Thursday, January 10, 2008

How Low Can It Go?

This makes me wonder just how bad the problem really is:
Citigroup Inc. (C.N) and Merrill Lynch & Co Inc. (MER.N) are in discussions to receive more capital from investors, primarily foreign governments, The Wall Street Journal reported on Thursday.

Citigroup could get as much as $10 billion, likely all from foreign governments, while Merrill is expected to get $3 billion to $4 billion, much of it from a Middle Eastern government investment fund, the report said.

[...]

In December, Merrill Lynch shored up its capital base by as much as $7.5 billion after selling a stake to a Singapore government investment fund and an asset manager. Morgan Stanley (MS.N) has said it would receive $5 billion from China after recording $9.4 billion of writedowns.
Citigroup in November agreed to sell up to a 4.9 percent stake to Abu Dhabi for $7.5 billion, while UBS (UBSN.VX) accepted a $9.75 billion investment from a separate Singapore state fund.
This comes after December's blind auctions:
The Federal Reserve, working to combat the effects of a severe credit crunch, announced Friday it had auctioned another $20 billion in funds to commercial banks at an interest rate of 4.67 percent. Fed officials pledged to continue with the auctions "for as long as necessary."

The central bank said it had received bids for $57.7 billion worth of loans, nearly three times the amount being offered, indicating continued strong interest in the Fed's new approach to providing money to cash-strapped banks.

It was the second of four scheduled auctions. The first auction, on Monday, of $20 billion resulted in loans being awarded at an interest rate of 4.65 percent. There were 93 bidders seeking $63.6 billion at the first auction and 73 at the second.

Two more auctions will occur in early January. In a statement Friday, the central bank said it would continue with further auctions "for as long as necessary to address elevated pressures in short-term funding markets."

The new auction process was aut the federal funds rate and the discount rate by a quarter-point at its last meeting on Dec. 11, disappointing investors who had hoped for a bigger half-point reduction in the funds rate.

Many economists believe the Fed will keep cutting rates with three more quarter-point reductions expected in the funds rate at the Fed's first three meetings of the new year.

Analysts believe that a serious slowdown in overall economic growth will force the Fed to continue cutting rates even though some Fed officials have expressed worries that the rate cuts could exacerbate inflation pressures, which have flared up again, reflecting a renewed surge in oil prices.

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