Stock sell-off greets housing rescue plan
Wall Street’s way of thanking Congress for the new housing rescue bill: another stock market dive, led by the companies the bill is supposed to help the most.
A heavy sell-off in financial and builder shares pulled the market broadly lower Monday, a sign that investors see little hope for a turnaround soon in the housing bust despite the government’s latest efforts.
The Dow Jones industrials slid 239.61 points, or 2.1%, to 11,131.08. That wiped out another chunk of the rally that had lifted the index 670 points, or 6.1%, in six sessions after it hit a two-year low July 15.
Another 170 points off the Dow and we’ll be at a new bear-market low.
Broader indexes lost a little less than the Dow on Monday, but it was a dismal session across the board.
Bank, brokerage and builder stocks were down sharply for a third day in a row. Bank of America slid $1.52, or 5.1%, to $28.06; Citigroup fell $1.42, or 7.5%, to $17.43; and Merrill Lynch dropped $3.19, or 12%, to a new 10-year closing low of $24.33. After the market closed Merrill announced a $5.7-billion write-off tied to its toxic CDOs, or collateralized debt obligations.
A Standard & Poor’s index of 15 major builder stocks slumped almost 5% for the day.
The housing rescue bill, shepherded by Treasury Secretary Henry M. Paulson Jr. and passed by Congress over the weekend, is supposed to help stem the worst effects of the bust. One provision could help an estimated 400,000 homeowners avoid foreclosure by refinancing into mortgages insured by the Federal Housing Administration.
But lenders that participate in that program will have to share the pain by writing down some of the principal. How many will be willing to do that, as opposed to trying to arrange a loan workout on their own, remains to be seen.
Another provision in the bill authorizes the Treasury to rescue mortgage-finance giants Fannie Mae and Freddie Mac if they are in danger of running out of capital because of rising loan losses.
Shares of Fannie and Freddie fell for a third straight session, with Fannie off $1.24, or 11%, to $10.31 and Freddie down 55 cents, or 6.6%, to $7.72. The downturn could mean Wall Street figures the Treasury will inevitably have to bail out the companies -- presumably leading to a total loss for shareholders.
Paulson on Monday was pushing yet another solution to the housing crisis: so-called covered bonds. Banks would make home loans, then issue bonds backed by homeowners’ payments. Unlike traditional mortgage-backed securities, however, the home loans would stay on the issuing bank’s books -- in theory giving the lender more incentive to underwrite only high-quality borrowers and bond investors more confidence about buying the securities.
Covered bonds have been common in Europe but relatively rare in the U.S. So we have something to learn from the Old Country after all?
Amgen may be on the mend
There was joy in Thousand Oaks on Monday.
Wall Street had hammered shares of Amgen, the Ventura County town’s best-known employer, for the last three years on fears that the biotech giant had lost its status as a growth company. Suddenly, analysts are taking a sunnier view of its future.
On Monday, the stock soared $6.56, or 12%, to $60.48 after the company Friday reported positive trial results for a potential blockbuster drug, denosumab, or D-mab, to treat the bone-thinning disorder osteoporosis.
And after the market closed, Amgen posted better-than-expected second-quarter results and raised its sales and profit forecast for all of 2008. The stock jumped an additional $1.22 to $61.70 in after-hours trading.
With sales of its lucrative anti-anemia drugs Aranesp and Epogen waning because of health risks associated with the treatments, Amgen has been in need of a new wonder drug to revive investors’ interest.
D-mab could be it.
In a three-year study involving 7,800 women, Amgen said the drug significantly reduced spine and hip fractures. The company gave no specifics but promised full results in September.
The drug could be approved for post-menopausal osteoporosis in 2009 and could rack up sales of at least $1 billion in 2010, Oppenheimer & Co. analyst Bret Holley said in a report Monday.
Amgen’s total sales in 2007: $14.8 billion.
Even before the earnings came out, analysts fell over themselves to raise profit estimates for Amgen and upgrade the shares’ ratings and price targets. Goldman Sachs & Co. now expects Amgen’s earnings to rise at a 13% average annualized rate from 2009 to 2012, up from the firm’s previous forecast of no net growth in that period.
Morgan Stanley, Jefferies & Co. and Thomas Weisel Partners raised their ratings on the stock to “buy” from “hold.”
If only they had piled on a few months ago: Even before Monday’s surge, Amgen’s shares had been rebounding after hitting a five-year low of just under $40 in mid-March.
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