Stocks, Oil Plunge After Congress Rejects Bailout; Bonds Rise
By Michael Patterson and Lynn Thomasson
U.S. stocks and oil plunged and Treasury bonds rallied the most in two weeks after U.S. lawmakers rejected the Bush administration's $700 billion financial rescue.
The Standard & Poor's 500 Index fell as much as 7.2 percent, the most since Oct. 26, 1987, as 490 companies declined. The MSCI World Index of 23 developed markets sank 5.9 percent, the steepest decline in the measure's 38-year history. Trading on Brazil's Bovespa was halted after the main stock index plummeted 10 percent. The euro and the pound sank and bonds rose as governments raced to prop up banks infected by growing U.S. mortgage losses. Crude futures tumbled more than $11 a barrel.
‘‘This was sold as the last straw, the thing that was going to fix everything and it looked like it was going to pass,'' said Walter ‘‘Bucky'' Hellwig, who helps oversee $30 billion at Morgan Asset Management in Birmingham, Alabama. ‘‘There's disappointment that we have this continued stress in the financial sector.''
The MSCI World Index of 25 developed markets lost 73.86 points to 1,176.51, giving it the steepest intraday percentage retreat since its creation in 1970. The MSCI All-Country World Index of 48 nations lost up to 6 percent, the most in its 21-year history. The S&P 500 retreated 74.93 points to 1,138.08 at 2:29 p.m. in New York, and earlier touched a four-year low of 1,125.99. Europe's Dow Jones Stoxx 600 Index sank 5.5 percent to 251.43, the lowest since January 2005. The MSCI Asia Pacific Index fell 2.1 percent.
Ireland, India, Brazil
The Irish Overall Index slumped 13 percent, the most in its 25-year history. The U.K.'s FTSE 100 Index has lost 15 percent in September, the steepest monthly drop since the October 1987 stock-market crash. India's Sensitive index tumbled 3.8 percent, Russia's Micex Index fell 5.5 percent and Brazil's Bovespa slumped 7.1 percent.
The British pound dropped the most against the dollar in 15 years 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.
Treasuries rallied as investors sought the relative safety of government debt. The yield on 10-year Treasury notes fell 0.27 percentage point to 3.59 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.
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 13 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 & Co. agreed to sell itself to Bank of America Corp.; American International Group Inc. 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 16 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 80 percent to $2. 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 3.7 percent to $19.41. The bank halved its dividend and said it will raise $10 billion in capital.
Financial shares in the S&P 500 retreated 10 percent. National City Corp. plunged as much as 66 percent to $1.25, the lowest intraday level since April 1982. Sovereign Bancorp Inc. fell as much as 68 percent to a 16-year low of $2.66.
Morgan Stanley slumped 14 percent to $21.35. 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 15 percent to $117.61.
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.
Crude oil fell as much as 11 percent to $95.04 a barrel in New York. Copper and corn also helped lead commodities lower, sending the S&P Goldman Sachs Commodity Index to a 8.1 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, dropped the most in eight month after a Morgan Stanley analyst said price cuts will curb profit growth. Apple fell as much as 22 percent, the most since September 2000, to $100.59.