U.S. stocks sank, sending the Dow Jones Industrial Average to its worst Inauguration Day decline, as speculation banks must raise more capital sent financial shares to an almost 14-year low.
State Street Corp., the largest money manager for institutions, tumbled 59 percent after unrealized bond losses almost doubled. Wells Fargo & Co. and Bank of America Corp. slumped more than 23 percent on an analyst’s prediction that they’ll need to take steps to shore up their balance sheets. The Dow’s 4 percent slide was the most on an Inauguration Day in the measure’s 112-year history, according to data compiled by Bloomberg and the Stock Trader’s Almanac.
“All the banks are going to have to recapitalize,” said Greg Woodard, portfolio strategist at Manning & Napier Advisors Inc., which manages $16 billion in Fairport, New York. “That’s not done. That’s in front of them, and we don’t want to try to get in front of that trade.”
The S&P 500 plunged 5.3 percent to 805.22. The S&P 500 Financials Index fell 17 percent to below its lowest closing level since March 1995 as concern European banks need more capital also weighed on the group. The Dow average slid 332.13 points to 7,949.09. Both the Dow and S&P 500 retreated to two- month lows.
The S&P 500 is off to its worst start to a year, shattering the biggest rally since World War II, as analysts cut earnings estimates by a record 83 percentage points and companies signal worse to come.
A paedestrian passes before a share prices board which has news pictures of new US President Barack Obama in Tokyo on January 21. Asian stocks fell Wednesday after a plunge on Wall Street, where financial fears eclipsed hope that US President Barack Obama will move quickly to resuscitate the stricken economy.(AFP/Yoshikazu Tsuno)
The S&P 500 is down 11 percent in the first 12 trading days of 2009, exceeding last year’s 9.2 percent drop, according to data compiled by Bloomberg going back to 1928. The decline helped erase more than two-thirds of a 24 percent rally since Nov. 20 as optimism that government spending would revive the economy evaporated.
U.S. financial losses from the credit crisis may reach $3.6 trillion, according to New York University Professor Nouriel Roubini, who predicted last year’s economic and stock-market meltdowns.
“If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion,” Roubini said at a conference in Dubai today. “This is a systemic banking crisis.”
Europe’s Dow Jones Stoxx 600 Index retreated 2.1 percent today, led by banks and technology companies. It fell almost 2 percent yesterday after Royal Bank of Scotland Group Plc forecast the biggest-ever loss by a U.K. company. The MSCI Asia Pacific Index retreated 2.1 percent today.
Obama Sworn In
Barack Obama became the 44th U.S. president today, inheriting the most severe economic crisis since Franklin D. Roosevelt was sworn in 76 years ago. The turmoil has dragged the world’s largest economies into recession, caused more than $1 trillion of losses at financial institutions and prompted a sell-off in global stock markets.
Treasuries fell for a second day on speculation Obama will sell record amounts of debt to battle the recession. The dollar strengthened for a second day against the euro.
State Street lost $21.46 to $14.89 for the biggest drop in the S&P 500 and the stock’s steepest tumble since at least 1984. Unrealized losses on fixed-income investments rose to $6.3 billion at Dec. 31 from $3.3 billion at Sept. 30, the company said. Unrealized losses on assets held in conduits increased to $3.6 billion from $2.2 billion.
Bank of New York Mellon Corp., the world’s largest custodian of financial assets, fell 17 percent to $19, its lowest closing price since 1997.
Financial companies posted the biggest drop among the S&P 500’s 10 main industry groups as all 81 shares fell.
Wells Fargo, the largest bank on the U.S. West Coast, slid 24 percent to $14.23. Friedman Billings Ramsey Group Inc. analyst Paul Miller lowered his earnings estimates and price target, in addition to predicting a dividend cut.
Bank of America, the biggest U.S. lender by assets, fell the most in the Dow average, sliding 29 percent to $5.10. FBR’s Miller estimated Bank of America needs at least $80 billion of additional capital.
Read the rest from Bloomberg:
The Bank of America building in Washington, The bank will receive 20 billion dollars in fresh capital to help shore it up after acquiring Merrill Lynch, the US Treasury Department announced(AFP/File/Karen Bleier)