While you were sleeping: AIG record loss, HSBC fund-raising

Tuesday 3rd March 2009

American International Group (AIG), the insurer bailed out by the US government in September, is in line for a further US$30 billion of aid after posting a record loss by an American company.

AIG, which insures 100,000 companies and is counterparty to some of the biggest finance companies, reported its net loss widened to US$61.7 billion in the fourth quarter. The US will offer equity funding and new credit lines, while cutting the interest rate on existing loans. Shares of AIG rose 9.5% to 46 US cents, having slumped almost 100% in the past 12 months.

The dollar rose to a three-year high against a basket of currencies of six major trading partners as the prospects of a further bailout of AIG spurred investors to seek the relative safety of the greenback.

The Dollar Index rose to 88.969. The US dollar climbed to $1.2592 per euro from $1.2669. The euro fell to 122.66 yen from 123.61. The yen was at 97.46 per dollar from 97.57.

HSBC Holdings, Europe's biggest bank, announced plans to raise 12.5 billion pounds, while slashing 6,000 jobs and shuttering its consumer lending unit. The five-for-12 offering is at 254 pence apiece, a discount to its trading price. The shares tumbled 19%, leading the FTSE 100 Index down 5.3% to 3625.83. Lloyds Banking Group dropped 15% and Standard Chartered dropped 12%. Xstrata fell 14% after shareholder approved a US$5.9 billion rights issue.

The Dow Jones Stoxx 600 Index fell about 5% to 164.3 after a report showed European manufacturing contracted at a record pace last month.

A gauge of manufacturing activity fell to 33.5 last month from 34.4 in January, according to a survey of purchasing managers by Markit Economics.

In Germany, the DAX 30 dropped 3.5% to 3710.07, led by a 7.4% drop for Commerzbank. Deutsche Bank declined 5.1%.

France's CAC 40 fell 4.5% to 2581.46. BNP Paribas dropped 9.3% and Societe Generale declined 7.8%.

Amid increasing signs of a deteriorating global economy, and index of US manufacturing showed contraction for the 13th straight month. The Institute for Supply Management's factory index was at 35.8 in February, little changed from 35.6 in January. A reading below 50 signals a shrinking manufacturing sector.

The Dow Jones Industrial Average sank 3.7% to 6798.58, falling below 7,000 for the first time in 12 years. Citigroup led the slide, dropping17% to US$1.25. General Motors fell 8.9% to US$2.05 and General Electric slid 8.7% to UAS$7.77.

Exxon Mobil fell 2.4% to US$66.27 after the price of crude oil dropped as much as 10%.

Berkshire Hathaway, whose investments include Coca-Cola Co., fell 5.1% to US$74,601 after founder Warren Buffett said the US economy will be in a "shambles" this year.

US Treasuries rose to a two-week high as stocks tumbled. The yield on 10-year Treasuries fell 10 basis points to 2.92%.

Crude oil for April delivery fell 9.8% to US$40.37 a barrel on the New York Mercantile Exchange amid speculation the deteriorating global outlook will erode demand fro fuel.

Gold futures for April delivery slipped 0.3% to US$940 an ounce in New York. Copper gained for a second day after stockpiles monitored by the London Metal Exchange declined. Copper futures for May delivery rose 0.4% to US$1.544 a pound on the New York Mercantile Exchange.

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