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Discount Window
Many people know that the Federal Reserve sets interest rates in order to loan money to other banks so they can keep cash flowing throughout the U.S. financial system. Mostly, this works great for everyone involved. But, sometimes, banks and thrifts need a little extra cash, mostly so they can meet the reserve requirement (the minimum amount of deposits banks need to be considered in good financial shape).
To meet the reserve, the Fed has what's known as the discount window, which allows banks to borrow money for a short period of time at a higher interest rate (called the discount rate) than the official Federal Funds rate.
It's called a window because it used to be an actual teller window, where banks would go to borrow from the federal government. Now, it's used more as a lender of last resort. In fact, banks prefer to borrow from one another than directly from the discount window, since the interest owed can be cheaper and going to the discount window tends to imply that the bank is in a spot of trouble.
The Fed, too, doesn't like banks borrowing this way, which is why the discount rate is always higher than the target rate. It also requires banks to collateralize the loans, meaning they have to turn over liquid assets, such as loans or CDs, to the Fed in order to get the money. As with any loan, the banks get the underlying collateral back when they pay off the balance.
Home / Markets
Thursday, March 27, 2008
Uptick
Dow Loses 120 on Lehman; Oracle's 3Q Sinks Nasdaq
Matt Egan
FOXBusiness
The market was hit by a two-pronged attack today, which sent the blue-chip index 120 points into the red and the Nasdaq Composite
to an even worse performance.
Traders sold shares of financials on more writedown fears, especially ones surrounding Lehman Brothers. Tech stocks took a big hit today after software bellwether Oracle disappointed the market with worse-than-expected revenue.
Today’s Market
The Dow Jones Industrial Average tumbled 120.40 points, or 0.97% to 12302.46, the Standard & Poor’s 500 index dropped 15.37 points, or 1.15% to 1325.76 and the Nasdaq Composite Index slid 43.53 points, or 1.87%, to 2280.83. The consumer-friendly Fox 50 dropped 9.80 points, or 1.02%, to 953.82.
Wall Street closed the trading session at the lowest levels of the day in the absence of confidence and any positive catalysts. The blue-chip index was led lower by tech giant Intel (INTC), which slid 3% on Oracle's (ORCL) third-quarter revenue.
Shares of financial giants like Bank of America (BAC) and JPMorgan Chase (JPM) fell sharply late this afternoon in tandem with Lehman Brothers (LEH), which plunged 11.5% on continued market chatter. "There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic interest," a Lehman spokeswoman told FOX Business.
The rumors in the financials are nothing new. “We have seen a lot of that in the financial sector. Unfortunately we don’t know what is real and what it isn’t. People are clearly nervous…Especially in the wake of what happened to Bear Stearns," Ted Weisberg of Seaport Securities told FOX Business this afternoon.
"Basically it’s a lot of negativity about financials and that's been a weight on the market overall...I think people were too willing to be complacent that we have ‘seen the market’s bottom.’ I’m a little bit more skeptical," said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles.
Tech stocks, which have performed better than the broader market over the past several weeks, have seen some weakness today due to disappointment with Oracle (ORCL). The Richard Ellison-run tech bellwether tumbled 7% today after its revenue of $5.35 billion came up shy of Wall Street's lofty expectations. However, Oracle met Wall Street's adjusted-earnings expectation of 30 cents per share in the third quarter -- a 20% improvement from a year ago. Shares of other tech giants, such as Research in Motion (RIMM) and Apple (AAPL), fell today on the Oracle concerns.
“Oracle’s earnings threw a little bit more cold water on the likelihood of improvement in the business environment. Oracle is a decent proxy because of its size and client base," said James.
Traders also reacted this afternoon to the latest speeches made by various representatives of the Federal Reserve. These speeches often give conflicting messages to the market but can move stocks in one direction or another.
"It now appears to me that the contraction in housing and the dampening effects of financial turmoil on household and business spending could persist through the remainder of this year. The recovery in growth I had expected in the second half of this year may be delayed," said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.
Wall Street is still talking about the fate of a $19 billion deal to take Clear Channel (CCU) private. The agreement fell apart after banks that promised to finance the deal balked amid the credit crisis. Shares of Clear Channel, the nation’s largest radio station operated, jumped today after a judge issued a ruling barring the banks from moving to “interfere or thwart” the closing of the deal -- effectively bringing the deal back to life.
The bank group -- which is led by Citigroup (C), Morgan Stanley (MS), Credit Suisse (CS), Deutsche Bank (DB), the Royal Bank of Scotland (RBS) and Wachovia (WB) -- said this morning it will fight all lawsuits, according to Dow Jones.
Wall Street also received a pair of reports on gross domestic product and jobless claims, both of which came in roughly in line with expectations but also signaled weakness in the economy.
This morning the Commerce Department reiterated fourth-quarter GDP, which came in at 0.6%. The final GDP reading was sharply lower than the previous quarter but still managed to stay in positive territory -- meaning the U.S. has not yet had one of the two quarters of negative growth that is typically needed to consider a slowdown a recession.
GDP, which measures the value of all goods and services produced by the economy, was hurt in the fourth quarter by the ongoing housing slump. The turmoil in the housing market had a huge impact on profits for financial services companies that failed to anticipate sliding home prices and rising defaults.
Meanwhile, the Labor Department reported this morning initial jobless claims fell 9,000 to 366,000 last week. The results were roughly in-line with what economists had forecasted. The four-week average of new jobless claims, which economists use to smooth out weekly volatility, rose by 1,750 to 358,0000 -- the highest level since October 2005.
The airline sector experienced more turbulence today, 24 hours after American Airlines (AMR) canceled 300 flights to inspect their older planes. Today, American canceled another 132 flights and Delta (DAL) shut down 275 flights through early Friday. Meanwhile, soaring oil prices led Calyon Securities to downgrade American Airlines’ parent AMR Corp., Continental and Northwest (NWA) to “neutral” from “add.”
Another factor impacting recent movement for the stock market is that the first quarter officially ends on Monday, meaning money managers may resort to "window dressing."
“You have portfolio managers with a vested interest to make sure the market doesn’t get too weak before the quarter ends," said James.
Oil prices jumped again today, this time fueled by supply concerns after a key pipeline in Iraq was bombed. Crude closed at $107.54 a barrel in New York, up $1.64. Yesterday oil surged $4.68 on inventory data. Gold fell 40 cents to close at $948.80 an ounce.
Corporate Movers
AIG (AIG) sued former chairman and CEO Maurice "Hank" Greenberg and other former board members for allegedly misappropriating a $20 billion block of company shares, The Wall Street Journal reported today. The insurance giant alleged Greenberg and other company officials took control of Starr International, a company intended to provide employee incentives and protect AIG from hostile takeovers, and "misappropriated the acquired stock for their own benefit," the Journal reported.
Boeing (BA) saw its price target take a hit from analysts at Citi, who lowered their estimates to $68 from $78. Citi also cut the industrial Dow component's 2009 guidance to $6.60 per share from $6.75 -- below mean analyst estimates from Thomson Financial of $7.06 per share. Citi said it expects Boeing will confirm shareholders' fears of another six-month delay in its 787 passenger jet line. Shares of Boeing closed 2.75% lower, making the company one of the biggest decliners on the Dow.
Merrill Lynch (MER) closed 5.5% lower today on more writedown predictions. Influential Oppenheimer analyst Meredith Whitney called for a $6 billion writedown for the investment bank in the first quarter and lowered her earnings outlook to a loss of $3 per share. Previously, Whitney had predicted a first-quarter profit of 45 cents per share. Also, Richard Bove of Punk, Ziegel & Co. estimated Merrill will be forced to write down $6.79 billion of its assets.
Bear Stearns (BSC) chairman Jimmy Cayne sold $61.3 million worth of Bear stock on Tuesday, SEC filings show. Shares of Bear slid in after-hours trading on the news that Cayne sold 5,658,591 shares of stock at $10.84 a piece. This move came a day after JPMorgan Chase (JPM) upped its initial $2 per share offer to bailout Bear Stearns to $10 a share. Bear was forced to agree to sell itself after its stock plummeted amid a crisis of confidence and an apparent shortage of cash.
Google (GOOG) tumbled 3% today after the Internet search giant was downgraded by both Lehman Brothers (LEH) and Think Equity, citing slower-than-expected growth. Lehman lowered Google's price target from $644 to $580. Think Equity lowered its estimate from $700 to $600. However, Think Equity reiterated its “Buy” rating, saying, “We believe Google shares are oversold and that first-quarter results are likely to be better than 'buy side' fears."
Cisco (CSCO) closed 2% in negative territory today after receiving mixed signals today. Analysts at Goldman Sachs (GS) added the tech giant to its Conviction Buy List, according to Dow Jones. However, analysts at Piper Jaffray lowered Cisco's price target to $28 from $29 due to supply concerns and worries about the economy.
Lennar (LEN), the Miami-based homebuilder, saw its shares jump 2% after it posted a first-quarter loss of $88 million. The company's adjusted-loss of 18 cents per share easily beat the $1.07 per share loss Wall Street had been bracing for. Lennar said its sales plunged 62% from a year ago to $1.06 billion. Shares of other struggling homebuilders like KB Home (KBH) and Hovnanian (HOV) rallied on the better-than-expected results.
ConAgra Foods (CAG), the owner of Chef Boyardee and Peter Pan, jumped 7% today after it reported a 60% increase in its third-quarter profit. Also, ConAgra upped its full-year earnings forecast to between $1.80 and $1.85 per share -- topping Wall Street estimates of $1.60 from Thomson Financial. For a gain of $2.1 billion in cash and stock, ConAgra said it plans to sell Ospraie Special Opportunities, its commodities trading group, to focus on its core business and profit on the current demand for commodities.
American Express (AXP) said it will acquire a financial business from General Electric (GE). AmEx is buying GE Money’s corporate payment service division for $1.1 billion in cash. Amex sees the deal closing at the end of March.
World Markets
European marked closed higher today. The Dow Jones Euro Stoxx 50, a index tracking the 50 largest companies of Europe, gained 40.66 points, or 1.13%, to 3652.11. The FTSE 100, London's benchmark index, rose 57.10, or 1.01%, to 5717.50.
France's CAC 40 Index picked up 42.85 points, or 0.92%, to 4719.53 and Germany's DAX gained 88.80, or 1.37%, to 6578.06.
Asian markets closed with slight gains overnight. Japan's Nikkei 225 Index fell 102.05 points, or 0.8%, to 12604.58. Hong Kong's Hang Seng Index gained 47.21, or 0.21%, to 22664.22.
Traders sold shares of financials on more writedown fears, especially ones surrounding Lehman Brothers. Tech stocks took a big hit today after software bellwether Oracle disappointed the market with worse-than-expected revenue.
Today’s Market
The Dow Jones Industrial Average tumbled 120.40 points, or 0.97% to 12302.46, the Standard & Poor’s 500 index dropped 15.37 points, or 1.15% to 1325.76 and the Nasdaq Composite Index slid 43.53 points, or 1.87%, to 2280.83. The consumer-friendly Fox 50 dropped 9.80 points, or 1.02%, to 953.82.
Wall Street closed the trading session at the lowest levels of the day in the absence of confidence and any positive catalysts. The blue-chip index was led lower by tech giant Intel (INTC), which slid 3% on Oracle's (ORCL) third-quarter revenue.
Shares of financial giants like Bank of America (BAC) and JPMorgan Chase (JPM) fell sharply late this afternoon in tandem with Lehman Brothers (LEH), which plunged 11.5% on continued market chatter. "There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic interest," a Lehman spokeswoman told FOX Business.
The rumors in the financials are nothing new. “We have seen a lot of that in the financial sector. Unfortunately we don’t know what is real and what it isn’t. People are clearly nervous…Especially in the wake of what happened to Bear Stearns," Ted Weisberg of Seaport Securities told FOX Business this afternoon.
"Basically it’s a lot of negativity about financials and that's been a weight on the market overall...I think people were too willing to be complacent that we have ‘seen the market’s bottom.’ I’m a little bit more skeptical," said Michael James, senior equity trader at Wedbush Morgan Securities in Los Angeles.
Tech stocks, which have performed better than the broader market over the past several weeks, have seen some weakness today due to disappointment with Oracle (ORCL). The Richard Ellison-run tech bellwether tumbled 7% today after its revenue of $5.35 billion came up shy of Wall Street's lofty expectations. However, Oracle met Wall Street's adjusted-earnings expectation of 30 cents per share in the third quarter -- a 20% improvement from a year ago. Shares of other tech giants, such as Research in Motion (RIMM) and Apple (AAPL), fell today on the Oracle concerns.
“Oracle’s earnings threw a little bit more cold water on the likelihood of improvement in the business environment. Oracle is a decent proxy because of its size and client base," said James.
Traders also reacted this afternoon to the latest speeches made by various representatives of the Federal Reserve. These speeches often give conflicting messages to the market but can move stocks in one direction or another.
"It now appears to me that the contraction in housing and the dampening effects of financial turmoil on household and business spending could persist through the remainder of this year. The recovery in growth I had expected in the second half of this year may be delayed," said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta.
Wall Street is still talking about the fate of a $19 billion deal to take Clear Channel (CCU) private. The agreement fell apart after banks that promised to finance the deal balked amid the credit crisis. Shares of Clear Channel, the nation’s largest radio station operated, jumped today after a judge issued a ruling barring the banks from moving to “interfere or thwart” the closing of the deal -- effectively bringing the deal back to life.
The bank group -- which is led by Citigroup (C), Morgan Stanley (MS), Credit Suisse (CS), Deutsche Bank (DB), the Royal Bank of Scotland (RBS) and Wachovia (WB) -- said this morning it will fight all lawsuits, according to Dow Jones.
Wall Street also received a pair of reports on gross domestic product and jobless claims, both of which came in roughly in line with expectations but also signaled weakness in the economy.
This morning the Commerce Department reiterated fourth-quarter GDP, which came in at 0.6%. The final GDP reading was sharply lower than the previous quarter but still managed to stay in positive territory -- meaning the U.S. has not yet had one of the two quarters of negative growth that is typically needed to consider a slowdown a recession.
GDP, which measures the value of all goods and services produced by the economy, was hurt in the fourth quarter by the ongoing housing slump. The turmoil in the housing market had a huge impact on profits for financial services companies that failed to anticipate sliding home prices and rising defaults.
Meanwhile, the Labor Department reported this morning initial jobless claims fell 9,000 to 366,000 last week. The results were roughly in-line with what economists had forecasted. The four-week average of new jobless claims, which economists use to smooth out weekly volatility, rose by 1,750 to 358,0000 -- the highest level since October 2005.
The airline sector experienced more turbulence today, 24 hours after American Airlines (AMR) canceled 300 flights to inspect their older planes. Today, American canceled another 132 flights and Delta (DAL) shut down 275 flights through early Friday. Meanwhile, soaring oil prices led Calyon Securities to downgrade American Airlines’ parent AMR Corp., Continental and Northwest (NWA) to “neutral” from “add.”
Another factor impacting recent movement for the stock market is that the first quarter officially ends on Monday, meaning money managers may resort to "window dressing."
“You have portfolio managers with a vested interest to make sure the market doesn’t get too weak before the quarter ends," said James.
Oil prices jumped again today, this time fueled by supply concerns after a key pipeline in Iraq was bombed. Crude closed at $107.54 a barrel in New York, up $1.64. Yesterday oil surged $4.68 on inventory data. Gold fell 40 cents to close at $948.80 an ounce.
Corporate Movers
AIG (AIG) sued former chairman and CEO Maurice "Hank" Greenberg and other former board members for allegedly misappropriating a $20 billion block of company shares, The Wall Street Journal reported today. The insurance giant alleged Greenberg and other company officials took control of Starr International, a company intended to provide employee incentives and protect AIG from hostile takeovers, and "misappropriated the acquired stock for their own benefit," the Journal reported.
Boeing (BA) saw its price target take a hit from analysts at Citi, who lowered their estimates to $68 from $78. Citi also cut the industrial Dow component's 2009 guidance to $6.60 per share from $6.75 -- below mean analyst estimates from Thomson Financial of $7.06 per share. Citi said it expects Boeing will confirm shareholders' fears of another six-month delay in its 787 passenger jet line. Shares of Boeing closed 2.75% lower, making the company one of the biggest decliners on the Dow.
Merrill Lynch (MER) closed 5.5% lower today on more writedown predictions. Influential Oppenheimer analyst Meredith Whitney called for a $6 billion writedown for the investment bank in the first quarter and lowered her earnings outlook to a loss of $3 per share. Previously, Whitney had predicted a first-quarter profit of 45 cents per share. Also, Richard Bove of Punk, Ziegel & Co. estimated Merrill will be forced to write down $6.79 billion of its assets.
Bear Stearns (BSC) chairman Jimmy Cayne sold $61.3 million worth of Bear stock on Tuesday, SEC filings show. Shares of Bear slid in after-hours trading on the news that Cayne sold 5,658,591 shares of stock at $10.84 a piece. This move came a day after JPMorgan Chase (JPM) upped its initial $2 per share offer to bailout Bear Stearns to $10 a share. Bear was forced to agree to sell itself after its stock plummeted amid a crisis of confidence and an apparent shortage of cash.
Google (GOOG) tumbled 3% today after the Internet search giant was downgraded by both Lehman Brothers (LEH) and Think Equity, citing slower-than-expected growth. Lehman lowered Google's price target from $644 to $580. Think Equity lowered its estimate from $700 to $600. However, Think Equity reiterated its “Buy” rating, saying, “We believe Google shares are oversold and that first-quarter results are likely to be better than 'buy side' fears."
Cisco (CSCO) closed 2% in negative territory today after receiving mixed signals today. Analysts at Goldman Sachs (GS) added the tech giant to its Conviction Buy List, according to Dow Jones. However, analysts at Piper Jaffray lowered Cisco's price target to $28 from $29 due to supply concerns and worries about the economy.
Lennar (LEN), the Miami-based homebuilder, saw its shares jump 2% after it posted a first-quarter loss of $88 million. The company's adjusted-loss of 18 cents per share easily beat the $1.07 per share loss Wall Street had been bracing for. Lennar said its sales plunged 62% from a year ago to $1.06 billion. Shares of other struggling homebuilders like KB Home (KBH) and Hovnanian (HOV) rallied on the better-than-expected results.
ConAgra Foods (CAG), the owner of Chef Boyardee and Peter Pan, jumped 7% today after it reported a 60% increase in its third-quarter profit. Also, ConAgra upped its full-year earnings forecast to between $1.80 and $1.85 per share -- topping Wall Street estimates of $1.60 from Thomson Financial. For a gain of $2.1 billion in cash and stock, ConAgra said it plans to sell Ospraie Special Opportunities, its commodities trading group, to focus on its core business and profit on the current demand for commodities.
American Express (AXP) said it will acquire a financial business from General Electric (GE). AmEx is buying GE Money’s corporate payment service division for $1.1 billion in cash. Amex sees the deal closing at the end of March.
World Markets
European marked closed higher today. The Dow Jones Euro Stoxx 50, a index tracking the 50 largest companies of Europe, gained 40.66 points, or 1.13%, to 3652.11. The FTSE 100, London's benchmark index, rose 57.10, or 1.01%, to 5717.50.
France's CAC 40 Index picked up 42.85 points, or 0.92%, to 4719.53 and Germany's DAX gained 88.80, or 1.37%, to 6578.06.
Asian markets closed with slight gains overnight. Japan's Nikkei 225 Index fell 102.05 points, or 0.8%, to 12604.58. Hong Kong's Hang Seng Index gained 47.21, or 0.21%, to 22664.22.
Market Snapshot
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