[FoRK] Stocks Drop on Rising Credit Anxiety

Eugen Leitl <eugen at leitl.org> on Thu Aug 9 09:27:14 PDT 2007

http://biz.yahoo.com/ap/070809/wall_street.html?.v=27

Stocks Drop on Rising Credit Anxiety Thursday August 9, 11:40 am ET By Tim
Paradis, AP Business Writer Wall Street Falls Following Renewed Concerns
About Subprime Mortgages

NEW YORK (AP) -- Wall Street fell sharply again Thursday after a French bank
said it was freezing three funds that invested in U.S. subprime mortgages
because it was unable to properly value their assets. The Dow Jones
industrials had been down more than 240 points, but pared their losses.

The announcement by BNP Paribas raised the specter of a
widening impact of U.S. credit market problems. The idea that anyone --
institutions, investors, companies, individuals -- can't get money when they
need it unnerved a stock market that has suffered through weeks of volatility
triggered by concerns about available credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets
perhaps intensified Wall Street's angst. Although the bank's loan of more
than $130 billion in overnight funds to banks at a bargain rate of 4 percent
was intended to calm investors, Wall Street saw the step as confirmation of
the credit markets' problems.

The Federal Reserve followed suit, adding $12 billion to U.S. markets to help
ease liquidity constraints, according to Dow Jones Newswires.

"This is a mini-panic," said Joseph V. Battipaglia, chief investment officer
at Ryan Beck & Co., calling the banks' injection of money into the system an
unprecedented move, and evidence that the problems in subprime lending are,
in fact, spilling into the general economy.

"All the things that had been denied up until this point are unraveling,"
Battipaglia said. "On top of this, retail sales were mediocre, which shows
that indeed, the housing collapse is affecting the consumer."

Retailers were releasing their July sales figures Thursday, and overall, the
figures were disappointing.

Bonds rose sharply as investors again sought the relative safety of
Treasurys, with the yield on the benchmark 10-year note falling to 4.80
percent from 4.89 percent late Wednesday. Bond prices move opposite yields.

Thursday's pullback continued an erratic pattern of triple-digit moves in the
Dow for several weeks. There has been more panic and gambling in those moves
rather than conviction -- even when the Dow has finished up more than 280
points in a session, those gains have evaporated at the first mention of
trouble in housing, subprime lending or the credit markets.

In late morning trading, the Dow fell 107.96, or 0.79 percent, to 13,549.90
after earlier falling as much as 241 points.

The Dow on Wednesday finished 2.45 percent below the record close of
14,001.41 reached on July 19. Since passing 14,000, the blue chip index has
been highly volatile -- in the 14 trading days since that record close, 10
have seen a triple-digit gain or loss.

Some on Wall Street have been calling for a textbook correction -- a pullback
of at least 10 percent. At its lowest close since the market's high last
month, which was Friday's finish of 13,181.91, the Dow was 5.85 percent below
the record.

Also Thursday, the broader Standard & Poor's 500 index fell 12.10, or 0.81
percent, to 1,485.39, while the Nasdaq composite index fell 3.63, or 0.14
percent, to 2,609.35.

The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude fell 72 cents to $71.43 per barrel on the New York
Mercantile Exchange.

The Chicago Board Options Exchange's volatility index, known as the VIX, and
often referred to as the "fear index," rose in early trading Thursday to its
highest level since April 2003.

News that Home Depot Inc. might amend the terms of the sale of its HD Supply
business added to Wall Street's unease. The company said it could end up
making substantial changes to the terms and financing of the deal and could
reduce the $10.33 billion price tag. Home Depot said in June it would sell
the business, which serves contractors, homebuilders and other business
customers, to a group of private equity firms.

Home Depot, which fell $1.70, or 4.5 percent, to $36.10, also said it plans
to lower the price of a modified Dutch tender offer. In July, Home Depot
announced the tender offer to repurchase up to 250 million shares.

But the subprime and credit market concerns dominated investors' minds in the
U.S. and abroad.

Stocks in Europe fell but came off their lows. Britain's FTSE 100 lost 1.79
percent, Germany's DAX index fell 1.92 percent, and France's CAC-40 fell 1.92
percent after being down more than 3 percent.

The pullback came as the BNP Paribas unit, BNP Paribas Investment Partners,
said it was suspending three funds together worth about $3.79 billion and
wouldn't make investor redemptions until it could determine net asset values.
The funds are Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas
ABS Eonia. The suspended funds represent roughly 0.79 percent of the $482.79
billion in assets the Paribas division holds.

"The complete evaporation of liquidity in certain market segments of the U.S.
securitization market has made it impossible to value certain assets fairly
regardless of their quality or credit rating," BNP Paribas said in a
statement.

The funds invest in subprime mortgages through a process known as
securitization. Investment banks bundle together mortgages -- including those
from subprime borrowers -- and sell them off to investors such as hedge
funds, mutual funds and other institutional investors. Buyers of such
securities are seeking the steady flow of income from homeowners making their
mortgage payments.

With credit concerns dominating Wall Street, investors appeared little moved
by a Labor Department report that the number of workers seeking jobless
benefits rose 7,000 to 316,000 last week.

In corporate news, American International Group Inc., one of the world's
largest insurers, said Wednesday its second-quarter profit jumped 34 percent
amid growth in its general and life insurance businesses and its asset
management group. The company said it remains comfortable with its exposure
to the U.S. residential mortgage market. AIG rose 81 cents to $67.29.

Internet telephone company Vonage Holdings Corp. on Thursday reported a
narrower second-quarter loss as it trimmed marketing costs. However, the
company also saw a sharp drop in new subscribers. The stock rose 20 cents, or
9.1 percent, to $2.40.

Retailers weighed in with monthly sales results and some reports were likely
to only further sour Wall Street's mood. Pacific Sunwear of California Inc.
fell $1.93, or 11.2 percent, to $15.30 after reporting its same-store sales,
or sales at stores open at least a year, fell rather than rose as Wall Street
had expected. Same-store sales are regarded as a key measure of a retailer's
health.

American Eagle Outfitters Inc. also surprised Wall Street and fell 82 cents,
or 3.4 percent, to $23.02.

Not all news was bad, however. Children's Place Retail Stores Inc. reported
stronger-than-expected results. The stock rose $2.42, or 7.7 percent, to
$33.67.

In other market action abroad, Japan's Nikkei stock average rose 0.83
percent, Hong Kong's Hang Seng index fell 0.43 percent. The often volatile
Shanghai Composite Index rose 1.95 percent.

Declining issues outnumbered advancers by about 3 to 1 on the New York Stock
Exchange, where volume came to 854.9 million shares.

The Russell 2000 index of smaller companies fell 2.64, or 0.33 percent, to
792.86.

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

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