Stocks slide amid worries over investment bank writedowns
NEW YORK -- Stocks slid Friday amid renewed fears that financial companies will suffer larger-than-expected writedowns from credit market troubles. The major indexes each lost more than 1 percent, with the Dow Jones industrials falling more than 180 points.
The start of earnings season has investors worried about how banks and brokerages have fared after suffering losses in the collapse of the subprime mortgage market. The nation's biggest financial institutions will report results next week, including Merrill Lynch & Co., Citigroup Inc. and JPMorgan Chase & Co.
Adding to investors' unease, Merrill Lynch might take a $15 billion hit from its exposure to soured subprime mortgage investments, according to a report in The New York Times. The nation's largest brokerage is also said to be seeking another capital infusion to help shore up its balance sheet.
In a bright spot, Bank of America Corp. agreed Friday to buy Countrywide Financial Corp. for $4 billion, a deal that rescues the country's largest mortgage lender but pays less than the company's market value. The agreement comes after word of the move Thursday and just months after BofA invested $2 billion in Countrywide.
Investors were also nervous after American Express Corp. warned late Thursday that slower spending and more delinquencies on credit card payments will hamper profit throughout 2008. This follows a similar announcement from rival Capital One Financial Corp., which set aside $650 million to prepare for unpaid credit card bills.
In midmorning trading, the Dow fell 181.11, or 1.41 percent, to 12,671.98.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 13.92, or 0.98 percent, to 1,406.41, and the Nasdaq composite index fell 25.94, or 1.04 percent, to 2,462.58.
Stocks have skidded lower in the new year, with the Dow often falling by triple digits in a single session amid increasing anxiety about a possible recession as well as the continuing fallout from the mortgage crisis.
Bond prices rose amid the continuing credit uncertainty. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.84 percent from 3.88 percent late Thursday. The dollar was mixed against other major currencies, while gold prices fell.
Oil prices were under pressure, with a barrel of light, sweet crude for February delivery down 53 cents at $93.18 on the New York Mercantile Exchange.
In corporate news, Washington Mutual Inc. jumped 48 cents, or 3.4 percent, to $14.64 after CNBC reported JP Morgan is in talks to acquire the nation's largest savings and loan.
The board of Delta Air Lines Inc. on Friday is expected to decide whether to allow formal merger talks between the carrier and Northwest Airlines Corp. and United Air Lines. It is believed that Delta could ultimately choose to combine with one of the carriers.
Delta rose 21 cents to $16.18, while Northwest advanced 23 cents to $16.08, and United fell 39 cents to $31.80.
Other corporate news weighed on investors.
Bank of America fell 50 cents to $38.80, while Countrywide fell $1.05, or 13.6 percent, to $6.70.
American Express fell $4.49, or 9.2 percent, to $44.43, while Capital One fell $1.33, or 3.1 percent, to $41.59.
Beyond company news, stock traders showed little reaction to a Commerce Department report that higher energy prices drove the nation's trade deficit in November to its highest level in more than a year. The government said the gap shot up 9.3 percent to $63.1 billion, the widest since September 2006 and up from $57.8 billion in October. Economists surveyed by Thomson/IFR Markets forecast a trade gap of $58.6 billion.
Separately, there was good news on inflation in December, when import prices were unchanged, the Labor Department said.
Federal Reserve Governor Frederic Mishkin and Boston Fed President Eric Rosengren are set to make speeches during the session. They follow Fed Chairman Ben Bernanke, who on Thursday made clear in a speech that the central bank is poised to cut interest rates later this month.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to 220.1 million shares.
The Russell 2000 index of smaller companies fell 8.67, or 1.20 percent, to 711.54.
Overseas, Japan's Nikkei stock average closed up 1.93 percent. In afternoon trading, Britain's FTSE 100 fell 0.23 percent, Germany's DAX index rose 0.11 percent, and France's CAC-40 fell 0.63.