Financial Update

TSX ends week of carnage

"Fear makes people perceive more risk and make risk-adverse choices," says Jennifer Lerner, director of the Laboratory for Decision Research at Harvard University.. Translation: sell, sell sell.
· TSX -97.10pts to 10,803 after a $700b bailout plan for U.S. banks passed Congress, ending a dismal week that saw two separate 800-plus point declines on the Toronto Stock Exchange. The Toronto market ended down 1,322.64 points or 11% last week - an equity loss of $150 billion - after tumbling oil prices and revised earnings estimates for fertilizer makers sent commodity stocks plunging. (Reuters)
· Dow -157.47pts. A seemingly endless parade of bleak U.S. economic data also served to push New York markets lower. The Dow Jones lost 817.75 points over the week
· Dollar -.14c to $92.60US.
· Oil -.09 to $93.88US per barrel
· Gold -10.10 to $828.90US per ounce

Two banks to manage mortgage rescue deals

WASHINGTON— The U.S. reasury Department has picked two financial institutions to manage a program it unveiled last month to provide support for beleaguered mortgage-backed securities. The U.S. government announced yesterday it was hiring Barclays Global Investors of San Francisco and State Street Bank and Trust Co. of Boston to manage its program to purchase mortgage-backed securities

Bank rescues unravel

Eoin Callan, Financial Post

Carefully-woven government plans to rescue banks deemed too big to fail came apart at the seams yesterday as private institutions refused to back deals brokered by politicians.

Berlin admitted it had a "mess" on its hands as banks backed out of a deal to save one of the country's largest financial institutions.

In New York, a merger to create the biggest retail branch network in America descended deeper into chaos as Citigroup secured a court injunction blocking the takeover of Wachovia by Wells Fargo, pitting the largest banks in the country against each other.

The rifts further threaten the stability of the international banking network and came as world leaders struggled to divine a common approach to the unprecedented disaster unfolding in the financial system. European leaders emerged from crisis talks in Paris led by Nicholas Sarkozy with conflicting plans about how to save their country's banks as agreement on a continent-wide strategy eluded them.

Governments are widely intent on preventing further bank collapses after the failure of U.S. institutions caused shockwaves across the world. But they are divided and somewhat uncertain over how to achieve this goal as they confront corporate calamities for which no play book exists.
The discord comes as the deepening international crisis increasingly takes its toll on Canada, putting the country's banking system under strain and squeezing corporate loans.

The Bank of Canada has been forced to take escalating measures to improve liquidity by pumping billions into the country's financial network and agreeing to accept collateral from banks that no one else wants.

A freeze up in financing for securitized commercial lending threatens to make loans for businesses harder to get, while mortgage conditions begin to tighten and a risk develops that consumer loans could be curtailed.

The White House said it would act quickly to relieve pressure in the banking system through speedy implementation of a $700-billion bail-out package signed by U.S. President George W. Bush. But an earlier federally-brokered deal to rescue Wachovia remained in limbo as New-York Justice Charles Ramos granted a request from Citigroup to temporarily block the sale of Wachovia to Wells Fargo.

Citigroup has won the right to continue exclusive talks with Wachovia about a takeover that has already been signed off and financially backed by Washington, after the failing U.S. lender secretly made a conflicting agreement to be bought by Wells Fargo for 80 per cent more.

There were also fissures between banks in the effort to save Germany's Hypo Real Estate Holding, as a government-sponsored $49 billion rescue collapsed as banks withdrew their support in the face of a rising tab.

"We will see how we can clean up the mess that has been presented to us," said a German finance ministry official.

German Chancellor Angela Merkel was among the leaders who gathered in Paris for crisis talks also attended by Britain, Italy and the European Central Bank.

French President Nicolas Sarkozy indicated there was unanimity on the need to save banks from collapse.

"We are taking a solemn commitment to back banking and financial institutions," he said.
But there was no apparent agreement on a Europe-wide bail-out plan or how cross-border collapses would be handled.