U.S. Stocks Drop on Concern Banks Will Need to Be Nationalized

Feb. 20 (Bloomberg) -- U.S. stocks fell, capping the worst weekly drop in three months for the Standard & Poor’s 500 Index, as concern bank shareholders will be wiped out by government takeovers snuffed out a late-afternoon recovery.

Citigroup Inc. tumbled as much as 36 percent and the Dow Jones Industrial Average dropped below its lowest close since 1997 before paring losses as White House spokesman Robert Gibbs said the administration wants to maintain a “privately held banking system.” Bank of America Corp. also plunged as much as 36 percent before recouping most of the drop after Chief Executive Officer Kenneth Lewis said the bank can survive “on our own.”

The S&P 500 decreased 1.1 percent to 770.05. The Dow fell 100.28 points, or 1.3 percent, to 7,365.67 after earlier tumbling as much as 216 points. Europe’s benchmark index sank to a six- year low, while Japan’s Topix plunged to the lowest since 1984.

“There’s so much uncertainty and a decent chance of the worst case, nationalization, that it’s complete speculation to mess with Citigroup and Bank of America,” said Edwin Walczak, head of U.S. equities at the American unit of Vontobel Holding AG of Switzerland. “The price is telling you that.” Vontobel’s U.S. unit manages $6 billion.

The S&P 500 tumbled 6.9 percent over the past four days and is now just 2.3 percent above its 11-year low of 752.44 on Nov. 20. It is down almost 15 percent in 2009, its worst start to a year. The Dow average lost 6.2 percent in the week, its worst since last October, and closed at its lowest since October 2002.

Citigroup dropped 22 percent to an 18-year low of $1.95 after sinking to as low as $1.61. The bank is not engaged in any unusual discussions with the government, a person familiar with the matter said today.

Lewis ‘Confident’

Bank of America fell 3.6 percent to $3.79, its lowest closing price since 1984, and slumped to as low as $2.53. The bank has enough “capital, liquidity and earnings power to make it through this downturn on our own,” Lewis said in a memo today to employees.

“I am confident we will not need any further assistance in the future,” Lewis said in the memo. Spokesman Scott Silvestri confirmed the memo’s accuracy.

Benchmark indexes slid to their session lows after Senate Banking Committee Chairman Christopher Dodd told Bloomberg Television that it may be necessary to nationalize some banks for a short time.

‘It May Happen’

“I don’t welcome that at all, but I could see how it’s possible it may happen,” Dodd said in an interview with Bloomberg’s “Political Capital with Al Hunt.” “I’m concerned that we may end up having to do that, at least for a short time.”

Gibbs, the White House spokesman, helped spur a late-day rebound after saying President Barack Obama’s administration wants a “privately held banking system” and that reversing the economy’s slide “will take some time.”

JPMorgan Chase & Co., the second-largest U.S. bank, slipped 3.4 percent to $19.90. Meredith Whitney, the financial industry analyst who left Oppenheimer & Co. to start her own firm, said she doesn’t expect the banks she covers to continue paying dividends at their current levels.

“Most of the big banks would be lucky to break even or earn a little bit of money this year,” Whitney told CNBC.

Banks are leading the companies in the S&P 500 to their first cumulative quarterly loss. The 69 financial companies in the index that have reported fourth-quarter results lost a combined $41.6 billion, their third straight quarterly shortfall, according to data compiled by Bloomberg.

Earnings Slump

For the S&P 500 companies as a whole, the 400 that have released fourth-quarter results lost a combined $75.5 billion, according to Bloomberg data. Standard & Poor’s projects a per- share loss of $11.97, the first deficit in quarterly data going back to 1936.

General Electric Co. fell 6.8 percent to $9.38, its lowest close since 1995, and was the biggest drag on the S&P 500. Sanford C. Bernstein & Co. forecast an unprecedented profit drop at the industrial conglomerate’s finance unit. Bernstein analyst Steven Winoker cut his 2009 income estimate to $1.18 a share, below the $1.28 average of 14 analysts in a Bloomberg survey.

Lowe’s Cos. slid 6.6 percent to $15.86. The company reported fourth-quarter earnings per share of 11 cents, a penny below the consensus estimate of 12 cents, and forecast first-quarter earnings per share of 23 cents to 27 cents, also missing analysts’ estimates.

‘Beginning to Nibble’

“The economy’s going to be mired in a mess for quite some time,” Robert Doll, who oversees $280 billion as chief investment officer for global equities at BlackRock Inc., said on Bloomberg Radio. “But with stocks down nearly 50 percent from the high, we think beginning to nibble makes some sense.”

AT&T Inc. rose 1.7 percent to $23.58 and Verizon Communications Inc. added 2.9 percent to $28.81 for the biggest advances in the Dow average. The two largest U.S. phone companies were raised to “buy” from “neutral” at Goldman Sachs Group Inc., which cited the prospect of earnings growth in 2010.

Newmont Mining Corp., the largest U.S. gold producer, advanced 7.2 percent to $43.73 as bullion topped $1,000 an ounce for the first time in almost a year as investors sought haven investments.

Intuit Inc. rose 13 percent to $23.99. The world’s biggest maker of tax-preparation software said 2009 earnings will be at least $1.78 a share, three cents more than the average analyst estimate.

Dow Theory

This week’s closing lows for the Dow industrials and Dow Jones Transportation Average signal more losses to come for stocks, according to Dow Theory, which holds that shipping and travel stocks foreshadow the economy. The transportation gauge closed at five-year lows each of the last four days, led by tumbles in YRC Worldwide Inc. and JetBlue Airways Corp.

General Motors Corp. slid 12 percent to $1.77. Chrysler LLC may be sending a message to President Obama’s autos task force by saying the “best option” for survival is a merger with the largest U.S. automaker. GM abandoned merger talks in November and said it is focused on its own survival.

Century Aluminum Co. plunged 23 percent to $2.22. The second-largest U.S. producer of the metal reported fourth-quarter loss excluding some items of 54 cents a share, wider than the average 39-cent analyst estimate.

Chiquita Brands International Inc. dropped the most in the Russell 2000 Index, slumping 43 percent to $7.27. The seller of bananas and other produce in more than 70 countries posted a fourth-quarter loss from continuing operations of 74 cents a share. That’s more than triple the 20-cent average loss estimate from analysts in a Bloomberg survey.

The cost of living in the U.S. rose in January for the first time in six months as gasoline stopped sliding and retailers tried to push through start-of-year increases even as sales slumped. The consumer price index rose 0.3 percent, as forecast, after dropping 0.8 percent in December, Labor Department figures showed. Excluding food and fuel, the so-called core rate climbed 0.2 percent, more than anticipated, reflecting gains in autos, clothing, and medical care.