Make HuffPost Your HomePage
Get Email Alerts
Fannie Mae Bailout Pushes Stocks Up At Open
NEW YORK — Wall Street extended its slump into yet another week Monday as investors worried that even a safety net set up for mortgage financiers Fannie Mae and Freddie Mac won't head off further troubles in the financial markets.
Investors' latest unease about the banking sector comes in a week when many financial names are to issue quarterly reports _ many of which will likely include sizable write-downs of souring mortgage debt.
The Treasury and the Federal Reserve said Sunday they would aid Fannie Mae and Freddie Mac if needed. Wall Street has been on edge about the well-being of the government-chartered companies because they together hold or back $5.3 trillion of mortgage debt, about half the outstanding mortgages in the United States. Washington's efforts to shore up confidence in Fannie Mae and Freddie Mac at times helped those shares Monday but troubles arose in other corners of the financial sector.
Investors worried about a run on IndyMac Bancorp Inc. that led to the bank's takeover by the government Friday. IndyMac is the largest regulated thrift to fail.
Trading in shares of regional bank National City Corp. was briefly halted as the company responded to rumors of financial troubles. The bank said in a statement it is experiencing "no unusual depositor or creditor activity" and that as of Friday's close it had more than $12 billion of excess short-term liquidity.
The rumors and sell-off of regional banks reflect the unease investors have about where financial troubles might emerge.
"My sense is that investors are taking a pretty cautious stance," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago. "The government can't bail out the whole industry."
The Dow Jones industrial average fell 45.35, or 0.41 percent, to 11,055.19 after spiking nearly 140 points in early trading.
Worries over Fannie Mae and Freddie Mac on Friday led to a volatile session in which the Dow dipped below the 11,000 mark for the first time in about two years before paring its losses; the market suffered its fourth straight losing week.
Broader stock indicators also dropped Monday. The Standard & Poor's 500 index fell 11.19, or 0.90 percent, to 1,228.30, and the Nasdaq composite index fell 26.21, or 1.17 percent, to 2,212.87.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 5.29 billion shares, down from a very heavy 6.57 billion on Friday.
Bond prices jumped as investors sought the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its yield, fell to 3.86 percent from 3.96 percent late Friday.
The dollar was mixed against other major currencies, while gold prices jumped.
Light, sweet crude settled up 10 cents at $145.18 a barrel on the New York Mercantile Exchange.
Fannie Mae and Freddie Mac were volatile after tumbling last week amid concerns they would succumb to losses in their mortgage portfolios. The Fed said it would lend to the two companies "should such lending prove necessary." Treasury Secretary Henry Paulson said his department is asking Congress for quick approval of a plan to expand its line of credit to the two companies and to make an equity investment in them if necessary.
Fannie Mae fell 52 cents, or 5.1 percent, to $9.73, while Freddie Mac fell 64 cents, or 8.3 percent, to $7.11.
While the companies say they have adequate access to capital, the government's effort to help the companies is designed to reassure investors who have grown nervous about further fallout from the nearly year-old credit crisis.
"There's a disconnect with saving Fannie and Freddie and bailing out the shareholders," Ablin said. "If the government steps in and ultimately creates a bailout of these entities, I'd be astounded if equity holders were left with anything. I think the market is realizing that."
National City fell 65 cents, or 14.7 percent, to $3.77.
Other banks declined, too: Washington Mutual Inc. fell $1.72, or 34.8 percent, to $3.23.
Jeff Kleintop, chief market strategist at LPL Financial Services in Boston, said investors are pouncing on banks in regions where the housing market pullback has been the steepest, thinking they are likely to have the greatest exposure to bad mortgage debt.
"We might not be seeing depositors make a run on the banks today but we're certainly seeing investors do that," he said.
"I think it's concern about another IndyMac _ that credit ratios are deteriorating so rapidly."
Outside the financial sector, Anheuser-Busch Cos. agreed to a sweetened $52 billion takeover bid from Belgian brewer InBev SA. The deal involving a marquee name in American business combines the maker of Budweiser and Bud Light with the producer of Stella Artois and Beck's. Anheuser-Busch rose 37 cents to $66.87.
Yahoo Inc. revealed Saturday it had rejected Microsoft Corp.'s latest attempt to acquire its online search engine in a joint proposal made with activist investor Carl Icahn, who is leading an effort to remove Yahoo's current board. Yahoo fell $1, or 4.2 percent, to $22.57, while Microsoft slipped 14 cents to $22.57.
The renewed concerns about the financial sector come in what is expected to be a busy week for corporate news, with a steady stream of quarterly results due from names like Intel Corp., Cola-Cola Corp., Microsoft Corp. and Citigroup Inc.
The Russell 2000 index of smaller companies fell 10.45, or 1.55 percent, to 664.50.
Overseas, Japan's Nikkei stock average rose 0.45 percent. Britain's FTSE 100 rose 0.74 percent, Germany's DAX index rose 0.76 percent, and France's CAC-40 advanced 1.02 percent.
___
On the Net:
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
Loading comments…
TIM PARADIS | July 14, 2008 05:48 PM EST |
Compare other versions »Compare and versions