Markets Attempt to Overcome Bank Fears
By JACK HEALY
Published: February 20, 2009
The markets on Friday afternoon were able to overcome concerns about the the country’s largest banks being nationalized after the White House reaffirmed its belief in a privately owned banking system and a media report that the Treasury Department would release some details of bank rescue plan next week.
Shares came back from trading almost 200 points to be trading mixed.
“This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring that they are regulated sufficiently by this government,” a spokesman for President Obama, Robert Gibbs, said. “That’s been our belief for quite some time, and we continue to have that.”
Shortly before 3 p.m., the Dow Jones industrial average was down 30 points to 7,438, while the broader Standard & Poor’s 500-stock index was essentially unchanged. The technology-heavy Nasdaq was a few points higher.
As the recession drags on and banking losses pile up, investors have been concerned that the Obama administration could step in and take over some large banks, effectively wiping out stockholders, analysts said. Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, told Bloomberg Television that a short-term nationalization might be necessary.
“I don’t welcome that at all, but I could see how it’s possible it may happen,” Mr. Dodd said. “I’m concerned that we may end up having to do that, at least for a short time.”
The report of about the Treasury Department releasing details come from CNBC.
In a signal of growing investor fear, the price of gold rose above $1,000 an ounce for a time as investors ran for cover in a metal thought to have intrinsic value.
The same could not be said for bank stocks. The financial sector fell 7 percent overall while Bank of America, Citigroup and Wells Fargo all fell by 10 percent or more. Troubled regional banks were hammered as well, with of Ohio-based Fifth Third Bancorp flirting with $1 a share.
And analysts said that worries would probably keep growing absent a step-by-step plan from the government that addresses the billions of troubled mortgage-related assets on banks’ balance sheets.
“All these banks are becoming insolvent,” said David Kovacs, chief investment officer of quantitative strategies at Turner Investment Partners. “These banks are undercapitalized. What they have on their balance sheets is bad debt. They don’t have the cash to lend. There is no solution, and time is hurting these entities.”
“You can look at everybody’s trading screen and see nothing but red,” said Tim Smalls, head of United States stock trading at Execution L.L.C. in Greenwich, Conn.
The slide in stocks came one day after the Dow Jones industrial average recorded its lowest close in six years, stock markets around the globe churned lower, and investors ran for cover in investments like gold and Treasury debt.
Markets in Asia and Europe closed lower on more glum economic data and a round of disappointing corporate news, including the bankruptcy filing of the automaker, Saab. The FTSE 100 in London fell 3.2 percent while the DAX in Frankfurt slid 4.8 percent. The CAC 40 in Paris fell 4.2 percent.
“We thought the low points of last fall were behind us, but we seem to be in for more disappointments,” said Vincent Juvyns, a strategist at ING Investment in Brussels. “The markets have lost all sense of direction, which makes it hard to take a position.”
The Labor Department reported that consumer prices had increased 0.3 percent in January, rising for the first time since July. The increase eased fears that the American economy was heading into a deflationary spiral of lower prices and lower economic growth, but consumer prices remained flat year-over-year, a sign of continuing pressure on prices as the recession deepens.
“It’s not terrible to see a break in the disinflationary spiral we’re in even if such a break is only temporary,” Dan Greenhaus, an analyst with the equity strategy group of Miller Tabak & Company, wrote in a note.
Asia saw a less dramatic sell-off, led by the Kospi index in South Korea, which fell 3.72 percent dragged down by financial and industrial stocks. In Japan, the Nikkei 225 slipped 1.6 percent, with equities in banks, retail and communications falling furthest. The Hang Seng in Hong Kong dropped 2.49 percent, with financials there also seeing the heaviest losses.
Chris Nicholson contributed reporting.
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