Credit Crisis Report 10/12/2008 Problems Deepen (MS)(RBS)(HBO)(FNM)(FRE)(GM)(F)

The IMF said that the world banking system faces of meltdown if governments does not take immediate action to support that largest banks. Based on comments from Paulson, the US may be moving a bit slowly, which could cost the stock market dearly on Monday

The Times of London reports that the four largest banks in the UK will ask for 35 billion pounds. The UK may become the biggest investor in some of these banks and certainly will be at Royal Bank of Scotland (RBS) and Halifax Bank of Scotland (HBOS). The government may take board seats at some of the financial firms.

Morgan Stanley (MS) could loss its investment from Mitsubishi UFJ if the Japanese bank’s due diligence finds deal problems on the investment bank’s balance sheet. That would leave a decision by Treasury either to buy an interest, probably a controlling interest in MS or let it fail and by some analysis cause more massive damage to the world financial system.

Bloomberg reports that Fannie Mae (FNM) and Freddie Mac (FRE) began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities.

GM (GM) and Ford (F) have discussed a merger and some reports say that GM is seeking a loan from the Fed.

The FT reports that "The pay-outs on about $400bn of defaulted credit derivatives linked to Lehman Brothers are likely to be higher than anticipated after auctions to settle these credit default swaps resulted in a low recovery price." Payments for the Lehman CDSs could damage some financial firms.

Douglas A. McIntyre