The Federal Reserve is negotiating a $85-90 billion secured bridge loan for American International Group Inc., according to a report on CNBC.
Shareholders would be severely diluted by the bailout that involves the bridge loan. The government would receive AIG warrants for most of its equity in the bailout being negotiated. CNBC said the deal would give AIG incentive to sell its assets quickly to help pay off the bridge loan.
Edit: Its going to happen.
Interbank money market rates climbed to 11 per cent, their highest since a mini-banking crisis in summer 2004.
Chris Weafer, chief strategist at Uralsib investment bank: “We’re in completely uncharted territory where the prevailing emotion is of fear and numbnes. No one knows where this could stop”.
Alexei Kudrin, finance minister, insisted that the financial system was not in a systemic crisis but the central bank injected a record $14.16bn in one-day funds into the money market.
The finance ministry also placed an additional R150bn ($5.8bn) in one-month deposits into the banking system. Konstantin Korishchenko, central bank deputy, told Russian news agencies that the bank and the finance ministry could provide a total of $117.6bn in liquidity to the banking sector.
But market players said banks were ceasing to lend to second and third-tier companies and brokers were pulling credit lines. KIT Finance, big Moscow investment house confirmed rumours that it had been unable to make payment on a series of short-term loans.
UPDATE: John Jansen reports Morgan Stanley’s credit spread has widened significantly and LIBOR is way way up. LIBOR may now be the rate that banks don’t lend to each other at, but the banks do need funding.
UPDATE 2: AIG’s bonds are also trading at Argentina-in-default levels, 33 cents on the dollar.
UPDATE 3: The New York Times suggests that if AIG doesn’t get federal money, it will fail on Wednesday. That is a stark choice: a two day no bailout policy, or the second failure of a large financial institution in a week.
The numbers and the measures become more and more extreme. For AIG to get permission from regulators to move $20 billion in capital from its subs to the holding company and have significant asset disposals teed up wasn’t sufficient to shore up the embattled insurer., The Fed has reportedly convened yet another emergency session to see if the usual suspects might be able to somehow aid the embattled insurer. The Wall Street Journal reports that the Fed has leaned on Goldman and JP Morgan for an emergency $70-$75 billion loan as well.
Below is an advertisement for AIG that ran some time ago. That same insurance company is now asking the Fed’s for a bridge loan and is fighting for its life. If you don’t recognize the words right off the bat look up T.S. Eliot’s “The Love Song of J. Alfred Prufrock”.
We are sorry that Eilot got dragged into this and we would like to point out that it was not our fault. But the irony was so rich we could not resist posting it.
From The Deal Breaker (H/T Marginal Revolution) ….
$$$ Bank of America is buying Merrill, the WSJ reports. The deal values the company at $44 billion, or $29 per share, a significant premium from Friday’s market price. Everyone is perplexed by the premium. But if it is, as some have reported, an all stock deal and BofA shares take a significant hit in the wake of the news, the final price and the premium could be much lower.
Update: CNBC’s Charlie Gasparino says the government forced Merrill to sell itself.
$$$ On CNBC they are saying that AIG has asked the Federal Reserve for some kind of emergency bridge loans. Can the Fed lend to an insurance company?
$$$ Federal Reserve is dramatically expanding its emergency lending program. It’s now going to take all sorts of collateral, including equity.
Where is our gasoline and diesel supply headed? Even before Ike hit, quite a few areas of the US were starting to see gasoline shortages. The impact of Ike can only make shortages worse. Most likely, it will take refineries at least a week or two to get production back to normal levels after a storm of this type, considering the impacts of electrical outages and flooding. In this article, I will examine some of the issues that seem to be involved. Based on my analysis, fuel supply shortages are likely to last well into October, and are likely to get considerably worse before they get better.
It’s to early to be sure what the effects are going to be yet. But the south is already seeing shortages. As this piece from the AP says….
Fears of supply shortages, and actual fuel-production disruptions, resulting from Ike’s lashing of vital energy infrastructure led to pump price disparities of as much as $1 a gallon in some states, and even on some blocks.
Late Saturday the U.S. Minerals Management Service said there were two confirmed reports of drilling rigs adrift in the central Gulf of Mexico.
Compounding the jitters and higher costs for gasoline retailers was the fact that some big refineries along the Gulf Coast had been shut for nearly two weeks following Hurricane Gustav. Power outages caused by Ike threatened to keep millions of gallons of gasoline output idled for at least several days.
The price of regular gasoline soared as high as $4.99 a gallon in Knoxville, Tenn. on Saturday, up from $3.66 a day earlier.
In Florida, the attorney general’s office reported prices as high as $5.50 a gallon in Tallahassee and said it had received 186 gouging complaints.
This article from the Houston Chronicle suggest that things may be better then the Oil Drum fears.
I was going to write a post that laid out the size of the big banks that are rumored to be nearing death. But Nemo beat me to it.
But Mr. Paulson and Mr. Geithner made it clear to the company, its potential suitors and to the meeting participants on Friday that the government has no plans to put taxpayer money on the line. The government is deeply worried that its actions have created a moral hazard and the Federal Reserve does not want to reach deeper into its coffers. Instead, Mr. Paulson and Mr. Geithner insist that Wall Street needs to come up with an industry solution to try to stabilize Lehman Brothers and calm the markets.
Still, some of the other Wall Street banks, facing billions of dollars in losses themselves, have resisted this approach. They argue that Lehman Brothers overreached and brought its current troubles on itself. If there are no bidders for Lehman Brothers, these banks say they can collect their collateral and liquidate the troubled firm’s assets. In this high-stake game, they may also be trying to call the government’s bluff, knowing that if push came to shove, it would provide financial support.
I wish that Mr. Paulson and Mr. Geithner would let Lehman’s Brothers fail. But their past performance does not give me hope.
When their lips are moving, they are lying. This from RIA Novosti…
Russian President Dmitry Medvedev dismissed speculation on Friday that his country would not have enough natural gas for European consumers and pledged to launch new fields if the market grows.
“It is amusing to hear statements that Russia will not have enough gas for supplies to Europe…This is not so,” Medvedev told a Valdai International Discussion Club meeting.
Medvedev also said that the country’s plans to develop energy cooperation with Asian states would not adversely affect energy supplies to Europe.
Talk is cheap. The investment needed to secure future gas production is not. So far, their is no sign that the Russians are spending the necessary money to keep their exports from going down.