Bond debt may weigh on stocks
Leonard Zehr, today at 7:53 AM EDT
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Wall Street on Tuesday will be struggling with the impact of billions of dollars of unsold loans and bonds, reflecting the worst bear market in high-yield debt in more than two years.
According to a published report, Goldman Sachs Group Inc.,
JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11-billion (U.S.) of loans and bonds they can’t readily sell and have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month.
“We fear that the Cockroach Theory will be badly at work here, for as we all know, where there is one cockroach, there are more to follow,” says newsletter writer Dennis Gartman. “If five leveraged buyouts have gone bad, how many more ... remain on the books?”
While U.S. bankers are trying to end financing bridge equity loans because of the heightened risk, Toronto-Dominion Bank has agreed to commit about $4-billion (Canadian) in capital to help finance the record takeover of BCE Inc., including $500-million of equity that it plans to sell to other large Canadian investors once the deal is approved, according to the Globe and Mail newspaper.
In the early going Tuesday, U.S. stock-index futures are slightly lower, suggesting the broader market may come under pressure as investors’ concerns about the extent of the high-risk mortgage crisis persists ahead of more profit reports and the release of the June producer price index.
Economists say increasing oil prices have in recent months been widening the distance between the overall and core PPI readings, stirring some concerns that inflation will dent consumers’ ability to keep spending.
On the M&A front, Dow Jones & Co. Inc. has tentatively agreed to a $5-billion takeover bid by Rupert Murdoch’s News Corp., even though the controlling Bancroft family is still split on the deal.
Europe’s main stock markets are sinking at midday, with the mining sector taking a hit from weak metals prices, dealers say. Gold traded in London at $663.15 an ounce, down from $665.60 late Monday.
theglobeandmail.com |
