NEW YORK — Investors retreated from Wall Street again, driven by worries about the nation’s big banks and General Motors Corp.
Thursday’s slide more than wiped out the previous day’s rally. Short selling — bets that stocks will fall — exacerbated the losses, slashing 281 points from the Dow Jones industrials and sending all the major indexes down more than 4 percent.
The latest torrent of selling came ahead of the February Labor Department report that is likely to show hundreds of thousands of jobs were lost. Reports showing better-than-expected retail sales and factory orders Thursday weren’t enough to stoke investor confidence.
The Dow fell 281.40, or 4.1 percent, to 6,594.44, its lowest close since April 1997.
Broader indicators also tumbled. The S&P 500 index dropped 30.32, or 4.3 percent, to 682.55, its lowest close since September 1996. The Nasdaq composite index fell 54.15, or 4 percent, to 1,299.59.
The Russell 2000 index of smaller companies fell 21.85, or 5.9 percent, to 349.45.
On the New York Stock Exchange, only 235 stocks advanced while 2,887 fell. Consolidated volume came to a heavy 7.28 billion shares compared with 7.51 billion shares traded Wednesday.
Government bond prices rose as investors sought a safe haven. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.81 percent from 2.98 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.20 percent from 0.25 percent Wednesday.
Stocks fell in every industry, with beleaguered banks posting some of the steepest drops after negative comments from Moody’s Investors Service weighed on the already depressed financial stocks free instant credit reports. Citigroup Inc., still shaky despite receiving billions in government aid, at times sank below $1 and finished down 9.7 percent at $1.02. Bank of America Corp. dropped 42 cents, or 11.7 percent, to $3.17; Wells Fargo & Co. tumbled $1.54, or 15.9 percent, to $8.12; JPMorgan Chase & Co. fell $2.70, or 14 percent, to $16.60.
General Motors, meanwhile, ended with a loss of 15 percent at $1.86. The automaker said in its annual report that auditors raised serious doubt about its ability to continue operating. GM has already received $13.4 billion in federal loans, and is seeking a total of $30 billion from the government. GM dove 34 cents, or 15.5 percent, to $1.86.
General Electric Co. closed down 3 cents at $6.66. Trading in the stock was volatile, but losses were limited as analysts expressed differing views on the health of its finance unit.
Exxon-Mobil Corp. closed at $62.22, down $3.46. The oil giant said it plans to increase spending on capital and exploration projects, even as many rivals scale back operations.
Blockbuster Inc. closed down 2 cents at 45 cents. Fourth-quarter sales climbed 4.4 percent, as increased sales of games and merchandise offset movie-rental declines.
Limited Brands Inc. closed at $6.40, down 62 cents. The operator of Victoria’s Secret reported that sales at stores open at least one year fell 7 percent in February.
Bell Mobility subscribers will once again be able to receive "tweets," the brief updates transmitted over social networking service Twitter, on their cellphones via text messages.
But it’s not going to be … er, cheep.
Bell said yesterday that it will become the first Canadian wireless carrier to offer full short message service support for Twitter users after the company behind the micro-blogging phenomenon pulled the plug on the SMS portion of the service in Canada late last year.
The catch is that it will cost Twitter users 15 cents per incoming and outgoing message – and the charges will apply to subscribers even if they have a monthly plan that already includes text messages.
"Because Twitter is a third-party service, the messages are considered premium and not covered by our plans," said Julie Smithers, a Bell spokesperson. "This aligns with industry standards regarding third-party premium messaging."
Twitter is a social networking service that allows users to send and receive short, text-based updates – "I’m eating pizza for dinner" – to others who have signed up to follow them. The messages, which can’t be longer than 140 characters, are posted on subscribers’ profile pages on the Web and can be sent in real-time to their mobile devices.
The service has been used by several high-profile people, including U guaranteed personal loan approval.S. President Barack Obama, and was credited for providing the first reports of the recent US Airways crash in New York’s Hudson River.
However, Twitter’s Canadian users were dealt a blow last year after part of the service was discontinued because of the high cost of sending and receiving text messages in Canada. Twitter had apparently been footing the bill for its Canadian subscribers’ incoming text messages.
"We can’t afford to support this service given our current arrangement with our providers (where costs have been doubling for the past several months)," according to a Twitter blog posting from November.
Now, the costs will be borne by the users themselves.
Carmi Levy, the senior vice-president of strategic consulting for AR Communications Inc., said his Twitter use was unaffected by last year’s SMS blackout because he uses a smartphone version of the service that is supported by his monthly data plan.
But he said that Twitter subscribers who don’t own iPhones or BlackBerry-type devices can expect some hefty monthly bills depending on how many other Twitter users they are following.
"It can be dozens or even hundreds of messages (per day)," Levy said. "I sent out just one question earlier this afternoon and I got 15 responses."
Hasbro Inc. posted a lower-than-expected quarterly profit Monday as shoppers bought fewer toys during the holiday season, and it said it would focus on cutting costs in the year ahead.
The No. 2 toy company, which makes the G.I. Joe and Transformers toys, said it expected its sales and earnings per share to grow in 2009 if economic conditions and the effect of the stronger U.S. dollar do not worsen.
Hasbro, like its bigger rival Mattel Inc., took a hit from sharp cutbacks in consumer spending, which led to the worst holiday selling season in nearly four decades.
Shoppers pared spending on everything from clothes to jewelry and toys for their children, as they contended with job losses, a credit crunch and weak home values.
Where they did buy, it was at a deep discount.
In the year ahead, Hasbro said it would concentrate on cutting costs and managing its operating cash flow "given the severity of the downturn in global economies."
The company will sell key toys this year based on the "G.I. Joe - The Rise of Cobra" and "Transformers - Revenge of the Fallen" movies - products that analysts have said will bolster 2009 sales and give it an edge over Mattel guaranteed payday loan.
Hasbro’s net profit fell to $93.6 million, or 62 cents a share, from $133.7 million, or 84 cents a share, a year earlier.
Analysts on average expected 76 cents per share, according to Reuters Estimates.
Sales fell 5% to $1.2 billion, Hasbro said.
Hasbro’s results come a week after Mattel (MAT, Fortune 500) also posted disappointing earnings, hurt by the global economic downturn.
The fourth quarter "clearly had significant headwinds - the negative impact of foreign exchange and the broad-based global economic downturn," Hasbro’s Chief Financial Officer David Hargreaves said in a statement.
Hasbro (HAS) said it did not buy back any shares in the fourth quarter.
Hasbro’s shares, which closed at $23.54 on Friday, were not traded in premarket.
Federal Reserve Chairman Ben Bernanke said on Tuesday that fiscal stimulus alone would not be enough to promote a lasting U.S. economic recovery, and further steps to backstop banks may be needed.
“Fiscal actions are unlikely to promote a lasting recovery unless they are accompanied by strong measures to further stabilize and strengthen the financial system,” Bernanke said at the London School of Economics.
In his first policy speech since early December, Bernanke said that while an expected U.S. fiscal stimulus package could provide a “significant boost” to the economy, the government may need to inject more capital into banks.
He also said a large quantity of distressed assets on bank balance sheets made it difficult for banks to raise capital and lend.
Bernanke said the government could consider buying troubled assets, providing asset guarantees or setting up a so-called bad bank to take over assets in exchange for cash and equity.
“With the worsening of the economy’s growth prospects, continued credit losses and asset markdowns may maintain for a time the pressure on the capital and balance sheet capacities of financial institutions,” he said.
It would also take some time for the U.S. labor market to recover, Bernanke said. “I would expect to see continued weakness in the first quarter,” he said in response to a question.
“I am hopeful that later in 2009, depending on factors, particularly including financial and credit markets, we should begin to see some stabilization in the economy payday loans. It takes a while though for labor markets to recover.”
GLOBAL ECONOMY TAKES A HIT
Bernanke flagged the need for regulatory reform and said he had discussed the issue, as well as monetary policy, with British Prime Minister Gordon Brown, Chancellor of the Exchequer Alistair Darling and Bank of England Governor Mervyn King.
“It is very important for us to try to put out the fire. It is good advice in general that if there is a fire burning, you try to put it out first and then you think about the fire code,” he said.
“Going forward, we have to look at the fire code — we have to think about what is the right balance of regulation, markets that will give us a powerful innovative financial system but one that will be safer to use.”
Bernanke also said the way in which governments respond to the financial crisis racking the global economy would determine the timing and strength of recovery.
“For almost a year and a half the global financial system has been under extraordinary stress — stress that has now decisively spilled over to the global economy more broadly,” he said. “The damage, in terms of lost output, lost jobs, and lost wealth, is already substantial.”
Bernanke said the Fed still has “powerful tools” that could be expanded to spur a rebound even though it has cut benchmark interest rates to near zero.
Venezuela’s Citgo Petroleum said Wednesday that it has reinstated a program that provides discounted home heating oil to lower-income residents in U.S. communities, two days after it was suspended.
"Our flagship social program, the Citgo-Venezuela Heating Oil Program will continue," said Citgo Chairman Alejandro Granado in a statement.
Granado said the decision to continue the program was in response to "the current global financial crisis and its impact on the oil industry in general."
On Monday, the program was put on hold so that Citgo could re-evaluate its social programs in light of the global economic slowdown and falling oil prices.
The abrupt reinstatement of the program appears to have come at the behest of Venezuelan President Hugo Ch
In a scathing report released Tuesday, congressional investigators outlined a pattern of mismanagement, dysfunction and abuse of power at the Federal Communications Commission under the agency’s Republican chairman, Kevin Martin.
The report - the result of a nearly yearlong, bipartisan investigation by the House Energy and Commerce Committee - accuses Martin of manipulating data and suppressing information to influence telecommunications policy debates at the agency and on Capitol Hill.
The report also charges that the commission has become politicized, failed to carry out some important responsibilities under Martin’s leadership, and blames him for undermining an open and transparent regulatory process.
Martin also is accused of micromanaging commission affairs, demoting agency staffers who did not agree with him and withholding information from his fellow commissioners.
"Chairman Martin’s heavy-handed, opaque, and non-collegial management style has created distrust, suspicion and turmoil among the five current commissioners," the report says.
Martin’s legacy at the FCC will be "a blueprint of what not to do," said Bart Stupak, D-Mich., who chairs the House Commerce Committee’s Subcommittee on Oversight and Investigations.
"The findings suggest that, in recent years, the FCC has operated in a dysfunctional manner and commission business has suffered as a result," said Commerce Committee Chairman John Dingell, D-Mich., who will be relinquishing the reins of the panel to California Democrat Henry Waxman next year.
Robert Kenny, a spokesman for Martin, said the committee "did not find or conclude that there were any violations of rules, laws or procedures affordable car insurance." Martin is widely expected to leave the commission after the White House changes hands.
Among the findings of the 110-page report:
- Martin manipulated the findings of an FCC inquiry into the potential consumer benefits of requiring cable companies to sell channels on an individual - or "a la carte" - basis. The House investigation concludes that Martin undermined the integrity of the FCC staff and may have improperly influenced the Congressional debate on the matter by ordering agency employees to rewrite a report concluding that a la carte mandates would not benefit consumers.
- Martin tried to manipulate the findings of an annual FCC report on the state of competition in the market for cable and other video services to show that the industry had a big enough market share to permit additional government regulation. When the full commission voted to reject that conclusion, Martin suppressed the report by withholding its release.
- Under Martin’s leadership, the FCC’s oversight of the Telecommunications Relay Service Fund, which pays for special telecommunications services for people with hearing or speech disabilities, was overly lax. This resulted in overcompensation of the companies that provide these services by as much as $100 million a year - costs that were ultimately passed along to phone company customers.
Kenny said Martin makes no apologies for his "commitment to serving deaf and disabled Americans and for fighting to lower exorbitantly high cable rates that consumers are forced to pay."
The Group of Seven warned the surging yen posed a threat to financial and economic stability on Monday in the latest coordinated effort by the world’s richest nations to contain worst financial crisis in 80 years.
The yen was the only currency mentioned in a brief G7 statement issued as it rallied to 13-year high against the dollar, threatening Japanese exports as world’s second-largest economy tumbles toward recession.
With Tokyo’s Nikkei share average hitting a 26-year low and share of Japan’s biggest banks tumbling on fears that they would have replenish capital, Finance Minister Shoichi Nakagawa said the G7 was worried about volatility in the yen.
“We continue to monitor markets closely and cooperate as appropriate,” Nakagawa said, reading from the G7 statement.
South Korea resorted to a record interest rate cut and Australia’s central bank said it had intervened to support its currency in another sign that policymakers are reaching beyond troubled banks now that the financial crisis has shattered investor confidence, and threatens jobs and corporate sales.
Japanese Prime Minister Taro Aso asked ministers to consider emergency measures to stabilize the stock market, including government purchases of shares and relaxing rules on recapitalization of banks. Three banks were looking to raise cash to offset stock market losses, Japanese media reported.
The Nikkei clawed 0.7 percent higher but Asia-Pacific shares outside of Japan fell 2.6 percent to a four-year low, according to an MSCI index. Safer assets such as government bonds and gold traded higher on the day, suggesting investors would need to see more than just rhetoric before acting.
“Whether what we’re seeing right now from policymakers is sufficient is difficult to tell faxless pay advances. The price action alone in markets tells me not,” said Dwyfor Evans, currency strategist with State Street Global Markets in Hong Kong.
Developing nations have been turning to the International Monetary Fund for help to stave off the worst global financial crisis since the Great Depression in the 1930s. Hungary had reached an agreement to get a “substantial financing package” in the next few days that will include financing by the European Union and some individual European governments, the IMF said.
The IMF agreed on a $16.5 billion loan package for Ukraine on Sunday.
STERNEST TEST
South Korean policymakers took their most dramatic measures yet in a months long battle to buttress confidence in an economy facing its sternest test since the Asian financial crisis a decade ago.
The Bank of Korea cut its main interest rate by 75 basis points to 4.25 percent in an unscheduled meeting. The rate cut was the biggest on record and only the second emergency move since the bank adopted its current monetary policy system; the first was after the September 11, 2001 attacks on the United States.
“Their priority is to minimize the impact of the crisis on growth and on volatility. Eventually this could also help the markets,” said Sebastien Barbe, senior economist and foreign exchange strategist with Calyon in Hong Kong.
President Lee Myung-bak pledged to increase government spending and to cut taxes to support Asia’s fourth largest economy, which grew at the slowest quarterly pace in four years during the last quarter.
The U.S. Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections targeted at regional banks and other financial companies, a person briefed on the plan said.
A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to announce investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.
An initial $125 billion out of the $700 billion approved by Congress was allocated last week to buy shares of nine of the largest U.S. banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Treasury Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.
“We had a problem that turned into a panic, and now the government is running around trying to put out the fires,'' said James Angel, a finance professor at Georgetown University in Washington. “If you need capital, it might be the only game in town.''
Paulson has shifted the financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers two days ago.
Insurers, Automakers
The Financial Services Roundtable, a trade association of the 100 largest banks, securities firms and insurers, pressed Treasury to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government.
“The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market,'' wrote Steve Bartlett, the group's president, in a letter yesterday to Kashkari.
Separately, a group of insurance companies — mainly life insurers — asked the Treasury earlier this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion.
Some life insurers have asked the government to make the participation mandatory because firms don't want to identify themselves as needing funds, the person said.
PNC Acquisition
Among regional lenders, PNC Financial Services Group Inc. of Pittsburgh said yesterday it is buying Cleveland-based National City Corp. for about $5.2 billion in stock after getting a $7.7 billion infusion from the Treasury free credit report .com.
First Horizon National Corp., Tennessee's largest bank, said yesterday it obtained preliminary approval to receive about $866 million. The board of SunTrust Banks Inc., Georgia's largest lender, earlier this week authorized the sale of $1.6 billion to $4.9 billion in preferred shares to the Treasury.
The rescue law requires that Treasury's investments be publicly revealed within 48 hours. It isn't clear whether that means from the time the bank is approved or from when it receives the funds.
Under the Treasury's rules for the capital injection program, some U.S. insurance companies — those with a banking business — are eligible to request an equity investment from the TARP.
The Standard & Poor's 500 Insurance Index yesterday rose 2.31, or 1.7 percent, to 139.66. The broader S&P 500 Index fell 31.34, or 3.5 percent, to 876.77.
A number of insurance companies have been battered by the recent market downturn.
Market Slide
U.S. life insurance stocks have plunged about 45 percent in the past month on concern that losses on corporate debt and mortgage-backed securities will squeeze the firms' liquidity and force them to raise capital.
MetLife Inc., the biggest U.S. life insurer, raised about $2.3 billion this month in a stock offering, and Hartford Financial Services Group Inc. said it would raise $2.5 billion from Allianz SE.
The largest insurers in the U.S. and Bermuda posted more than $93 billion in writedowns and unrealized losses on holdings tied to the collapse of the U.S. subprime mortgage market since the beginning of last year. Insurers invest policyholder premiums in bonds before paying claims.
American International Group Inc., once the world's largest insurer, accounts for about $48 billion of the declines.
AIG, which posted three straight unprofitable quarters because of bad bets on the housing market, agreed last month to turn over an 80 percent stake to the U.S. in exchange for an $85 billion loan. The New York-based insurer subsequently tapped a second federal credit line and has borrowed $90.3 billion.
AIG may need more than the $122.8 billion available, Chief Executive Officer Edward Liddy said Oct. 22 on PBS's “The NewsHour With Jim Lehrer.''
Insurers including Allstate Corp., Prudential Financial Inc., Lincoln National Corp., MetLife and Travelers Cos. have suspended or scaled back share buybacks to shepherd capital as losses from fixed-income investments mount.
Internet advertising giant Google reported a strong increase in sales and a bigger profit than expected despite the current economic slump.
The Mountain View, Calif.-based company reported revenue of $5.54 billion in the quarter ended Sept. 30, an increase of 31% from $4.23 billion a year ago.
Excluding commissions paid to advertising partners, Google posted sales of $4.04 billion, roughly in line with the $4.06 billion in sales analysts polled by Thomson Reuters expected on this basis.
Google reported net income for the third quarter of $1.35 billion, up 26% from $1.07 billion a year ago. Excluding certain charges, such as the cost of employee stock options, the company earned $4.92 a share, better than consensus estimates of $4.75 per share.
"While we are realistic about the poor state of the global economy, we will continue to manage Google for the long term, driving improvements to search and ads, while also investing in future growth areas such as enterprise, mobile, and display," said Google chief executive Eric Schmidt in a statement.
Shares of Google (GOOG, Fortune 500) jumped more than 7% in after-hours trading.
But for the past three months, investors have been concerned about Google’s performance, since its business relies heavily on advertising.
Google’s shares have fallen more than 36% over that time period as investors worried that cash-strapped businesses simply might pull back on spending on search advertising.
However, the number of paid clicks registered by Google on its sites and through its AdSense advertising network grew 4% compared to the second quarter and rose 18% compared to the same period a year ago electronic check payday advance.
Tighter wallets may play to Google’s strengths and drive up web traffic however, according to Schmidt.
"As marketing budgets are squeezed, targeted measurable ads are becoming more valuable to advertisers, and as consumer budgets are squeezed, people use the web for comparison shopping to hunt for bargains online and in stores," he said in a conference call to analysts.
"The number of search queries is actually going up," said Jeffrey Lindsay, analyst with Sanford C. Bernstein & Co.
When economic times are tough, people don’t stop searching for things online, according to Lindsay; they just search for different things.
"Even if someone loses their job, they’re going to look on the Internet for a new job," he said.
Investors have also been frustrated by the fact that a potential ad-sharing deal with rival Yahoo! (YHOO, Fortune 500) has been put on hold due to scrutiny from antitrust regulators.
The deal would give Google a gigantic new ad partner and help it widen its lead over Microsoft (MSFT, Fortune 500), which tried unsuccessfully to buy Yahoo earlier this year, in the lucrative online advertising market. But the government is concerned that a Google-Yahoo alliance would produce an online advertising monopoly.
The beleaguered insurance giant AIG announced plans Friday to hold onto its property and casualty insurance businesses, while selling off the rest of the company to pay its massive debt to the federal government.
American International Group (AIG, Fortune 500) said it also would retain a majority stake in its foreign life insurance operations.
Everything else is on the table, said Chief Executive Edward Liddy, who was installed by the Federal Reserve last month after it gave AIG an $85 billion loan. Other businesses include its aircraft leasing unit, asset management division, retirement services and U.S. life insurance operations.
Liddy gave an upbeat presentation to analysts, saying the company will end up strong and nimble after the asset sales.
"We fully expect to emerge from this with a capital structure that’s fit to fight," said Liddy in a conference call, noting the property and casualty businesses generated $40 billion in 2007 revenue. "Our insurance businesses…are strong and well-capitalized. Our policyholders are secure."
Liddy said the company has "already been contacted by numerous strong, stable parties, and we expect that buyers will recognize the value of these properties."
He did not provide a price estimate, but noted the $700 billion government bailout of troubled assets will help stabilize the firm.
The goal is to divest these units in larger transactions to brand-name companies, he said. If AIG gets good bids, it will sell fewer assets.
Potential bidders include Berkshire Hathaway, Allstate, State Life, MetLife and Manulife, as well as some European insurers, said CreditSights, a debt analysis firm.
First to hit the market will likely be units tied to airline leasing and consumer lending, both of which require funding from the debt markets, which is hard to come by these days.
International Lease Finance Corp. could command more than $7 billion and American General Finance Corp. will likely bring in about $2 billion, according to CreditSights.
While Liddy was very reassuring on the call, some analysts said his talk was mainly hype. As the financial turmoil continues, it’s hard to say how successful the asset sales will be.
"They don’t know what they are going to get," said David Schiff, founder of Schiff Insurance Observer, a newsletter.
Ratings agency Standard and Poor’s wasn’t impressed either. It placed AIG and its guaranteed subsidiaries in its financial-services division - such as the airline leasing company - on CreditWatch negative (best payday loan).
"The current disruption in the credit markets could make it difficult to sell businesses at attractive valuations," S&P said.
CreditSights valued the units AIG planned to sell at $32.9 billion and the divisions it will keep at $86 billion. These figures do not include the sale of a minority stake in its foreign life insurance operations, valued at $133.1 billion.
Once AIG sells its assets, it faces many hurdles in stabilizing its property and casualty insurance divisions. Customers are already fleeing and rivals are swooping in, experts said.
"The next challenge will be getting the core insurance business back on track, keeping the existing business and bringing in new customers," said Stewart Johnson, portfolio manager with Philo Smith, an investment bank. "Given the competitive nature of the industry, it will be tough without giving incentives."
AIG said it has drawn $61 billion in credit from the Federal Reserve as of Sept. 30. About $54 billion of it went to boost collateral at its troubled securities lending business, which is being wound down, Liddy said.
AIG’s stock rose more than 20% - to just under $5 - in afternoon trading Friday.
AIG’s downfall was due in large part to a small financial services unit in London, which prospered for years issuing credit default swaps, which insure against corporate debt defaults. With the global titan on the brink of bankruptcy a day after being downgraded by credit rating agencies, the Fed stepped up with a $85 billion loan carrying a steep interest rate, currently 12.83%. In exchange, the government took control of nearly 80% of the company.
The purpose of the loan, according to the Fed, was to help AIG to sell off its $1.1 trillion worth of assets in an "orderly manner, with the least possible disruption to the overall economy." And with the financial industry in chaos, the company needs the time so it won’t have to divest at firesale prices.
Based on the call, Liddy clearly intends to keep the company operating. In a nod to past complaints of AIG’s radio silence during troubled times, Liddy promised the company would be more forthcoming about its plans.
"Our communications and transparency will be second to none going forward," he said.
CNNMoney.com Staff Writer Aaron Smith contributed to this report.
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