Falling financial stocks pull the market back. Wells Fargo's CEO calls the Treasury's stress-test plan 'asinine.' Alcoa cuts its dividend. Techs are weaker. Fed boss Ben Bernanke sees the recession ending by year's end.
By Charley Blaine and Elizabeth Strott
What had been a lovely four-day rally screeched to a halt today as financial stocks fell back and selling hit technology and retail stocks hard.
The Dow Jones industrials lost all of a 169-point gain and finished down 7 points to 7,217. The Standard & Poor's 500 Index was down 3 points to 754, and the Nasdaq Composite Index was off 27 points to 1,404.
Financial stocks had been the market leaders for most of the day, but selling that started between 1 and 2 p.m. ET gutted the gains.
The trigger appeared to be a disclosure from Dow component American Express (AXP, news, msgs) that delinquencies among its cardholders rose above 8% in February. American Express finished down 3.3% to $12.66.
In addition, the market was startled by a loud complaint from the CEO of Wells Fargo (WFC, news, msgs), who called the Treasury Department's plan to stress-test banks "asinine."
Richard Kovacevich told a Stanford University audience late last week that the Treasury's Troubled Asset Relief Program had forced the bank to cut its dividend unnecessarily.
Wells Fargo was down 1.7% to $13.70.
Right after the close, aluminum giant Alcoa (AA, news, msgs) announced it was cutting its dividend to 3 cents a share from 17 cents. The company also plans to raise $1.1 billion in stock and notes.
Alcoa, which had been up 6.8% to $6.12 in regular trading, fell 11% after hours to $5.44.
Today's declines ended the longest rally for stocks since the end of November at four days. Add to that the Alcoa news and the probability for a dismal February report on housing starts, and it sets up Tuesday as a potentially weak day.
Futures trading suggests that the major index will open down slightly.
Despite the Dow's decline, 16 of the 30 stocks in the index were actually higher on the day, but only 210 S&P 500 stocks were higher, along with 13 stocks in the Nasdaq-100 Index ($NDX.X). The index, which tracks the largest Nasdaq stocks, was down 23 points, or 2%, to 1,145.
The sell-off came after a bit of euphoria from Federal Reserve Chairman Ben Bernanke's appearance on CBS' "60 Minutes" Sunday night.
Financial stocks led the selling. The Select Sector SPDR-Financial (XLF, news, msgs) exchange-traded fund closed down 2% to $8.03. The ETF had jumped nearly 33% last week and had been up as much as 6% today before the selling kicked in.
Citigroup (C, news, msgs) saw a 44.4% gain shrink to 30.9% to $2.33. Bank of America (BAC, news, msgs) was up 7.3% to $6.18; it had been as high as $6.95.
General Electric (GE, news, msgs) fell back to $9.66, up 0.4%. It had jumped to a high of $10.36. UBS changed its short-term rating on the stock from "sell" to "neutral." Analyst Jason Feldman said the likelihood of other "negative catalysts" is lower now that GE has cut its dividend and lost its AAA credit rating at Standard & Poor’s.
Intel (INTC, news, msgs) was off 3.1% to $14.25. Oracle (ORCL, news, msgs) was off 4.2% to $14.90, and Qualcomm (QCOM, news, msgs) was off 2.5% to $35.84.
In addition, retail stocks were broadly lower, with Wal-Mart Stores (WMT, news, msgs) down 0.8% to $48.80 and Target (TGT, news, msgs) down 3.8% to $28.83. Target and investor William Ackman, who owns nearly 10% of the company, are gearing up for a potential proxy fight. Target has nominated all four directors whose terms expire this year; Ackman is putting up his own slate.
During its four-day rally, the Dow had risen 10.3%; the S&P 500 had jumped 11.8%, with the Nasdaq surging 12.8%. The winning streak had been the longest for the Dow and S&P 500 since a five-day streak between Nov. 21 and Nov. 28 -- and the longest for the Nasdaq since a five-day streak between Oct. 28 and Nov. 3.
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Bernanke voices optimism
"We'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time," Bernanke said in a rare interview with CBS' "60 Minutes" Sunday night.
Bernanke said the Federal Reserve "is going to do everything possible to support this recovery," and that "recovery is not going to happen until the financial markets and banks are stabilized. It's going to take some patience."
Bernanke was optimistic, overall. "All of our efforts have, so far, produced results," he said. "I have every confidence that this economy will recover and will recover in a strong and sustained way."
Why did Bernanke agreed to do TV? "It's an extraordinary time," Bernanke said. "This is a chance for me, I think, to talk to . . . America directly."
Bernanke's was the first television interview for a sitting Fed boss since Alan Greenspan, who had just become Fed chairman, appeared on "Meet the Press" -- a week before the October 1987 stock market crash.
The Fed's rate-making body, the Federal Open Market Committee, will meet Tuesday and Wednesday. Economists expect the central bank to leave rates unchanged, at near zero.
AIG under fire for bonus payments
Troubled insurance giant American International Group (AIG, news, msgs) will pay a whopping $450 million in bonuses to its financial products unit, despite its having received $170 billion in taxpayer bailout money to help keep the company afloat.
And nobody was happy about it.
President Barack Obama has instructed Treasury Secretary Tim Geithner to do everything in his power to block the $165 million in bonuses that were handed out on Sunday.
"This isn't just a matter of dollars and cents. It's about our fundamental values," Obama said in remarks released by the White House.
At the same time, New York Attorney General Andrew Cuomo was planning to subpoena records about who is to receive the bonuses and why.
News of the bonuses came in a letter from AIG Chief Executive Officer Edward Liddy to Geithner on March 14.
"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," Liddy wrote. Liddy, who took the helm of AIG in September after its near collapse, said the bonuses were legal contracts that had been put in place before he became CEO.
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"With the benefit of hindsight, I would have designed these differently and at significantly lower levels," Liddy said.
Liddy said he will reduce 2009 bonus payments by at least 30%.
"There are a lot of terrible things that have happened in the last 18 months, but what's happened at AIG is the most outrageous," Larry Summers, the president's chief economic adviser, said Sunday on ABC's "This Week With George Stephanopoulos."
But Summers noted that the bonus payouts were necessary: "The government cannot just abrogate contracts. Every legal step possible to limit those bonuses is being taken by Secretary Geithner and by the Federal Reserve system," Summers said.
AIG lost a record $62 billion in the fourth quarter of 2008; it is the world's biggest insurer, with more than 74 million policies in force in 130 countries.
Who got help through AIG
Meanwhile, the insurer over the weekend disclosed that $105 billion of its bailout funds went to counterparties, including:
Goldman Sachs (GS, news, msgs): $12.9 billion.
Deutsche Bank (DB, news, msgs): $11.8 billion.
France's Société Générale (SCGLF, news, msgs): $11.9 billion.
The states of California and Virginia received $12.1 billion from AIG in funds tied to guaranteed investment contracts.
Goldman Sachs shares were off 5% to $93.90. Deutsche Bank was up 0.2% to $33.92 in New York. Societe Generale shares jumped 8.8% to $33.59.
Shares of AIG were up 33 cents, or 66%, to 83 cents, this afternoon.
HSBC won't need UK bailout
British banking giant HSBC (HBC, news, msgs), which was one of the first to feel the pain of the subprime-mortgage meltdown two years ago, this morning said that it will not need a bailout from the British government even if the economy gets worse.
Chief Financial Officer Douglas Flint also said that HSBC will not go back to shareholders for more capital, according to a report in the South China Morning Post.
And Barclays (BCS, news, msgs), another British bank, said this morning that it has had a good first few months of 2009. Barclays shares rose 27.2% to $5.62 this afternoon.
The comments follow similar ones from other banks in recent weeks, including Bank of America and Citigroup.
OPEC leaves output unchanged; crude's up anyway
After falling for much of the morning, crude oil turned higher by midday and finished $1.10 to $47.35 a barrel. Most energy shares moved higher. Smith International (SII, news, msgs), one of the largest oil services companies, was up 6.6% to $22.95. Schlumberger (SLB, news, msgs) was up 5.5% to $41.44.
Over the weekend, the Organization of Petroleum Exporting Countries agreed to keep oil production quotas unchanged. OPEC said it will meet again on May 28.
"We decided to leave this unchanged, and now it is time to fully adhere to the cuts we agreed upon," Qatari Oil Minister Abdullah Bin Hamad Al-Attiyah said after the Vienna meeting.
OPEC has agreed to three production cuts totaling 4.2 million barrels a day since September. The cartel has shown an 80% compliance with earlier production cuts, according to the International Energy Group, a company that consults on energy issues.
Industrial production falls
U.S. industrial production fell 1.4% in February, the Federal Reserve reported this morning, more than the 1.3% drop economists had expected.
On a year-over-year basis, industrial production was down 11.2% last month, the biggest decline since 1975
Meanwhile, manufacturing in the New York State region contracted this month at the fastest pace on record, according to the Federal Reserve Bank of New York. The Empire State manufacturing index fell to a reading of negative 38.2 from a reading of negative 34.7 in February. The monthly reading was the worst level since 2001, when records began.
Madoff's assets: $826 million
While disgraced Wall Street financier Bernie Madoff was bilking thousands of people out of their money, he held onto a bundle himself.
Madoff claimed a net worth of $826 million as of Dec. 31, according to a court document filed on Friday.
His business, Bernard L. Madoff Investment Securities, was valued at $700 million; his real estate, which includes his New York City penthouse apartment, where he had been under house arrest since December, is valued at $22 million.
The document also lists a $7 million yacht in France, $2 million in jewelry, and a 50% interest in a charter jet worth $12 million. Their liabilities totaled $265,000, according to the document.
Madoff was immediately placed in the Metropolitan Correctional Center after he pleaded guilty Thursday to 11 charges including running a $65 billion Ponzi scheme.
G20 vows to restore lending
Top finance leaders from the Group of 20 are pledging to help revive the global economy.
"We have taken decisive, coordinated and comprehensive action to boost demand and jobs, and are prepared to take whatever action is necessary until growth is restored," the leaders said in a statement after a meeting in Horsham, England, over the weekend.
The G20's main goal is to restore lending, and the leaders also outlined a "framework for financial repair," in which the countries would increase liquidity, inject capital into banks and deal with banks' toxic assets.
While the leaders were generally supportive of aggressive action to stimulate economic activity, they did not pledge specific stimulus measures. Geithner had called on the G20 countries to agree to stimulus equivalent to 2% of gross domestic product.
Still, Geithner said he was pleased with the results of the meeting.
The meeting was a precursor to the official G20 summit, which will take place in London in early April.
Andrew Rosenbaum contributed to this report.
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