May Move: Canadian Equity Preview
By John Kipphoff
Sept. 16 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading tomorrow. Stock symbols are in parentheses, and share prices are from the previous close.
The Standard & Poor's/TSX Composite Index dropped 4 percent to 13,254.03.
Discovery Air Inc. (DA/A CN): The provider of helicopter transportation and aerial firefighting support in northern Canada reported second-quarter profit that fell 12 percent to C$8.9 million ($8.3 million) from C$10.1 million. Revenue rose 33 percent to C$59.1 million, London, Ontario-based Discovery Air said in a statement distributed by Canada NewsWire. The shares gained 11 percent to 49 cents before trading was halted before the results announcement.
Virtek Vision Ltd. (VRK CN): Jaguar Financial Corp., an investor in companies with small market values, said that it plans to offer C$1.12 a share for Virtek, a maker of precision laser projection systems. The bid will offer better value than an agreed C$1.05 offer from Gerber Scientific Inc., Toronto-based Jaguar Financial (JFC CN) said in a statement on Canada NewsWire.
Virtek shares were unchanged at C$1.03. Jaguar dropped 4.6 percent to 10.5 cents.
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
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Sept. 16 (Bloomberg) -- The following companies may have unusual price changes in Canadian trading tomorrow. Stock symbols are in parentheses, and share prices are from the previous close.
The Standard & Poor's/TSX Composite Index dropped 4 percent to 13,254.03.
Discovery Air Inc. (DA/A CN): The provider of helicopter transportation and aerial firefighting support in northern Canada reported second-quarter profit that fell 12 percent to C$8.9 million ($8.3 million) from C$10.1 million. Revenue rose 33 percent to C$59.1 million, London, Ontario-based Discovery Air said in a statement distributed by Canada NewsWire. The shares gained 11 percent to 49 cents before trading was halted before the results announcement.
Virtek Vision Ltd. (VRK CN): Jaguar Financial Corp., an investor in companies with small market values, said that it plans to offer C$1.12 a share for Virtek, a maker of precision laser projection systems. The bid will offer better value than an agreed C$1.05 offer from Gerber Scientific Inc., Toronto-based Jaguar Financial (JFC CN) said in a statement on Canada NewsWire.
Virtek shares were unchanged at C$1.03. Jaguar dropped 4.6 percent to 10.5 cents.
To contact the reporter on this story: John Kipphoff in Toronto at jkipphoff@bloomberg.net.
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Ecopetrol, Molinos, Pao de Acucar, VCP: Latin Equity Preview
By Paulo Winterstein and James Attwood
Sept. 16 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.
The MSCI Latin America Index tumbled 7.4 percent yesterday to 3,273.90. Markets in Mexico are closed today for a holiday.
Argentina
Molinos Rio de la Plata SA (MOLI AF): Molinos agreed to buy up to 25 million of its own shares, or about 10 percent of shares outstanding, to contain price declines spurred by an international sell off, the Buenos Aires-based agricultural company wrote in statement posted on the regulator's Web site yesterday. Molinos jumped 7.8 percent to 7.65 pesos.
Brazil
Cia. Brasileira de Distribuicao Grupo Pao de Acucar (PCAR4 BS): Brazil's biggest food retailer said August sales at stores open at least a year climbed for a fourth month, rising 17 percent from the year-earlier period. Net sales at all stores rose 29 percent to 1.5 billion reais ($835 million), led by electronics and textiles, Grupo Pao de Acucar said yesterday in a regulatory filing. Pao de Acucar fell 2.7 percent to 33.99 reais.
Petroleo Brasileiro SA (PETR4 BS): Brazil's state-controlled oil company expects exports of its oil and fuels to exceed imports in 2008, the company's refining chief Paulo Roberto Costa said. Petrobras has been increasing diesel output from its domestic refineries and adding vegetable oils into its domestic Brazilian diesel blends, which the company forecasts will keep imports of diesel at 50,000 to 60,000 barrels a day in 2009, Costa told reporters yesterday in Rio de Janeiro. Petrobras dropped 9.7 percent to 29.80 reais.
Votorantim Celulose & Papel SA (VCPA4 BS): The Safra family's plan to participate in the controlling block of a merged VCP and Aracruz Celulose SA ``opens the way for the consolidation of activities between VCP and Aracruz'' and should help VCP stock, Fator Corretora chief analyst Lika Takahashi wrote in a note yesterday. VCP, as Brazil's third-largest pulp producer is known, fell 5.4 percent to 34.95 reais.
Colombia
Ecopetrol SA (ECOPETL CB): Colombia's state-controlled oil producer received a reiterated ``buy'' from Citigroup Inc. on growth prospects. Ecopetrol's planned American depositary receipt listing on Sept. 18 probably will support the share price by increasing investor access and improving information disclosure, Citigroup analysts wrote in a note to clients yesterday. The stock fell 1.9 percent to 2,625 pesos.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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Sept. 16 (Bloomberg) -- The following companies may have unusual price changes today in Latin America trading. Stock symbols are in parentheses, and share prices are from the previous close. Preferred shares are usually the most-traded class of stock in Brazil.
The MSCI Latin America Index tumbled 7.4 percent yesterday to 3,273.90. Markets in Mexico are closed today for a holiday.
Argentina
Molinos Rio de la Plata SA (MOLI AF): Molinos agreed to buy up to 25 million of its own shares, or about 10 percent of shares outstanding, to contain price declines spurred by an international sell off, the Buenos Aires-based agricultural company wrote in statement posted on the regulator's Web site yesterday. Molinos jumped 7.8 percent to 7.65 pesos.
Brazil
Cia. Brasileira de Distribuicao Grupo Pao de Acucar (PCAR4 BS): Brazil's biggest food retailer said August sales at stores open at least a year climbed for a fourth month, rising 17 percent from the year-earlier period. Net sales at all stores rose 29 percent to 1.5 billion reais ($835 million), led by electronics and textiles, Grupo Pao de Acucar said yesterday in a regulatory filing. Pao de Acucar fell 2.7 percent to 33.99 reais.
Petroleo Brasileiro SA (PETR4 BS): Brazil's state-controlled oil company expects exports of its oil and fuels to exceed imports in 2008, the company's refining chief Paulo Roberto Costa said. Petrobras has been increasing diesel output from its domestic refineries and adding vegetable oils into its domestic Brazilian diesel blends, which the company forecasts will keep imports of diesel at 50,000 to 60,000 barrels a day in 2009, Costa told reporters yesterday in Rio de Janeiro. Petrobras dropped 9.7 percent to 29.80 reais.
Votorantim Celulose & Papel SA (VCPA4 BS): The Safra family's plan to participate in the controlling block of a merged VCP and Aracruz Celulose SA ``opens the way for the consolidation of activities between VCP and Aracruz'' and should help VCP stock, Fator Corretora chief analyst Lika Takahashi wrote in a note yesterday. VCP, as Brazil's third-largest pulp producer is known, fell 5.4 percent to 34.95 reais.
Colombia
Ecopetrol SA (ECOPETL CB): Colombia's state-controlled oil producer received a reiterated ``buy'' from Citigroup Inc. on growth prospects. Ecopetrol's planned American depositary receipt listing on Sept. 18 probably will support the share price by increasing investor access and improving information disclosure, Citigroup analysts wrote in a note to clients yesterday. The stock fell 1.9 percent to 2,625 pesos.
To contact the reporters on this story: Paulo Winterstein in Sao Paulo at pwinterstein@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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Merrill's 34 Percent Takeover Gap May Narrow: Chart of the Day
By Zachary R. Mider
Sept. 16 (Bloomberg) -- Merrill Lynch & Co. shares are due to rise relative to Bank of America Corp.'s as traders seeking to profit from a merger of the companies exploit yesterday's late sell-off in financials, said John Orrico, president of Water Island Capital LLC.
The CHART OF THE DAY shows that the gap between Merrill shares and the value of Bank of America's takeover offer jumped to 34 percent from 25 percent in the last 10 minutes of regular New York Stock Exchange composite trading yesterday.
``You had a lot of investors that were just reducing or eliminating their exposure to financials. They're indifferent to the merger,'' said Orrico, a merger arbitrage trader who manages more than $200 million in New York. ``That was more than the arb community could absorb.''
The spread, representing the potential profit to traders who buy Merrill and sell Bank of America short, will probably narrow to 20 percent in the coming days, Orrico said.
The acquisition of New York-based Merrill, valued at $50 billion when it was announced, fell to about $40 billion yesterday because of a decline in Charlotte, North Carolina-based Bank of America's shares.
To contact the reporter on this story: Zachary R. Mider in New York at zmider1@bloomberg.net
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