New Century Tumbles 57%

Elena
05 Mar, 2007
New York City

Wall Street started trading sharply lower, reflecting rally in the Japanese yen, weakness across Asian and European markets, and growing concerns in the subprime mortgage market. Sub-prime lender New Century Financial slipped 57% after announcing that it is under investigation by federal regulators. The Dow was led to the downside by aluminum producer Alcoa, down 2.78% and broker J.P.Morgan Chase, down 1.8%.

[R]9:45AM U.S. stock markets opened sharply lower amid concerns about the sub-prime mortgage market.[/R]
Wall Street started trading sharply lower, reflecting rally in the Japanese yen, weakness across Asian and European markets, and growing concerns in the subprime mortgage market. Sub-prime lender New Century Financial ((NEW)) slipped 57% after announcing that it is under investigation by federal regulators. Rival Fremont General ((FMT)) slid 19% after the company said it will sell its subprime lending business after a proposed cease-and-desist order from the Federal Deposit Insurance Corp. HSBC Holdings plc ((HBC)) erased earlier losses to gain nearly 1%. The world’s third-biggest bank said it will take a charge of $10.57 billion, mostly on the bad loans in the subprime sector. It also reported a 5% annual profit increase on emerging markets growth and lifted its dividend.

The Dow was led to the downside, by aluminum producer Alcoa ((AA)), down 2.78% and broker J.P.Morgan Chase ((JPM)), down 1.8%. In merger-and-acquisition news, Aeroflex ((ARXX)) agreed to be acquired by private-equity firms General Atlantic and Francisco Partners in a deal worth $1 billion, or $13.50 in cash. The bid represents a 23% premium to Friday's closing price of $11.01. Aeroflex’s shares surged over 19%. In another deal, Supermarket operator Great Atlantic & Pacific Tea agreed to buy smaller rival Pathmark Stores Inc. ((PTMK)) for $1.3 billion in cash, stock and debt. Shares of Pathmark rose 10.2%.

Among the most notable market movers, Palm Inc. ((PALM)) fell 7.4% in early trading after it rallied 11% Friday on bid speculation. Cirrus Logic Inc. ((CRUS)) gained 1%, recovering from pre-market weakness. The company said it expects to restate results for 2001 through 2006. In the first hour of trading, the Dow Jones industrial average was down 42.86, or 0.35%, at 12,071.24. The Standard & Poor's 500 index was off 9.00, or 0.65%, at 1,378.17, and the Nasdaq composite index fell 18.51, or 0.78%, to 2,349.49. Bonds were little changed, with the yield on the benchmark 10-year Treasury note at 4.50%, the same as late Friday.


[R]9:30AM London equities tumbled heavily Monday tracking weak global markets.[/R]
The UK market was lower on Monday. By midday the FTSE 100 was 1.5% lower at 6,027.7, a loss of 89 points.

Advancers

There was some upside despite the carnage. HSBC, London largest-listed bank, reported a 5% rise in pre-tax profit of $22.1 billion. Shares in the company traded 0.9% higher. News that Royal & Sun Alliance completed its exit of the US insurance market on time went down well, sending its shares up 1.2%. Countrywide is also strong, up 3.8%, on reports that a bidding war is possible for the largest estate agent in the UK, as private equity group 3i mulls a counter bid.

Decliners

Resource stocks declined sharply in line with entrenched concerns that the sell-off would undermine demand for metals in emerging economies. Copper prices fell by about 4% on commodities exchanges. Vedanta Resources was 3.5 % weaker with Kazakhmys down 3.3% and Xstrata 4% lower.

Weaker crude prices pressured oil large-caps. BP lost 1.5%, Royal Dutch Shell was 0.6% lower. Cairn Energy lost 4.6%, lifting the prospect of its relegation from the large-cap index as tomorrow’s deadline nears.

Man Group, the largest listed hedge fund in the world, saw its shares track global equities markets lower with a 3.6% fall. British Airways, usually a beneficiary of lower crude prices, fell 8% after it told investors the disposal of its BA Connect regional jet business would cost an extra 20 million pounds.


[R]9:15AM Strong yen and heavy losses for New Century Financial weighed on pre-market sentiment.[/R]
U.S. stock futures pointed Monday to a lower opening for another straight session, with the yen posting strength and thus hurting hedge funds. On Monday, the U.S. dollar bought about 115 yen, compared to 120 yen a week ago. Worries over the health of the U.S. second-biggest subprime lender, New Century Financial ((NEW)), also generated negative sentiment. Company''s stiock tumbled 57% in the pre-open after it said it is a target of a federal criminal probe and is likely to breach a major lending covenant with its financial backers. In corporate news, Research in Motion ((RIMM))said its chairman and co-CEO is stepping aside as the BlackBerry maker plans to restate results, cutting earnings by up to $250 million dating to fiscal 2004 because of incorrect dates over stock option grants. S&P 500 futures dropped 10.5 points at 1,375.30 and Nasdaq 100 futures dropped 16.75 points at 1,709.50. Dow industrial futures dropped 90 points.


[R]9:00AM Asian markets ended sharply lower Monday with Japan leading decliners.[/R]
Asian markets finished lower on Monday. Japanese Nikkei 225 Index fell 3.34% to 16,642.25. Exporters fell amid a surge in the yen, which erodes overseas earnings when repatriated to Japan. The dollar fell to 115.70 yen from 116.75 yen late Friday in New York. Canon shed 2.08%, Toyota Motor fell 3.24% and Sony was down 2.92%.

Hong Kong declined 4% to 18,664.88. Investors are worried about the possibility of further falls to come. Shares of HSBC fell 2.5% ahead of its earnings results, which the company issued after the market closed. Among other large-caps, China Mobile dropped 6%, Hutchison Whampoa fell 3% and China Construction Bank sank 4.9%. The Shanghai Composite Index fell 1.6% at 2,783.31.

In South Korea shares also shed 2.71% to 1,376.15. Australian index S&P/ASX 200 index fell 2.3% on heavy volume to close at a seven-week low of 5,642.40. The index is down 6.6% from the last month record high of 6,052.1. BHP Billiton led the decliners, with commodity-price weakness giving an added reason to sell resources. BHP shed 2.9%, Rio Tinto lost 2.5% and Woodside Petroleum closed down 4.2%.

Other major markets also declined. Singapore Straits Times Index finished 3.1% lower, at 2,982.29, the Weighted Price Index of the Taiwan Stock Exchange closed 3.7% lower to 7,344.56 and the Kuala Lumpur Composite Index, ended down 4.6%, at 1,110.69.


[R]8:00AM NY-7:00PM Mumbai Sensex plummets following global sell-off.[/R]
The Sensex on BSE finished 471.09, or 3.66%, lower at 12,415.04. The market-breadth was appalling as there were more than ten decliners for every advancer. For 2,363 stocks that declined, only 220 advanced and 28 were unchanged. Of the 30 stocks in the Sensex, only two advanced, while the rest declined. On NSE, the turnover was Rs 8,550.91 crore, lower than Rs 8,960.58.

Economic news

The rupee declined the most in almost four months as a collapse in global stocks extended to a second week, raising speculation that foreign funds will sell riskier assets including emerging-market shares. The rupee fell 0.6% to Rs 44.5725 against the dollar, the biggest drop since November 13.

Overnight cash rates plunged to 18-month lows on Monday and bond yields advanced after the RBI limited the amount of cash it would absorb in daily market operations and added it would issue market stabilization bonds. From Monday, RBI will absorb a maximum of Rs 30 billion, or $675 million per day at its reverse repurchase auction window.

Trading highlights

Reliance Industries was the most-active stock with a turnover of Rs 234.80 crore followed by Reliance Communications and Apollo Hospitals.

Advancers

Gujarat Ambuja Cements and Grasim Industries were the only two large-cap advancers. Gujarat Ambuja finished 2% higher at Rs 111.9, while Grasim edged 0.2% higher at Rs 2,102.1.

Decliners

Pharmaceutical large-cap Ranbaxy laboratories led the decliners, down 7.6% to Rs 321.1, while cap maker Maruti Udyog declined 6.6% to Rs 779.3, having dipped to a low of Rs 781 earlier.

Other prominent decliners included Dr Reddy’s, down 6.4% to Rs 618.7, Tata Steel declining 5.1% to Rs 420.3, Wipro off 6.3% to Rs 537.2 and L&T shedding 5.5% to Rs 1,383.8.

Index heavy Reliance Industries declined 5.03% to Rs 1,251.15 on a huge 18.50 lakh shares traded on BSE. R Systems International plummeted 17.93% to Rs 133, after the company posted a poor fiscal performance for Q4 ended December 31 2006. Shares of Infosys dropped 4.6% to Rs 2,006.6 and Tata Consultancy slipped 3.8% to Rs 1,162.20.


[R]7:00AM European markets declined Monday on global market weakness.[/R]
European markets were sharply lower on Monday. The German DAX Xetra 30 dropped 2% to 6,472.81, the French CAC 40 fell 1.8% to 5,328.70 and the U.K. FTSE 100 lost 1.4% to 6,031.40.

Advancers

One of the few advancers was HSBC Holdings edging 0.2% higher after reporting a 5% profit rise in 2006 and lifting its dividend by 11%. It took $10.57 billion in charges, mostly on a poor performance out of the U.S.

Countrywide gained 3.5% after Apollo Management late Friday agreed to buy the real estate chain shares for 1 billion pounds. Getaz Romang shares rose 21% after Ireland CRH agreed to buy it for $442 million.

Decliners

Fears that sharp strengthening for the Swiss franc could hurt exports drove Swatch 3.9% lower. Richemont, which owns the Cartier brand, announced a joint venture to design, manufacture and distribute watches under the Ralph Lauren brand. The venture, which aims to launch products in Autumn 2008, will operate at a loss for a few years. Richemont shares fell 2.6%.

Mining and metals stocks were lower as commodity prices fell. Xstrata, the London-listed miner, was down 4%, while steelmaker Arcelor-Mittal shed 4.1%.

Oil and gold

Gold fell to a five-week low on selling by investors holding the precious metal in exchange-traded funds after a slump in Asian and European stocks. Gold for immediate delivery dropped $5.70, or 0.9%, to $636.75 an ounce in early trade in London.

Crude oil fell for a second day on concern global economic growth will slow, reducing fuel consumption. Crude oil for April delivery fell as much as $1.18, or 1.9%, to $60.46 a barrel on the New York Mercantile Exchange. Brent crude dropped as much as $1.29, or 2.1%, to $60.79 a barrel on the ICE Futures exchange in early trade in London.

Currencies

The euro dropped against the dollar on Monday, while the U.S. currency hit a three-month low against the Japanese yen as global stock markets remained nervous following last week sell-off. In morning European trading the euro bought $1.3129, down from $1.3191 late Friday in New York. The British pound fell to $1.9225 from $1.9433 in New York, while the dollar slipped to purchase 115.36 Japanese yen, down from 116.75 on Friday.