Confidence weakens in U.S. banking sector!
NEW YORK - July 15, 2008 - Even as
the Bush regime moved to rescue the nation's largest two mortgage companies,
confidence in the banking sector spiraled downward Monday.
In the Los Angeles area, lines snaked around IndyMac Bancorp branches for blocks, as customers made withdrawals from the bank, which failed last week. In Cleveland, National City Corporation denied a rumor that its customers were also demanding their money.
In Washington, U.S. regulators tried to broadcast the message that plummeting stock prices should not cause consumers to panic about the safety of their savings. And on Wall Street, analysts began circulating lists of regional and local banks that might be next to fall.
Investors continued to beat down bank stocks, fearing that the government's resolve to help Fannie Mae and Freddie Mac, the giant companies at the center of the nation's mortgage market, would not hold back the rising tide of bad loans unleashed by the weakening housing market and faltering economy. Financial stocks, a Merrill Lynch analyst wrote bluntly, are "value traps."
Stocks on Standard & Poor's 500 Bank Index fell nearly 10 percent, and regional banks were particularly hard hit, declining nearly 11 percent. Several regional banks lost nearly a third of their value, as investors bet that these smaller banks might be the ones the government would let fail.
"We have seen a 'too big, too important to fail' instance," said William Gross, the chief investment officer of the bond fund Pimco. "The market wonders: which institution is too small to bail out? Where is the dividing line? They seem to have picked on the regional banks as potential candidates to be the ones too small to bail out."
Banking analysts put out reports warning against the sector. Goldman Sachs said regional banks may cut their dividends to restore capital - pushing down shares of banks like Zions Bancorporation and First Horizon National. And Lehman Brothers said that Washington Mutual, the nation's largest savings and loan, might end up with a whopping $26 billion in cumulative losses.
Like National City, Washington Mutual took the highly unusual step of putting out a statement to reassure investors that its financial footing is stable.
"It's about to start getting real bad," said Christopher Whalen, managing director at Institutional Risk Analytics. The Federal Deposit Insurance Corporation, he said, should just move on with the process and "close not just one but a half dozen institutions at the same time."
Regulators tried to reassure consumers who might look at the stock market and fear that their bank's falling stock price puts their savings deposits at risk. Sheila Bair, the chairwoman of the FDIC, which guarantees most bank deposits, said that rumors about IndyMac's financial footing and plummeting stock price caused panic among the bank's customers.
"People should not assume that just because the stock price has been going down, that we're going to close their bank," Bair said in an interview. "In addition to our credit problems, I don't want to have to start worrying about bank runs."
The government's plan for Fannie Mae and Freddie Mac initially seemed to calm jittery markets Monday morning and sent Dow futures sharply up. The markets in New York opened more than 100 points higher.
But the rally quickly faded as Wall Street braced itself for its most influential banks like Citigroup to report quarterly earnings over the next two weeks. Shares of M&T Bank, which kicked off the string of earnings releases, were down 12 percent after it reported a second-quarter profit of $1.44 a share, down 25 percent from a year ago.
Shares in the National City Corporation were halted after they fell 29 percent, to $3.15. In a statement, the bank reported no unusual customer activity and said that it had more than $12 billion in excess short-term liquidity.
Source: International Herald Tribune
