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US indices down 2% on subprime fears Tuesday March 13, 5:40 pm ET By Alex Barker
The tentative gains made by Wall Street last week were rapidly erased on Tuesday as fears about subprime mortgage lending sparked a broad sell-off in stocks.
After a shaky start provoked by a stronger yen and weak US retail sales data, stocks tumbled at midday on the release of data showing slightly higher-than-expected mortgage delinquency rates.
ADVERTISEMENT This prompted nervous investors to sell shares in investment banks in spite of strong results from Goldman Sachs (NYSE:GS) that showed a 29 per cent rise in first quarter profits. The alarm spread to drag down every sector.
The Vix Index, a measure of market volatility nicknamed Wall Street's "fear gauge", jumped 29.6 per cent to 18.13.
Financial groups led the way down. Lehman Brothers (NYSE:LEH) and Bear Stearns (NYSE:BSC), which are active in the mortgage market, plunged 5.9 and 6.7 per cent respectively to $72 and $142.97. The S&P investment banking and brokerage index closed 4.2 per cent down. Even Goldman slipped 1.8 per cent to $199.03.
"The subprime situation came into a market that is cruising for a bruising - subprime just greases the slide," said Al Goldman, chief market strategist at AG Edwards.
The S&P 500 index closed 2 per cent weaker at 1,377.95, less than 4 points off its low for the year. The Dow Jones Industrial Average was 2 per cent lower at 12,075.96.
The technology-led Nasdaq Composite slipped 2.2 per cent to 2,350.57.
The sell-off in subprime lenders continued without relent. The New York Stock Exchange moved to delist New Century Financial (NYSE:NEW), and the lender said it had been asked to provide material for criminal investigations into the group.
Another subprime player, Accredited Home Lenders (NASDAQ:LEND), slumped 65 per cent to $3.98 after it said it needed to raise more money and was examining its strategic options.
Shares in Countrywide (NYSE:CFC), the big prime and subprime mortgage lender, were 4.7 per cent off at $33.49. The company said it would no longer make subprime loans that required no deposit or proof of income.
Homebuilders suffered too, with Pulte Homes (NYSE:PHM) falling 5.1 per cent to stand at $25.99.
Investors were wary of retail stocks after the release of weaker-than-expected sales figures for February. The S&P Retail index was 2.5 per cent down. Shares in Wal-Mart (NYSE:WMT) fell 2.3 per cent to $46.18 and Target (NYSE:TGT) fell 2.8 per cent to $60.47.
Texas Instruments (NYSE:TXN), the maker of chips for mobile phones, said on Monday that profits would fall short of the top end of its previous forecast. Texas shares initially fell sharply, but recovered some losses to stand 2.6 per cent down at $31.74.
In deal news, Citigroup (NYSE:C) raised its tender offer for Nikko Cordial, Japan's third-largest broker, by 26 per cent in a move that will raise the price of buying the group to Y1,578bn.Citigroup stock slipped 3.2 per cent to $48.75.
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