NEW YORK - Wall Street’s worst fears came to pass Monday, when the government’s financial rescue plan failed in Congress and stocks plunged precipitously — hurtling the Dow Jones industrials down nearly 7 percent. The almost 780-point decline was the largest one-day point drop ever for the index.
The percentage declines for the Standard & Poor’s 500 and Nasdaq composite indexes were even larger. And credit markets, whose turmoil helped feed the stock market’s angst, froze up further amid the growing belief that the country is headed into a spreading credit and economic crisis.
Stunned traders on the floor of the New York Stock Exchange, their faces tense and mouths agape, watched on TV screens as the House voted down in midafternoon the administration’s $700 billion plan to buy up distressed mortgage securities. Activity on the floor became frenetic as the “sell” orders blew in.
The Dow told the story of the market’s despair. The blue chip index, dropped by hundreds of points in a matter of moments, and by the end of the day had passed by far its previous record for a one-day drop, 684.81, set in the first trading day after the Sept. 11, 2001, terror attacks.
The selling was so intense that just 162 stocks rose on the NYSE — and 3,073 dropped.
It takes an incredible amount of fear to set off such an intense reaction on Wall Street, and the worry now is that with the rescue plan’s fate uncertain, no one knows how the financial sector hobbled by hundreds of billions of dollars in bad mortgage bets will recover.
While investors didn’t believe that the plan was a panacea, and understood that it would take months for its effects to be felt, most market watchers believed it was a start toward setting the economy right after a credit crisis that began more than a year ago and that has spread overseas.
“Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that,” said Chris Johnson president of Johnson Research Group. “This isn’t a market for the timid.”
The plan’s defeat came amid more reminders of how troubled the nation’s financial system is — before trading began came word that Wachovia Corp., one of the biggest banks to struggle due to rising mortgage losses, was being rescued in a buyout by Citigroup Inc. It followed the recent forced sale of Merrill Lynch & Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc.; all of them were felled by bad mortgage investments.
And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. has a list of over 110 banks that were in trouble in the second quarter, and that number surely has grown in the third.
Traders on the floor were stunned by the House vote.
“How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty,” said Gordon Charlop, managing director with Rosenblatt Securities. “The bailout not going through sends a signal that Congress isn’t willing to do their part.”
Wall Street is contending with all these issues against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back.
The evidence of the credit markets’ ills could again be found Monday in the Treasury’s 3-month bill; investors were stashing money there, willing to take the tiniest of returns simply to be sure that their principal would survive in what’s considered the safest investment. The yield on the 3-month bill was 0.15, down from 0.87, and approaching zero, a level reached last week when fear was also running high.
Analysts said the government needs to find a way to help restore confidence in the markets.
“It’s probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed,” said Fred Dickson, director of retail research for D.A. Davidson & Co.
Treasury Secretary Henry Paulson indicated that the government would try again.
“We need to put something back together that works,” Paulson said. “We need it as soon as possible.”
On Wall Street, the Dow fell 777.68, or 6.98 percent, to 10,365.45. The decline also surpasses the 721.56-point intraday decline record also set during the first trading day after the terror attacks. Still, it was the 17th biggest percentage decline for the Dow and remained well below the more than 20 percent drops seen on Black Monday of October 1987 and the Depression.
Broader stock indicators also tumbled. The Standard & Poor’s 500 index declined 106.85, or 8.81 percent, to 1,106.42. It was the S&P’s largest-ever point drop and its biggest percentage loss since the Oct. 19, 1987, crash.
The Nasdaq composite index fell 199.61, or 9.14 percent, to 1,983.73, the third worst percentage decline for the index.
The Russell 2000 index of smaller companies fell 47.07, or 6.68 percent, to 657.72.
A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared that energy demand would continue to slide amid further economic weakness.
And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex.
Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets.
“Things are dying and breaking apart,” he said.
The federal Office of Thrift Supervision, one of the government’s banking regulators, indicated that the market was overreacting to the House vote and that its fears about the financial system are misplaced.
“There is an irrational financial panic taking place today, and we support and applaud the continuing efforts of Secretary Paulson and congressional leadership to restore liquidity and public confidence,” John Reich, Director of the federal Office of Thrift Supervision, said in a statement. “We will continue to work diligently with our institutions to ensure they operate safely and soundly, and to restore stability to the marketplace.”
Spokesmen for the Treasury Department’s Office of the Comptroller of the Currency and the Securities and Exchange Commission had no immediate comment after the House voted against the bailout package.
Lawmakers voted down a plan that was different than what the Bush administration had originally proposed. There were restrictions allowing Congress to limit how much of the money goes out the door at once. It also included caps on pay packages of top executives as well as assurances that the government also would ultimately be reimbursed by the companies for any losses. The Treasury would have been permitted to spend $250 billion to buy banks’ risky assets, giving them a much-needed necessary cash infusion. There also would be another $100 billion for use at president’s discretion and a final $350 billion if Congress signs off on it.
But Wall Street found further reason for worry overseas, as the fallout from U.S. economic problems kep spreading. Three European governments agreed to inject Fortis NV with a $16.4 billion bailout. Fortis, with has headquarters in Brussels, Belgium and Utrecht, Netherlands, is Belgium’s largest retail bank.
The British government, meanwhile, said it is nationalizing mortgage lender Bradford & Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S.
The economic news in the U.S. only made matters worse. The Commerce Department said consumer spending fell in August to its lowest level in six months, while analysts expected it to edge up slightly. With consumers already uneasy and the uncertainty from the financial markets likely to spill over to the rest of the country, the outlook for spending remains bleak — and consumers are the biggest driver of economic growth.
Sept. 30 (Bloomberg) -- Asian stocks dropped, extending the worst global sell-off in 21 years, after the rejection of a $700 billion plan to rescue the financial system by U.S. lawmakers exacerbated concern more banks will fail.
Mitsubishi UFJ Financial Group Inc. and Australia & New Zealand Banking Group Ltd. slumped more than 5 percent after Wachovia Corp. was sold to Citigroup Inc. as its shares collapsed under the weight of overdue mortgages. BHP Billiton Ltd. and SK Energy Co. declined after oil fell the most in almost seven years on speculation the global economy will slide into recession. U.S. stocks yesterday tumbled the most since the 1987 crash.
``There is a massive crisis of confidence,'' said Khiem Do, who helps oversee $9 billion of Asian equities at Baring Asset Management (Asia) Ltd. ``There is definitely further downside.''
The MSCI Asia Pacific Index retreated 3.3 percent to 107.66 as of 9:40 a.m. in Tokyo. The yield on U.S. Treasury 10-year notes rose 3 basis points to 3.59 percent as Treasury Secretary Henry Paulson said he'll work with Congress to salvage the rescue plan, while the dollar fell for a third day against the yen.
The MSCI Asian index has slumped 32 percent this year as credit turmoil caused the world's financial institutions to report more than $590 billion in losses and writedowns.
Japan's Nikkei 225 Stock Average lost 4.7 percent to 11,187.74. Benchmark indexes in Australia and South Korea declined more than 3 percent.
Global Rout
The Standard & Poor's 500 Index tumbled 8.8 percent yesterday, while the MSCI World Index of 23 developed markets slid 6.9 percent, the biggest loss in 21 years. S&P 500 futures added 0.5 percent in after-hours trading.
The U.S. House of Representatives yesterday voted down the financial-rescue proposal that President George W. Bush said is needed to prevent the world's largest economy from slipping into a recession. The defeat of the legislation set off a scramble among the plan's backers for additional support before another vote, which likely won't come until later in the week.
Mitsubishi UFJ, Japan's largest bank, retreated 6.6 percent to 875 yen. ANZ, Australia's fourth-largest bank, lost 5.6 percent to A$17.74. Woori Finance Holdings Co., with the biggest exposure to U.S. mortgage-related investments among South Korean banks, dropped 6.8 percent to 11,050 won.
``Nobody anticipated this in the market,'' said Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co. in Tokyo. ``The global financial market is nearing the brink of collapse, and the only real choice investors have right now is to sell stocks and hold cash.''
`Dysfunctional'
Wachovia sank 82 percent yesterday in U.S. trading after the Federal Deposit Insurance Corp. helped arrange the takeover of its banking operations by Citigroup. The biggest U.S. bank by assets will absorb as much as $42 billion of losses on Wachovia's $312 billion pool of loans, the FDIC said yesterday.
``Volatility in the market has been notched up to a new high,'' said Prasad Patkar, who helps manage $1.8 billion at Platypus Asset Management in Sydney. ``Credit markets are dysfunctional at the moment and if they aren't normalized quickly we have a serious problem.''
BHP, the world's largest mining company, slipped 7.4 percent to A$31.72. SK Energy, South Korea's biggest oil refiner, fell 5.1 percent to 87,300 won.
Crude oil fell 9.8 percent yesterday to $96.37 a barrel in New York, helping send the Reuters/Jefferies CRB Index of 19 commodities to the biggest drop since at least 1956.
`Fear and Uncertainty'
``You're seeing a general flight from commodity players around the world,'' said Sean Fenton, who manages the equivalent of $540 million at Tribeca Investment Partners in Sydney. ``There's a lot of fear and uncertainty in the market, not helped by the fact that we're seeing accelerated bank failures.''
Australia's currency slid the most in three weeks versus the yen as commodities dropped and the stocks rout curbed investor appetite for buying the nation's higher yielding assets with cheaper funds borrowed from Japan.
The Australian dollar fell 2.1 percent to 79.76 U.S. cents while New Zealand's dollar slid 1.2 percent.
``Traders are sure to bail out of higher-yielding currencies and put their money back into the yen,'' said Mitsuru Sahara, senior currency sales manager at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan's biggest publicly traded lender.
To contact the reporter for this story: Kyung Bok Cho in Seoul at kcho7@bloomberg.net; Shani Raja in Sydney at sraja4@bloomberg.net.
Last Updated: September 29, 2008 21:09 EDT
LONDON: European governments announced a flurry of bank bailouts from Germany to Iceland, but the rescue deals only heightened fears that the contagion from the U.S. credit crisis has much further to spread before the financial system recovers.
European shares fell heavily Monday and money markets remained frozen with banks refusing to lend to each other for all but the shortest periods amid concern that a planned U.S. government $700 billion bailout package would not be enough to stem the crisis.
A few hours later, the U.S. House defeated the rescue package by a vote of 228-205, but lawmakers were expected to reconvene Thursday in hopes of a quick vote on a reworked version.
"In the near term, it will be the weak ones that will be picked off," Global Insight chief European economist Howard Archer said before the U.S. congressional vote of the expectation that more banks would collapse or need rescue.
"But, obviously, the more the turmoil and dislocation continues, the further this could spread," he added. "We live in vicious times."
Today in Business with Reuters
U.S. lawmakers rebel against bailout plan Impact of global credit crunch expands in EuropeU.S. stocks fall sharply after measure fails
The governments of Belgium, the Netherlands and Luxembourg took partial control late Sunday of struggling bank Fortis NV, while Britain seized control of mortgage lender Bradford & Bingley early Monday.
Germany organized a credit lifeline for blue-chip commercial real estate lender Hypo Real Estate Holding AG, while Iceland's government took over Glitnir bank, the country's third largest.
Additionally, the European Central Bank joined with the U.S. Federal Reserve in doubling the credit swap line that makes dollars available to cash-hungry banks from US$120 billion to $240 billion. The Bank of England doubled dollar availability to US$80 billion, while other central banks offered smaller amounts.
Renate Brand, a banking analyst at SNS Securities, said that "it's getting difficult for a lot of banks at once now, because mistrust is so great and so widespread."
Ton Gietman from Petercam Securities said that markets had become so jittery that rumor and fact were being treated about the same.
"Take a company like Fortis, whose management swears high and low that they don't have any solvency problem — and it's still an open question whether they did or not — this market doesn't care," he said. "If you can't stop your share price from falling with anything you say, you have to take some action to reassure investors and depositors."
Analysts are closely watching Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its U.S. operations. The bank had no comment on a report it was planning a rapid capital increase but said the board would meet Monday night to assess the situation.
Belgian Prime Minister Yves Leterme was quick to assure savers — and the stock market — that the government was ready to stand behind the bank if needed.
"We will take the necessary measures to guarantee the interests of all the savers, all the customers," he told reporters, describing the bank as very important to the Belgian economy.
He called a cabinet meeting Monday to discuss Dexia and told VRT news earlier in the day that the government had been talking to Dexia management for several days and its problems were "fundamentally different" from Fortis.
Notably, the Fortis bailout took place across national lines. For months, European officials have been concerned whether governments would work together in a crisis. In this case they did, with European Central Bank president Jean-Claude Trichet attending the negotiations in Brussels on the €11.2 billion euro (US$16.4 billion) bailout package.
The three governments took a 49 percent stake in exchange and demanded Fortis sell the stake it had bought in ABN Amro a year ago for €24 billion euros — a move that many analysts believe started its troubles. However, , said some positive news was provided by the joint action taken by Belgium, the Netherlands and Luxembourg in agreeing
"The ability of the euro area fiscal authorities to co-ordinate on a bailout for a bank with not-only strong cross-boundary operations, but indeed with a strong multinational (almost supranational) identity was untested until today," Willem Buiter, a professor at the London School of Economics and a former Bank of England policymaker, said in his blog on [link to www.ft.com.]
"They passed the test."
The government took over Bradford & Bingley's 50 billion pound (US$91 billion) mortgage and loan books and paid out 18 billion pounds (US$33 billion) to facilitate the sale of its savings business, including its entire retail branch network, to Spain's Banco Santander.
Britain earlier this year nationalized Northern Rock, but not until after the mortgage lender suffered a damaging run on its deposits by spooked customers. The government's desire to move quickly to avert any repeat was underscored by its swift action on Bradford & Bingley — a systematically unimportant buy-to-let lender that is around half the size of Northern Rock at its peak.
In Iceland, the government took control of Glitnir bank, buying a 75 percent stake for 600 million euros (US$878 million) in a move it said was to ensure broader market stability. Central Bank of Iceland chairman David Oddsson said that Glitnir, which has operations in 10 countries, would have collapsed if the authorities had not intervened.
In Germany, Hypo Real Estate Holding AG, the country's No. 2 commercial property lender, became the first German blue chip company to seek a bailout in the global financial crisis, securing a line of credit of up to 35 billion euros (US$51.2 billion).
Despite the concerted attempt by European authorities to shore up confidence, stock markets tumbled in response to the series of measures — the London Stock Exchange FTSE 100 dropped 4.7 percent, Germany's DAX fell 3.7 percent and France's CAC 40 shed 4.6 percent.
"All banks are having difficulty with long term loans and short term financing. It's difficult to say which could be affected," said UniCredit economist Alexander Koch in Munich. "I see the problem flowing until late next year."
The $700 billion bailout would be the biggest in U.S. history. It would give the administration broad power to use taxpayers' money to purchase billions of home mortgage-related assets held by cash-starved financial firms. Analysts said a decision to break up the total amount into smaller stages may have limited its effectiveness in reassuring markets.
___
AP Business Writers George Frey in Frankfurt, Emily Flynn Vencat in London, Toby Sterling in Amsterdam and Matt Moore in Berlin contributed to this report.
The New Zealand sharemarket plunged after United States lawmakers rejected a $US700 billion ($NZ1.05 trillion) bailout plan for the financial industry in a shock vote that sent global markets sliding.
Around 7am (NZT), the US House of Representatives rejected, by a vote of 228-205, a compromise plan that would have allowed the Treasury Department to buy up toxic debt from struggling banks.
Around 10.20am the benchmark NZSX-50 index was down 142.01 points, or 4.45 percent, to 3046.53.
Among leading stocks, Telecom was down 18c or 6.5 percent to 260, Contact Energy lost 38c or 4.6 percent to 791 and Fletcher Building dropped 31c or 4.5 percent to 660.
Nearly all stocks were down, with some of the worst hit including Fisher & Paykel Healthcare, which was down 6.3 percent, or 18c, early to 270. Also down 6.3 percent was Hellaby Holdings, losing 13c to 195, while Mainfreight was down 6.4 percent, or 43c, to 632.
Sky City was down 21c to 340, Sky TV lost 18c to 430, Freightways lost 15c to 315, and The Warehouse dropped 15c to 302.
Among dual-listed stocks Westpac was down 300c, or 10.5 percent, to 2550, and ANZ Banking Group was down 229c, or 10.1 percent, to 2040.
In the US, the Dow industrials plunged in the blue-chip average's biggest one-day point drop ever.
The Dow Jones industrial average ended down 777.68 points, or 6.98 percent, to 10,365.45. The Standard & Poor's 500 Index was down 8.79 percent at 1106.42, and the Nasdaq Composite Index was down 9.14 percent at 1983.73.
By 10am the NZ dollar was down to around US67.15c against the greenback, having been as high as US67.90c soon after the failure of the bailout to get the nod.
The failure of the bill, which would have let the Treasury buy up bad mortgage debt from struggling banks, added to serious concerns after the credit crisis claimed new victims, including Wachovia Corp and a bevy of European banks.
Fear was deep and widespread, as investors dumped stocks for the relative safety of US government bonds. The Chicago Board Options Exchange Volatility Index, Wall Street's main barometer of investor fear, jumped 39 percent to 48.40, a nearly six-year high, and was at 46.72 at the close.
"I am shocked. Credit markets were struggling even with the prospect this bill was going to get passed. Now the bill doesn't get passed and it just throws one more monkey wrench into the mix," said Bob Doll, global chief investment officer of equities at BlackRock Inc, one of the world's largest asset managers.
Even before the US vote, Asian and European markets had plummeted on fears the crisis was spreading, while US regional lender Wachovia became the latest big bank to succumb to the crisis.
And global money markets were frozen even as central banks poured hundreds of billions of dollars into the financial system to persuade financial firms to stop hoarding cash.
"There's a monster amount of fear out there. This is global contagion. It's no longer just the United States," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
Investors rushed to assets considered a safe haven. Government bond prices and gold jumped.
US November crude oil settled down $10.52 to $96.37 a barrel, after touching a session low of $95.04, in the second biggest drop since April 2003. London Brent crude traded down $US9.56 to settle at $US93.98 a barrel. The oil price fall was on the view that world demand will contract as the financial crisis puts the brakes on economic activity.
In Washington, the failure of the bailout bill -- after more than a week of intensive closed-door negotiation intended to hammer out a compromise plan -- brought new uncertainty about the response of the US government to the worst financial crisis since the Great Depression.
US President George W Bush was set to huddle with economic advisers to consider the administration's next move after the White House failed to win support for the bailout plan from Bush's fellow Republicans.
The bailout plan was announced by the Bush administration a little over a week ago. Republican House members voted against it by a more than 2-to-1 margin. A majority of Democrats voted in favour.
Investors said there were ample signs that a financial crisis that started with risky lending to the overheated US property market had gone rapidly global.
The governments of Belgium, the Netherlands and Luxembourg moved to partly nationalise Belgian-Dutch group Fortis NV, and German lender Hypo Real Estate Holding AG secured a credit line from the German government.
British mortgage lender Bradford & Bingley Plc was brought under the government's wing, shares of French bank Dexia tumbled on a report that it might need emergency capital, and bank rescue deals also emerged in Iceland, Russia and Denmark.
"The contagion is spreading to mainland Europe and everyone's asking, 'Who's next?"' said Mark Sartori, head of European sales trading at Fox-Pitt, Kelton in London.
Earlier, European shares had dropped to a 3-1/2-year closing low, with bank shares weighing heavily.
"Investors are fearful, frenetic, especially when it comes to banking shares. They want to get out now and see the after effects from afar," said Frank Geilfuss, head analyst at Bankhaus Loebbecke.
The world's central banks, led by the US Federal Reserve, announced a $US330 billion expansion of currency swap arrangements, which allows them to increase the amount of money they can provide in their home markets, effectively throwing more money at the crisis.
Source: NZPA
* Australia and New Zealand Banking Group Limited (NZX: ANZ.nz)
* Contact Energy Limited (NZX: CEN.nz)
* Fisher & Paykel Healthcare Corporation Limited (NZX: FPH.nz)
* Freightways Limited (NZX: FRE.nz)
* Hellaby Holdings Limited (NZX: HBY.nz)
* Mainfreight Limited (NZX: MFT.nz)
* Sky City Entertainment Group Limited (NZX: SKC.nz)
* Telecom Corporation of New Zealand Limited (NZX: TEL.nz)
* The Warehouse Group Limited (NZX: WHS.nz)
* Westpac Banking Corporation (NZX: WBC.nz)
* Fletcher Building Limited (NZX: FBU.nz)
Mon Sep 29, 2008 7:39 pm
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Brazil's president blasted rich nations he blamed for the global financial crisis on Monday, saying their irresponsibility could destroy fiscal strides made in the developing world, AP reported.
President Luiz Inacio Lula da Silva has repeatedly said in the past week that Brazil was well insulated from the financial fallout on Wall Street.
But with Brazil's Ibovespa stock index plunging 9.4 percent, the local currency dropping hard, and the U.S. Congress rejecting an emergency bailout package, Silva lashed out at those he said were responsible for the global financial shocks.
Rich countries "need to take responsibility" because emerging economies that "have done everything to have good fiscal policy ... can't be turned into victims of the casino erected by the American economy," Silva said.
Asked a week ago about the crisis, Silva responded: "What crisis? Go ask Bush."
But the impact on Brazil and other emerging nations as investor capital flows out and heads to safer bets like U.S. bonds and gold is beginning to worry leaders.
"We know this crisis is serious, we know that it's going to reduce worldwide credit, but we're sure that our exports will continue going well, our industry will continue growing," he said.
Brad Durham, managing director at EPFR Global, a Cambridge, Massachusetts-based fund research firm, said the turbulence hitting Brazil and other developing economies "was due to a perfect storm of bad news."
He cited the lack of a bailout package in the U.S., dropping commodity prices and cold credit markets, among other woes.
Additionally, Brazil suffers from being a bellwether emerging market.
Brazil tends to be a "very high beta market, so it reflects perhaps excessively the prevailing mood of global investors ї which currently is gloomy," he said.
Silva said government funding of infrastructure projects deemed vital to Brazil's economic future won't be impacted because "Brazil isn't going to throw away this opportunity after so many years of waiting for growth."
Silva said "that those responsible" for the global financial crisis had to take swift action to end the economic free fall.
"It's not fair for Latin American, African and Asian countries to pay for the irresponsibility of sectors of the American financial system," he said.
Silva went on to say that it's time for the American government "to assume responsibility" for the crisis.
"They created a hole in the financial system," he said. "They have to take responsibility to fix it to put the world at peace."
