Dow Plunges 777 as House Rejects Bailout
Updated from 4:10 p.m. EDT
Stocks on Wall Street wallowed in a blood bath Monday after the House of Representatives voted to
the Treasury Department's proposed aid package for the financial sector.
The surprise vote tally stunned traders on Wall Street. The
Dow Jones Industrial Average
plummeted 777.68 points, or 7%, to 10,365.45. The
S&P 500
sank 106.59 points, or 8.8%, to 1106.42. The
Nasdaq
lost 199.61 points, or 9.1%, to 1983.73.
At the end of the day, the Dow suffered its worst single-day point drop ever and its worst single-day percentage decline since Sept. 17, 2001. Each of the 500 stocks that make up the S&P 500 trading Monday, finished the day with losses; that is except for
Campbell Soup
(CPB) - Get Report
.
The $700 billion proposal, formally presented last week by Treasury Secretary Henry Paulson, failed to garner sufficient votes to make it through the
. The package, which would have set up a facility to use government money to buy troubled assets from financial firms, was voted down with an initial tally of 205 votes for the bill to 228 against. The controversial piece of legislation had earlier been expected to make it through. A total of 218 votes were required to pass the bill.
The Dow, which was already losing some 300 points ahead of the vote, plunged another 400 points after news of the surprise vote results spread. The sharp decline in the major indices is "strictly in response to Congress not passing the TARP," said Michael Strauss, chief economist and strategist at Commonfund. "The question is, are they going to get back together and try to get something through?" Strauss said the general expectation is that Congress will have to reconvene and try to pass some legislation to help the credit markets.
"This is a wholesale dumping of stocks," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "The Street is trying to indirectly send a message that if this thing doesn't get passed, you'll be faced with a wholesale market selloff, anything across the board."
Elsewhere, the FDIC announced early Monday that
Citigroup
(C) - Get Report
was buying the senior and subordinated debt as well as banking operations of
(WB) - Get Report
, in a deal facilitated by the Federal Deposit Insurance Corp. The FDIC said that Wachovia did not fail. Shares of Wachovia fell from Friday's closing price of $10 to 94 cents.
Citigroup also said it would cut its dividend in half and announced plans to raise $10 billion in new capital. Wachovia shares dropped 82% to $1.84, and Citi shares slumped 5.8% to $18.98.
"Boy oh boy has the landscape changed," said Hugh Johnson, chief investment officer at Johnson Illington Advisors. By his count, only five major players are left in the financial space:
Goldman Sachs
(GS) - Get Report
,
Morgan Stanley
(MS) - Get Report
,
Bank of America
(BAC) - Get Report
, JPMorgan and Citigroup. "I never would have guessed that."
Johnson said that the spate of consolidation among financial firms is "going to usher in a whole mess of problems, concentration of power being among them. It's only five guys that have to sit down and figure they can rule the world." He said it would be interesting to see whom the Treasury's bailout package helps and what price it pays for troubled assets. "You can bet it's going to be watched carefully," he said.
In an attempt to bolster money markets, the Fed announced it would expand its
for banks and swaps for foreign banks.
A report in
The Wall Street Journal
said that private equity companies
Bain Capital
and
Hellman & Friedman
were in the hunt to buy the
Neuberger Berman
arm of bankrupt brokerage
Lehman Brothers
.
Meanwhile,
got a $9 billion investment from Japanese bank
Mitsubishi UFJ
. Shares dropped 15% to $20.99.
The
Financial Times
reported that
insurance firm AIG
(AIG) - Get Report
was contemplating the sale of 15 of its businesses to repay an $85 billion bridge loan from the
Federal Reserve
and keep from being taken over by the government. AIG fell 21% to $2.50.
Shares of
National City
( NCC) were dropping precipitously, losing 63% to $1.36 as investors feared it may be the next bank to fall.
The credit crisis was also causing turmoil overseas. European governments early Monday arranged rescues of
Bradford & Bingley
,
and
Hypo Real Estate
.
Looking at the day's earnings, electronics retailer
Circuit City
(CC) - Get Report
reported a wider second-quarter loss and withdrew its previous 2009 earnings forecast. The stock gave back 21% to $1.08.
Pharmacy chain
Walgreen
(WAG)
, meanwhile, reported profit that rose 13% year over year on strong revenue. Shares stumbled 5.3% to $31.00.
In the pharmaceutical sector,
ImClone
(IMCL)
was still in talks to sell itself to a large drugmaker following a hostile takeout bid from
Bristol-Myers Squibb
(BMY) - Get Report
. ImClone slipped 2.2% to $61.96, and Bristol-Myers Squibb skidded 4.7% to $19.85.
As for economic data, the Department of Commerce said that in August, personal incomes rose 0.3%, up from a 0.7% decrease in July and above economists' estimates. Personal spending was flat in August, falling short of analyst predictions of 0.2% growth.
In the commodities space, the price of crude oil declined $10.52 to $96.37 a barrel, and gold was gaining $18.10 to $912.50 an ounce.
Longer-dated U.S. Treasury securities were sharply rising in price as investors sought safety from the credit crisis. The 10-year note was up 2-4/32 to yield 3.59%, and the 30-year was gaining 4-5/32, yielding 4.13%. The dollar was rising sharply against the euro and pound but falling vs. the yen.
Overseas exchanges, including the FTSE in London and the Dax in Frankfurt, were taking losses. Asian indices such as the Nikkei in Japan and the Hang Seng in Hong Kong closed on the downside.
