After the Close: Financial Market Report-Thursday, Sept. 18

The latest from the tumult on Wall Street and the rest of the financial world, according to various news sources. • Wachovia Corp., which might buy Morgan Stanley, is having problems of its own, having taken $22.7 billion in write-downs thus far, most of them real estate related, according to Bloomberg. A lot of the company’s exposure to toxic real estate loans dates from its $25 billion acquisition of Golden West in 2006, at the height of the credit bubble. • Today the Dow Jones Industrial Average defied the onrush of grim news by advancing more than 400 points at the final bell, reacting to the prospect that the federal government may create an entity along the lines of the Resolution Trust Corp. to vacuum up bad real estate debt. This morning Dow Jones & Co. said that Kraft Foods would be replacing American International Group Inc. (AIG) on the 112-year-old stock index, effective at the open of trading Monday. • Lloyds TSB Group PLC has agreed to buy HBOS PLC for £10.4 billion ($18.9 billion). The two had previous been competitors, but subprime exposure has done as much damage across the pond as in the United States. The deal is a stock swap: 0.83 Lloyds TSB shares for each HBOS shares. • The Federal Reserve has increased the amount of dollars central banks can auction around the world to $247 billion, which represents nearly a quadrupling of the amount it previously allowed, $67 billion. Most of the industrial world’s central banks will take part: the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank. The move is to encourage liquidity in the system, as investors are holding onto their cash with white knuckles. • European stocks have responded badly to the current crisis, with the Stoxx 600 down 8.4 percent this week. The worst performers, unsurprisingly, have been banks. It’s part of a much bigger slide: since the beginning of 4Q07, some $19 trillion in stock-market value has evaporated worldwide. • Closer to home, Wall Street problems continue unabated. Washington Mutual is now assuredly on the block, though it’s a little different than some of the other failed players. WaMu has a large retail banking business–about 2,300 branches–a legacy of its extraordinary growth in retail banking during the early 2000s, when it seemed that the thrift wanted to open small branches in every strip center. Currently, the bank also has about $143 billion in retail deposits. • During a conference call with employees this morning, Morgan Stanley CEO John Mack said that he, personally, along with other top executives, would be willing to talk to retail clients if the company’s brokers put together a group of (presumably worried) customers. Mack didn’t say anything today about talks with various takeover suitors, especially Wachovia. • President Bush has defended the bailout of AIG. The failure of the firm “could have caused a severe disruption in our financial market and threaten other sectors of the economy.” He also, in his two-minute speech this morning, said that he “shares” the concerns of the American people “about the situation in our financial markets.”