Bank failure rattles U.S. stocks NEW YORK: U.S. stocks fell Monday for the first time in four sessions as the ninth U.S. bank failure of the year renewed concern that subprime losses will keep rattling the financial system.
Bank of America and JPMorgan Chase dropped more than 1 percent each after Columbian Bank and Trust of Topeka, Kansas, collapsed amid bad real-estate loans.
Lehman Brothers declined more than 4 percent on concern a Korean bank would reconsider a potential investment in the U.S. securities firm.
"The market's going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while," said Peter Sorrentino, senior portfolio manager at Cincinnati-based Huntington Asset Advisors.
The Standard & Poor's 500 Index dropped 7.38, or 0.6 percent, to 1,284.81 points. The Dow Jones Industrial Average slid 79.06, or 0.7 percent, to 11,549. The Nasdaq Composite Index decreased 18.71 to 2,396. Four stocks retreated for each that rose on the New York Stock Exchange.
The S&P 500 extended its first weekly decline since July. The benchmark for American equities slipped 0.5 percent last week as energy prices climbed and concern grew that the government may need to bail out Fannie Mae and Freddie Mac.
Morgan Stanley cut its year-end forecast for the index on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.
"Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to very optimistic consensus expectations," Abhijit Chakrabortti, an analyst, wrote in a note to clients.
JPMorgan dropped 57 cents to $37.10. Bank of America retreated 45 cents to $29.76.
Columbian Bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance, on Friday.
The pace of bank closings is accelerating as global financial firms have reported more than $500 billion in writedowns and credit losses since 2007. The FDIC's "problem" bank list grew by 18 percent in the first quarter to 90 banks with combined assets of $26.3 billion. Prior to yesterday, the FDIC had closed 36 banks since October 2000. The U.S. shut 12 banks in 2002, the highest in the period, and 2005 and 2006 had no closures.
"The closure of Columbian Bank awakened investors' bad memories and shows that we are not through with the topic yet," said Monika Rosen, head of research at BA-CA Asset Management in Vienna.
Lehman slipped 63 cents to $13.78. Shares of the securities firm rose 5 percent in New York trading on Aug. 22 after Korea Development Bank said it was "considering" an investment in the company.
The Korean bank ended talks on a possible investment after Lehman demanded a price 50 percent higher than its book value, the Maeil Business newspaper said, citing an unnamed official in the banking industry. South Korea's financial regulator said that state-controlled banks including Korea Development Bank should consider the risks of buying overseas rivals amid the global credit crisis.
New York-based Lehman has dropped 79 percent this year, the worst performance in the 11-company Amex Securities Broker/Dealer Index.
Lehman's chief executive, Richard Fuld, may face an "internal coup" to strip him of his executive duties, The Observer newspaper reported. Mark Lane, a spokesman for Lehman Brothers, was not immediately available when contacted via telephone and e-mail.
Freddie Mac lost 6 cents to $2.75 and Fannie Mae declined 37 cents to $4.63. The cost to the largest U.S. mortgage finance companies of raising capital is getting more prohibitive by the day, making it likely that the government will have to inject cash into the two firms.
Declines in the common stocks of Freddie Mac and Fannie Mae accelerated last week to more than 90 percent for the year and yields on their preferred shares more than doubled on speculation Treasury Secretary Henry Paulson may need to bail them out, reducing or wiping out the value of the securities.
Financial shares last week fell the most in six weeks for the biggest drop among 10 S&P 500 industries. The group has retreated 29 percent this year as losses from the subprime mortgage collapse exceeded $500 billion. One year into the financial crisis, central bankers and scholars at the Federal Reserve's annual retreat this weekend couldn't agree on how to prevent a repeat.
The Fed chairman Ben Bernanke, the European Central Bank president Jean-Claude Trichet, former officials and economists meeting in Jackson Hole, Wyoming, appear to be split over whether policy makers should be made responsible for financial stability and how closely to heed the concerns of Wall Street.
The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, the Bank of Israel governor Stanley Fischer said Saturday at the Fed's symposium
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Bank failure rattles U.S. stocks - International Herald Tribune