U.S. Stocks Plunge After House Votes Against Bailout Plan

Sept. 29 (Bloomberg) — U.S. stocks plunged and the Standard & Poor’s 500 Index tumbled the most since the 1987 crash after the House of Representatives rejected a $700 billion plan to rescue the financial system.

The Dow Jones Industrial Average slid 778 points for its biggest point drop ever as $1.2 trillion in market value was erased from American equities. The MSCI World Index of 23 developed markets slid 6.9 percent, the most in 21 years.

Wachovia Corp. tumbled 82 percent after the bank was sold to Citigroup Inc. in a deal brokered by the Federal Deposit Insurance Corp., sending shares of Sovereign Bancorp Inc. down 72 percent and National City Corp. 63 percent lower. Goldman Sachs Group Inc. and Morgan Stanley, the two largest Wall Street securities firms, fell more than 12 percent. General Motors Corp., Chevron Corp. and Intel Corp. sank more than 10 percent each as all 30 Dow average stocks lost at least 2.8 percent.

“We’ve completely decimated confidence in the markets,” said James Dunigan, managing executive of investments at PNC Wealth Management, which oversees $66 billion in Philadelphia. “I appreciate their wanting to be a watchdog. On the other hand, if the kitchen’s on fire, you don’t want it to spread to rest of the house.”

The S&P 500 decreased 106.59 points, or 8.8 percent, to 1,106.42. The Dow slid 7 percent to 10,365.45. The Nasdaq Composite Index declined 199.61, or 9.1 percent, to 1,983.73, its steepest plunge since April 2000. Twenty-five stocks fell for each that rose on the New York Stock Exchange as 2 billion shares were traded on the floor, 35 percent more than the three- month average.

Four-Year Low

The S&P 500 sank to its lowest level since October 2004 as all 10 of its industry groups tumbled at least 4.2 percent. Campbell Soup Co. was the only stock in the benchmark index for U.S. equities to advance. The Dow average’s retreat was its steepest on a percentage basis since the first trading day after the September 2001 terrorist attacks, sending the 30-stock gauge to an almost three-year low. A gauge of expected stock-market volatility climbed to a record.

Congressmen voted 228 to 205 against the measure to authorize the biggest government intervention into markets since the Great Depression, extending the S&P 500’s decline in September to 14 percent, its worst month since the collapse of hedge fund Long Term Capital Management 10 years ago. 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.


“They’ve got to come up with something or the damage is unimaginable,” said Henry Herrmann, Overland Park, Kansas-based president and chief executive officer of Waddell & Reed Financial Inc., which manages $70 billion.

Benchmark indexes extended earlier declines spurred when Wachovia joined three European banks in requiring government- orchestrated rescues.

Sovereign Bancorp, the second-largest U.S. savings and loan, plunged $6.04 to $2.33. National City, Ohio’s biggest bank, lost $2.35 to $1.36.

State Street Corp., the world’s biggest money manager for institutions, tumbled 27 percent. Fifth Third Bancorp slid 44 percent and CIT Group Inc. declined 25 percent, while Bank of New York Mellon Corp. lost 27 percent.

Morgan Stanley dropped $3.76, or 15 percent, to $20.99, a 10-year low. The fifth-largest bank-holding company, seeking to shore up investor confidence after borrowing costs climbed and its stock fell by half, agreed to sell a 21 percent stake to Japan’s Mitsubishi UFJ Financial Group Inc. for $9 billion. Goldman Sachs declined $17.29 to $120.70.

`A Nightmare’

The S&P 500 Financials Index slid 16 percent, its steepest tumble since the gauge’s creation in 1989. American Express Co., Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. lost more than 10 percent each.

“It’s pretty much a nightmare,” said Michael Nasto, the senior trader at U.S. Global Investors Inc., which manages $5 billion in San Antonio. “This is the worst we’ve seen it since the credit mess started. Until we know exactly why they didn’t pass it, we’re going to be selling off for a while.”

Wachovia, Citigroup

Wachovia sank $8.16 to $1.84. The FDIC helped arrange the takeover of Wachovia’s banking operations by Citigroup, the largest U.S. bank by assets. Citigroup will absorb as much as $42 billion of losses on Wachovia’s $312 billion pool of loans, the FDIC said in a statement. The all-stock deal equals about $1 a share for the Charlotte-based bank, ranked sixth by assets in the U.S. All depositors will be protected, according to the FDIC

Citigroup lost $2.40 to $17.75. The New York-based bank plans to cut its own dividend in half and raise $10 billion in capital as it takes on Wachovia’s senior and subordinated debt.

An index tracking the performance of stocks the U.S. Securities and Exchange Commission banned investors from selling short retreated 12 percent today.

Energy producers posted the second-biggest drop among 10 groups in the S&P 500 after financials, losing 11 percent for their steepest tumble since 1989. Crude oil plunged $10.52, or 9.8 percent, to $96.37, leading commodities including copper and corn lower on concern global economies will slow after the failure of the bailout plan in Washington.

Exxon, Apple Tumble

Exxon Mobil Corp., the largest U.S. energy company, dropped $6.59, or 8.2 percent, to $74.06. ConocoPhillips, the third- biggest U.S. oil company, fell $6.93, or 9.1 percent, to $69.31.

Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded copper producer, lost $10.60 to $53.22. Copper fell 5.5 percent to $2.9065 a pound on the Comex division of the New York Mercantile Exchange.

Apple Inc. dropped $22.98, or 18 percent, to $105.26 on the Nasdaq Stock Market, its steepest loss in eight years. The maker of the iPod media player, iPhone and Mac computers was cut to “equal weight” from “overweight” by Morgan Stanley analysts, who predicted a 10 percent slump in the shares and said the stock’s price doesn’t yet reflect slowing demand.

The VIX index of U.S. options, as the Chicago Board Options Exchange Volatility Index is known, rose 34 percent to a record 46.72. The VIX gauges the cost of using options as insurance against further losses in the stock market.

Today’s sell-off extended the S&P 500’s decline from an October record to 29 percent. Financial firms in the S&P 500 lost half their value over the same time, dragged down by more than $591 billion in losses from the collapse of the subprime mortgage market. Third-quarter earnings at S&P 500 companies declined 3 percent on average, according to analysts’ estimates compiled by Bloomberg, weighed down by a 56 percent slide in profits at financial firms.

`Unwind Into Chaos’

“There’s a real opportunity for this thing to totally unwind into chaos if we can’t get some real direction from Washington,” said Russ Kamp, chief executive officer of Invesco Quantitative Strategies, which manages about $461 billion in New York.

A gauge of financial-services companies in Europe’s Dow Jones Stoxx 600 Index slid 9.8 percent, the steepest retreat since the gauge was created in 1991, after three banks in the region required government-orchestrated rescues.

Belgium, the Netherlands and Luxembourg invested 11.2 billion euros ($16.3 billion) in Brussels and Amsterdam-based Fortis, Belgium’s largest financial-services firm, to restore confidence in the bank. Bingley, England-based Bradford & Bingley Plc, Britain’s biggest lender to landlords, was seized by the U.K. government after the credit crisis shut off funding. Hypo Real Estate Holding AG, Germany’s second-biggest commercial-property lender, received a 35 billion euro loan guarantee to fend of insolvency.

Borrowing Costs

The euro interbank offered rate, or Euribor, rose 10 basis points to 5.24 percent, the biggest jump since June, the European Banking Federation said today. Singapore’s benchmark rate for three-month U.S. dollar loans rose to the highest level in eight months.

“It’s critical that we get something done here,” Jeffrey Saut, who helps oversee $190 billion as chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a Bloomberg Television interview. “The credit system is seizing up.”

Traders booed on the floor of the New York Stock Exchange as the closing bell rang.

The Dow average swung by more than 200 points during fifteen trading days in September as the government seized the two largest U.S. 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; 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.

Treasury prices surged, sending two-year note yields down 39 basis points to 1.71 percent. The dollar fell against the yen, while rising against the euro and climbing the most against the British pound in 16 years.

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