NY Times, January 21, 2009
Stocks Plummet on Bank Worries
By JACK HEALY
As Barack Obama stepped into the presidency on Tuesday, Wall Street
walked back to the brink.
Despite widespread optimism about Mr. Obama and a jubilant inaugural
celebration, the major indexes plunged more than 4 percent on Tuesday,
with the Dow slipping below 8,000, as new fears about the stability of
America’s biggest banks roiled the markets.
Stocks started the day lower, fell more than 60 points during Mr.
Obama’s address from the Capitol, and deepened their losses during the
last hour of trading in a broad sell-off that dragged down leading
financial companies by double digits. It was shaping up to be Wall
Street’s worst Inauguration Day since 1900, according to JPMorgan Chase.
“It’s ugly,” said James W. Paulsen, chief investment officer at Wells
Capital Management. “It’s got all the makings of the late November panic.”
At the close, the Dow Jones industrial average was down 332.13 points or
4 percent, while the broader Standard & Poor’s 500-stock index was down
5.2 and the technology-heavy Nasdaq composite were declined 5.7 percent.
The sell-off on Wall Street adhered to a history of Inauguration Day
losses. Of 13 regular inaugurations that have fallen on trading days
since 1941, the S.&P. has finished lower on 9, according to Howard
Silverblatt, senior index analyst at Standard & Poor’s.
In his inaugural speech, Mr. Obama seemed to suggest that the financial
markets should expect greater oversight. “Without a watchful eye,” Mr.
Obama said, “the market can spin out of control.”
Financial shares led the way down on Tuesday, falling 9 percent as Great
Britain and Canada ratcheted up efforts to address the deepening
economic downturn. The Bank of Canada cut its benchmark interest rate by
half a percentage point, to 1 percent, after Britain on Monday unveiled
another bailout plan that included a measure to increase the
government’s stake in the Royal Bank of Scotland to 70 percent.
“It’s a growing lack of confidence, and almost panic, that’s traveling
around the world right now,” Michael Holland, chairman of Holland and
Company, said.
In the United States, shares of Citigroup fell 11 percent and Bank of
America fell 17 percent, underscoring investors’ worries about their
balance sheets.
In a report, an analyst at Friedman, Billings, Ramsey Group, Paul
Miller, wrote that Bank of America would need at least $80 billion to
restore capital to required levels.
Last week, the banks reported billions in fourth-quarter losses, and
Bank of America secured a second lifeline from the government that
included $20 billion in liquidity injections. Citigroup, which has also
received billions in federal bailout money, said it would be splitting
in two.
Shares of JPMorgan Chase, Morgan Stanley, Wells Fargo and several other
banks also dropped by double digits
Shares in the money manager, the State Street Corporation, reached a low
Tuesday, after the bank reported a 71 percent drop in fourth-quarter
earnings and warned of a difficult year. Shares plunged more than 54
percent.
A swirl of new bailout measures in the United States and abroad,
combined with dismal earnings from the big banks have jolted investors
and injected new uncertainty into markets. The major indexes slide more
than 4 percent last week as gloomy economic reports showed that retail
sales were sliding, jobless claims were rising and inflation had fallen
to a near standstill in 2008 as the United States fell into a recession.
“That fear that’s creeping back into Wall Street is spreading to the
broader market,” said Ryan Larson, senior equity trader at Voyageur
Asset Management. “We’re going to have to see some real action plans to
get us out of this. We’re going to have to see the new administration
step forward and announce some of these plans that are going to
kick-start the market.”
Democrats have outlined an $825 billion stimulus package of tax cuts,
public-works projects and emergency benefits, and analysts said that
investors were eager to see the plan move through Congress.
Markets were lower in Europe and Asia.
Crude oil prices settled at $38.85 a barrel, up $2.34 in New York
trading, after briefly dipping below $33 as the February futures
contracts expired. Oil prices have tumbled from their summer highs above
$145 a barrel on weakening demand for gasoline and other petroleum products.
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