Monday p.m. Update: Another Record Plunge; Global Markets Show StrainThe passage of the $700 billion bailout of Wall Street didn't have the desired effect on the world's stock markets, as they all suffered through another traumatic session on Monday.
The Dow Jones industrials plunged as much as 800 points, setting a new record for a one-day point drop. Investors watched with baited breath as despair over the credit crisis spreading globally hit home. The Dow fell below 10,000 for the first time since 2004, and regained some of the 800 point loss, closing at -369.88 at the closing bell.
Credit markets remained clogged, and Treasury prices jumped higher. What analysts were hoping would be contained to a domestic problem is now global, with roots in Europe and spreading through Asia. The European economy was tripped by the same credit crunch that forced the $700 billion bailout passed by Congress last week.
Early Monday morning saw European and Asian markets drop precipitously on crisis fears. Bank bailouts in Europe and the U.S. haven't stopped fears that the world creeps closer to a global financial crisis, and world markets turned downward at Monday's opening, with London's markets seeing banking, mining and oil industry stocks suffering losses.
Over the weekend, several European governments stepped in to rescue troubled banks, and made more promises to protect depositors from the credit crisis. Analysts already say that these bailouts, like the U.S. plan, lack detail and will fail to put back to normal the investors' confidence levels.
On Sunday Germany paid 50 billion euros (US$68 billion) to buy out Hypo Real Estate, the country's second-biggest commercial property lender, after a private lender's plan disintegrated. BNP Paribas SA, a France-based institution, said it would invest a 75% stake in troubled European bank Fortis N, and Sweden and Denmark followed Ireland and Britain in raising the amount of savers' deposits guaranteed by the government.
In Asia, all stock markets were also sinking on Monday, and Tokyo's Nikkei 225 index fell to its lowest level in 4 1/2 years. Analysts say the current credit crunch will not go away anytime soon.
Battle for Wachovia
The two banks battling for who will own Wachovia remained in the courts over the weekend and into Monday.
Wachovia is being fought over by CitiGroup and Wells Fargo. Citi had reached an agreement with the FDIC to buy the troubled $339 billion bank for $2.1 billion early last week. But by Friday morning the tables had turned, and Wells Fargo made a bid of $15.1 billion for the bank. Whoever wins the bank will be at the top of the banking elite in US retail banking, as Wachovia has 3,300 branches across the country.
A New York state appeals court blocked a lower court ruling that Citi had been identified as the favorite. In Sunday night's ruling, the Appellate Division of State Supreme Court tossed Justice Charles Ramos' order from Saturday that would have extended the time that Citigroup and Wachovia had to finish the deal struck on September 29. Should a lengthy court battle ensue, industry analysts see it would cause even further stress to the US financial services industry and would hurt Wachovia's existing business.
Aside from its increasing loan losses, Wachovia is still worth much more than either rival bank is offering. Wachovia bought more than $122 billion in option Adjustable Rate Mortgages when it bought Golden West in 2006. It paid only $24 billion for the group. Citigroup, having no profit since 2007, has lost more than $17.4 billion in the same period.
On Friday, the FDIC said it "stands behind its previously announced agreement with Citigroup." The FDIC is expected to arbitrate with the three banks and will review all proposals to work to resolve the impasse.