Financial Shares Lead the Market Down

21 st march , 2009

Stocks dropped on Friday as investors worried about the consequences of efforts on Capitol Hill to claw back bonuses from firms that received government bailouts.

Financial shares pulled down the broader markets, giving back many of their gains from earlier in the week. The Dow Jones industrial average fell 122.42 points, or 1.65 percent, to 7,278.38, while the broader Standard & Poor’s 500-stock index lost 15.5 points, or 1.98 percent, to 768.54. The technology-heavy Nasdaq composite index declined 26.21 points, or 1.77 percent, to 1,457.27.

On Thursday, the House of Representatives responded to growing furor over bonuses at the American International Group by passing a bill that would impose a 90 percent tax on bonuses awarded this year by companies that received $5 billion or more in bailout money. The Senate is expected to take up its version of the bill next week.

Shares of Bank of America, JPMorgan Chase and U.S. Bancorp all declined. Bank of America fell 74 cents, 10.68 percent, to $6.19; JPMorgan Chase dropped $1.80, or 7.21 percent, to $23.15; while U.S. Bancorp lost 84 cents, or 5.89 percent, to $13.42.

But investors appeared to applaud a shuffle in management at Citigroup, lifting shares 2 cents, or 0.77 percent, to $2.62, after the bank named a new financial chief and put its current chief financial officer in charge of its Citi Holdings unit, a division the bank created to hold toxic assets and other businesses it plans to sell.

Shares of General Electric fell 59 cents, or 5.82 percent, to $9.54, a day after G.E. held a five-hour meeting to try to assuage concerns about its financial arm, GE Capital. As the credit crisis has deepened, the company has cut its dividend and lost its triple-A credit rating, and it is facing questions about whether it needs to raise more capital.

Even a speech by the Federal Reserve chairman, Ben S. Bernanke, was not able to break Wall Street out of its malaise. In recent weeks, stock indexes have surged after remarks from Mr. Bernanke.

On Friday, Mr. Bernanke told a gathering of community bankers that some of the Fed’s measures to attack the financial crisis were taking hold, and called for smarter regulation of the financial system.

At the same event, Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, again warned that it would lose about $65 billion over the next five years because of bank failures, in addition to $18 billion from last year. She said the declining insurance fund was likely to fall further.

Gains earlier in the week lifted some of the major indexes from their lowest point in some 12 years. For the week, the Dow rose less than 0.8 percent, while the S.& P. 500 gained 1.6 percent, and the Nasdaq jumped 1.8 percent. The weekly gains, coupled with a surge in the S.& P. 500 last week, represented Wall Street’s first two-week winning streak since the beginning of 2009.

The S.& P. 500 is down 14.91 percent for the year, while the Dow Jones industrials are off by 17.07 percent and the Nasdaq by 7.59 percent.

Corners of the financial market that reacted sharply to the Federal Reserve’s plans to buy $1 trillion in securities unwound a bit on Friday. The dollar gained back some ground against the euro and the yen, and gold and oil prices fell back.

The Treasury’s 10-year note fell 9/32, to 101. The yield, which moves in the opposite direction from the price, rose to 2.63 percent, from 2.6 percent Thursday.