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Stocks, Oil Plunge After Congress Rejects Bailout

 

I think this Blomberg article from today pretty much sums it all up for September 29, 2008.  Can it get any crazier?  Jeez, my brain needs a rest…

U.S. stocks lost $1.2 trillion in market value, oil plunged and Treasury bonds rallied after lawmakers rejected the Bush administration’s $700 billion financial rescue.

The Standard & Poor’s 500 Index fell 8.8 percent, the most since the crash of October 1987, led by a 16 percent decline in financial shares. Goldman Sachs Group Inc. and Morgan Stanley decreased over 13 percent. The MSCI World Index of 23 developed markets sank as much as 6.9 percent, the most in the measure’s 38-year history. The euro and the pound sank, while bonds rose as governments raced to prop up banks infected by growing U.S. mortgage losses. Crude futures tumbled more than $10 a barrel.

“Fear is permeating all markets and everyone is pretty much running for the hills,” said Jack Ablin, who helps manage about $55 billion as chief investment officer of Harris Private Bank in Chicago. “We’re watching this thing crumble.”

The S&P 500 retreated 106.59 points to 1,106.42, as only one company gained, Campbell Soup Co. The MSCI World Index lost as much as 86.82 points to 1,163.55, giving it the steepest intra-day percentage drop since its creation in 1970. Europe’s Dow Jones Stoxx 600 Index sank 5.5 percent to 251.43, the lowest since January 2005.

The Irish Overall Index slumped 13 percent, the most in its 25-year history. India’s Sensitive index tumbled 3.8 percent, Russia’s Micex Index fell 5.5 percent and Brazil’s Bovespa slumped 9.4 percent.

Potentially Catastrophic

The British pound had its biggest intra-day drop against the dollar in 16 years and the euro fell after European governments stepped in to save Bradford & Bingley Plc, Fortis and Hypo Real Estate Holding AG. The cost of borrowing in euros for three months soared to a record as banks hoarded cash.

The financial-rescue plan intended to restore confidence in the U.S. banking system collapsed in partisan wrangling as the House of Representatives voted down the proposal backed by the Bush administration and congressional leaders of both parties.

The House rejected the measure by a vote of 228 to 205.

“It’s been treated as though it’s a bailout for Wall Street,” said Jeffrey Caughron, an associate partner in Oklahoma City at Baker Group, which advises community banks on investing over $20 billion. “that’s only half the story. The more important half of the story is the potentially catastrophic liquidity crisis that could result from the negative vote.”

Treasuries rallied as investors sought the relative safety of government debt. The yield on 10-year Treasury notes fell 0.24 percentage point to 3.62 percent. The cost of borrowing in euros for three months rose to a record after government-led bailouts of banks heightened concern that more in Europe will fail, prompting financial institutions to hoard cash. The London interbank offered rate, or LIBOR, that banks charge each other for such loans climbed to 5.22 percent, the British Bankers’ Association said.

Extremely Serious

The $700 billion package to shore up banks was hammered out by Treasury Secretary Henry Paulson and congressional leaders over the weekend. The crisis that began with bad home loans to subprime borrowers in the U.S. is threatening to push the global economy into a recession as consumers lose confidence and banks cut back on lending.

“The banking system is moving very close to a complete state of gridlock,” said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. “It doesn’t appear that Congress really appreciates how serious this situation really is. The market’s telling us that it’s extremely serious – and it is.”

The MSCI All-Country World Index has retreated 14 percent in September, the biggest monthly loss since Russia defaulted on its debt in August 1998. This month, the U.S. seized the two largest mortgage-finance companies, Fannie Mae and Freddie Mac; Lehman Brothers Holdings Inc. filed for bankruptcy; Merrill Lynch & Company agreed to sell itself to Bank of America Corp.; American International Group was taken over by the Treasury; and Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure in history.

Canada Best, China Worse

Canada‘s S&P/TSX Composite Index has fallen 18 percent in 2008, giving it the best performance among the 23 nations MSCI considers developed markets. Ireland’s benchmark index has plunged 53 percent, the steepest loss. Among 25 emerging markets, the 2.1 percent gain in Morocco’s Madex Free Float Index counts as the best performance, while the 58 percent drop in China’s CSI 300 Index is the worst.

Financial institutions worldwide have reported more than $590 billion of credit losses and asset writedowns since the beginning of 2007, according to data compiled by Bloomberg.

Wachovia declined 82 percent to $1.84. Citigroup will absorb as much as $42 billion of losses on Wachovia’s $312 billion pool of loans. The Federal Deposit Insurance Corp. will take on losses beyond that amount in exchange for $12 billion in preferred stock and warrants.

Citigroup, National City

Citigroup fell 12 percent to $17.75. The bank halved its dividend and said it will raise $10 billion in capital.

The S&P 500 Financial Index retreated 16 percent, the most since the measure was created in 1989. National City Corp. plunged 63 percent, the most since at least 1984, to $1.36.

Sovereign Bancorp Inc. fell 72 percent to a 16-year low of $2.33.

Morgan Stanley slumped 15 percent to $20.99, the lowest price since October 1998. It agreed to sell a 21 percent stake to Japan’s Mitsubishi UFJ Financial Group Inc. for $9 billion, seeking to shore up investor confidence after borrowing costs climbed and its stock fell by half.

Goldman Sachs Group Inc. retreated 13 percent to $120.70.

European governments stepped in to rescue Fortis, Bradford & Bingley and Hypo Real Estate as tremors from the U.S. credit crisis were felt around the world. The U.K. Treasury seized Bradford & Bingley, Britain’s biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-Euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.

Oil Plunges

Crude oil fell 9.8 percent to $96.37 a barrel in New York.

Copper and corn also helped lead commodities lower, sending the S&P Goldman Sachs Commodity Index to a 7.7 percent decline.

Energy and materials shares in the MSCI All-Country World Index retreated more than 8 percent as a group.

The drop in commodity prices dragged the dollar-denominated RTS Index, a gauge of stock trading on the Russian Trading System, to a 7.1 percent loss. The index is heading for the worst monthly loss since the country’s debt default in 1998 after a 27 percent plunge in September.

Apple Inc., the computer maker whose shares surpassed $200 last year, had the steepest drop since September 2000 after a Morgan Stanley analyst said price cuts will curb profit growth.

Apple fell 18 percent to $105.26.

“This just feels like a wholesale markdown of equity prices across the globe,” Michael Vogelzang, who oversees $2 billion as chief investment officer at Boston Advisors LLC in Boston, told Bloomberg Television. “There are not a lot of places to hide today.”

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