Who’s next to fail in financial sector?
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KAI RYSSDAL: Now back to that dislocation I was talking about a moment ago. We’ve got lots of it. Starting with employees at Lehman Brothers. While a bunch of them are going to lose their jobs, about 9,000 will soon be employed by Barclays. The British bank agreed to buy part of Lehman’s trading operations today.
As for some of the other troubled names you’ve been hearing about, I’m afraid it’s a bit of deja vu all over again. Shares in the insurance conglomerate AIG took another dive on the stock market today. Investors are questioning whether the firm’s going to live to see another day. I should add here, by the way, that there are rumors — only rumors — that the Fed is working on some kind of loan package in meetings in New York. And even Wall Street’s golden child isn’t immune. Today mighty Goldman Sachs reported its biggest drop in quarterly profits since it went public. Marketplace’s Amy Scott has our roundup.
AMY SCOTT: Let’s start with AIG. The three major credit rating agencies downgraded the insurer late yesterday. That’s made it more expensive for AIG to operate and to borrow. News reports today say the Federal Reserve is considering making a loan to the company. AIG is so large, and has dealings with so many financial institutions a collapse could cascade throughout the system.
Hugh Johnson is chief economist with Johnson Illington Advisors.
HUGH JOHNSON: AIG is an extremely important financial company, and everybody’s watching this to make sure, hoping, crossing their fingers, that this one will not be forced to fail.
AIG has lost billions of dollars on investments linked to the mortgage market. Investment bank Goldman Sachs shed a lot of the toxic assets that burned companies like AIG. Along with Morgan Stanley, Goldman is one of the last big independent brokerage firms standing. But today Goldman said its third-quarter profits fell by more than 70 percent.
Analyst Greg Larkin with Innovest points out Goldman is still profitable.
GREG LARKIN: Having said that, I think there could be a sentiment on the street that being an independent investment bank is not possible anymore. It shouldn’t be possible anymore. And that fear, that emotion, may be enough.
Enough to drive Goldman’s stock to its lowest level in two years today. Morgan Stanley also reported a drop in income today.
After Merrill Lynch’s shotgun wedding with Bank of America, analysts are watching to see if Morgan and Goldman will form alliances of their own.
Rob Hegarty follows the securities industry at research firm Tower Group. He says more mergers are likely.
ROB HEGARTY: They’re both very strong institutions with a good capital base. Don’t be surprised to see either one or both of those firms actually doing the acquiring.
Hegarty says Goldman Sachs and Morgan Stanley could look beyond the investment banking business for partners. One possible target, he says — Wells Fargo.
In New York, I’m Amy Scott for Marketplace.
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