Wall Street falls amid further banking worries
As if to underscore the daunting financial mess confronting President Obama, a fresh plunge in banking stocks Tuesday dragged the market to its worst loss of the new year.
The Dow Jones industrial average tumbled more than 330 points as it closed at its lowest level since Nov. 20, the day that so far has marked the bottom of the bear market that began more than a year ago.
The sell-off, triggered by anxiety about the depth of the banking crisis and its effect on the economy, raised fear that stocks might skid below that November trough, which many analysts had hoped would serve as a floor for share prices.
“The news that’s coming out is staggering,” said Steven Goldman, chief market strategist at Weedon & Co. “Even some of the pessimists wouldn’t have expected some of the news we’ve seen in the past week or so.”
The Dow skidded 332.13 points, or 4%, to 7,949.09, its worst performance ever on the day of an inauguration.
The Dow now is fewer than 400 points above its Nov. 20 close.
The Standard & Poor’s 500 index slumped 44.90 points, or 5.3%, to 805.22. The index is down 11% in 2009 -- its worst-ever start to a year.
The Nasdaq composite index shriveled 88.47 points, or 5.8%, to 1,440.86. And the small-stock Russell 2,000 index plummeted 7%.
An index of 24 bank stocks crumbled 20%.
Shares of State Street Corp., a Boston-based financial giant that had been viewed as a relatively safe harbor amid the industry pandemic, plunged 59% after the institutional money manager disclosed sizable fixed-income trading losses.
Bank of America tumbled 29% after analyst Paul Miller at Friedman, Billings, Ramsey & Co. predicted the bank would have to raise at least $80 billion in new capital. Wells Fargo slid 24% after Miller said the company might slash its dividend.
PNC Financial Services, a major regional banking company based in Pittsburgh, nose-dived 41%. Citigroup fell 20%, and JPMorgan Chase lost 21%.
Shares in the sector have been crushed by fears that spiraling loan losses could force the industry to seek billions of dollars in additional capital. That could lead in effect to a nationalization of the industry because, with private investors afraid to step in, the government has been the only supplier of funds.
“The government now controls these banks,” said Bruce Bittles, chief investment strategist for Robert W. Baird & Co. in Milwaukee. “It’s a de facto nationalization.”
Such a view gained credibility from developments abroad. Britain on Monday undertook a second round in its bank bailout and said it would boost its stake in Royal Bank of Scotland to more than two-thirds. The company’s American shares, which didn’t trade Monday because of Martin Luther King Day, plunged 70% on Tuesday.
Ireland moved closer Tuesday to nationalizing its third-largest bank, which has suffered from scandal as well as losses, but the government said it wouldn’t take control of its two largest financial institutions.
The market wasn’t helped by a prediction by Nouriel Roubini, a New York University economist known for dire pronouncements, that U.S. financial losses might hit $3.6 trillion.
The sell-off highlighted the fact that resuscitating the banking system is one of the biggest challenges confronting Obama.
The global banking industry, which has written off more than $1 trillion of mostly mortgage-related holdings, now is being trounced by losses in areas such as credit cards and commercial real estate that are tied to the faltering economy.
The latest phase of the bank sell-off began after New Year’s Day and intensified last week, when Citigroup and Bank of America reported huge fourth-quarter losses and the government invested an additional $20 billion in Bank of America. The S&P; financial index is down 36% year to date.
“Now we’re going through the grinding part,” said Brian Rauscher, director of portfolio strategy at Brown Bros. Harriman & Co.
“Even though we’ve taken write-downs, the losses keep coming.”
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