After its stock tanked 45 percent on Tuesday, dragging down the markets with it, Lehman Bros. will today come clean—a week ahead of schedule—about the state of its finances, the New York Times says, leading off its business coverage. “Lehman’s future as an independent firm now seems more uncertain than ever, and many analysts fear that the bank is running out of time and options,” the newspaper adds, summing up investor sentiment that saw Lehman lose nearly half its value on Tuesday and stoked fears the financial sector is still in trouble. Bloomberg says Lehman shares have fallen 88 percent this year and that on Wednesday morning, before the market opens, “the firm will report more writedowns and losses.”
The historic Lehman sell-off on Tuesday, according to the Wall Street Journal, followed the news that a last-ditch deal with Korea Development Bank had fallen through. That set off a chain reaction of selling across all indices, wiping out Monday’s gains inspired by “the bailout of Fannie Mae and Freddie Mac,” the newspaper noted.
After falling to a five-month low on Tuesday, oil bounced back Wednesday morning in early-trading in Asia as OPEC announced a surprise cut in production on Tuesday night, Reuters reports. U.S. crude rose on Wednesday morning more than $1 to $103.72 a barrel, the newswire adds. Analysts had been predicting the oil cartel would leave quotas unchanged, but it instead decided to slash production by roughly one-half million barrels per day, the NYT says, in “a bid to stem a rapid decline in oil prices in recent weeks.” The move may have exposed a rift, as Saudi Arabia lobbied hard to keep production at full tilt. “The decision represents a rare case of OPEC’s going against the position of its biggest member,” the newspaper said.
Marketwatch reports the OPEC decision could set a floor on plummeting oil prices. “The market is short oil, and this piece of fundamental news would unnerve the market,” Jonathan Barratt, managing director of Commodity Broking Service in Sydney, told Marketwatch. “It could arrest the fall in oil prices for an intermediate time.”
“Wars and a weak economy” will mean the U.S. federal deficit balloons to $407 billion this year, more than double that of 2007, WSJ reports. For fiscal hawks, the news only gets worse—fiscal 2009 is expected to be even worse, the newspaper adds. How bad? Just $438 billion in the red next year. Congressional Budget Office Director Peter Orszag, understandably, did not try to sugarcoat the outlook. “The figures make it challenging to avoid playing the dismal economist,” Orszag said in a statement.
A fall in revenues from corporate tax receipts plus the government’s tax rebate stimulus plan for individuals, CNN Money calculates, resulted in “a budget deficit [that] shot up 153% from last year’s shortfall of $161 billion.” The CBO is not only forecasting more revenue shortfalls but several more months of “very slow” economic growth, CNN Money adds. And further out? Whoever inherits the White House will be looking at a cumulative deficit over the next 10 years that now stands at $2.3 trillion.
The fallout from Sunday’s Fannie Mae-Freddie Mac seizure continues to dominate the business pages today. First, the winners. Investor Bill Gross’ Pimco Total Return fund, the world’s largest bond fund, netted a cool $1.7 billion “payday” thanks to a shrewd bet Gross made months ago that the government would step in and bail out the troubled lenders, the Financial Times reports. NYT reports the Federal Agricultural Mortgage Corporation, or Farmer Mac, has seen a run-up in shares and profits thanks to the soaring price of farmland and farm commodities. And the Government National Mortgage Association, or Ginnie Mae, has had one of its best years selling government-guaranteed debt.
And the not so shrewd? The WSJ reports Baltimore-based Legg Mason Capital Management Inc. had raised its holdings in Freddie shares from 50 million earlier this year to nearly 80 million shares as of July 31. Fidelity’s Fidelity Select Home Finance, meanwhile, invested 17 percent of its assets in Fannie and Freddie, WSJ reports.
Maybe it was the unfortunate name—”Let’s Rock”—of its annual showcase event that disappointed investors on Tuesday. Apple shares fell 4 percent, BusinessWeek reports, despite the company’s announcement of new iPods and an iTunes upgrade in time for Christmas, news that ordinarily triggers a buying spree—in shares and gadgets. But there was reassuring news for jittery investors. When Steve Jobs took the stage Tuesday, the NYT writes, “a message that appeared on the large screen behind him read, ’Reports of my death have been greatly exaggerated.’ “