U.S. Stock-Index Futures Tumble on Lehman; AIG, JPMorgan Fall

U.S. Stock-Index Futures Tumble on Lehman; AIG, JPMorgan Fall
By Allen Wan and Adria Cimino

Sept. 15 (Bloomberg) -- U.S. stock-index futures tumbled on concern Lehman Brothers Holdings Inc.'s bankruptcy filing will exacerbate credit-market turmoil.
Lehman, once the fourth-largest U.S. investment bank, has filed a Chapter 11 petition after potential buyers abandoned talks and the U.S. government declined to fund a takeover of the crippled firm. Bank of America Corp. cemented its status as the largest U.S. consumer bank by agreeing to acquire Merrill Lynch & Co., the world's biggest brokerage firm, for about $50 billion.
Standard & Poor's 500 Index futures expiring in December retreated 46.20 points, or 3.7 percent, to 1,212.4 at 9:58 a.m. in London. Stocks in Australia dropped and U.S. Treasuries rose the most since January as investors sought the relative safety of government debt.
``The collapse of this deal casts a dark cloud over Wall Street,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``It also sends a message that the government is getting out of the bailout business and makes financial institutions like AIG and WaMu look even more vulnerable.''
American International Group Inc., the largest U.S. insurer, plunged 46 percent last week and Washington Mutual Inc., the country's biggest savings and loan, dropped 36 percent on concern about their financial health.
Emergency Session
Federal Reserve and U.S. Treasury officials met in an emergency session as Barclays, the U.K.'s third-largest bank, abandoned talks to acquire Lehman after failing to win government guarantees against losses. The companies were considered leading candidates to acquire the 158-year-old investment bank after record losses erased 94 percent of its stock value this year.
Lehman sank $2.6, or 81 percent, to 69 cents in Germany. Other U.S. banks also fell, with JPMorgan Chase & Co. losing $3.2, or 7.5 percent, to $38.05 in Germany.
Merrill climbed $6.89, or 40 percent, to $23.94 in Germany, while Bank of America lost $4.80 to $29.94 in Germany.
Bank of America will swap 0.8595 shares of its stock for each Merrill share. The bank pulled out of talks yesterday to acquire Lehman. That works out to $29 a share, based on Bank of America's closing price of $33.74 on Sept. 12.
AIG shares lost $3.11, or 26 percent, to $9.03 in Germany. The largest U.S. insurer by assets was working on plans late yesterday to raise capital and sell units to forestall credit downgrades from hobbling the company.
Australian Shares
Australia's S&P/ASX 200 Index slumped 86.1 points, or 1.8 percent, to 4,817.70 in Sydney. Stock markets in Japan, Korea, Hong Kong and China are closed for holidays today.
The yield on two-year notes dropped 34 basis points, or 0.34 percentage point, to 1.87 percent as of 7:23 a.m. in London, according to bond broker BGCantor Market Data. The dollar declined to $1.4481, the lowest since Sept. 4, before trading at $1.4401 per euro at 7:05 a.m. in London.
Lehman lost three-quarters of its value last week amid signs that the U.S. government may not provide the funding that enabled Bear Stearns Cos. to sell itself and avoid bankruptcy.
``I could see Lehman's shares fall into the Fannie Mae and Freddie Mac range,'' said Dickson. Fannie Mae and Freddie Mac dropped below 75 cents a share after the government announced plans to put the two largest mortgage-finance companies under conservatorship.
Bailout Costs
Washington Mutual may cost taxpayers as much as $24 billion in the event of a U.S. government bailout, Richard Bove, an analyst at Ladenburg Thalmann & Co., said. The federal government may have to provide that much in mortgage guarantees in order to attract a buyer for the Seattle-based bank, Bove said.
``You may get an assisted merger with a limit on how much the private buyer would pay for the bank with the government giving a guarantee for the rest,'' Bove said in an interview with Bloomberg Radio.
Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime- mortgage market last year ``is probably a once in a century event'' that will lead to the failure of more firms.
The S&P 500 Index rose 0.8 percent to 1,251.70 last week for the first advance since the week ended Aug. 15.
To contact the reporter on this story: Allen Wan in New York at awan3@bloomberg.net