June gloom: Financials lead broad stock market sell-off

Same old, same old for Wall Street: Financial stocks are leading the market sell-off this morning as fears ramp up about another wave of red ink for banks and brokerages.

At about 10 a.m. PDT the Dow industrials were off 203.06 points, or 1.6%, to 12,435.26. The market is down across the board, but the financials are taking the biggest hit after banking giant Wachovia Corp. booted its CEO and after Standard & Poor’s cut debt ratings for Morgan Stanley, Merrill Lynch & Co. and Lehman Bros.

Wachovia’s ouster of CEO Ken Thompson this morning did nothing to boost confidence in the outlook for the fourth-largest U.S. bank, amid rising loan losses particularly within its Golden West Financial mortgage arm: The stock has sunk to $22.90, down 3.8% from Friday and the lowest since 1995.

Nor is it helping that Washington Mutual CEO Kerry Killinger was stripped of the chairmanship of the big thrift. WaMu shares are down 1% to $8.93, another multiyear low.

In a troubling sign, the BKX index of 24 major bank stocks also is at a new multiyear low, meaning it has fallen through the lowest close reached in March amid the near-meltdown of the financial system. The index has slumped to 73.80. The closing low for the year was 75.31 on March 10.

So to many bank-stock investors, things look worse than they did in mid-March -- hardly a comforting thought to the rest of Wall Street.

S&P added to the dismal mood by lowering debt ratings for Morgan, Merrill and Lehman, citing the potential for more write-offs of investments gone bad. The cuts "reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters," S&P said.

You’d think S&P was just reminding the market of something it already knew. Nonetheless, Morgan shares are down 2.6% today, Merrill is off 3.2% and Lehman is down 4.8%. Morgan was cut to A-plus from AA-minus; Merrill and Lehman were cut to A from A-plus.

Oh yes -- and oil prices are up again, adding $1.53 to $128.88 a barrel.

Welcome to June.

Photo: Wachovia's now ex-CEO, Ken Thompson, on Feb. 21. Chuck Burton/Associated Press

Comments

[Michael Snyder]

Financial stocks have been living in a self inflated bubble fueled by derivatives & accounting practices that would have Einstein using his head for a hammer. Inevitably gravity will prevail in spite of the Bush administration's heroic efforts on Wall street's behalf. I'm almost afraid to see that WaMu & Wachovia are paying to take out the garbage today. Meanwhile "smart money's" turning to oil as the next bubble to inflate since nobodies buying CDOs anymore.
I don't trust the Bush administration to tell the truth about the time of day so I'm certainly not buying off on their financial reporting. I make my own observations, do my own math and draw my own conclusions & we're in deep s**t.
We've been in a recession since last year, the financial markets are in stasis, consumers aren't even leaving the house, much less shopping and we are pouring trillions of dollars into a war we never should have started.
The Bulls on here may not like it, but 0.6%GDP growth balanced against real inflation figures in double digits equal a recession every day. I figure as long as I keep finding myself on the same page as the likes of Soros & Buffet I'm doing OK. Now if I can just capture a bit of that kind of wealth...

[Ron Mepwith]

When the Treasury Secretary appeared in a TV intervfiew to give pollyanna replies to questions about the economy, he looked like a man sick to his stomach. It appears that he was sick of the half-truthts, but evern more ill over what he knew about how bad things REALLY were