Lehman Disaster Sending Index Futures Lower, BAC Buys MER

Well the overnight futures opened and at 8:00, according to insidefutures.com, The S&P Overnight Futures are -36.6 and the Dow Jones Industrials Overnight Futures are -286. Here are the 90 minute charts going back 3 weeks for the overnight futures. You can see the big gap down tonight. It's crazy how all of the big investment banks are all intertwined with counterparty Credit Default Swap risk exposure, and with Lehman insolvent it could bring big problems. There are some good articles about the counterparty CDS risk on bloomberg.com.

S&P Overnight Futures (insidefutures)

Dow Overnight Futures (insidefutures)

While I'm writing this news update just popped up. Bank of America Agrees to Buy Merrill Lynch for $44 Billion: WSJ- AP. That's a 38% premium to its $21 book value for its most recent quarter! Is BAC going to make MER write downs in the future??? It has to be related to the billions of counterparty swap exposure because it doesn't seem like the right time to make a 38% premium bid over book value for a financial institution.

It will be interesting to see if the Bank of America/Merrill news out weighs the Lehman Brothers News. Of course if there's deal for Lehman to sell the Neuberger Berman unit by Monday morning and survives, things might not be that bad!

And just think, it all started with the two Bear Stearns Subprime funds that blew up in July, 2007. Here's the letter Bear sent to shareholders, from the WSJ.