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Microsoft announces $40bn buy-back

Posted by Yogesh on Monday, 22 September, 2008

Wall Street remained nervous on Monday amid uncertainty over the impact of its biggest restructuring since the Great Depression and the details of Washington’s planned $700bn bailout.

In the latest of extraordinary developments, Morgan Stanley and Goldman Sachs are to abandon their investment bank model and become traditional bank holding companies.

The switch will allow them to rely more heavily on retail deposits and move away from a highly leveraged operation, which contributed to the downfall of Bear Stearns and Lehman Brothers.

Morgan jumped 10.9 per cent to $30.17 after Mitsubishi UFJ Financial Group, Japan’s largest bank, said it planned to buy up to 20 per cent of the former.

Goldman fell 3 per cent to $125.85.

Questions over the workings of the Treasury’s plan to mop up toxic mortgage assets weighed on the market. The decline was led by financials, down 5.3 per cent.

By mid-morning in New York, the S&P 500 was 1.4 per cent lower at 1,237.38. The Dow Jones Industrial Average was 1.2 per cent lower at 11,257.10 while the Nasdaq Composite Index fell 1.3 per cent to 2,244.26.

Analysts at FBR Capital Markets wrote in a note to clients: “Important details of this plan remain unclear, including the pricing mechanism, the amount of mortgage assets that can be sold by each banking institutions, and ultimately, the cost that these institutions would incur.”

The prospect of a vast government intervention to stave off a deepening financial crisis led to a two-day rally at the end of last week, helped by a temporary ban on shorting some financial stocks.

“Armageddon appears to have been avoided but are the events of the past week to be seen as an Armistice or a plain simple truce? I’ll go for an Armistice, mindful that history tells us that not even these always hold,” said Howard Wheeldon, strategist at BGC Brokers.

“Even for the most seasoned equity market observer there were times that this actually became quite scary.”

Before the market opened on Monday, the Securities and Exchange Commission added more than 90 companies to its short ban list. Shares in General Electric and American Express, among those included on the list, ticked up 0.1 per cent to $26.66 and fell 8.4 per cent to $36.98, respectively.

In spite of the wider gloom, a raft of share buybacks helped some stocks. News of a $5bn repurchase programme helped Nike edged up 0.4 per cent at $63.96

In technology, Microsoft rallied 4 per cent to $26.17 after the software group raised its quarterly dividend and unveiled plans to buy back as much as $40 bn of its stock. Hewlett-Packard increased its share buyback program by $8bn, though the shares lost 1 per cent at $47.78.

Also in technology, Morgan Stanley cut its price target on several of stocks in the sector, including Apple, IBM and Dell. They fell 2.1 per cent, 1 per cent and gained 2.2 per cent, respectively.

Netapp fell 7.5 per cent to $19.53 after Wachovia cut its recommendation from “outperform” to “market perform”.

Meanwhile, Kraft marked its debut in the Dow Jones index with a 2.5 per cent rise, to $33.82. The stock has replaced American International Group in the benchmark index.

Also on the upside, Ciena – whose shares have lost two thirds of their value over the last year – rallied 3.5 per cent to $11.67 after a positive write-up in financial weekly Barron’s. Source FT.com

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