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June gloom: Financials lead broad stock market sell-off

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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.

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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.

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

Welcome to June.

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