By Michael Patterson
March 4 (Bloomberg) -- U.S. stocks fell, led by financial and commodity shares, after Federal Reserve Chairman Ben S. Bernanke urged banks to forgive more late loans and oil, gold and copper prices dropped from records.
Shares pared declines in the last hour of trading after CNBC said a deal to bail out bond insurer Ambac Financial Group Inc. is progressing. Citigroup Inc. tumbled to a nine-year low and helped drag financial shares down for a fourth day after analysts slashed earnings estimates. ConocoPhillips and Freeport-McMoRan Copper & Gold Inc. led a retreat in energy and mining shares, the best-performing industries of the past year.
The Standard & Poor's 500 Index slid 4.59, or 0.3 percent, to 1,326.75 after earlier falling 1.8 percent. The Dow Jones Industrial Average lost 45.1, or 0.4 percent, to 12,213.8, paring a decline of 226 points. The Nasdaq Composite Index added 1.68, or 0.1 percent, to 2,260.28. Five stocks dropped for every three that rose on the New York Stock Exchange.
``Clearly there are more losses out there for the banks,'' Wendell Perkins, who helps manage about $1.7 billion as chief investment officer at Optique Capital Management in Racine, Wisconsin, said in an interview with Bloomberg Radio. The drop in commodities added to the ``gloom that's out there. It was quite a volatile day and unfortunately ended on the down side,'' he said.
The S&P 500 briefly dropped below its lowest closing level in 18 months after Bernanke warned in a speech in Florida that the housing slump may deepen. The benchmark for U.S. equities recovered most of its loss following the Ambac rescue report and after Cisco Systems Inc. said it plans to pursue more takeovers. European shares fell for a fifth day and Asia's benchmark index slid for a fourth, its longest losing streak of the year.
2008 Losses
The S&P 500 has retreated 9.6 percent this year on growing concern that the worst slump in profits since 2001 will continue after the collapse of the U.S. subprime mortgage market sent banks' credit losses to $181 billion worldwide.
Citigroup fell 99 cents to $22.10, its lowest price since December 1998. Merrill Lynch & Co.'s Guy Moszkowski said he expects $18 billion of credit writedowns related to the company's holdings of subprime mortgages, collateralized debt obligations, leveraged loans, consumer debt, real-estate loans and other investments. The analyst slashed his first-quarter estimate for Citigroup to a loss of $1.66 a share from a profit of 55 cents a share and his 2008 profit forecast to 24 cents a share from $2.74.
Goldman Sachs Group Inc. said today it cut its first- quarter estimate for Citigroup to a loss of $1 a share from a projection of a 15-cent profit due to a ``miscalculation in our model.''
Brokerage's Estimates Cut
Goldman, the biggest U.S. securities firm by market value, slipped $1.48 to $163.60. Bear Stearns Cos. lost 15 cents to $77.17. Lehman Brothers Holdings Inc. retreated 26 cents to $48.35. Morgan Stanley declined 23 cents to $41.35.
The securities firms had their first-quarter earnings estimates cut by Wachovia Corp. analyst Douglas Sipkin on expectations the value of mortgage assets will continue to fall. Sipkin is at least the 10th analyst in the past two weeks to reduce profit estimates for the biggest investment banks.
Bank of America Corp. dropped 40 cents to $38.78. Wachovia declined 93 cents to $29.48. Merrill also cut profit estimates for the two banks, the second and fourth largest in the U.S.
Separately, the head of an investment fund controlled by Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum said Citigroup and other financial companies may need additional capital as credit losses increase. Global banks and securities firms have already raised about $105 billion of capital amid losses on subprime-related securities.
Earnings Slump
Earnings at financial companies in the S&P 500 may drop more than 20 percent in both the first and second quarters, according to analysts' estimates compiled by Bloomberg. Record losses at Citigroup, Merrill Lynch & Co. and other banks and brokerages helped spur a 22.7 percent drop in average earnings for S&P 500 members in the fourth quarter, the biggest decline since the third quarter of 2001, according to Bloomberg data.
The S&P 500 Financials Index dropped 0.8 percent, paring an early retreat of as much as 3.3 percent. Banks, brokerages and insurance companies recovered most of their losses after CNBC's Charlie Gasparino reported a bailout deal for Ambac is progressing though not yet completed, citing people in the New York State Insurance Department.
Bond-Insurance Bailout
New York Insurance Superintendent Eric Dinallo has orchestrated meetings with banks to provide capital to Ambac and other bond insurers, which have been hurt by the declining value of mortgage-linked securities they guaranteed.
Ambac shares jumped 78 cents, or 7.9 percent, to $10.72 for the second-biggest gain in the S&P 500. The stock had retreated as much as 9 percent earlier.
Thirty-four of 36 energy companies in the S&P 500 fell as oil slumped 2.9 percent and prices for gasoline and heating oil declined. Chakib Khelil, president of the Organization of Petroleum Exporting Countries, said the group will make ``no change'' to production targets when it meets in Vienna tomorrow. The S&P 500 Energy Index lost 1.5 percent, paring its gain over the past year to 33 percent. Crude futures rose to $103.95 a barrel yesterday, the highest since trading began in 1983.
ConocoPhillips, the third-biggest U.S. oil company, dropped $1.94 to $81.50. Lehman Brothers analyst Paul Cheng lowered his recommendation on the shares to ``equal weight'' from ``overweight.'' Cheng cut his earnings estimates for this year and next and wrote that the stock price may already reflect the impact of oil prices at $90 to $100 a barrel.
Exxon Mobil Corp., the biggest U.S. oil producer, dropped $1.06 to $86.69. Schlumberger Ltd., the world's largest oilfield-services provider, lost $2.43 to $84.55.
Freeport-McMoRan, Monsanto
Mining and agricultural companies declined after prices for copper, gold and corn fell from all-time highs.
Freeport-McMoRan, the largest publicly traded copper company, tumbled $4.52 to $98.93. The recent gains in copper prices pose a risk to demand from China, Chief Executive Officer Richard Adkerson said today in an interview on Bloomberg Television.
Newmont Mining Corp., the world's second-largest gold producer, dropped $2.18 to $50.20 after gold prices fell the most in a month as the decline in oil reduced the appeal of the precious metal as a hedge against inflation.
Materials Slump
Monsanto Co., the world's biggest seed producer, dropped $6.91 to $111.72. Corn tumbled the most in almost six weeks on speculation that overseas demand and U.S. animal-feed consumption will slow after grain prices reached a record yesterday. The drop today in oil and gasoline prices may also reduce demand for corn-based ethanol as a fuel substitute.
Agriculture Secretary Ed Schafer said today that the U.S. eventually must phase out federal incentives for corn-based ethanol in favor of cellulosic sources that don't compete with other crops for food.
The S&P 500 Materials Index retreated 2.2 percent, paring its gain over the past year to 12 percent. The broader S&P 500 has dropped about 4.4 percent over the same period.
Staples Inc. dropped 27 cents to $22.22. The world's largest office-supplies retailer said fourth-quarter profit fell 1 percent on lower North American retail sales to small companies and consumers. The company cut its full-year forecast.
Intel's Margins
Intel Corp. lost 1 cent to $20 after earlier falling as much as 57 cents. The company said gross margin, the percentage of sales remaining after deducting the cost of production, will be 54 percent, down from the 56 percent it predicted in January. Intel cited lower-than-expected prices of chips that store data in cameras and music players for the reduced forecast.
Intel's prediction sparked early declines in computer- related shares that sent the S&P 500 Information Technology Index down as much as 1.6 percent.
The index rebounded to end the day up 0.5 percent after Cisco Chief Executive Officer John Chambers said the biggest maker of network equipment will pursue more acquisitions. Chambers also said he's more comfortable with his company's long-term growth prospects than he was last month. Cisco shares slipped 11 cents, or 0.5 percent, to $24.29 after earlier falling as much as 2.7 percent.
Barr Pharmaceuticals Inc. rallied $3.80, or 8.3 percent, to $49.47 for the top gain in the S&P 500. A U.S. judge invalidated a patent on Bayer AG's Yasmin contraceptive. The ruling means Barr may be able to sell a generic version before Bayer's patent expires in 2020.
Fed Watch
Fed Vice Chairman Donald Kohn said U.S. banks face ``challenging market conditions'' that will likely hurt earnings and consumer lending, requiring closer scrutiny from regulators.
The collapse of the housing market has led to ``a substantial deterioration in asset quality and earnings'' and will force bank holding companies to continue to write down assets, he said. State banks also face ``deteriorating credit conditions'' this year. His remarks came from written testimony to the Senate Banking Committee.
Fed Bank of Dallas President Richard W. Fisher said U.S. growth is likely to remain ``subpar'' through the end of June and it isn't certain such a slowdown will curb inflation. Fisher, who votes on rates this year, called his growth forecast one of the most ``bearish'' of all the Federal Open Market Committee members, who are estimating 1.3 percent to 2 percent for this year. He spoke today to the Society of Business Economists in London.
Traders priced in a 70 percent chance that the Fed will lower its benchmark lending rate by 0.75 percentage point to 2.25 percent by its March 18 policy meeting, down from 74 percent odds yesterday, according to Fed funds futures prices compiled by Bloomberg. The rest of the bets are for a 0.5 point reduction.
Treasuries fell, led by 10-year notes, on speculation that a reorganization of Ambac will reduce demand for the relative safety of government debt.
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