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Is The Worst Really Over For Financials?

Mon, May 12 2008, 15:42 GMT
by Grace Cheng

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Just as some were saying the worst was over for Wall Street, AIG (AIG: 39.85 -0.43 -1.07%), the world’s largest insurer, reported a $7.8 billion, or $3.09 per share, Q1 loss and reported it would raise $12.5 billion in the coming months. This is far worse than the 76 cents per share loss that analysts had expected and this news sparked fresh fears that the worst may not be over in the financial sector and pushed AIG’s shares down by over 8%. European and Asian shares also fell on higher oil and worries about the financial sector, with companies like Allianz (ALV.DE: 128.85 -0.20 -0.15%) and HSBC (HSBA.L: 884.00 +18.00 +2.08%) feeling the ripple effect of AIG’s report. Even Morgan Stanley (MS: 46.80 +0.84 +1.83%) recommended selling shares in HSBC on capital concerns.

Not to let AIG steal the limelight, Citigroup (C: 23.56 -0.07 -0.30%) announced that it would be selling $400 billion of its $500 billion in “legacy” assets, prompting concern that the giant banking group may split up. Some investors however, think a breakup wouldn’t be such a bad idea as they think the group may be too big to manage and would be better off spun into individual, more manageable companies.

Driving away from the continued problems of Wall Street, Kirk Kerkorian is so optimistic about Ford (F: 8.14 +0.04 +0.49%) that he is running ads to announce that he is buying up to 5.6% of the company and may decide to buy more. He says that he is buying them as a vote of confidence in CEO Alan Mulally’s turnaround plan. Toyota (TM: 100.91 -0.40 -0.39%) on the other hand is concerned about the economic slump saying that the higher gasoline prices and economic weakness will eat into its profit. Toyota has good reason for concern, especially since U.S. trade deficit narrowed more dramatically in March on a record plunge in the value of imports. Some of the imports that were affected were autos and auto parts.


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