For the week ending Friday, September 12, 2008, the major U.S. Indices finished up for a week marked with the demise of more financial stocks, sluggish Retail Sales data, a steeper than expected decline in Pending Home Sales, and a looming hurricane in the Gulf of Mexico. Volatility continues to dominate the markets as the Dow posted a 2 day consecutive up/down point move of 569 points on Monday and Tuesday (up 289 and then down 280), its largest 2-day up/down point swing since June 6. The CBOE Volatility Index which measures market uncertainty reached an intraday high of 26.67 on Friday.
Next Week's Highlights: Next week the markets will dissect brokerage earnings of troubled investment bank Lehman Brothers, as well as Goldman Sachs and Morgan Stanley. Other companies reporting include Adobe Systems, Oracle, FedEx, and General Mills. Key Economic data includes Industrial Production, Consumer Price Index, Housing Starts, and the anticipated FOMC Meeting on Tuesday. The energy markets will watch for any disruption to the oil rigs in the Gulf of Mexico, as Hurricane Ike strikes the Texas coast over the weekend.
M&A, Deals, Corp Actions:
Deutsche Bank agreed to acquire nearly a 30% stake in the German retail bank, Postbank for about $3.9 billion. The proposed deal will provide Deutsche Bank a stronger presence in the German retail banking sector. Shares of DB finished almost flat for the week or -0.2%.
Biotechnology company, Imclone Systems rejected Bristol Myers’ acquisition deal of $4.5 billion publicized in July for a more attractive offer of $70/share from another unspecified pharmaceutical company. Shares of Imclone hit a 4-year high at $68.89 on Wednesday, surpassing Bristol Myers’ earlier bid of $60/shares, and closed up 3.1% for the week.
ConocoPhillips announced it will pay up to $7.8 billion for half of the Australia’s Origin Energy coal-seam gas assets. The deal will invalidate a prior offer made by BG Group to acquire Origin Energy valued at $11.2 billion. Shares of ConocoPhillips fell 2.7% for the week.
Gehl Co. a light-construction equipment manufacturer agreed to an acquisition of $360 million by French firm Manitou in a deal that would allow Manitou to expand internationally and broaden its product’s offerings. Shares of Gehl surged 117% for the week on merger news.
Other Market Moving News:
- Financial stocks took another big hit with the S&P Financial sector dropping 2.5% for the week on worries of capital-shortage from financial firms.
- The U.S. government announced a bail-out plan for Fannie Mae and Freddie Mac which includes a $1 billion rescue of each company’s preferred shares, as well as $200 billion injection for both companies to cover losses associated with defaulting mortgages. Common shares of Freddie Mac’s plunged $4.64 or 91% while Fannie Mae plummeted $6.3 or 90% for the week, as the U.S treasury capital infusion did not increase investors’ confidence in these two Government Sponsor Enterprises (GSE). Both FRE and FNM were removed from the S&P 500.
- Lehman Brothers ended talks of raising additional capital with foreign investor Korea Development Bank, while the investment bank seeks other potential buyers such as Bank of America (BAC), Barclays, and HSBC. Lehman Brothers also announced additional plans to sell off most of its commercial real-estate assets to shareholders, as well as give up 55% of its investment management unit, cut dividends by 93%, and forecast a 3Q loss of $3.9 billion. As a result, Lehman shares hit a new 52-week low as its stock traded at an intraday low $3.17/share on Friday and closed at $3.65, its lowest closing price since December 1994, finishing down 78% for the week.
- Washing Mutual was amongst the S&P Financials worst performers as its stock traded at a 22 1/2 year low, reaching an intraday low of $1.75/share on Thursday. Investors’ shorted WaMu’s stock on the notion that the bonds backed by the company are likely to default in the near term. Also, the company ousted Kerry Killinger, replacing him with the new Chief Executive Officer, Alan Fishman.
- American International Group is also facing capital constraints. The insurance firm is pondering selling or spinning off parts of its business units in order to raise capital. Shares of AIG sank to a 52-week low at $11.49/share on Friday, and traded at its worst level since November 1992, shedding 46% for the week.
- The technology sector experienced new product launches from Blackberry maker Research in Motion and tech giant Apple. On Tuesday, Apple’s CEO Steve Jobs introduced a new iPod Nano and Touch Music players. RIMM unveiled a flip version of its Pearl Blackberry which will be available this Fall. New upgrades to Apple's music products did not help Apple's stock, as its shares finished down 7% for the week.