Post by docfung on Nov 2, 2007 4:20:52 GMT -6
Nov. 1 (Bloomberg) -- U.S. stocks tumbled, led by the steepest drop in financial companies in five years, after analysts said Citigroup Inc. may be short of capital and advised investors to sell the shares.
Citigroup, the biggest U.S. bank by assets, slid the most since 2002 after CIBC World Markets said its dividend may be cut and Credit Suisse Group reduced its rating. Bank of America Corp., the second largest bank, had its biggest decline in four years. Retailers fell, led by Target Corp., after consumer spending slowed more than economists forecast.
The Standard & Poor's 500 Index lost 40.94, or 2.6 percent, to 1,508.44, erasing about $369 billion of market value from the benchmark for American equities. Financial shares, this year's worst-performing industry, led the slide with a 4.6 percent retreat, the most since September 2002. The Dow Jones Industrial Average decreased 362.14, or 2.6 percent, to 13,567.87. The Nasdaq Composite Index slipped 64.29, or 2.3 percent, to 2,794.83. More than 13 stocks fell for every one that rose.
``There is more downside in financials,'' said Doug Peta, market strategist at J&W Seligman & Co. in New York, which manages $22 billion. ``We just don't know what the ultimate impact is going to be for all the subprime difficulties.''
The S&P 500 lost the most since Aug. 9. Citigroup's downgrades also triggered selling in Europe, where the Dow Jones Stoxx 600 lost 1.5 percent to 382.57. Treasuries rallied, erasing losses spurred by the Federal Reserve's interest-rate cut yesterday, as investors sought the safety of government debt.
Citigroup Drops
Citigroup lost $2.85, or 6.9 percent, to $38.51, the steepest slide in the Dow average. CIBC lowered its recommendation on the shares to ``sector underperform'' from ``sector perform.'' Citigroup may have to cut its dividend, raise cash or sell assets to raise more than $30 billion to shore up its capital, analysts led by Meredith Whitney wrote in a report to clients.
High dividends have lured some investors to bank shares during the industry's 13 percent drop this year. Citigroup's 12- month dividend yield today climbed to 6.88 percent, the highest in at least two decades, Bloomberg data show.
``Ultimately, it's not the dividend, it's the ability to pay the dividend that really counts,'' said Donald Yacktman, who oversees $1.1 billion at Yacktman Asset Management in Austin, Texas. ``This is a huge company, not some peanut. It would be a worry.''
Citigroup spokesman Michael Hanretta said he couldn't comment on speculation about dividend changes or asset sales.
Won't Cut
The bank probably won't cut the dividend because its capital isn't falling below regulatory requirements, Sanford C. Bernstein & Co. analyst Howard Mason said.
Bank of America retreated $2.57 to $45.71. The stock was downgraded to ``sector performer'' from ``sector outperformer'' at CIBC.
A gauge of expected stock market swings rose the most since March. The Chicago Board Options Exchange Volatility Index soared 25 percent to 23.21. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
Target, the second-biggest U.S. discounter, dropped $2.89 to $58.47. Wal-Mart Stores Inc., the biggest retailer, decreased $1.18 to $44.03. Consumer spending in the U.S. rose less than forecast in September as house prices fell and fuel expenses climbed, the Commerce Department said today.
Four out of 10 U.S. shoppers say they'll spend less this holiday season because of higher food and fuel costs and falling home values, according to an annual survey by Deloitte.
Exxon Retreats
Exxon dropped $3.49 to $88.50. Third-quarter net income fell to $1.70 a share, less than the $1.74 a share average estimate of analysts surveyed by Bloomberg. Equipment and power failures slowed fuel output and refining margins narrowed.
Crude oil fell more than $1 a barrel in New York as the dollar rebounded against the euro, reducing the appeal of commodities as an alternative investment. Oil for December delivery lost $1.04 to $93.49 a barrel in New York.
Ambac Financial Group Inc. fell $7.26, or 20 percent, to $29.57, the steepest decline in the S&P 500. Ambac's bonds were downgraded to ``deteriorating'' from ``stable'' by Gimme Credit Publications Inc. because of the world's second-largest bond insurer's risk from collateralized debt obligations. Ambac's stock price fell as much as 27 percent.
Fortress Investment Group LLC fell the most since it went public in February on concern that mortgage-related losses will hurt profits. The firm's Newcastle Investment Corp., a real- estate investment trust that spent $3 billion in March and May buying subprime mortgages and mortgage-related debt, also declined today. Fortress plunged $2.43, or 11 percent, to $19.62. Newcastle slipped $1.10, or 7.4 percent, to $13.75.
Sprint Declines
Sprint Nextel Corp. dropped 52 cents to $16.58. The third- biggest U.S. mobile-phone company said third-quarter net profit fell 77 percent to $64 million, or 2 cents a share, as more than 300,000 customers dropped the service.
Sales declined 4.2 percent to $10 billion, missing the $10.2 billion average estimate of analysts.
Technology shares fell the least among 10 industries, supported by Microsoft Corp., the world's biggest software maker. Microsoft added 25 cents, or 0.7 percent, to $37.06, the highest in seven years. The company's shares are undervalued based on its growth potential, a Bernstein analyst said yesterday.
Microsoft was one of 16 stocks in the S&P 500 to advance and the only company to gain in the Dow average.
Unum Group gained $1.98, or 8.5 percent, to $25.32, the steepest climb in the S&P 500. The largest U.S. disability insurer reported third-quarter results that beat analysts' estimates and announced its first buyback in five years.
Manufacturing Growth
A private report showed manufacturing grew in October at the slowest pace in seven months. The Institute for Supply Management's factory index dropped to 50.9, trailing the 51.5 median estimate in a Bloomberg News survey of economists. A reading over 50 signals expansion.
The number of Americans filing first-time claims for unemployment benefits last week remained at a level that economists say points to a softening labor market. Initial jobless claims fell by 6,000 to 327,000 in the week that ended Oct. 27, exceeding this year's average of 318,000 for three consecutive weeks.
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Are bank runs next? Stay tuned.