By Elizabeth Stanton and Lynn Thomasson
Sept. 17 (Bloomberg) -- U.S. stocks tumbled as bank lending seized up in the wake of the government's takeover of American International Group Inc., raising concern that more of the nation's biggest financial companies will fail.
The Standard & Poor's 500 Index lost 4.7 percent, extending its decline from an October record to 26 percent and erasing half its gain from the five-year bull market that began in 2002.
Goldman Sachs Group Inc. and Morgan Stanley, the only remaining independent brokerages on Wall Street, plunged the most ever. General Electric Co., the world's third-biggest company, fell 6.7 percent and U.S. Steel Corp. slid 11 percent. Yields on three-month Treasury bills sank to the lowest since World War II as investors sought the relative safety of government debt, and a measure of corporate borrowing costs surged above the level seen during the crash of 1987.
``It's ugly,'' said Michael Mullaney, a Boston-based money manager for Fiduciary Trust Co., which oversees $10 billion in stocks and bonds. ``It's about the worst I've seen it in 25 years. You have to have free-flowing credit to lubricate the system. That's not happening right now.''
The S&P 500 lost 57.20 points to 1,156.39, the lowest since May 2005 and nearly matching the biggest percentage drop since the September 2001 terrorist attacks. The Dow Jones Industrial Average decreased 449.36, or 4.1 percent, to 10,609.66. The Nasdaq Composite Index sank 109.05, or 4.9 percent, to 2,098.85, a two-year low. Almost 14 stocks fell for each that rose on the New York Stock Exchange.
$3.6 Trillion Erased
About $3.6 trillion of market value has been erased from global stocks this week, triggered by the largest-ever bankruptcy filing by Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Russia halted stock trading for a second day and poured $44 billion into its three biggest banks in a bid to halt the worst financial crisis in a decade.
Gold and silver surged as investors turned to precious metals as a store of value. Newmont Mining Corp., the largest U.S. gold producer, rose 9.4 percent to $43.25 for the second- biggest gain in the S&P 500.
Investors paid up for protection from further losses. The Chicago Board Options Exchange Volatility Index jumped 20 percent to 36.22, the highest closing level since October 2002. The VIX measures the cost of using options as insurance against declines in the S&P 500.
`Protracted' Battle
Morgan Stanley slid $6.95, or a record 24 percent, to a 10- year low of $21.75 after Oppenheimer & Co. analyst Meredith Whitney and Merrill Lynch & Co.'s Guy Moszkowski reduced their fourth-quarter profit estimates, citing higher funding costs. The lowered forecasts come a day after Morgan Stanley's profit beat estimates.
``We believe Morgan Stanley, along with its peers, will battle a protracted period of negative operating leverage,'' Whitney wrote in a note to clients.
Goldman tumbled $18.51, or 14 percent, to $114.50, its steepest drop ever and lowest price in almost three years. Oppenheimer cut its fourth-quarter earnings estimate to $2.60 a share from $3.45.
The three-month London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, its steepest gain since 1999.
U.S. Treasury three-month bill rates dropped to as low as 0.02 percent and the so-called TED spread, the difference between what the Treasury pays to borrow for three months and the amount banks charge each other for loans, widened by 0.84 percentage point to 3.02 percent.
AIG Takeover
AIG, the largest U.S. insurer by assets, lost $1.70, or 45 percent, to $2.05 and extended its decline over the past year to 97 percent, after the government said it will receive a 79.9 percent stake in return for an $85 billion loan that analysts said will be repaid by liquidating the company.
``A disorderly failure of AIG could add to already significant levels of financial market fragility,'' according to a central bank statement yesterday.
The S&P 500 Financials Index slumped 8.9 percent as all 86 of its companies retreated.
Banks and brokerages also fell after the Reserve Primary Fund, the oldest U.S. money-market fund, became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman. Investor redemptions will be delayed as long as seven days, the fund said.
``There's just a massive retrenchment in risk appetite,'' said Robert Stimpson, a money manager at Oak Associates Ltd. in Akron, Ohio, which oversees $1.1 billion. ``We've seen three cornerstones of Wall Street fall by the wayside in the last six months. Is anyone safe? It's a legitimate question.''
Naked Shorts
The Securities and Exchange Commission stiffened regulations against manipulative short-selling after the routs in AIG and Lehman. The new rules force traders to borrow shares before selling them short and make it a fraud for investors to lie to their broker about locating stock to close positions.
Homebuilders across S&P indexes slumped 7.4 percent after the government reported that housing starts dropped 6.2 percent to a 17-year low in August.
Only 21 companies in the S&P 500 gained. SanDisk Corp. surged 39 percent, the most since January 2000, to $20.92. Samsung Electronics Co. made a $5.85 billion hostile bid for the world's largest maker of memory cards used in digital cameras. SanDisk rejected the $26-a-share offer.
Evergreen Solar Inc., not in the S&P 500, rallied the most since June, jumping 19 percent to $5.21. Citigroup Inc. upgraded the maker of wafers used in solar-power panels to ``hold'' from ``sell,'' saying it is a bargain following declines due to disclosure of pacts with Lehman Brothers.
Fall From Record
The S&P 500 started the week with a 4.7 percent tumble, its steepest since the September 2001 terrorist attack, after credit losses forced Lehman to file for bankruptcy protection and Merrill to agree to be taken over by Bank of America Corp. The plunge today was only 0.01 point away from eclipsing that drop.
The S&P 500 has fallen 21 percent this year and is poised to post its first yearly retreat since 2002 after global banks racked up $516 billion in credit losses and asset writedowns stemming from the first nationwide decline in home prices since the 1930s.
The S&P 500 has lost 408.76 points since its Oct. 9 record of 1,565.15. The decline erases more than half of the 788.39- point advance between 2002 and 2007.
Financial shares in the S&P 500 have lost 38 percent as a group this year, led by the tumble in AIG, an 85 percent drop for Washington Mutual Inc. and a 78 percent retreat in National City Corp.
Earnings by companies in the index have declined from the year-earlier period for the past four quarters, and analysts forecast a 3.3 percent decline in the third quarter. As recently as a month ago, the forecast was for an increase, according to estimates compiled by Bloomberg.
The Federal Reserve kept its benchmark interest rate at 2 percent yesterday, citing risks to growth and inflation. Hours after yesterday's meeting, the central bank agreed to the AIG loan.
http://www.bloomberg.com/apps/news?pid=20601087&sid=amrQtoxTGmgU&refer=home
No comments:
Post a Comment