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Last Updated: Dec 19th, 2007 - 13:17:15 |
Wall Street recovery following turbulent week on global markets provides bulls with glimmer of hope; Goldman Sachs $8bn Global Alpha hedge fund down 26% so far this year
By Finfacts Team
Aug 11, 2007, 11:20
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Central banks pumped emergency money into markets for the second day Friday to relieve a global credit crunch and after a turbulent week on world stock markets, Wall Street gave the bulls some hope ahead of Monday's trading
The Federal Reserve said in a statement that it "will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target rate of 5-1/4%. In current circumstances, depository institutions may experience unusual funding needs because of dislocations in money and credit markets. As always, the discount window is available as a source of funding."
The Fed injected $38 billion, following Thursday's $24 billion. The European Central Bank said on Friday that it has loaned a further €61.05 billion ($83.56 billion) following its release of emergency funds on Thursday.
The ECB received 62 bids worth €110.035 billion in the the so-called ``fine-tuning operation.'' tender.
On Thursday, the ECB provided emergency funding of €94.8 billion ($130.2 billion) to banks in the Eurozone after liquidity in the interbank market began to dry up, threatening banks’ access to short-term funds.
On Friday, The Bank of Japan added one trillion yen ($8.46 billion), while central banks in Australia, Singapore, Canada Norway and Switzerland also injected funds into their markets.
Last February when global bank HSBC stunned the markets with news of big losses in the US subprime home lending sector that focuses on borrowers with impaired credit records, most analysts coupled with Fed Chairman Ben Bernanke and US Treasury Secretary Hank Paulson, claimed that the problem could be contained and there was little expectation that the good times of easy money to fund mega-mergers and private-equity deals would face a drought.
The recent repricing of risk and evaporation of credit for big corporate deals, hit the markets big-time on Thursday when the European Central Bank acted swiftly to head off a potential financial crisis by pumping an emergency €94.8bn ($130.2bn) into the Eurozone's banking system after liquidity in the interbank market began to dry up, threatening banks’ access to short-term funds.
The emergency cash injection was the biggest in the ECB’s history, exceeding the €69bn provided the day after the US terrorist attacks of September 11 2001. The ECB also gave an unprecedented one-day pledge to meet 100% of all funding requests from financial institutions.
The rise in the interbank rate prompted the US Federal Reserve to put $24bn into US markets in scheduled open market operations.
The ECB had reacted to French bank BNP Paribas SA's decision to halt withdrawals from three investment funds today because it couldn't value its holdings.
BNP Paribas blamed a “complete evaporation” of liquidity for the drastic step.
Stocks on Wall Street Friday traded in a very volatile session but the reaction of the central banks was viewed positively.
The Dow Jones Industrial Average closed down 31.14 to 13239.54 having recovered from an earlier loss of more than 200 points. The 30 blue-chip index is up 6.2% on the year.
The S&P 500 rose 0.55 to 1453.64 and is up 2.5% year to date. The Nasdaq Composite Index closed down 11.60 to 2544.89, leaving it 5.4% higher on the year. All three indexes ended the week higher. In Europe, national benchmarks fell in all 18 western European benchmarks. The U.K.'s FTSE 100 declined 3%, France's CAC 40 fell 2.7% and Germany's DAX dropped 1.2%.
In Dublin, the ISEQ index of Irish shares closed down more than 4%, a move that wiped €4.5 billion off its value on Friday.
For Irish, FTSE 100, Nasdaq prices and latest global indices, check here.
Goldman Sachs
Bloomberg News reports that Goldman Sachs Group Inc.'s $8 billion Global Alpha hedge fund has fallen 26% so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund.
Goldman's largest hedge fund, managed by Mark Carhart and Raymond Iwanowsk, has dropped almost 40% since July 31, 2006, said the people, who declined to be named because the fund is private. The Standard & Poor's 500 Index of the biggest US stocks has returned 16% during the same
Citigroup
The Financial Times reported on Saturday that Citigroup has lost more than $500m in credit business in recent weeks, making it one of the biggest casualties of the crisis, according to a person briefed on the situation.
The scale of the losses is not a serious problem for a company that earned more than $20bn last year and bankers believe some Wall Street rivals have lost more.
However, the FT says that it will be acutely embarrassing for Chuck Prince, chairman and chief executive, who has been widely criticised for saying last month that Citi was “still dancing” in the credit markets.
The FT says that the losses were made largely in the structured credit business run by Michael Raynes, hired from Deutsche Bank in London last summer.
They are in addition to those Citi faces from lending commitments to leveraged buy-outs.
Prince told the FT on July 10 that the lending party would end but there was so much liquidity at the time that it would not be disrupted by the turmoil in the US subprime mortgage market.
“When the music stop, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
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