It's A Half-Glass Day

This was written by CNBC producer, Robert Hum.

Some bad and good news today.

Bad news:

Financials continue to lead the weakness today on the heels of Bank of America’searnings report. In late-morning trading, B of A and Citigroup are now down 15 percent each, while many other regional banks are 11 to 15 percent lower.

Also weighing heavily on the group is a report from the NY Times that the U.S. is weighing a plan to convert its current holdings of bank preferred shares into common shares– just as it has done with Citigroup earlier this year. Converting the preferred shares, which the government acquired in exchange for loans made to banks as part of the TARP program, would allow the U.S. to extend further capital to banks without having to ask Congress for additional funding.

Critics claim that this plan would essentially be the first step to nationalizing some of the 19 banks that the U.S. holds a stake in, as the government would become the banks’ biggest common shareholder. Furthermore, a conversion of shares would significantly dilute the equity of current shareholders, essentially cutting the value of their current stake dramatically.

However, despite the losses today the KBW Banking Index is still up 90% from its March lows.

Good news:

While the markets are down 3% today, one positive sign was the flurry of M&A activity announced and/or reported this morning. In addition to the Oracle / Sun Microdeal and the bids for Citigroup’s Nikko Cordial unit (mentioned in the previous post), two other deals were also announced:

1) Pepsi said it would acquire the remaining shares of bottlers Pepsi Bottling Groupand PepsiAmericas for a combined $6 billion. The beverage maker is offering a 17 percent premium over Friday’s close for each of the two bottlers in separate cash and stock deals.

2) In a continuation to the string of deals in the pharmaceuticals sector, GlaxoSmithKline has agreed to buy privately-held dermatology company Stiefel Labsfor as much as $3.6 billion.

Take a look at today’s $23 billion in announced and potential deals:

Monday's Deal Mania

  • Oracle/Sun Micro $7.4 billion
  • Pepsi/Pepsi Bottling & PepsiAmericas $6.0 billion
  • Citigroup/Nikko Cordial Sale $6.0 billion (estimate)
  • GlaxoSmithKline/Stiefel Labs $3.6 billion

Total $23.0 billion




Questions? Comments?