Pfizer Inc. (NYSE: PFE) announced a deal to acquire rival Wyeth (NYSE: WYE) for $68 billion, or $50.19 a share, a 15% premium to Friday's close of $43.74. This cash-and-stock deal is the largest in the drug sector since 2000 and many see it as a precursor to a flourishing M&A season as the credit markets are slowly starting to improve. Pfizer also reported a 90% profit drop for the fourth quarter due to charges. PFE shares declined 3.4% in premarket trading, while WYE shares gained nearly 5%.

Barclays (NYSE: BCS) shares surged in London Monday after the firm reassured investors in a letter to shareholders it didn't need more capital. But France's BNP Paribas said it would take more cash from the government following a 1.4 billion euro ($1.8 billion) loss in the latest quarter. Finally, ING (NYSE: ING), the Dutch financial services firm, also received government aid as it is expected to announce it had a net loss of 3.3 billion euros in the fourth quarter, that it would cut 7,000 jobs, and that its CEO would step down. BCS shares gained over 44% in premarket trading and ING's gained over 19%.

Caterpillar (NYSE: CAT) and McDonald's (NYSE: MCD) are two Dow components set to report earnings this morning. CAT said its fourth-quarter profit fell to $661 million, or $1.08 a share, from $975 million, or $1.50 a share, in the year-ago quarter. Revenue rose 6% to $12.9 billion. For 2009, Caterpillar gave a a much lower guidance than analysts had expected, $2.50 vs. $4.35 EPS. CAT also said it would slash 20,000 jobs. CAT shares fell over 11% in premarket trading.
Meanwhile, MCD delivered what at first glance seems to be better-than-expected earnings of 87 cents vs. 84 cents. It even plans to invest $2.1 billion of capital to open about 1,000 new McDonald's restaurants.

American Express (NYSE: AXP) is the third Dow component tor report quarterly results after the close of trading today and is expected to report fourth-quarter earnings of 20 cents a share.

Banks around the world have been raising capital in the last few months. If the market is efficient, then the cost of capital for these banks should tell us something about how risky they are. Based on the relative cost of capital of banks in the U.S. compared to those in France, Germany and Switzerland, the world's riskiest banks are right here in the good old USA. The safest banks? French ones.

How so? Here is the rough (due to different capital structures) after-tax cost of capital for the banks in different countries:

• U.S.: Morgan Stanley (NYSE: MS) is paying a 17% interest rate and Goldman Sachs Group (NYSE: GS) pays almost 17%
• UK: Barclays pays 16%; HBOS, Lloyds TSB; and Royal Bank of Scotland pay about 12%
• Germany: Commerzbank pays 10%
• Switzerland: UBS's interest rate is relative bargain of 9.9%
• France: BNP Paribas, Societe Generale, and four others pay the lowest rate -- 5% -- for their capital

Maybe there's some sort of trading opportunity to short U.S banks and go long French ones. C'est la vie!

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book, You Can't Order Change: Lessons From Jim McNerney's Turnaround at Boeing, will be published by Portfolio on December 26, 2008. He has no financial interest in Goldman or Morgan Stanley securities.

Baudouin Prot , CEO of one of Europe's largest and best run banks, BNP Paribas (OTC:BNPQY), said that he believes that the worst of the subprime mess is behind us. What makes this statement important is that BNP is one of the few major banks not to take a serious hit from subprime. The bank estimates that their exposure to subprime is minimal this year and was only about 200 million Euro in '07.

In a Marketwatch report, Prot says: "There are no doubts the crisis isn't over. However, the worst should be over and I believe that in the second semester the crisis may normalize."

While I am skeptical of any bank CEO telling me that the worst is behind us, as they certainly have their own agenda of keeping their stock prices up, when the CEO of a bank that has had little exposure to the crisis tells me that he thinks the tide is turning, I would listen. After all he has an interest in watching some of his competitors fall further, as he could then swoop in and buy on the cheap. The fact that he isn't talking down the industry means that he truly thinks that we are beginning to see the light at the end of the tunnel.

No one seems ready to call a bottom in the financial sector, but with this report, investors may want to start researching the financials that are in the best shape, as we may potentially be near a bottom.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no position in any stock mentioned, as of 6/29/08.

A government bail-out of UK mortgage bank Northern Rock sent Europe banking shares sharply lower and set similar trouble for US bank shares. Northern Rock was down 27% on news that the Bank of England had to supply it emergency funding.

Barclays was off 3.2% Commerzbank fell almost 5%. BNP Paribas and Societe Generale were of about 3.5%.

The New York Times reports that another European bank hedge fund has been wiped out due to its investment in subprime mortgage backed securities (SMBS). Netherlands' NIBC Holdings reported that it lost at least $188 million on investments in the American mortgage market for subprime loans. It joins Paris' BNP and Düsseldorf, IKB Deutsche Industriebank, and some Australian hedge funds and banks.

With the globalization of financial markets, it's clear that nobody knows which banks, hedge funds, insurance companies, and pension funds own those SMBSs. Nor do they know how much money banks have lent these institutional investors. But if the banks decide they want their money back, and the collateral is worthless, then the institutional investors will either need to sell more liquid holdings -- e.g., stocks -- or they will file for bankruptcy.

In a rather lame move, the Wall Street Journal reports that in an effort to see if they're hiding losses, the SEC is examining the books of U.S. investment banks to see if they're marking down the value of their own subprime portfolios in the same way as they are marking down those of their clients. But what's really needed, as I suggested above, is a view of the global damage -- not just the situation in the U.S.

Forbes raises a question about whether The Goldman Sachs Group (NYSE: GS)'s $9 billion hedge fund, Global Alpha, will fail. I don't know, but rumors to that effect raise serious questions about whether the banks will be able to clean up the messes they make in pursuit of those eight figure bonuses. That's because Global Alpha is a symptom of a bigger problem -- the Black Box Market.

I pointed out that Global Alpha was having problems a few months ago in this post. So it doesn't surprise me to read that it's down 16% for the year. Global Alpha lets computers make decisions. Its investors just have to trust that those computers always make money no matter what happens. Unfortunately, the 1998 collapse of Long Term Capital Management demonstrates that smart computer programs can fail at the point of maximum peril.

And this brings us to the Black Box Market. As this morning's announcement by BNP Paribas that three of its subprime hedge funds will not redeem investors' money suggests, the global capital markets are at risk because of their opacity. Specifically, The Black Box Market entails four mysteries:

MAJOR PAPERS:

• French bank BNP Paribas' Investment Partners unit is temporarily suspending three of its funds because of a lack of liquidity in the market as a result of the troubled subprime mortgage market, reported the Wall Street Journal (subscription required).
• Toyota Motor Corporation (NYSE: TM) will delay for one or two years its new high mileage hybrids with lithium-ion battery technology due to possible safety problems, reported the Wall Street Journal.
• Campbell Soup Company (NYSE: CPB) is putting its Godiva Chocolatier up for sale, reported the Wall Street Journal.
• Barron's Online's (subscription required) "Weekday Trader" argued that it may be time to take profits in Chipotle Mexican Grill Inc (NYSE: CMG), as the company hit a record high yesterday and trades at an enormous multiple.
• The Financial Times (subscription required) reported that MMC Energy Inc (NASDAQ: MMCE) is not entering the ethanol market as the company does not believe it can be profitable yet.

OTHER PAPERS:

• The U.K. Times reported that Oracle Corporation (NASDAQ: ORCL) president Charles Phillips said a global credit crunch will help Oracle as it will hurt competing private equity firms from raising cheap capital.