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Monday, September 15, 2008

MER, LEH, AIG - Same Looking Charts, But Different Fates

This coming week will be a historical one in the financial sector. Bank of America Corporation (NYSE:BAC) has agreed to buy Merrill Lynch & Co., Inc. (NYSE:MER)for about $44 billion, or around $29 a share. Come Monday when market opens, the stock will gap up to $29 from where it closed at almost $17, which is a 70% premium. I'm not sure why BOfA is willing to pay such high premium at such times.

Lehman Brothers Holdings Inc. (NYSE:LEH), on the other hand is not so lucky. BofA, which was earlier in talks with Lehman has now ditched Lehman for Merrill. Other potential buyers have also pulled out of talks. Will Lehman have to file for bankruptcy or a last minute white knight will appear?

Question is will American International Group, Inc. (NYSE:AIG) be the next to get into trouble and end up like Merrill or Bear Sterns? AIG is also reported facing liquidity crisis and seeking help from Federal Reserve.

Notice all 3 stocks have been printing lower highs the past few months and formed descending triangle which broke down last week, shaving off much of their market capitalization. While Merill is lucky to have BofA offer to buy it at 70% premium, Lehman's fate is still hanging in the air, though chances are slim if the Fed doesn't step in. As for AIG, this week could prove to be critical as we have the FOMC policy statement and also major banks like Goldman Sachs and Morgan Stanley announcing earnings. Keep your eyes open...

Mon: NY Empire State Index, Capacity Utilization, Industrial Production

Tue: CPI, FOMC Policy Statement
Notable earnings: GS, ADBE, BBY

Wed: Building Permits, Housing Starts
Notable earnings: MS

Thurs: Initial Claims, Leading Indicators, Phil Fed
Notable earnings: FDX, ORCL

Fri: Options Expiration


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