Updated from 4:43 p.m. EDTStocks in New York rose Tuesday as the banks turned around following remarks from Treasury Secretary Tim Geithner, who indicated that most have sufficient capital to weather the financial downturn. The Dow Jones Industrial Average rose 127.83 points, or 1.6%, to 7969.56, while the S&P 500 added 17.69 points, or 2.1%, to 850.08. The Nasdaq climbed 35.64 points, or 2.2%, to 1643.85. Internet company Yahoo! ( YHOO) reported an expected dip in earnings and revenue after the close, and said it would cut 5% more of its workforce in its ongoing restructuring to deal with a decline in online ad spending. Shares rose 5.3% in the regular session and were recently rising about 1.4%. The banks were at the forefront of gains on the Dow, with Bank of America ( BAC) adding 9.2%, Citigroup ( C) tacking on 10.2% and JP Morgan Chase ( JPM) rising 9.6%.
Investors are awaiting the results of the government's so-called stress tests on the health of the biggest 19 banks in the nation. The tests, which consider how the banks would fare during certain economic scenarios, are meant to determine how much capital support would be needed to assure stability. At the same time, some of the largest banks -- irked by restrictions that came with the bailout money -- have pledged to quickly repay the government's investment. But the government has said that repayment may itself be restricted. The government will ask if "the banks have enough capital and
if the system working" to determine whether the banks will be allowed to repay funds, Geithner said in his testimony to a Congressional Oversight Panel for the government's $700 billion bank rescue plan, dubbed the Troubled Asset Relief Program, or TARP. "My basic obligation is to make sure that the system as a whole has the ability to provide the credit that recovery requires," he said. "We need to make a careful judgment about what policies are going to promote that." The TARP was criticized in a 250-page report to Congress that concluded Geithner's recently unveiled Public-Private Investment Partnership, which was devised to remove toxic assets from the balance sheets of struggling banks, could be unfair to taxpayers. Citi CEO Vikram Pandit said Tuesday at the bank's annual meeting that it will repay "every dollar" it owes to the government. The bank has taken in close to $50 billion of taxpayer-funded bailout money.
One bank hoping to repay TARP money sooner rather than later, US Bancorp ( USB), managed to beat expectations despite a 51% decline in profit due to higher loan losses. US Bancorp CEO Richard Davis said he's prepared to quickly repay the $6.6 billion in bailout funds that the bank received last fall. Shares surged 20.9% to $19.27. Elsewhere, Bank of New York Mellon ( BK) said its first-quarter profit tumbled, and it slashed its dividend 63% in an effort to build capital. Shares gave up 0.2% to $27.98. Ahead of the open, investors also got quarterly figures from Dow components Caterpillar ( CAT), Coca-Cola ( KO), Merck ( MRK), DuPont ( DD) and United Technologies ( UTX). Caterpillar strolled past estimates on an adjusted basis, but otherwise swung to its first quarterly loss in 17 years when factoring in a layoff-related charge. The company also reduced its revenue outlook for 2009. After lagging early, its shares rose 3% to gain to $31.39. Meanwhile, Coca-Cola shares fell 2.8% to $43.09 after it reported a 3% decline in first-quarter sales, slightly missing analyst expectations. The world's largest beverage maker said profit fell 10% on restructuring charges and writedowns, though it was in line with expectations. Drugmaker Merck was the worst performer on the Dow, losing 6.7% to $23.54, after it fell short of Wall Street's profit expectations as it weathered an 8% decrease in worldwide sales. The company also reined in its full-year estimate in light of charges related to its merger with Schering-Plough ( SGP), but it did say the merger is "progressing as planned."
DuPont shares rose 4.9% to $28.06 after its reported that quarterly profit fell 59%, but was still better than expected. The company scaled back its full year guidance but also said it plans to increase its efforts to cut fixed costs by $1 billion, up from $730 million. United Technologies shares gained 4.8% to $47.99 after the company reported a 28% decline in profit due to lagging demand, but said it sees signs of new growth. Late Monday, IBM ( IBM) reported a first-quarter profit that was slightly better than expectations, but sales were light. It added about 1.9% to $102.31 on Tuesday. As for commodities, oil rose 63 cents to settle at $46.51 a barrel after tumbling more than $4 in the last session. Gold gave up $6.10 to $882.70 an ounce. Longer-dated Treasuries were recently falling. The 10-year was down 17/32 yield 2.9%, and the 30-year was losing 27/32, yielding 3.7%.