Credit Crisis Widens
Sam Farhood, left, and James Denaro work on the floor of the New York Stock Exchange prior to the Opening Bell in New York, on Oct. 6, 2008. Photographer: Andrew Harrer/Bloomberg News
Oct. 6 (Bloomberg) — Stocks tumbled around the world, the euro fell the most against the yen since its debut and oil dropped below $90 a barrel as the yearlong credit market seizure caused bank bailouts to spread. Government bonds rallied.
The Standard & Poor’s 500 Index retreated 5.9 percent, extending the worst weekly slump since 2001, as concern slower global growth will curb demand for commodities sent Alcoa Inc. and U.S. Steel Corp. down more than 7 percent. The MSCI Emerging Markets Index headed for its biggest loss in at least two decades and exchanges in Russia and Brazil halted trading. Europe’s Dow Jones Stoxx 600 Index had its steepest decline since 1987.
Today’s plunge erased about $2.5 trillion from global equities after the German government was forced to bail out Hypo Real Estate Holding AG, overshadowing the $700 billion U.S. Treasury plan to revive credit markets. The euro weakened 6 percent against the yen, the most since 1999.
“It’s like a fire,” said Emmanuel Soupre, a fund manager at Neuflize OBC Asset Management in Paris, which oversees the equivalent of $33 billion. “It’s easier to extinguish five minutes after the start. Now we’re about an hour into it. We have to act quickly to assure the continuity of the financial system to avoid an irreversible contamination of the entire economy.”
Two-year Treasury yields plunged 0.19 percentage point to 1.39 percent as investors sought the relative safety of government bonds. The MSCI World Index slid 6.9 percent as every industry fell at least 5 percent. Rio Tinto Plc, the world’s second-biggest aluminum producer, fell 15 percent and UBS AG, the largest Swiss bank, lost 13 percent.
The Dow Jones Industrial Average dropped 545 points, falling below 10,000 for the first time since October 2004. Europe’s Stoxx 600 sank 7.6 percent, the biggest decline since the October 1987 stock market crash.
National benchmark indexes fell in all 18 western European markets. London’s FTSE 100 dropped 7.9 percent, the most in 20 years. Russia’s Micex plunged 19 percent, led by OAO Gazprom’s 21 percent decrease. The MSCI Asia Pacific Index lost 4 percent, as Mitsubishi UFJ Financial Group Inc. and Macquarie Group Ltd. retreated more than 9 percent.
An 11 percent tumble in Brazil’s Bovespa Index and 10 percent drop in Indonesia’s Jakarta Composite Index pushed the MSCI Emerging Market Index down 10 percent, the steepest in two decades.
“We’re seeing panic all over the markets right now,” said Javier Barrio, head of equity sales for Spanish clients at Banco BPI SA in Madrid. “Governments are taking steps to try to reduce investors’ fears but confidence is weak.”
The plunge in stock markets accelerated along with bailouts of financial institutions and subprime-related credit losses that have approached $600 billion. The MSCI World is valued at 13.2 times the earnings of its companies, the lowest since at least 1995, according to data compiled by Bloomberg. Europe’s Stoxx 600 trades at 10.4 times earnings, near the lowest level since at least 2002, while the S&P 500 is valued at 20.9 times earnings.
UBS, the European bank worst hit by credit crisis, lost 3.08 to 20.90 francs. The bank’s earnings will be “challenged for some time,” and UBS may write down $3.1 billion in the third quarter, Oppenheimer & Co. analyst Meredith Whitney wrote in a note to clients. The Swiss bank has posted $44 billion in losses, according to data compiled by Bloomberg.
Mitsubishi UFJ Financial Group, Japan’s largest bank, fell 9.2 percent to 806 yen. Mizuho Financial Group Inc. dropped 7.8 percent to 402,000 yen.
JPMorgan Chase & Co., the biggest U.S. bank by deposits, slid 6.8 percent to $42.80.
BNP Paribas SA dropped 5.4 percent to 67.50 euros. France’s biggest bank agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion) after an earlier government rescue failed to ensure the company’s stability.
Hypo Real Estate plunged 37 percent to 4.70 euros. The German government and the country’s banks and insurers agreed on a 50 billion-euro rescue package for the commercial property lender after an earlier bailout faltered.
German Chancellor Angela Merkel said the government will guarantee savings of private account holders to prevent a rush of withdrawals from the nation’s banking system.
U.K. Chancellor of the Exchequer Alistair Darling said Britain is “ready to do whatever it takes” to help its banks, while Denmark said commercial lenders will provide as much as 35 billion kroner ($6.4 billion) over the next two years to a fund to insure depositors against losses. The Fed said today it “stands ready” to foster “liquid money market conditions.”
U.S. President George W. Bush last week signed a $700 billion rescue package into law to stem a banking crisis that has claimed Bear Stearns Cos. and Lehman Brothers Holdings Inc.
The euro tumbled as bank failures in the region increased, falling to 141.97 yen, the weakest since May 18, 2006. All the world’s most-traded currencies declined against the yen, which strengthened 5.7 percent against the euro and 11 percent against the Australian dollar.
“The euro zone is the second domino of the globe to be falling over after the U.S.,” said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland.
Money market rates climbed as investors lost confidence in financial markets. The interest rate that banks charge each other for overnight loans in dollars jumped to 2.37 percent from 2 percent, the British Bankers’ Association said.
Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg. That’s the highest since Sept. 30, the day after the U.S. House of Representatives first rejected the bank bailout.
Investors are growing increasingly concerned that higher borrowing costs will worsen a slowdown in world economies, reducing demand for metals and fuel. The Reuters/Jefferies CRB Index of 19 commodities slipped 3.5 percent to the lowest level in a year.
Rio Tinto Group slipped 15 percent to 2,888 pence. Freeport- McMoRan, world’s largest publicly traded copper producer, lost $4.23 to $41.63. Marathon Oil, the largest refiner in the U.S. Midwest, sank $3.58 to $32.
Royal Dutch Shell Plc, Europe’s biggest oil company, dropped 5.4 percent to 1,540 pence. PT Bumi Resources, Indonesia’s biggest power-station coal producer, tumbled 32 percent to 2,175 rupiah, extending a six-day, 19 percent slide.
Crude oil fell for a fourth day in New York, dropping as much as 5.3 percent to $88.89 a barrel. Power station coal prices at Australia’s Newcastle port dropped 6.1 percent last week, a seventh decline. Copper fell 6.5 percent to $5,620 a metric ton on the London Metal Exchange.
UBS’s Hong Kong-based economist Duncan Wooldridge reduced his growth forecast in Asia excluding Japan next year to 6.1 percent from 6.9 percent, saying the region will face “recession-like conditions.”
Last Updated: October 6, 2008 13:25 EDT