U.S. Stocks Tumble as Financials, Commodity Shares Retreat April 20 (Bloomberg) -- U.S. stocks tumbled, led by the biggest drop in financial shares in three months, as concern grew that credit losses are worsening and lower commodity prices dragged down energy and material producers.
Bank of America Corp., the lender that lost more than three-quarters of its market value in the past year, plunged 24 percent as rising charge-offs for bad loans overshadowed better- than-estimated earnings. Citigroup Inc. dropped 19 percent after Goldman Sachs Group Inc. said the bank’s credit losses are growing at a “rapid rate.” U.S. Steel Corp. and Exxon Mobil Corp. declined as oil and industrial metal prices decreased.
“The market seems to follow the direction of financial stocks one way or another,” said Keith Wirtz, who helps oversee $20 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. “There are definitely more writedowns ahead and more challenges for the loan portfolios, particularly in the consumer side of the equation.”
The Standard & Poor’s 500 Index slid 4.3 percent to 832.39, its steepest tumble since March 2. The Dow Jones Industrial Average lost 289.6 points, or 3.6 percent, to 7,841.73. The Russell 2000 Index retreated 5.6 percent. About 20 stocks fell for each that gained on the New York Stock Exchange, the broadest decline since Feb. 10.
Benchmark indexes opened lower and extended declines in early trading after the Conference Board’s gauge of leading economic indicators fell more than forecast.
VIX Rebounds
The VIX, which measures the cost of using options as insurance against declines in the S&P 500, jumped 15 percent to 39.18 for its steepest advance in three months. The index, which has fallen for four straight weeks, closed at a six-month low on April 17.
The S&P 500 wrapped up its steepest six-week gain since 1938 on April 17, as profits at Goldman Sachs and JPMorgan Chase & Co. ignited gains in bank shares. The rally may falter as a prolonged recession dents corporate earnings, George Hoguet, global investment strategist at Boston-based State Street Global Advisors Inc., said in an April 18 interview.
The S&P 500 surged 29 percent from a 12-year low on March 9 through last week as expectations grew that the worst of a global recession is past. The rally came even as analysts estimate that profits at S&P 500 companies decreased for the seventh straight quarter in the January to March period, the longest stretch of declines since at least the Great Depression.
‘Period of Consolidation’
“We’re going to get a lot of earnings releases this week and by and large they’re going to be disappointing,” said Stanley Nabi, vice chairman of Silvercrest Asset Management Group, which oversees $8 billion in New York. “Besides, we’ve had a very sharp run-up in the market. So I see a period of consolidation now, maybe a week or two of declines.”
Bank of America fell $2.58 to $8.02 even after saying first-quarter net income more than tripled on gains from home refinancing and trading. Reserves for future loan losses increased 57 percent to $13.4 billion since the end of December. Charge-offs for uncollectible loans more than doubled to $6.94 billion from the same period a year earlier.
Citigroup declined 71 cents to $2.94. The bank’s credit losses are growing at a “rapid rate,” undermining Chief Executive Officer Vikram Pandit’s efforts to stabilize the company, according to Goldman Sachs.
While Citigroup posted first-quarter net income of $1.6 billion last week, the New York-based bank suffered an “underlying” loss of 38 cents a share, Richard Ramsden, a Goldman Sachs analyst, wrote in a research note dated yesterday. He repeated a “sell” rating on the stock.
Capital One, AIG Slump
Capital One Financial Corp. dropped 25 percent to $13.38, the steepest loss in the S&P 500, after the McLean, Virginia- based credit card lender was cut to “neutral” from “buy” at Goldman Sachs.
American International Group Inc. fell 20 percent to $1.29. The insurer bailed out by the U.S. agreed to sell preferred stock and warrants for common shares to the government in return for access to $29.8 billion.
The S&P 500 Financials Index of 80 banks, insurers and investment firms slumped 11 percent, its biggest slide since Jan. 20. The gauge is still up 62 percent from a 17-year low reached March 6.
Regional banks tumbled, with Fifth Third Bancorp, Marshall & Ilsley Corp. and Huntington Bancshares Inc. dropping at least 20 percent.
Stress Tests
Nobel Prize-winning economist Michael Spence said he doesn’t expect every bank to pass stress tests run by the U.S. government to assess their financial health.
Spence said in an interview with Bloomberg Television he would be “very surprised” if all the banks pass the exam, which he says will probably give a better picture of their health than earnings statements. He also said that “the data on lending and credit are still not that encouraging.”
Obama administration officials signaled there may be no need to request more financial-rescue funds from Congress as several banks plan to return taxpayer money and others are pushed to tap private markets first. The White House chief of staff, Rahm Emanuel, said while he had not seen results of stress tests on the 19 biggest banks, he believed the White House won’t have to request more bailout funds.
“The first resort for more capital is going to the private markets,” by issuing new equity or swapping some liabilities into stock that dilutes other shareholders, National Economic Council Director Lawrence Summers said.
More Losses Predicted
Global banks are likely to suffer about $400 billion more in losses on soured assets, requiring further injections of government capital, according to JPMorgan mortgage-bond analysts led by Matthew Jozoff in a report dated April 17.
Lennar Corp. slumped 19 percent to $7.60 as the fourth biggest U.S. homebuilder by revenue said it has entered agreements for the possible sale of up to $275 million in Class A common stock.
Gauges of energy and raw-material producers fell by more than 4 percent after crude oil sank the most in seven weeks as a stronger dollar reduces the appeal of commodities. Copper, aluminum, corn, wheat and soybean prices also declined, while gold and silver gained as investors sought a haven from falling stocks.
Exxon, ConocoPhillips Slump
Exxon Mobil, the world’s largest oil company, fell 2.2 percent to $65.29. ConocoPhillips, the second-largest U.S. oil refiner, declined 5.6 percent to $37.94. U.S. Steel Corp. plunged 11 percent to $26.58.
Crude oil for May delivery fell $4.45, or 8.8 percent, to $45.88 a barrel on the New York Mercantile Exchange. Copper slid 4.2 percent, the most in two months.
Sun Microsystems Inc. surged 37 percent to $9.15, the biggest of only 20 gains in the S&P 500, after Oracle Corp. agreed to buy the fourth-biggest server maker for $9.50 a share in cash. The transaction is valued at approximately $7.4 billion.
PepsiCo Inc., the world’s second-largest soft-drink maker, offered about $6 billion in cash and stock to buy out other shareholders of its two biggest bottlers to gain greater control over product sales in North America. The shares slipped $2.27, or 4.4 percent, to $49.86. Pepsi Bottling Group Inc. rallied 22 percent to $30.73 for the second-biggest advance in the S&P 500.
‘Still Bearish’
Nouriel Roubini, the New York University professor who predicted the financial crisis, said that he was “still bearish” and that an economic recovery is going to take “longer than expected.” Corporate earnings will “surprise on the downside,” Roubini said in a speech in Hong Kong today. “Lots of banks, even the better ones, are going to be in trouble.”
The index of U.S. leading economic indicators fell more than forecast in March, signaling what may be the longest recession in the postwar era will extend into the second half of the year.
The Conference Board’s gauge fell 0.3 percent after a 0.2 percent drop in February that was smaller than previously estimated, the New York-based research group said today. The index points to the direction of the economy over the next three to six months.
![[Markets Data]](http://s.wsj.net/public/resources/images/MDGpromo_D01222009151210.jpg)
