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Markets are called to open lower this morning. This is what's happening today:
Markets sold off yesterday in the US. The NASDAQ down 2.43%, S&P500 off 2.22% and the Dow down 1.96% after Moody's downgraded 14 global banks. A downgrade usually means that it becomes more costly for banks to raise money by selling debt. Investors demand higher interest for riskier debt, which is what the downgrades represent. Moody's said it was especially concerned about banks with significant financial markets businesses because those markets have become so volatile.
The latest Moody's report split up the 15 large banks that were downgraded into three main groups:
The cost to protect Morgan Stanley’s debt against losses dropped, and the shares rallied as much as 4.6% in extended trading yesterday after the ratings firm cut the bank by two levels rather than a threatened three grades. Credit-default swaps tied to Bank of America Corp., which was lowered to within two levels of junk along with Citigroup Inc., also improved, along with those of Goldman Sachs Group Inc.
European finance ministers battled over the strategy to contain the debt crisis, with creditor countries resisting leniency for Greece and playing down market concerns about the bailout of Spanish banks.
Lenders of E240b to Greece offered no sign of granting extra time for the newly installed Athens government to meet deficit-cut targets. With Spain set to request as much as E100b to rescue its teetering banks, the officials quarrelled over how to design a recapitalization program that doesn’t scare investors away from Spanish government bonds. The setup of the Spanish package is so politically sensitive that it will be decided by government leaders at a June 28-29 summit.
Stock to watch: Intermediate Capital Group (Price 272.7p, Price Target 320p)
Intermediate Capital Group (ICG) invests in mezzanine finance, leveraged credit and minority equity. ICG has total AuM of EUR 11.4bn, of which 76% are invested on behalf of clients, with the rest funded from ICG's own balance sheet. ICG has a strong brand and top-quartile investment performance. The short-term outlook is uncertain because the Eurozone crisis is likely to result in higher defaults and a tougher backdrop for realisations. However, the group is well positioned for longer-term growth as UK/European banks de-lever their balance sheets. Buy.
For further information on Intermediate Capital Group or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
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