Stocks fall as 2 banks shake up exec ranks
The stock market took a hit Monday as a series of executive shake-ups in the financial sector and downgrades of investment bank debt set off fears that the mortgage crisis could wreak more havoc on Wall Street.
A closely watched bank-stock index sank 1.8% to a five-year low after the chief executive of Wachovia was ousted and his counterpart at Washington Mutual was stripped of the chairman’s title. Brokerage stocks fell after Standard & Poor’s Corp. cut the bond ratings of three major investment banks.
The news jolted investors, who had grown less jittery recently about the financial industry’s prospects.
“The bottom line is investors are realizing that financials are not out of woods,” said David Dietze, president and chief investment strategist at Point View Financial Services in Summit, N.J. “There are more woes to come. The situation has not stabilized.”
Economic reports showing further drops in manufacturing activity and construction spending added to the gloom. And the oil market, which retreated last week from $130-plus territory, was no help Monday as crude futures rose 41 cents to $127.76 a barrel on the New York Mercantile Exchange.
The Dow Jones industrial average closed down 134.50 points, or 1.1%, to 12,503.82.
The S&P; 500 index slid 14.71 points, or 1.1%, to 1,385.67. The Nasdaq composite slumped 31.13 points, or 1.2%, to 2,491.53. The Russell 2,000 index of smaller-company stocks dropped 7.26 points, or 1%, to 741.02.
Bank and brokerage stocks led the way down.
Wachovia shares fell 40 cents, or 1.7%, to $23.40 after the announcement that its board had pushed out Ken Thompson as chief executive. The ouster fed speculation that the Charlotte, N.C.-based company, which has already been hit hard by the mortgage crisis, could be bracing for deeper losses.
“It’s like, ‘Why now?’ ” Dietze said. “What are they not telling us and why is there such immediacy” to dump the CEO?
Shares of Washington Mutual edged down 2 cents to $9 after the company revealed that Kerry Killinger was stepping down as chairman but remaining as CEO.
Taken together, the shuffling at the two big banks showed how the long-playing aftermath of the sub-prime meltdown continued to ripple across the financial sector.
That sentiment grew more intense in the late morning as S&P; slashed bond ratings on Wall Street giants Lehman Bros. Holdings, Merrill Lynch and Morgan Stanley.
Lehman tumbled $2.98, or 8.1%, to $33.83. Merrill sank $1.30, or 3%, to $42.62, and Morgan Stanley dropped $1.13, or 2.6%, to $43.10.
Stocks rallied in late March and April in part because the Federal Reserve had appeared to avert a catastrophe in the financial system. But that sense of relief has begun to fade as a spur for stocks.
The BKX index of bank stocks Monday fell below its March 10 nadir to its lowest level since April 2003. And an index of financial stocks in the S&P; 500 dropped 1.8%, nearing its March 17 low.
The market could be in a so-called trading range in the next few weeks as investors await initial indications this month on second-quarter earnings, said Georges Yared, chief investment strategist at Yared Investment Research in Minneapolis.
The rally could resume, he said, if a few large companies come out with upbeat comments about their prospects.
“It’s going to be the attitude and the outlook,” Yared said. “I think we’re going to be pleasantly surprised.”
In other market highlights:
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange.
Yields on government bonds fell along with stocks. The 10-year Treasury note’s yield slipped to 3.96% from 4.06% late Friday. The dollar was mixed against other major currencies, while gold prices edged higher.
Overseas, key stock indexes fell 0.8% in Britain, 1.2% in Germany and 1.6% in France. Japanese shares rose 0.7%.
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The Associated Press was used in compiling this report.
