By Eric Martin
Oct. 3 (Bloomberg) -- U.S. stocks slid, capping the worst week for the Standard & Poor's 500 Index since the 2001 terrorist attacks, on concern the $700 billion bank bailout isn't enough to unlock credit markets and prevent a recession.
JPMorgan Chase & Co., Discover Financial Services and Lennar Corp. fell more than 7 percent as a the biggest loss of jobs in five years overshadowed congressional approval of the plan to buy banks' troubled assets. Citigroup Inc. dropped 18 percent, its steepest plunge since 1988, after Wachovia Corp. agreed to be acquired by Wells Fargo & Co., snubbing a deal to sell its banking operations to Citigroup.
The S&P 500 declined 15.05 points, or 1.4 percent, to 1,099.23. The Dow Jones Industrial Average lost 157.47 points, or 1.5 percent, to 10,325.38. The Nasdaq Composite Index slipped 29.33, or 1.5 percent, to 1,947.39. More than three stocks decreased for each that rose on the New York Stock Exchange.
``Once you get over one hurdle, you start looking at the next hurdle, and the next one is the weakness in the U.S.,'' said John Davidson, president of PartnerRe Asset Management in Greenwich, Connecticut, which invests more than $12 billion. ```There's doubt that we'll avoid a recession.''
The S&P 500 lost 9.4 percent over the last five days, dragging the gauge to an almost four-year low. The benchmark index for U.S. stocks tumbled 4 percent yesterday as reports on jobless claims and factory orders reignited concern the economy is sinking into a recession. The Dow lost 7.3 percent in the week and the Nasdaq tumbled 10.8 percent, sending both to the lowest levels since 2005.
JPMorgan slid $3.95 to $45.90. CB Richard Ellis slumped 12 percent to $9.45. Lennar fell $1.81 to $12.08.
Financial shares in the S&P 500 declined 4 percent as a group after some money-market rates jumped to records. The London interbank offered rate, or Libor, that banks charge each other for three-month loans in euros increased to 5.33 percent, an all-time high, the British Bankers' Association said. The rate for dollars climbed to 4.33 percent, the highest since January. The Libor-OIS spread, a gauge of cash scarcity among banks, widened to a record and Asian bank rates climbed to the highest levels in at least nine months.
Discover Financial Services, the fourth-largest U.S. credit-card company, slid $1.89, or 15 percent, to $11.07. MBIA Inc., the world's largest bond insurer, tumbled $1.15, or 10 percent, to $10.35.
The House of Representatives voted in favor of the bailout this afternoon after it was refashioned to entice enough votes for passage. President George W. Bush signed it into law shortly afterward. The House's rejection of the original bill on Sept. 29 sent the Dow average down more than 777 points, its biggest point drop ever.
The bailout comes after global banks racked up almost $590 billion in credit losses and asset writedowns stemming from the worst housing slump since the Great Depression.
The measure authorizes the government to buy troubled assets from financial institutions reeling from record home foreclosures. The bill contains $149 billion in tax breaks and affirms regulators' power to suspend asset-valuing rules that companies blame for fueling the crisis.
``This is not a panacea,'' Warren Buffett, the second- richest American and chairman of Berkshire Hathaway Inc., told financial news network CNBC in an interview. ``This does not solve all our problems. It just would have been a total disaster if it hadn't passed.''
Citigroup plunged $4.15 to $18.35. Wells Fargo offered $15 billion for Wachovia, setting up a contest with Citigroup for control of the embattled North Carolina lender. Citigroup demanded Wells Fargo abandon the takeover, claiming it breaches an exclusive deal reached earlier this week in which the New York-based lender agreed to buy Wachovia's banking operations for $2.16 billion with government help.
Wells Fargo's $15 billion offer values the Charlotte, North Carolina-based bank at $7 a share and includes the whole company, without any aid from the U.S., the banks said. Citigroup's bid worked out to about $1 share, left out the securities brokerage and Evergreen mutual-fund units and was tied to help from the Federal Deposit Insurance Corp.
Wachovia had the steepest climb in the S&P 500, rallying 58 percent to $6.21. Wells Fargo lost 60 cents to $34.56. Buying Wachovia would have made Citigroup the third-biggest U.S. bank network and cement its status as the nation's largest lender by assets.
JPMorgan, Bank of America
JPMorgan Chase had the second biggest drop in the Dow average after Citigroup, losing $3.95, or 7.9 percent, to $45.90. JPMorgan and Washington Mutual Inc., the bankrupt holding company of the lender JPMorgan is acquiring, agreed to delay any attempt to withdraw a disputed $5 billion in cash from WaMu.
In a separate bankruptcy case, Lehman Brothers Holdings Inc. creditors said they ``believe'' that JPMorgan, the investment bank's main lender and clearing agent, caused the liquidity crisis that led to Lehman's collapse.
Bank of America Corp., the second-biggest U.S. bank, declined $1.89, or 5.2 percent, to $34.48.
Some banks rallied after the bailout plan was passed.
National City, Ohio's biggest bank and the subject of takeover speculation earlier this week, gained 12 percent to $3.51. Sovereign, the second-largest U.S. savings and loan, increased 59 cents to $5.84.
Today's employment reports spurred speculation the Federal Reserve may be forced to cut interest rates to boost economic growth. Fed Funds futures trading on the Chicago Board of Trade showed a 76 percent chance the central bank will reduce its target rate for overnight bank loans by a half-percentage point to 1.5 percent by its Oct. 29 meeting and 24 percent odds of a 0.75 percentage-point cut.
`Part of the Solution'
``We wouldn't be surprised to see the Fed cut rates 50 points even before the next scheduled meeting,'' James Shugg, a senior economist at Westpac Banking Corp. in London, said in an interview on Bloomberg Television. ``It actually helps boost, to some extent, bank profitability. An interest-rate cut is an important part of the solution to the current serious problems confronting the U.S. economy.''
Payrolls fell by 159,000 in September, the biggest decrease in five years, the Labor Department said. The jobless rate, the last one reported before the presidential election, remained at 6.1 percent.
Equities retreated from Sao Paulo to London to Tokyo this week, sending the MSCI All-Country World Index to an 9.1 percent decline, as an increase in bank failures exacerbated the credit freeze that pushed up borrowing costs for companies and consumers around the globe.
The S&P 500, down 25 percent this year, still trades for almost 21 times profit from the past 12 months. Only four of 48 developed and emerging nations tracked by MSCI Inc. -- Switzerland, Jordan, Colombia and Morocco -- have a higher price-to-earnings ratio, according to data compiled by Bloomberg yesterday.
Europe's Dow Jones Stoxx 600 Index trades at about 11 times earnings, near the lowest since at least 2002.
General Growth Properties Inc. gained $2.08, or 27 percent, to $9.67. The Chicago-based mall owner whose shares slumped 48 percent yesterday fired its chief financial officer and suspended dividend payments to weather the seizure in financial markets.
The Russell 2000 Index, whose companies have a median market value of $457.3 million, dropped 12 percent this week, the most since the September 2001 terrorist attacks.
-- Editors: Michael Regan, Chris Nagi