By Michael Patterson
Nov. 5 (Bloomberg) -- U.S. stocks fell to the lowest in two weeks after Citigroup Inc. said it will report as much as $11 billion in additional writedowns, heightening concern that financial companies face more losses tied to subprime home loans.
Citigroup, the largest U.S. bank by assets, tumbled for the fifth straight day after it said the charges will cut profit by as much as $7 billion. Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. also dropped on speculation securities firms will post more writedowns on top of the $40 billion announced in the past four months. Home Depot Inc. and Lowe's Cos. led a gauge of retailers to the lowest in a year after Deutsche Bank Securities said the housing slump will hurt profits through 2008.
The Standard & Poor's 500 Index slid 7.48, or 0.5 percent, to 1,502.17, its lowest since Oct. 19. The Dow Jones Industrial Average lost 51.7, or 0.4 percent, to 13,543.4. The Nasdaq Composite Index decreased 15.2, or 0.5 percent, to 2,795.18. About three stocks dropped for every one that rose. Financial firms also led benchmark indexes lower in Europe and Asia.
``There was a hope in the market that the third-quarter earnings numbers that came out from the financial sector were going to be the beginning and the end of the summer financial crisis,'' said Alan Gayle, who helps manage about $70 billion as senior investment strategist at Trusco Capital Management in Richmond, Virginia. ``We're finding that's not the case.''
Profit Drop
Credit-market losses dragged financial companies to their worst quarterly earnings decline since Bloomberg began tracking the data in 1997. Members of the S&P 500 Financials Index that have released third-quarter results so far have reported an average profit drop of 22 percent, the biggest among 10 industries, and analysts expect a 4 percent decrease this quarter, according to Bloomberg data.
Stocks pared some of their decline after CNBC said Goldman Sachs denied speculation that it would report additional writedowns stemming from subprime debt.
Global stocks also fell today after Pakistan's president imposed emergency rule and suspended the country's constitution.
Citigroup retreated $1.83, or 4.9 percent, to $35.90, its lowest price since April 2003. Chief Executive Charles O. ``Chuck'' Prince stepped down after credit-market losses contributed to a 32 percent decline in Citigroup's shares this year. The company had its credit rating cut by Fitch Ratings and placed on review for possible downgrade by S&P. Citigroup also reduced its third-quarter earnings per share by 3 cents after correcting the value of some securities backed by pools of bonds.
Morgan Stanley, Merrill
Morgan Stanley dropped $3.31, or 5.6 percent, to $55.59. The second-biggest U.S. securities firm by market value will have a $3 billion writedown tied to securities, CNBC reported, citing unidentified sources. The company is ``eyeballing'' that amount right now, CNBC on-air editor Charles Gasparino reported. Morgan Stanley spokesman Mark Lake declined to comment.
Merrill, the world's biggest brokerage, lost $1.40 to $55.88. Lehman Brothers analysts cut their recommendation on the shares to ``equal weight'' from ``overweight,'' saying the company may face further writedowns related to debt securities.
Goldman, the biggest securities firm by market value, dropped $11.21 to $218.39.
Federal Reserve Governor Randall Kroszner said conditions for subprime-mortgage borrowers may get worse because house prices will probably stay ``sluggish'' into next year, according to the text of his speech today in Arlington, Virginia.
The S&P 500 Financials Index, which has lost 16 percent this year for the worst performance among 10 industries, fell 1.4 percent today and contributed the most to the overall index's loss. Financial companies account for about 18 percent of the S&P 500's value, according to Bloomberg data.
`Bit More Uncertainty'
``There's a bit more uncertainty out there and it's bringing down the financial sector,'' said Giri Cherukuri, who helps oversee $1.2 billion as a portfolio manager at Oakbrook Investments LLC in Lisle, Illinois. ``There's more bad news to come.''
Home Depot and Lowe's, the two biggest U.S. home-improvement chains, led a drop in retailers after Deutsche Bank downgraded the shares and lowered its profit estimates for this year and next because of the housing recession.
Home Depot slumped 60 cents to $29.80. Lowe's declined 87 cents to $25.13. A gauge of retailers in the S&P 500 dropped 2 percent to the lowest since August 2006.
``These credit concerns will continue to hit certainly the financial area, the homebuilding area and more broadly the consumer,'' said Robert Doll, who helps manage about $1.3 trillion as chief investment officer of global equities at BlackRock Inc. in Princeton, New Jersey. ``Our guess is that it does slow the U.S. economy and the global economy to some degree.''
Tighter Credit
Banks made it tougher for American businesses and consumers to borrow in the past three months and said demand for loans slackened, a Federal Reserve survey showed today. The changes were most pronounced in real estate, where half of U.S. banks had more-stringent requirements for commercial loans, according to the Fed's quarterly survey of senior loan officers.
U.S. mortgage losses will be as much as $250 billion over the next five years, according to bond analysts at Lehman Brothers. Commercial banks, government-chartered firms Fannie Mae and Freddie Mac, and mortgage and bond insurers would be affected the most by losses, which will be about $50 billion in 2008, analysts led by Jack Malvey wrote.
Fannie Mae slipped 61 cents to $52. Freddie Mac lost 99 cents to $47.34. Bank of America Corp., the second-largest U.S. bank by assets, declined 66 cents to $44.45.
MBIA Inc., the biggest bond insurer, retreated $2.28 to $33.23. Fitch Ratings said it may lower the AAA credit ratings on at least one bond insurer after a new review of the companies' capital takes into account downgrades of collateralized debt obligations that they guarantee.
Homebuilders Fall
A gauge of homebuilders in S&P indexes dropped 1.4 percent after Centex Corp. Chief Executive Officer Timothy Eller said the U.S. housing market isn't recovering and could take years to rebound. Centex, the fourth-largest U.S. homebuilder by revenue, declined 48 cents to $22.06, the lowest since March 2003.
Europe's Dow Jones Stoxx 600 Index dropped 0.7 percent. J Sainsbury Plc tumbled 21 percent after Qatar's Delta (Two) Ltd. dropped plans for a 10.5 billion-pound ($21.9 billion) takeover of the U.K. supermarket chain, citing a worsening debt market.
``The problems that plague that particular transaction are issues that are facing all private-equity-type transactions that rely on access to debt markets,'' said John Orrico, the New York- based manager of the $200 million Arbitrage Fund, which invests in takeover targets.
Global Retreat
The Morgan Stanley Capital International Asia Pacific Index retreated 1.8 percent. Hong Kong's Hang Seng Index, which has risen 45 percent this year, dropped 5 percent today.
Pervez Musharraf, the president of Pakistan, suspended the constitution on Nov. 3 for the second time since he took power in a 1999 military coup, saying judicial interference in government affairs had helped terrorism and extremism peak throughout the country. Pakistan's stocks fell the most since June 2006.
U.S. President George W. Bush said today that Musharraf should lift the state of emergency in his country and return to the path toward democracy ``as soon as possible.''
In economic reports, the Institute for Supply Management's index of non-manufacturing businesses, which make up almost 90 percent of the economy, rose to 55.8 in October from 54.8 the previous month. Anything greater than 50 indicates growth. Economists in a Bloomberg survey had forecast a drop to 54.
Utilities Rally
Entergy Corp. led a 1.2 percent advance in the S&P 500 Utilities Index after saying it plans to spin off more than half of its nuclear reactors to capture the full value of the assets. Entergy, the second-largest U.S. operator of nuclear power plants, gained $5.46 to a record $124.15.
Google Inc. climbed $14.40 to an all-time closing high of $725.65. The owner of the world's most-popular Internet search engine said it plans to create a mobile-phone operating system and work with 33 companies to build applications that could change how consumers find stores and download files from the Web while on the go.
American International Group Inc., the world's biggest insurer, increased 41 cents to $59.53. Former Chairman and Chief Executive Officer Maurice ``Hank'' Greenberg said he wants to shake up management and explore asset sales. Greenberg still controls more than 11 percent of AIG shares through two private firms and personal holdings.
IAC/InterActiveCorp Split
IAC/InterActiveCorp added $2.22, or 7.5 percent, to $31.84 for the biggest gain since November 2004. The owner of Ticketmaster and the HSN home-shopping network will split into five publicly traded companies, dismantling a media and Internet company Barry Diller spent more than a decade assembling.
In other markets, the yield on the benchmark 10-year Treasury note rose 0.03 percentage point to 4.34 and the dollar recovered from a record low against the euro. Crude oil for December delivery fell 2 percent to $93.98 barrel in New York on speculation the odds have diminished that Turkey will attack Kurdish bases in the north of Iraq.
The Russell 2000 Index, a benchmark for companies with a median market value of $638 million, dropped 0.9 percent to 790.43. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.6 percent to 15,173.92. Based on its decline, the value of stocks decreased by $118.6 billion.
American International Group Inc. (AIG US)
Bank of America Corp. (BAC US)
Centex Corp. (CTX US)
Citigroup Inc. (C US)
Entergy Corp. (ETR US)
Fannie Mae (FNM US)
Freddie Mac (FRE US)
Goldman Sachs Group Inc. (GS US)
Google Inc. (GOOG US)
Home Depot Inc. (HD US)
IAC/InterActiveCorp (IACI US)
Lowe's Cos. (LOW US)
MBIA Inc. (MBI US)
Merrill Lynch & Co. (MER US)
Morgan Stanley (MS US)
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