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Stocks plunge on mortgage bond conern { May 2007 } Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6stFLJZg4.U&refer=homehttp://www.bloomberg.com/apps/news?pid=20601087&sid=a6stFLJZg4.U&refer=home
U.S. Stocks Plunge on Higher Yields, Mortgage Bond Concern
By Eric Martin
June 20 (Bloomberg) -- Financial shares tripped over higher bond yields, sending the Standard & Poor's 500 Index to its steepest drop in two weeks.
Growing concern that losses in mortgage securities will spread helped drive down shares of JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. Moody's Corp., the inventor of credit ratings, fell to its lowest in two months on speculation bond issuance will slow.
Rising borrowing costs may intensify a slump in the housing market that helped spur losses in two Bear Stearns Cos. hedge funds this year. Merrill Lynch & Co.'s decision today to seize and sell $800 million of bonds held as collateral for loans to the funds added to worries that the fallout from the subprime crisis may worsen.
``Who knows what this will trigger in another hedge fund,'' said Barry James, who manages $2 billion at James Investment Research in Xenia, Ohio. ``There's a lot of this kind of stuff going on today, I don't think any of us know how much of an impact that will have when it unwinds.''
The S&P 500 declined 20.86, or 1.4 percent, to 1512.84. The Dow Jones Industrial Average lost 146, or 1.1 percent, to 13,489.42. The Nasdaq Composite Index decreased 26.80, or 1 percent, to 2599.96.
Stocks were also dragged lower by energy producers after the price of crude oil fell from a nine-month high.
Financials Retreat
A measure of financial shares lost 1.7 percent and contributed the most to the S&P 500's decline.
Citigroup, the world's biggest financial-services firm, lost 82 cents to $53.44. Bank of America, the second-largest U.S. bank, declined 57 cents to $49.98. JPMorgan, the No. 3 bank, retreated $1.39 to $49.46.
Moody's fell $2.76 to $64.24.
Morgan Stanley, the world's second-biggest securities firm, dropped 48 cents to $87.32 even after reporting second-quarter profit rose 40 percent, beating analysts' highest estimates, on gains from trading stocks and bonds and fees from investment banking.
Bear Stearns, the second-biggest underwriter of mortgage bonds, lost $3.59 to $143.20, its third straight decline. Merrill Lynch will sell collateral for loans to High-Grade Structured Credit Strategies Enhanced Leverage Fund, run by Bear Stearns senior managing director Ralph Cioffi.
The 10-month-old hedge fund has lost about 20 percent this year. The fund and a sister fund both have faced pressure from creditors. They specialized in mortgage bonds and so-called collateralized debt obligations backed by home-loan bonds and other assets.
The two Bear Stearns funds together controlled more than $20 billion a few weeks ago and had about $9 billion in loans as of early yesterday evening.
Rising Yields
The yield on the 10-year Treasury note, which influences rates on mortgages and corporate loans, rose 6 basis points, or 0.06 percentage point, to 5.14 percent. It had fallen 14 basis points over the previous three days.
``Everything is based on the 10-year -- the cost of capital, the consumer's disposable income,'' said Quincy Krosby, who helps manage $330 billion as chief investment strategist at The Hartford in Hartford, Connecticut. ``It's the meat and potatoes of the market.''
Crude oil for July delivery fell 91 cents to $68.19 a barrel in New York after an Energy Department report showed U.S. oil and gasoline stockpiles increased last week. An index of energy companies in the S&P 500 lost 2.9 percent.
Exxon Mobil Corp., the world's biggest oil company, fell $3.02, or 3.5 percent, to $82.82, the steepest decline in the Dow average. Occidental Petroleum Corp., the fourth-largest crude producer, lost $1.99 to $57.11.
MGM, Alcan
MGM Mirage, Las Vegas' largest casino owner, plummeted $5.90 to $80.60. Billionaire investor Kirk Kerkorian, who owns a 56 percent stake, may be backing away from plans to buy two properties from the casino operator, the Wall Street Journal reported, citing unidentified people familiar with the situation.
Alcan Inc. fell $1.21 to $83.10. The Sydney Morning Herald reported the aluminum maker, which is seeking to fend off a hostile bid from rival Alcoa Inc., gave BHP Billiton Ltd. and Rio Tinto Group access to financial data. The newspaper didn't say where it got the information. Alcoa dropped $1.33 to $40.25.
BHP and Rio, the world's largest and third-largest mining companies, are considered potential counter bidders to Alcoa, the newspaper said. Alcan declined to comment on the article, as did BHP and Rio.
Microsoft Corp. lost 45 cents to $30.01. The biggest software maker agreed to modify its Vista operating system after Google Inc. complained the program's design hurts competing search software in violation of a 2001 antitrust settlement. Google had said its desktop search program doesn't perform properly on Vista.
Darden Drops
Darden Restaurants Inc. fell $3.41, or 7.3 percent, to $43.44, the steepest decline in the S&P 500. The owner of the Olive Garden and Red Lobster chains reported a fourth-quarter loss on costs to get rid of its Smokey Bones Barbeque & Grill restaurants. Profit from continuing operations, which excludes the costs, was 67 cents a share, less than the 70-cent average estimate of analysts surveyed by Bloomberg.
More than five stocks fell for every one that gained on the New York Stock Exchange. Some 1.7 billion shares changed hands, 8.9 percent more than the three-month average.
Home Depot, FedEx
Home Depot Inc. jumped $1.76, or 4.6 percent, to $40.03 for its steepest advance since May 2003. The retailer said it plans to buy back as much as $22.5 billion of stock, or 30 percent of the company's outstanding shares, after selling its contractor- supplies unit to three buyout firms. FedEx Corp. advanced $1.74 to $109.80. The world's largest air-cargo carrier said fourth-quarter profit rose 7.4 percent as gains from international express shipments overcame a depressed U.S. parcel delivery market.
Mortgage applications in the U.S. fell last week, signaling mortgage rates near an 11-month high may be starting to discourage home purchases and refinancing.
The Mortgage Bankers Association's index of applications to buy a home or refinance a loan fell 3.4 percent to 643.7 from 666.5 the prior week. The group's gauge of purchase applications fell 3 percent, and a measure of refinancing dropped 4.2 percent.
The Russell 2000 Index, a benchmark for companies with a median market value of $696 million, slipped 1.4 percent to 836.18. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, lost 1.3 percent to 15,291.15. Based on its retreat, the value of stocks decreased by $248.9 billion.
To contact the reporters on this story: Eric Martin in New York at emartin21@bloomberg.net
Last Updated: June 20, 2007 18:17 EDT
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