Stocks Stagger on Obama Bank Bombshell - TheStreet

Stocks Stagger on Obama Bank Bombshell

Stocks' selloff Thursday accelerated after the White House announced new limits on big banks, including a ban on hedge fund ownership. Gregg Greenberg recaps the historic day in The Real Story.
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) -- Blue-chip stocks suffered a second day of triple-digit losses Thursday after President Obama announced sweeping new curbs on big banks.


Dow Jones Industrial Average

stumbled by 213 points, or 2%, to 10,390. The

S&P 500

dropped 22 points, or 1.9%, at 1116, and the


declined by 26 points, or 1.1%, at 2266.

The president unveiled plans to limit the size of and risky betting at large financial institutions, similar to recommendations made by former

Federal Reserve

Chairman Paul Volcker.

>>Five Mid-Cap Stocks Set to Gain

"Never again will the American people be held hostage by a bank that's too big to fail," the president said.

In particular, the toughened stance would bar proprietary trading activities by large banks that take in federally insured deposits. The proposals would prohibit commercial banks from owning or investing in hedge funds or private equity outfits, while also strengthening existing rules limiting deposit caps among single banks.

"It's about time

President Obama listened to Paul Volcker," said Paul Nolte, managing director at Dearborn Partners.

But Nolte warned that the skittishness due solely to Obama's plans may be premature. "This certainly doesn't play well on Wall Street. But, again, talk is one thing. We need to see legislation.

"But we may finally be getting the correction investors were looking for," added Nolte. "Now, we'll have to see if it's a two- or three-day wonder or if this is something more lasting."

Large financial stocks dragged on the indices, as

JPMorgan Chase

(JPM) - Get Report


Bank of America

(BAC) - Get Report



(AA) - Get Report

as the Dow's biggest laggards, with shares shedding 6.6%, 6.2% and 6.4%, respectively.

After the closing bell,


(GOOG) - Get Report

said it topped Street forecasts by earning $6.79 a share in the fourth quarter on a 17% revenue surge, while

Advanced Micro Devices

(AMD) - Get Report

posted a narrower-than-expected adjusted loss. But investors weren't impressed on either front, sending shares lower in extended-hours trading by 4.5% and 2.3%, respectively.

American Express

(AXP) - Get Report

joined in the after-hours earnings party, reporting a near tripling in profit during the fourth quarter.

The president's proposals overshadowed

Goldman Sachs, which handily beat analysts' forecasts with a profit of $8.20 a share compared with the $5.20 a share that Wall Street had expected. Revenue was slightly under estimates for $9.65 billion, at $9.62 billion. Shares traded 4.1% lower, at $160.87.

While big banks took the brunt of the selloff, regional players emerged broadly unscathed on some improvements.

Other financial companies with reports out Thursday morning were


(KEY) - Get Report

, which narrowed its loss by more than analysts expected, and

Fifth Third Bancorp

(FITB) - Get Report

, which also narrowed its loss and reported improving credit trends. KeyCorp and Fifth Third Bankcorp shares surged 5.5% and 6.3%, respectively.


(MCD) - Get Report

was the top performer on the blue-chip average, with shares advancing 0.3%.

A mixed bag of macroeconomic reports also weighed on stocks. The Labor Department said that the number of people applying for unemployment benefits rose by 36,000 to 482,000 in the week ended Jan. 16, and the Philadelphia Fed Index came in at a lower-than-expected level of 15.2 in January. Economists had been looking for a reading of 18.8.

Meanwhile, December's leading economic indicators rose 1.1%, which was better than the slight 0.7% increase that economists had projected.

Late Wednesday, online marketplace operator


(EBAY) - Get Report

easily beat consensus estimates, helped by PayPal growth and its sale of Skype. Shares surged 8.6%.


(SBUX) - Get Report

also gave Wall Street an upside surprise after Wednesday's bell, posting a better-than-expected first-quarter profit and lifting its full-year earnings guidance to between $1.05 and $1.08 a share. Its stock gained 1.6% to $23.67.

Continental Airlines

(CAL) - Get Report

posted a slight profit, beating analysts' expectations for a loss.

Southwest Airlines

(LUV) - Get Report

also exceeded analysts' estimates, but said it expects rising costs and a sluggish recovery in 2010.

UnitedHealth Group

(UNH) - Get Report

reported a higher-than-expected fourth-quarter profit and revenue that met Wall Street's expectations.

The Energy Information Administration said natural gas inventories shed 245 billion cubic feet, boosting natural gas futures up by 12 cents to $5.62.

The EIA said crude stocks shed 400,000 barrels and distillates lost 3.3 million barrels while gasoline supplies gained 3.9 million barrels.

Analysts polled by Platts had projected an increase of 2.8 million barrels in crude stockpiles and a gain of 2.1 million barrels in gasoline supplies. Distillate stocks are also expected to rise, by 1.1 million barrels.

Crude oil for March delivery settled at $76.08 a barrel after trading $1.66 lower.

The most actively traded February gold contract slid $9.40 to settle at $1,103.20 an ounce, and the U.S. dollar was trading 0.1% lower against a basket of currencies.

As stocks slid, bond prices advanced, sending yields lower. The two-year Treasury note yielded 0.837%, while the benchmark 10-year note dropped to 3.603%.

Elsewhere, a bitterly divided U.S. Supreme Court ruled that corporations and unions should be allowed to spend on political messages without government suppression.

Overseas, Hong Kong's Hang Seng was down 2% and Japan's Nikkei was higher by 1.2%. The FTSE in London fell 1.6% lower and the DAX in Frankfurt was off by 1.8%.

-- Written by Melinda Peer and Sung Moss in New York