U.S. Stocks Declined on Citi and Lowe's

123jump.com Staff
19 Nov, 2007
New York City

U.S. stocks fell sharply in the morning after weak earnings report from Lowes and Swiss Re booked a loss related to sub-prime lending. Citigroup fell 5% after Goldman Sachs assigned sell rating to the stock and said that the bank could lose upto $15 billion in the next two quarters. TD Ameritrade may explore E*Trade brokerage business. European and Asian markets fell sharly as housing market worries reverberated around the globe.

[R]11:00AM New York – U.S. market averages declined after Lowe’s reported lower than expected earnings and Swiss Re booked a large loss in sub-prime lending.[/R]

Dow Jones Industrial Average declined 160 to 13,020, Nasdaq fell 37 to 2,599, and S&P 500 lost 21 to 1,437. Housing market weakness and lower than expected earnings from Lowe’s led the indexes lower.

Lowe’s reported third quarter net income declined 10.2% to $643 million or earnings per share fell 6.5% o 43 cents from 46 cents. For the fourth quarter the company expects comparable same stores to decline 3% to 5% and total sales to increase 3%. Earnings per share in the quarter are expected in the range of 25 cents to 29 cents.

Citigroup declined 5% or $1.77 after analyst at Goldman Sachs estimated that the bank is likely to lose $15 billion in leveraged loans in the next two quarter.

European markets fell at mid-day after the opening at the U.S. market. The persistent housing market worries and lower than expected earnings form Lowe’s, home products retailer in the U.S., confirmed the rapidly slowing housing market.

Swiss Re dropped 11% after it declared after-tax loss of SFr980 million in the month of October from the credit default swaps of derivative exposure. The re-insurer expects to earn of 1.47 billion in the third quarter and still expects to be profitable for the full year.

The news quickly sent the insurance companies lower with Zurich Financial Services leading the decliners with a loss of 3.6%, in Allianz of 2.5%, in AXA of 2.7%.

Northern Rock dropped 15% after the local news report suggested that the mortgage lender may be taken over by the UK government. The takeover bids received by the bank have been below the banks expectations.

Asian markets fell across the region on the worries that the U.S. housing market may weaken further and hurt the domestic banks and slow down the exports from China and Japan.

Thailand led the decliners in the region with a loss of 2.1% followed by losses in South Korea of 1.7%, in Taiwan of 1%, in Singapore of 0.9%, in Indonesia of 0.8%, in Malaysia of 0.4%. Philippines led the gainers with a rise of 1.3% followed by increases in Pakistan of 1.2%, and in Australia of 1.1%.

Chinese authorities have asked banks not to issue any commercial or project loans till the rest of the year. Chinese economy has been growing at more than 10% and the authorities are trying to control the rising inflation and economy from overheating. Real estate, steel projects, and mining sector are likely to suffer fro the curtailed lending. Profits at banks are likely to come into sharp focus. The banks in China and Hong Kong fell on the worries that the current lending freeze will curtail earnings.


[R]5:00AM New York, 7:00PM Tokyo- Tokyo retreats 0.74% on stronger yen. Prime Minister Yasuo Fukuda says subprime crisis has not had a major impact on economy.[/R]

In Tokyo trading Nikkei 225 retreated from a 0.3% advance by mid-day to close down 0.74% or 112.05 to 15,042.56 and Topix Index fell 15.06 to 1,456.61.

In the first section of the Tokyo Stock Exchange 7.6 billions shares worth 917 billion yen were traded and 255 million shares valued at 4.1 billion yen changed hands in the second section.

Of the Nikkei 225 stocks 72 gained, 142 declined, and 9 were unchanged. Shizuoka Bank Limited led advancers with a gain of 4.60% after Resona Holdings lifted its full year profit forecast by 9.5% and didn’t announce a writedown on subprime loan investments.

Japan Times reported yesterday 21 financial institutions are in an alliance to acquire temporarily nationalized bank Ashikaga Bank for 310 billion yen. 75 billion yen would be jointly contributed by the Bank of Yokohama, Toho Bank, Gunma Bank, Joyo Bank, Chiba Bank, Yamanashi Chu Bank, Hachijuni Bank and Shizuoka. Nikko Citigroup Limited would pay for another 75 and 80 billion-yen.

Nomura Securities Company is also leading another consortium that is vying for the bank that was put under state control in 2003.

Of the Nikkei 225 index, Shizuoka Bank led gainers, rising 4.60%, followed by increases of 4% in Bank of Yokohama, 3.87% in Toho Company Limited, 3.70% in Fast Retailing, and 3.09% in Chiba Bank Limited.

Shizuoka Bank gained after Resona Holdings raised its full year profit forecast by 9.5% and didn’t announce any writedowns on subprime loan investments, stoking expectations that losses on sub-prime securities might be limited. The bank also is part of an alliance by twenty one financial institutions to acquire nationalized bank Ashikaga Bank.

Tosoh Corporation led decliners in the Nikkei 225 index stocks with a drop of 8.53%, followed by losses of 7.69% in Komatsu Limited, of 7.67% in Sojitz Corporation, of 7.34% in Mitsui Engineering & Shipbuilding, and of 7.18% in Sumitomo Heavy.

Nikkei news reported today Komatsu Limited would build a factory in Kanazawa, Ishikawa Prefecture, for assembling ultralarge coal and iron ore excavators for export to China, Indonesia and other Asian countries. The facility is expected to open in August 2009.

The Wall Street Journal reported China’s regulators have ordered banks to freeze lending until the end of the year. Authorities in China are making efforts to prevent the economy from overheating. Machinery makers and trading houses fell on the news. Mitsui Engineering & Shipbuilding Company fell 7.34%, Kawasaki Heavy Industries plunged 5.10% and Mitsui & Company plummeted 6.49%.

Exporters declined as the yen firmed to 110.54 from 110.52 against the dollar on the comments by the Federal Reserve Bank of Minneapolis President Gary Stern foreclosures would likely rise and homebuilding would remain subdued. Canon slumped 0.36% and Sony Corp climbed down 0.56%

Meiji Dairies Corp slumped the most in 16 months by 6.35% after Daiwa Institute cut its rating to “underperform”. Last week the company cut its net income forecast 23% to 10.6 billion yen for the year ending March 31. The company’s profits fell 23% to 7.88 billion yen against the forecasted 8.6 billion yen as sales of yoghurt plummeted.