Stocks Worldwide Tumble Most Since 1997, Bonds Rise on Bailouts
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Stocks Worldwide Tumble Most Since 1997, Bonds Rise on Bailouts
By Michael Patterson and Adria Cimino
Sept. 29 (Bloomberg) -- Stocks around the world plunged the most since October 1997, the euro and the pound sank and bonds rose as governments raced to prop up banks infected by growing U.S. mortgage losses.
The Standard & Poor's 500 Index fell 3.6 percent after Wachovia Corp. required a takeover by Citigroup Inc. and lawmakers predicted a close vote on the Bush administration's $700 billion bank bailout. The British pound dropped the most against the dollar in 15 years after European governments stepped in to save Bradford & Bingley Plc, Fortis and Hypo Real Estate Holding AG. Commodities fell. The cost of borrowing in euros for three months soared to a record as banks hoarded cash.
``This credit crisis is pretty deep and it's pretty deep throughout the financial industry,'' Jason Pride, who helps oversee about $6.5 billion as director of research at Haverford Trust Co. in Radnor, Pennsylvania, told Bloomberg Television.
The MSCI All-Country World Index of 48 nations lost as much as 4.4 percent, the steepest plunge since the Asian financial crisis 11 years ago. The S&P 500 retreated 43.58 points to 1,169.43 at 11:31 a.m. in New York. Europe's Dow Jones Stoxx 600 Index sank as much as 5.4 percent to 251.68, the lowest intraday level since January 2005.
The Irish Overall Index slumped 13 percent. India's Sensitive index tumbled 3.9 percent, Russia's Micex Index lost 5.5 percent and Brazil's Bovespa slumped 6.7 percent.
Yields Fall, Libor
Treasuries rallied as investors sought the relative safety of government debt. The yield on 10-year Treasury notes fell 0.19 percentage point to 3.66 percent. The cost of borrowing in euros for three months rose to a record after government-led bailouts of banks heightened concern that more in Europe will fail, prompting financial institutions to hoard cash. The London interbank offered rate, or Libor, that banks charge each other for such loans climbed to 5.22 percent, the British Bankers' Association said.
The $700 billion package to shore up banks hammered out by Treasury Secretary Henry Paulson and congressional leaders over the weekend failed to convince investors it will shore up banks saddled with growing mortgage losses. The crisis that began with bad home loans to subprime borrowers in the U.S. is threatening to push the global economy into a recession as consumers lose confidence and banks cut back on lending.
The U.S. House of Representatives began debating Paulson's plan to revive financial markets. About 100 of the 235 House Democrats agreed to back the plan, and Republican support is needed for passage, said Representative Rahm Emanuel, the Democratic caucus chairman.
Fannie, Freddie
The MSCI All-Country World Index retreated 12 percent this month as the U.S. seized the two largest mortgage-finance companies, Fannie Mae and Freddie Mac; Lehman Brothers Holdings Inc. filed for bankruptcy; Merrill Lynch & Co. agreed to sell itself to Bank of America Corp.; American International Group Inc. was taken over by the Treasury; and Washington Mutual Inc. was seized by regulators in the biggest U.S. bank failure in history.
Financial institutions worldwide have reported more than $550 billion of credit losses and asset writedowns since the beginning of 2007, according to data compiled by Bloomberg.
Wachovia declined 91 percent to 93 cents before trading was halted by the New York Stock Exchange. Citigroup will absorb as much as $42 billion of losses on Wachovia's $312 billion pool of loans. The Federal Deposit Insurance Corp. will take on losses beyond that amount in exchange for $12 billion in preferred stock and warrants.
Citigroup rose 3 percent to $20.76. The bank halved its dividend and said it will raise $10 billion in capital.
National City, Sovereign
Financial shares in the S&P 500 retreated 4.3 percent. National City Corp. plunged as much as 66 percent to $1.25, the lowest intraday level since April 1982. Sovereign Bancorp Inc. fell as much as 48 percent to a 15-year low of $4.36.
Morgan Stanley slumped 6.1 percent to $23.25. It agreed to sell a 21 percent stake to Japan's Mitsubishi UFJ Financial Group Inc. for $9 billion, seeking to shore up investor confidence after borrowing costs climbed and its stock fell by half.
European governments stepped in to rescue Fortis, Bradford & Bingley and Hypo Real Estate as tremors from the U.S. credit crisis reverberated around the world. The U.K. Treasury seized Bradford & Bingley, Britain's biggest lender to landlords, while governments in Belgium, the Netherlands and Luxembourg threw an 11.2 billion-euro ($16.3 billion) lifeline to Fortis. Germany guaranteed a loan to Hypo.
Crude oil slumped fell as much as 6.6 percent to $99.80 a barrel in New York. Copper and corn also helped lead commodities lower, sending the S&P Goldman Sachs Commodity Index to a 4.9 percent decline.
Energy and materials shares in the MSCI All-Country World Index retreated more than 6 percent as a group.
Apple Inc., the computer maker whose shares surpassed $200 last year, dropped the most in eight month after a Morgan Stanley analyst said price cuts will curb profit growth. Apple fell as much as 18 percent to $105.77, the lowest price since May 2007.
To contact the reporters on this story: Michael Patterson in London at
mpatterson10@bloomberg.net; Adria Cimino in Paris at
acimino1@bloomberg.net.
Last Updated: September 29, 2008 11:35 EDT
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