Fear of financials sends stocks down
Wall Street extended its slump into yet another week Monday as investors worried that even a safety net set up for mortgage financiers Fannie Mae and Freddie Mac won’t head off further troubles in the financial markets.
Investors’ latest unease about the banking sector comes in a week when many financial names will issue quarterly reports -- and many of those are likely to have sizable write-downs on souring mortgage debt.
The Treasury and the Federal Reserve said Sunday that they would aid Fannie Mae and Freddie Mac if needed.
Wall Street has been on edge about the well-being of the government-chartered companies because they together hold or back more than $5 trillion of mortgage debt, approaching half the outstanding mortgages in the U.S.
Washington’s efforts to shore up confidence in Fannie and Freddie at times helped those shares Monday, but troubles arose in other corners of the financial sector.
Investors worried about a run on IndyMac Bancorp that led to the Pasadena thrift’s takeover by the government Friday. IndyMac was the largest regulated thrift to fail.
Trading in shares of regional bank National City in Cleveland was briefly halted as the company responded to rumors of financial trouble. The bank said in a statement it was experiencing “no unusual depositor or creditor activity” and that as of Friday’s close it had more than $12 billion of excess short-term liquidity.
The rumors and sell-off of regional banks’ shares reflected the uncertainty about where financial troubles might emerge. Investors are cautious, said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “The government can’t bail out the whole industry.”
The Dow Jones industrial average fell 45.35 points, or 0.4%, to 11,055.19 after spiking up nearly 140 points in early trading.
Broader stock indicators also dropped Monday. The Standard & Poor’s 500 index fell 11.19 points, or 0.9%, to 1,228.30, and the Nasdaq composite index fell 26.21 points, or 1.2%, to 2,212.87.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange. Bond prices jumped as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.86% from 3.96% late Friday.
The dollar was mixed against other major currencies, with the euro gaining 0.002 to $1.592. Gold prices jumped $13.20 to $972.70 an ounce.
Light, sweet crude oil settled up 10 cents at $145.18 a barrel on the New York Mercantile Exchange.
Fannie and Freddie were volatile after tumbling last week amid concerns they would succumb to losses in their mortgage portfolios. The Fed said it would lend to the two companies if necessary. Treasury Secretary Henry M. Paulson Jr. said his department was asking Congress for quick approval of a plan to expand its line of credit to the firms and buy their shares if necessary.
Fannie Mae fell 52 cents, or 5.1%, to $9.73. Freddie Mac fell 64 cents, or 8.3%, to $7.11.
Although the companies say they have adequate access to capital, the government’s effort to help them is designed to reassure investors who have grown nervous about further fallout from the credit crisis.
“There’s a disconnect with saving Fannie and Freddie and bailing out the shareholders,” Ablin said. “If the government steps in and ultimately creates a bailout of these entities, I’d be astounded if equity holders were left with anything. I think the market is realizing that.”
National City fell 65 cents, or 14.7%, to $3.77.
Other banks declined, too: Washington Mutual fell $1.72, or 34.8%, to $3.23. Regional bank First Horizon National lost $1.66, or 25%, to $5.04.
Investors are pouncing on banks in regions where the housing market pullback has been the steepest, thinking they are likely to have the greatest exposure to bad mortgage debt, said Jeff Kleintop, chief market strategist at LPL Financial Services in Boston.
“We might not be seeing depositors make a run on the banks today, but we’re certainly seeing investors do that,” he said. “I think it’s concern about another IndyMac -- that credit ratios are deteriorating so rapidly.”
Outside the financial sector, Anheuser-Busch Cos. agreed to a sweetened $52-billion takeover bid from Belgian brewer InBev. The deal involving a marquee name in American business combines the maker of Budweiser with the producer of Stella Artois and Beck’s. Anheuser-Busch rose 37 cents to $66.87.
Yahoo revealed Saturday that it had rejected Microsoft Corp.'s latest attempt to acquire its online search engine in a joint proposal made with activist investor Carl Icahn, who is leading an effort to remove Yahoo’s board. Yahoo fell $1, or 4.2%, to $22.57, while Microsoft slipped 10 cents to $25.15.
The renewed concerns about the financial sector come in what will be a busy week for corporate news, with a steady stream of quarterly results due from names like Intel, Cola-Cola, Microsoft and Citigroup.
The Russell 2,000 index of smaller companies fell 10.45, or 1.6%, to 664.50.