Brokerages Suffer Fall on Junk Bond Rumor

Shares of several top U.S. brokerage firms fell as much as 8% Friday on rumors that one or more Wall Street firms had suffered big junk bond trading losses, analysts said.

News that the U.S. unemployment rate had fallen back to a 30-year low of 3.9% also hurt the brokerage sector by triggering fears of higher interest rates, the analysts said.

Morgan Stanley Dean Witter & Co., the third-largest underwriter of U.S. high-yield bonds--also known as junk bonds--was rumored to have lost as much as $1 billion trading junk bonds, one analyst said.

Sources inside Morgan Stanley denied the rumor, saying its junk bond business has been profitable in the fourth quarter, which began Sept. 1. Morgan Stanley officials declined to comment, citing company policy not to comment on trading operations.

Morgan Stanley shares were off $7.75 at $84.25 on the New York Stock Exchange. Bear Stearns Cos. shares were down $5.06 at $58.38.

Goldman Sachs Group Inc. shares lost $6 at $108.88. Lehman Bros. Holdings Inc. shares were off $6.94 at $135.88.

The rumors surrounding Morgan Stanley were exacerbated by Thursday’s resignation of Dwight Sipprelle, head of the firm’s high-yield bond department. However, CMS Energy Corp. sold $500 million of high-yield bonds through Morgan Stanley and another firm Friday, which some on Wall Street saw as a positive sign for Morgan Stanley.

The rumors came on the same day as the unemployment report, which could prompt the U.S. Federal Reserve to raise interest rates.

The Fed on Tuesday left short-term rates unchanged but warned that a tight labor market could ignite inflation, which could lead the U.S. central bank to raise rates.