U.S. Stocks Fall, Led by Biggest Drop in Financials Since 2000


U.S. stocks fell, sending financial shares to their biggest drop in eight years, on heightened concern that bank failures will spread.

Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that regional banks are short of capital. The companies said they've seen no unusual depositor activity. Fannie Mae and Freddie Mac erased an earlier rally fueled by Treasury Secretary Henry Paulson's plan to help rescue the largest U.S. mortgage lenders.

The declines pushed the Standard & Poor's 500 Financials Index of 89 companies down 6.1 percent, its steepest plunge since April 2000. The S&P 500 slid 11.19 points, or 0.9 percent, to 1,228.3. The Dow Jones Industrial Average lost 45.35, or 0.4 percent, to 11,055.19. The Nasdaq Composite Index slipped 26.21, or 1.2 percent, to 2,212.87. More than two stocks dropped for each that rose on the New York Stock Exchange.

Benchmark indexes rallied more than 1 percent each at the open as confidence in the banking system was boosted by Paulson's plan to ask Congress for authority to buy unlimited stakes in Fannie Mae and Freddie Mac and provide loans to them. Fannie and Freddie erased their advance after investor Jim Rogers said in a Bloomberg Television interview that the government's proposal was an ``unmitigated disaster'' and Goldman Sachs Group Inc. predicted the shares would resume falling.

The S&P 500 fell to the lowest level since June 2006, extending its drop from an October record to almost 22 percent. Record fuel prices and more than $400 billion of writedowns and credit losses globally stemming from the U.S. housing market collapse have dimmed the outlook for corporate profits.

Washington Mutual retreated $1.72, or 35 percent, to $3.23. The biggest U.S. savings and loan is seeing ``business as usual'' with no unusual depositor activity, spokesman Derek Aney said in an interview. National City, Ohio's biggest bank, tumbled 65 cents, or 15 percent, to $3.77 even after saying there was ``no unusual depositor or creditor activity.''

Lehman Brothers Holdings Inc. in a report today predicted a rise in loan-loss provisions at Washington Mutual for balance- sheet losses that may total $26 billion this year.

IndyMac became the second-biggest federally insured financial company to be seized by U.S. regulators after a run by depositors left the mortgage lender short on cash last week. The Pasadena, California-based company, which specialized in a type of mortgage that didn't require borrowers to document income and lost almost $900 million when borrowers fell behind on payments, was taken over after U.S. markets closed on July 11.

The successor entity, IndyMac Federal Bank, will cover 50 percent of uninsured deposits initially, its Chief Executive Officer John Bovenzi said yesterday. All accounts up to $100,000 will be fully insured under the Federal Deposit Insurance Corp.

Freddie Mac fell 64 cents, or 8.3 percent, to $7.11 after earlier rallying as much as 26 percent. Fannie Mae lost 52 cents, or 5.1 percent, to $9.73. The shares had surged 32 percent earlier. Paulson's proposal, which the Treasury anticipates will be incorporated into an existing congressional bill and approved this week, signals a shift toward an explicit guarantee of Fannie Mae and Freddie Mac debt.

The Federal Reserve separately authorized the firms to borrow directly from the central bank.

Fannie Mae tumbled 45 percent last week and Freddie Mac sank 47 percent on concern the two companies, which own or guarantee about half of the $12 trillion of U.S. mortgages, may require a bailout that would wipe out shareholders.

The S&P 500 Financials Index to its lowest level since October 1998, two months after Russia's debt default sent the index down 23 percent in a month.

 


TradingEconomics.com, Bloomberg
7/14/2008 1:56:03 PM