There is a certain air of disbelief on the Street today concerning AIG. Bank of America's analyst epitomized this: "AIG is facing a near-term liquidity issues, as opposed to solvency issues," a report this morning said. All insisted they have plenty of assets to sell.
But that is besides the point: liquidity IS solvency right now. AIG needs to secure short-term funding and quickly execute sales of several of its subsidiaries. JP Morganand Goldman Sachs have been asked to find a way to get them short-term loans.
How much do they need? We don't know; Morgan Stanley estimated this morning that their near-term capital and liquidity needs was in the range of $45-$50 billion. "Thus far AIG has failed to articulate a strategy as to how it plans to fund these needs, leading us to recommend that investors presently stay on the sidelines," Morgan concluded. And this does not even include the additional cost of rolling over debt that is coming due in the coming months.
1) Goldman Sachs reported earnings of $1.81, beat by 10 cents, though revenues were below expectations. Not bad, but remember they made over $6.00 in the same period last year. Investment banking was down 40 percent, Fixed Income, Currency and Commodities down 67 percent, Equities down 50 percent. Down 6 percent pre-open.
The Journal reports today that additional regulation of investment banks, already considered a given, would expand to take into account derivates and how much debt a company could amass. Bottom line: more regulation--and new competition in the form of Bank of America/Merrill Lynch--is definitely coming to investment banks. Little wonder that there is intense speculation that Morgan Stanley and Goldman Sachs may have to do a merger deal with a commercial bank to survive.
2) UBSis the other major topic of discussion. They have significant exposure to mortgage-backed securities in the U.S., and with higher interbank lending rates have also been jumping, affecting all the big European and U.S. banks. Down 14 percent pre-open.
Other major financials trading down: Morgan Stanleydown 14 percent, Wachoviadown 10 percent.
3) As the Fed meets today, considerable debate about cutting rates. The majority want it, but a persistent minority--perhaps 25 percent--believe that with the Fed accepting all sorts of new collateral to provide liquidity, it's not necessary. In fact, hawks on this issue point out that it was the negative interest rate policy that got us into this mess.
4) finally, nobody is even talking about oil--at $91 and change, with airlines up about 5 percent pre-open.
- AIG Struggles to Survive, Shares Plunge Before Hours
- Wachovia CEO Offers Plan for Markets
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