Top 10 News Items 10/6-10/10: Dow Plunges 18% This Week; UK to Inject Capital Into Banking System; Iceland Melts-down, Seizes Largest Bank

October 10, 2008 4:19 PM EDT

This is a recap of the weeks major news items on Wall Street:

1. Central banks around the world scrambled to find a measure that could stabilize the financial markets this week. At the center of the crisis, credit markets finally began to show signs of improvement, albeit a very faint glimmer of hope. The action that shook the frozen credit markets came Wednesday morning when government's around the world announced a coordinated 50 basis point reduction in interest rates. The market reaction that morning was jaw-dropping; after initially responding positively to the announcement, traders began selling stocks into the open, causing a 200 point decline in the Dow. Minutes after the open, however, the market came roaring back, only to sell-off another 200 points by mid-day. Volatility soared to all-time highs: the VIX, a popular measure of market sentiment, set new high's during several days, settling around 75 on Friday, about 45 points higher than what traders consider "market pessimism". The Dow Jones index crossed the 10,000 level for the first time since 2004 while plunging about 18% in just 5 days of trading.

2. Tuesday mid-day, the UK government announced that it plans to inject large amounts of capital into its banking system. The news left the door open for the US to follow suit.

3. The government of Iceland seized the country's largest bank, Kaupthing Bank hf, as the company's banking system melted down. Icelandic officials said that the country may seek a loan from Russia or the IMF in order to free-up its assets and help guarantee deposits.

4. Shares of General Motors (NYSE: GM) got slaughtered this week as traders continue to speculate whether or not the carmarker will need to file for bankruptcy protection soon. On Thursday, the stock feel to its lowest dollar value since the 1950's and its market cap, now under $3 billion, fell to its lowest level since 1929.

5. The Fed announced Tuesday the creation of the Commercial Paper Funding Facility, a facility that will complement the Fed's existing credit facilities that are currently providing liquidity to term funding markets. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Treasury believes this facility is necessary to prevent substantial disruptions to the financial markets and the economy.

6. Bank of America (NYSE: BAC) pre-announced Q3 earnings Monday, reporting EPS of $0.15.
The company also announced two initiatives to raise capital, targeting an 8% Tier 1 capital ratio. The company intends to sell common stock with a target of raising $10 billion. In addition, the Board slashed the company's quarterly dividend in half to $0.32 per common share. Shares of BofA finished off this week down nearly 40%.

7. After recent discussions with Bristol-Myers (NYSE: BMY), ImClone (Nasdaq: IMCL) announced that Eli Lilly (NYSE: LLY) would acquire the company for $70 per share in cash. The offer is an $8 premium to Bristol's previously proposed offer of $62 per share.

8. The SEC's short-sale ban on some 800 financial stocks was lifted this week, giving hopes to short-sellers and investors looking to hedge. Despite the ban, financials stocks continued to see downside, busting the claim that relentless short-sellers added to the deterioration in the financial system. Although many pundits (like Pershing Square Capital's Bill Ackman)and traders have indicated that the ban actually hurt the markets, the SEC is already considering re-enacting some form of the ban.

9. After lending $85 billion to AIG (NYSE: AIG) on September 16, the Fed announced after the close Wednesday that it would provide the world's largest insurer with an additional $38 billion in capital.

10. Responding to a sharp sell-off in shares of IBM (NYSE: IBM), the company pre-announced Q3 earnings, surprising the Street with above consensus EPS of $2.05. IBM also affirmed its FY08 EPS guidance, reassuring investors that the tech company was not yet feeling substantial effects from the credit crunch. Despite the better-than-expected results, IBM could not post a daily gain amid drastic declines across the stock market.

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• William Ackman
• UBS
• Pershing Square Capital
• Banc of America
• Dividend
• StreetInsider.com Top 10 News Items for the Week
• Bankruptcy

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