Stock Futures Rise on GMAC Bailout NewsStocks faltered on Monday, but were poised to rally Tuesday on the news of the government's $6 billion bailout of GMAC.
The GMAC news moved GM shares up in European markets - shares of the troubled auto giant rose 11 percent in Frankfurt. Even though Ford Motor Co. isn't receiving any bailout funds, its stocks rose close to 10 percent on the GMAC news. This funding increases the government's involvement in helping the domestic auto industry. A $17.4 billion rescue package to stop GM and Chrysler from sliding into bankruptcy was announced by President Bush two weeks ago.
Slumps on Monday saw the Dow Jones industrial average drop 32 points, while Standard & Poor's 500 index fell 0.39 percent and Nasdaq's composite was down 1.3 percent. Geopolitical tensions in the Middle East also sent oil prices higher. A failure to secure a major deal from Kuwait may leave Dow Chemicals acquisition of rival Rohm & Haas on shaky ground.
Investors have been holding back on large transactions until 2009 amid expectations of more bad news from the manufacturing industry and consumers. The three indexes are down sharply in 2008: The Dow is down almost 36 percent; the S&P 500 dropped 41 percent, and the Nasdaq plummeted 42 percent for the year.
The Conference Board will release its December index of consumer confidence on Tuesday, and its index is predicted to rise to 45.2 from 44.9 in November. Even though it is a slight increase, it is near the lower end of its historic range. It hit its lowest level in October at 38.3. A survey of Chicago area purchasing managers on Tuesday is also expected to bring bad tidings, showing more drops in manufacturing activity.
Commercial Banks Make $6 Billion
Commercial banks in the U.S. posted revenue of $6 billion in the third quarter, up $4.4 billion from the previous quarter. According to the Office of the Comptroller of the Currency's Kathryn Dick, deputy comptroller for credit and market risk, the value of trading revenue was inflated during the third quarter because of fair value accounting rules that went into effect at the end of 2007.
Gains were due largely to accounting purposes, not client activity or customer demand, says Dick. Credit spreads have significantly narrowed during the fourth quarter as investor confidence in credit quality has increased, and Dick expects the gains seen in this report will reverse.
The OCC, which oversees most of the big commercial banks, says the amount of derivatives held by the industry, an amount not generally exchanged, decreased by $6.3 trillion in the quarter to $176 trillion.
Credit derivative contracts increased 4% to $16 trillion in the third quarter. The net current credit exposure for the industry increased $30 billion, 7 percent, to $435 billion. The OCC uses this figure as the primary way to measure credit risk in derivatives activity. The report says the largest five U.S. banks hold 97% of the total notional amount of derivatives.