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The end of the traditional investment banking model

Mon, Sep 22 2008, 04:07 GMT
by Eben Esterhuizen

TradeTheNews.com

- Fed to increase liquidity support to Goldman, Merrill and Morgan Stanley: The Fed approved Goldman and Morgan Stanley requests to become bank holding companies, a move that ends the traditional investment banking model. "The move, which will enable the firms to take deposits and buy retail banks more easily in the latest government step to restore calm to chaotic financial markets, puts the last two major U.S. investment banks squarely within the government safety net," wrote The Guardian newspaper. 

- The latest on Paulson's bailout plan: According to reports, the U.S. treasury widened the scope of bailout plan beyond mortgages, with the revised language referring to "troubled assets". There's no sign yet that Congress will delay or derail the $700B proposal, reports the Wall Street Journal. Democrats are looking to add provisions that include increased congressional oversight, additional support for homeowners and changes to bankruptcy laws. "This is not in any way to deprive [Treasury Secretary Henry Paulson] the opportunity to act. We totally understand the gravity of the moment," said Senate Banking Committee Chairman and Connecticut Democrat Chris Dodd. But, he added: "You cannot just turn over $700 billion of taxpayer money and not insist that that taxpayer is going to be protected in this." In related commentary, U.S. House Rep Pelosi said that they will not hand over a $700B "blank check". Presidential candidates Obama and McCain both agree that the bailout plan needs independent oversight.

- Members of the Bank of Japan board agreed that the outlook for the U.S. is considerably uncertain, minutes from the August meeting has shown. "Members shared the view that global financial markets remained unstable due mainly to concerns about further losses that U.S. and European financial institutions might incur," it said. "Members agreed that there was considerable uncertainty regarding when and how the negative-feedback loop between financial markets, asset prices and economic activity would diminish," the minutes said. One member said "the risk that the economy may return onto a growth path later than expected also warranted attention."

- Another money market fund downgraded: Moody's downgraded American Beacon Money Market Portfolio to B, following American Beacon's decision last night to temporarily suspend redemptions of shares of the funds entirely in cash on the redemption date.

- Japan's all industry activity index spikes higher during July: (JP JULY ALL INDUSTRY ACTIVITY INDEX MOM: 0.8% V 0.8% expected, -0.9% prior) The construction index increased 1.3% during July, compared to the previous 1.1% fall.

- Equities: At 23:58 EDT Japan's Nikkei is +1.68%, the S&P/ASX200 is +4.05%, South Korea's KOSPI is +0.50%, Hong Kong's Hang Seng index is +0.98%, and the Shanghai composite index is +6.38%. The S&P500 futures contract lost -0.71% since the U.S. close, last trading at 1,237.10. Asian equities tracked Wall Street's gains, with some investors taking the view that the U.S. bank bailout plan will stabilize the global banking system. But most indices have retraced early gains, with sidelined investors waiting for more details on the plan. Banks and commodities related companies led most of the upside in Tokyo, while short-covering in financials boosted the S&P/ASX200 index. The Shanghai composite index opened higher by more than 8.00% on a government proposal to make share buybacks easier, but the index failed to break the 2,300 psychological resistance level.

- Commodities: Nymex crude oil gained +0.29% between 18:00 EDT and 23:58 EDT, last trading at $104.85/bbl. Spot gold gained +0.89%, last trading at $872.40/oz, boosted by a weakening USD.

Published on  Mon, Sep 22 2008, 04:09 GMT