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Paulson defends US rescue of Bear Stearns

Washington, March 18: US Treasury Secretary Henry Paulson on Monday defended government moves to rescue Bear Stearns Cos Inc from bankruptcy, saying it was important to ensure the orderly function of financial markets.

Speaking to reporters following a White House meeting between President George W Bush and his economic advisers, Paulson said those worried about the government rescue creating a "moral hazard" should keep in mind that Bear Stearns shareholders face considerable losses with the sale of the investment firm to JPMorgan Chase for USD 2 a share.

Moral hazard is the concept that investors might take greater risks on the belief that government policy would protect them from suffering losses.

The USD 236 million value of the Bear buyout deal represents less than 90% of the company's value as of Friday at its closing share price of USD 30.85.

To facilitate the deal, the US Federal Reserve committed to fund up to USD 30 billion of Bear Stearns' less liquid assets. The problems faced by the New York investment firm underscored a loss of investor confidence in the health of the US financial system.

Paulson said the orderly function of US financial markets was a priority and it was better to arrange the takeover of Bear Stearns than to have the investment firm, the fifth largest in the United States, file for bankruptcy.

He also said mortgage finance giants Fannie Mae and Freddie Mac needed to raise capital, and urged Congress to enact reform measures for the Federal Housing Administration to help beef up the slumping housing market.

Paulson declined to answer a question about the weakening dollar and whether the US government would intervene in currency markets to support it.

"I'm not going to speculate on hypotheticals about intervention," Paulson said. "I will just again say to you what you've heard me say before: We have a strong-dollar policy. It's very much in our nation's interest. Our economy has ups and downs."

Lehman Brothers Earns $489 Million During First Quarter, Beating Analyst Expectations
NEW YORK (AP) -- Investment bank Lehman Brothers Holdings Inc. said Tuesday its fiscal first-quarter earnings fell 57 percent due to a steep decline in its capital markets business, but its shares soared as it easily beat Wall Street forecasts.
Net income for the quarter ending Feb. 29 fell to $489 million, or 81 cents per share, compared with earnings of $1.15 billion, or $1.96 per share, during the same quarter last year. Lehman's revenue fell 31 percent to $3.5 billion during the first quarter.

Analysts polled by Thomson Financial, on average, forecast earnings of 72 cents per share for the quarter on revenue of $3.35 billion.

Lehman Brothers took a $1.8 billion write-down during the first quarter because of deterioration in the credit markets. It had taken about $2.13 billion in write-downs in the previous two quarters combined, while financial services firms have taken about $160 billion in write-downs since the credit markets began to tighten.

Capital markets revenue fell 52 percent to $1.7 billion because of continued deterioration of the credit and mortgage markets. Gains in products like high-grade corporate debt and foreign exchanges were more than offset by investors' lack of appetite for riskier products such as residential and commercial mortgage securities and acquisition finance.

Lehman's chairman and chief executive, Richard Fuld, said in a statement the current credit environment remains "challenging," but the bank maintains a strong capital base and liquidity position.

Lehman has $34 billion in available liquidity at its holding company.

Liquidity problems among investment banks have been a major question in recent days. Lehman's competitor Bear Stearns Cos. was forced to sell itself Sunday for about $2 per share in order to avoid bankruptcy. The sale came just days after its liquidity evaporated in a matter of hours, as investors and lenders worried over the company's investments in risky debt.

As mortgages increasingly defaulted in 2007, investors shied away from bonds backed by the risky loans for fear of the bonds defaulting. That lack of investor appetite led banks to cut the value of their holdings, and has severely reduced investment banks' capital markets and fixed income business.

Investment management operations at Lehman helped lessen the blow of the weakening credit markets. Lehman's investment management division posted record revenue of $968 million, 39 percent more than the year-ago period.

Shares of Lehman rose 17.8 percent to $37.40 in premarket trading.

All rumours abt Lehman going the way of Bear has turned out to be false and Dow is celebrating with a double century.

Kalyan,

Keep Your Fingers Crossed It Stays Atleast This Way After The Fed Decision.

SavantGarde

Goldman Sachs: $1.5B profit half last year's take
Wall Street highflier reports earnings that are better than analysts expected but less than half of its performance in the first quarter last year.

NEW YORK (CNNMoney.com) -- Even during these turbulent times on Wall Street, Goldman Sachs Group managed once again to make a tidy profit in the first quarter - $1.5 billion - though it paled compared to last year.

The company has largely managed to stay ahead of its rivals as they all struggle with the fallout from the subprime mortgage meltdown. Just two days ago, the global credit crisis claimed its largest victim, Bear Stearns Cos., (BSC, Fortune 500) one of the largest players in the mortgage market which was scooped up by JPMorgan Chase (JPM, Fortune 500) for a mere $2 a share, or a 97% discount.

On Tuesday, Goldman Sachs reported net revenues of $8.3 billion and net earnings of $1.5 billion, or $3.23 per share, for the quarter ending Feb. 29. This was well above analysts' consensus estimates of $7.5 billion in revenue and $1.2 billion in net income, or $2.58 per share.

Goldman Sachs (GS, Fortune 500) shares were 8% higher at the start of trading. The stock price closed at $151.02, down about 30% for the year.

The firm's net losses on residential mortgage loans and securities were approximately $1 billion. In addition, Goldman Sachs reported a loss of about $1 billion related to leveraged loans. Analysts had expected to see losses in the company's leveraged loan portfolio, one of the largest on Wall Street.

Net income, however, was shaved by more than half from the same period a year ago, when the company earned a record $3.2 billion, or $6.67 a share. The firm then was powered by record growth in its investment banking, equity, and fixed income, currency and commodities businesses.

But this quarter, the firm saw a 32% decline in investment banking revenue and a 46% percent drop in its trading and principal investments division. Its asset management and securities services, however, saw a 28% increase in revenue thanks to higher fees.

"Market conditions are clearly very difficult," Lloyd Blankfein, chief executive, said in a statement. "But we saw strong customer activity across many of our franchise businesses in the first quarter. Although market conditions present many challenges at the moment, they also offer considerable opportunities."

Goldman Sachs rival Lehman Brothers (LEH, Fortune 500) reported lower quarterly earnings Tuesday that topped forecasts, despite taking $1.8 billion in writedowns across its mortgage and loan portfolio. The brokerage, which has been under siege in recent days because of concerns about its balance sheet, said it maintained a "strong liquidity position." Net income at the bank fell 57% to $489 million, or 81 cents a share. Revenue fell 31% to $3.5 billion.

Morgan Stanley (MS, Fortune 500) issues its first-quarter report Wednesday.

Savant, my hopes stem more from how Dow behaved in the face of a barrage of bad news the last few days (with all the doomsayers out in full strength). Think it did remarkably well, holding on to the prev low.

Just imagine if a Bear Stearns happened in India - our mkts would have hit lower ckt at least 3 consecutive days (I know now why they keep saying EMs are riskier - ours is a low depth, high Beta mkt - with schoolboyish behaviour - as compared to the more developed, mature ones).

Regards,
Kalyan.

its time to buy. very less to loose.do not waist chance be optimistic.buy.................

Kalyan,

Imagine The Irony, Based On DOW Futures We Go Down 900+ Points & DOW Closes In The Positive. Ours Could Be One Of The Better Markets Only If Our Mutual Funds & DIIs Had More Confidence In Our Corporates.

SavantGarde

We seem to be more worried about the US than the Americans themselves.

Even 7% GDP & 15% earnings growth is something more than half the countries in the world would give one leg & one arm to have.

It's as if the world wants to believe in us but we refuse to believe in ourselves (maybe the effect of remaining beggars for too long).

Regards,
Kalyan.

americans are fools so we should not go with them . i dont think so .