Stocks rally back amid bank royal rumble; Lloyds lands HBOS; MidAmerican to buy Constellation Energy

By Aaron Hochman-Zimmerman

New York, Sept. 18 - "A wild day again," a trader said as almost every major bank kept the heat up in the financial color war for dear life, pride and profit.

Confused stock prices whipped around violently throughout the session but ended sky high on the news that the Treasury Department may itself start claiming bad debt from troubled banks.

Encouraged investors also jumped aboard banks on the brink of deals with other banks that are poised to be the survivors of the credit crisis.

HBOS plc finally surrendered and became just the next bank to haul down its colors as it agreed to a deal with Lloyds TSB Group plc.

Elsewhere, leveled by its links to Lehman Brothers, Constellation Energy Group, Inc. agreed to kneel before the oracle as MidAmerican Energy Holdings Co., a subsidiary of Warren Buffett's Berkshire Hathaway Inc., offered to purchase the utility for $4.7 billion.

In the broader market, the late-day rally let the Dow Jones Industrial Average rage back to end up by 410.03, or 3.86%, at 11,019.69, while the Nasdaq Composite Index added 100.25, or 4.78%, to finish at 2,199.10.

The S&P 500 took on 50.12, or 4.33%, to close at 1,206.51.

A bank-eat-bank world

Any investors who were anticipating a bounce for the financial stocks were feeling pretty good about themselves on Thursday afternoon.

Confidence seemed to return to the investment banks that have in-house support from a retail operation.

That left Goldman Sachs Group Inc. and Morgan Stanley at the dance with no partners.

Both names were mentioned repeatedly as possible targets or merger partners.

Goldman Sachs retained some of its too-smart-to-fail stature, but many expected Morgan Stanley to be snagged by Citigroup Inc., HSBC Holdings plc or Wells Fargo & Co.

Wachovia Corp. was another name many expected to see attached to Morgan Stanley's sometime soon.

The complementary banking models could be bolstered by the association of two Duke University Blue Devils, Wachovia's Bob Steele and Morgan Stanley's John Mack.

Wachovia (NYSE: WB) soared by $5.38, or 58.99%, to $14.50 as it was on watch to strike a deal at any moment.

Shares of Morgan Stanley (NYSE: MS) improved by $0.80, or 3.68%, to close at $22.55.

There were some willing to bet Morgan Stanley would soon be reunited with JPMorgan Chase & Co., but the prevailing wisdom was that JPMorgan had its remaining appetite set on Washington Mutual, Inc.

WaMu's (NYSE: WM) shares were on the move on Thursday, in keeping with the expectation that a sale is imminent. Shares launched up by $0.98, or 48.76%, to $2.99.

A bank notably left behind by the rally was Bank of New York Mellon Corp., which was having "money market issues," a trader said.

The bank's "commercial paper is suffering as a result of all the money running to the three-month bills," he said.

The same problem confronts Goldman Sachs and Morgan Stanley, he said.

"They finance in that market, but need a stable bank's deposit base," he added.

Shares of the Bank of New York Mellon (NYSE: BK) gave up $1.53, or 4.62%, to close at $31.57.

Another done deal

Investors in London spent another day on Wednesday watching the en masse collapse of American financial stalwarts, but before they could whistle "the world turn'd upside down" the rumored sale of HBOS to Lloyds TSB was finalized.

HBOS agreed to go quietly at the price of $22 billion, or 83% of one Lloyds share per one HBOS share.

The price represents a 58% premium to Wednesday's close.

Shares of Lloyds TSB (NYSE: LYG) jumped $2.24, or 11.72%, to close at $31.57.

Berkshire catches falling star

Constellation Energy, which had been crushed under the weight of falling commodities and Lehman Brothers, accepted an offer of $4.7 billion, or $26.50 per share, from Berkshire Hathaway subsidiary MidAmerican Energy Holdings, according to a joint press release.

By the end of the day on Friday, the two expect to make the agreement official. At that time Constellation Energy will issue $1 billion of preferred equity yielding 8% to MidAmerican.

"The financial services sector and energy commodity markets have witnessed unprecedented volatility," Mayo Shattuck, chairman, president and chief executive officer of Constellation Energy, said in the release. "Backed by the significant industry expertise and financial stability of MidAmerican and Berkshire Hathaway, Constellation Energy will build on its reputation as a first-choice energy solution provider for our many customers."

The acclaimed chairman of Berkshire Hathaway, Warren Buffett, said, "MidAmerican has been a wonderful steward of its energy assets and the acquisition of Constellation Energy, when completed, will prove beneficial to all constituents."

Shares of Constellation Energy (NYSE: CEG) slipped by $0.57, or 2.30%, to $24.20. As recently as last Friday, Constellation closed at $58.37.

Shares of Berkshire Hathaway (NYSE: BRK.A) added a modest $3,210.00, or 2.57%, to close at $128,010.00.

After the announcement of a definitive agreement, MidAmerican has two weeks to terminate the deal if it feels Constellation Energy's retail or wholesale business has been too severely damaged since June 30, an analyst said.

If a formal deal is announced it will likely close within nine months, the analyst said.

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