Stocks tumble on fresh worries about banks

[Ban Hammer 13,643]

NEW YORK – The dawn of the Obama presidency could not shake the stock market from its dejection over the rapidly deteriorating state of the banking industry.

Financial stocks, many of them falling by double digit percentages, led a huge drop on Wall Street Tuesday that left the major indexes down more than 4 percent and the Dow Jones industrials down 332 points. Although traders on the floor of the New York Stock Exchange paused to watch the inauguration ceremony and Obama's remarks, the transition of power didn't erase investors' intensifying concerns about struggling banks and their impact on the overall economy.

The market's angst, which began with multibillion dollar losses reported last week by Bank of America Corp. and Citigroup Inc., intensified after the Royal Bank of Scotland's forecast that its losses for 2008 could top $41.3 billion.

The collapse in bank stocks was swift: State Street Corp. plunged 59 percent, Citigroup fell 20 percent and Bank of America lost 29 percent. Royal Bank of Scotland fell 69 percent in New York trading.

"The reason we're having a panic drop is the fact that Europe is catching our cold, and we could have deeper and deeper problems that could require more and more money. And eventually the government is going to have to stop spending," said Keith Springer, president of Capital Financial Advisory Services. "It's a pretty dangerous situation to be in."

The shrinking value of bank stocks means the financial industry accounts for less than 10 percent of the Standard & Poor's 500 index for the first time since 1992. At the end of 2006, banks made up 22 percent of the stock market benchmark.

And the market's retreat Tuesday means Wall Street has eaten through most of the advance it made from Nov. 20 through Jan. 6. The S&P 500, which had been up as much as 24 percent, is now up only 7 percent from its November low.

Fears about banking eclipsed the shift in Washington. Royal Bank of Scotland's forecast for what would be the biggest loss ever for a British corporation left investors fearful that government's would have to nationalize banks to keep them from collapsing. The British government injected more money into the struggling bank Monday and announced another round of bailouts for the country's banks.

State Street and Regions Financial Corp., a bank with branches primarily in the Southeast, both reported big earnings drops Tuesday.

Acknowledging the global economy's woes, Obama suggested Wall Street would see greater oversight: "Without a watchful eye, the market can spin out of control," he said in his address outside the Capitol.

Obama warned the economic recovery would be difficult and that the nation must choose "hope over fear, unity of purpose over conflict and discord" to overcome the worst economic crisis since the Great Depression.

Investors are expecting Washington will be a central part of the economic recovery. But the first hours of the new administration did little to ease their concerns.

"At this stage, markets in general and bank investors specifically are really looking to government as the way out," said Jack Ablin, chief investment officer at Harris Private Bank. "Certainly, of just about all of inaugurations that I can recall today's event probably has the not only the symbolic importance but really tangible importance to the stock market."

The Dow Jones industrial average fell 332.13, or 4.01 percent, to 7,949.09, its lowest close since Nov. 20, when the blue chips ended at 7,552.29 — their lowest point in more than five years. It was also the blue chips' biggest drop since Dec. 1.

During much of Obama's address, the average was down about 150 points. Traders hadn't appeared so focused on TV screens since Sept. 29, when the House initially voted against the banking bailout package and the Dow tumbled 777 points.

The Dow's showing was its worst ever for an Inauguration Day.

Broader stock indicators also fell sharply Tuesday. The Standard & Poor's 500 index fell 44.90, or 5.28 percent, to 805.22, and the Nasdaq composite index fell 88.47, or 5.78 percent, to 1,440.86.

The Russell 2000 index of smaller companies fell 32.80, or 7.03 percent, to 433.65.

Losing issues outnumbered gainers by about 9 to 1 on the New York Stock Exchange, where consolidated volume came to 6.23 billion shares compared with 5.92 billion shares traded Friday. The stock market was closed Monday for Martin Luther King Jr. Day.

Bond prices were mixed. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.37 percent from 2.34 percent late Friday. The yield on the three-month T-bill, considered one of the safest investments, fell to 0.10 percent from 0.11 percent late Friday.

Light, sweet crude rose $2.23 to settle at $38.74 a barrel on the New York Mercantile Exchange.

The dollar was mixed against other major currencies, while gold prices rose.

Richard E. Cripps, chief market strategist for Stifel Nicolaus, said the market's decline was interrupted by Obama's inauguration speech but that the markets then continued to trade on the problems in the financial sector.

"There's just tremendous fear and uncertainty in the banking sector," Cripps said. "Even those closest to the issue, like executives and analysts, there's a feeling of tremendous uncertainty. They're not giving any positive guidance because they just don't know. Lacking that (certainty) we're left to our worst fears, and that's what you're looking at with bank stocks."

Citigroup fell 70 cents, or 20 percent, to $2.80, a 17-year low. After the market's close, the company cut its quarterly dividend to a penny to meet one of the stipulations set by the government's $20 billion bailout of the company.

Bank of America fell $2.08, or 29 percent, to $5.10. Morgan Stanley fell $2.49, or 16 percent, to $13.10.

State Street, which had been performing better than most financial services companies, reported a 71 percent drop in fourth-quarter profit as it was forced to billions of dollars in write-downs on its commercial paper program and investment portfolio. The bank also said it expects 2009 operating earnings to be flat with 2008, below the company's long-term goal of 10 percent to 15 percent growth. State Street plunged $21.46, or 59 percent, to $14.89.

And Regions Financial reported a fourth-quarter loss of $6.24 billion, weighed down by a hefty charge to reflect declining value in its banking reporting unit. Its stock plunged to a 24-year low, closing down $1.47, or 24 percent, at $4.60.

Overseas, Britain's FTSE 100 fell 0.42 percent, Germany's DAX index fell 1.77 percent, and France's CAC-40 fell 2.15 percent. Japan's Nikkei stock average fell 2.31 percent.

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[William33 110]

What does this mean? I think it is an overall perception that Presidential action will not occur for some time yet, given the requisite ramp up time.

When the market already sux, smart investors realize that change will take time during a transition of power.

[Peikko 1,575]

It means save your $ and invest them in the banking sector once shares hit rock bottom. It's a winning situation for anyone with liquid assets.

[William33 110]

It means save your $ and invest them in the banking sector once shares hit rock bottom. It's a winning situation for anyone with liquid assets.

Great call!!!

[HAL 9000 96]

It means save your $ and invest them in the banking sector once shares hit rock bottom. It's a winning situation for anyone with liquid assets.

A most intelligent strategy. Hopefully those shares that hit rock bottom do not do so because they are going kaput.

[mawilson 2,133]

It means save your $ and invest them in the banking sector once shares hit rock bottom. It's a winning situation for anyone with liquid assets.

Of course some of them will go to zero... like WaMu.

[mawilson 2,133]

It means save your $ and invest them in the banking sector once shares hit rock bottom. It's a winning situation for anyone with liquid assets.

A most intelligent strategy. Hopefully those shares that hit rock bottom do not do so because they are going kaput.

The safest thing is to buy an ETF that tracks a large number of financial stocks, such as UYG...

it really is quite cheap at the moment.

http://finance.google.com/finance?client=ob&q=NYSE:UYG

[Peikko 1,575]

I can't see all the financial institutions going kaput, although there is definitely going to be some 'belt tightening'. Is it even possible for US banks to be nationalised?

[Jasman0717 9]

Who are the greedy people

[spookyturtle 9,466]

It's time to think better thoughts. Better is better if you let it be.

[luckytxn 2,265]

I think they are seeing what many has warned will happen. The bailout was a huge fraud and further bailout of any industry will only make matters worse. Throwing money down a sink hole only means that the money is gone and the problem is till there. The one thing in that article that was said that made any sense is for the Government to stop spending money it does not have.

My congressman sent out emails saying how this was going to happen if they did the insane bailout and I reprinted it here and most laughed. But don't worry Obama the Socialist will come to the rescue and save all you sheep. From all I have heard so far from this one that is supposed to be bringing us change *Snicker* is that he plans on doing the exact same thing.

[MrsCat 6]

It's time to think better thoughts. Better is better if you let it be.

Very prophetic for a spooky #######.

[spookyturtle 9,466]

It's time to think better thoughts. Better is better if you let it be.

Very prophetic for a spooky #######.

Turds should be confined to the poop thread.

[tallcoolone 102]

But don't worry Obama the Socialist will come to the rescue and save all you sheep. From all I have heard so far from this one that is supposed to be bringing us change *Snicker* is that he plans on doing the exact same thing.

They will follow him right to the slaughter house.

Hopefully this clown called Obama can do something right, but I think he is in way over his head.

[NickD 203]

Economics is not my field, but it seems to me, banks make money with money by loaning it out safely at a higher interest rate than what they pay out in savings or checking accounts. Thought I heard Obama say that they are not loaning it out. Daughter-in-laws dad is a long time banker, he seems to know what is going on, his bank does their own assessing and credit checks. You don't make money by loaning out twice the value of a home that a person can't pay back.

Ha, watched that program on home and gardens TV where people buy a house for a hundred grand, put in 20 grand, and suddenly worth 500 grand. How stupid can that be? To me, it's still a hundred grand house with not even 20 grand worth of improvements, watch carefully, the workmanship is #######, ha, would offer 80 grand at the most to undo that #######. Are my fellow Americans that stupid?

Ha, even my son is smarter than that, average life of an appliance is seven years, so a person buying a new home with a 30 year mortgage will still be paying for those pitched appliances for the next 23 years. Then these new homes are all made with untested plastic for windows, siding, plumbing and electrical, the rest is made with glued together saw dust. Then these new so-called energy efficient windows are not even repairable, easy to glue and plastic weld these damn things, but can't take them apart. In looking deeper into it, if a kid throws a baseball at one single pane, have to replace the entire window, frame and all, what were they thinking? These argon filled windows will leak over time and fog up, really, the only cure is to replace them, some as short as five years with a 30 year mortgage. So whole industry is going crazy.