The week might get more interesting as other banks report.
U.S. Stocks Drop After Citigroup Says Consumer Credit Worsening
By Michael Patterson
Oct. 15 (Bloomberg) -- U.S. stocks fell the most in five weeks after Citigroup Inc. said defaults will plague the financial industry for the rest of the year.
Citigroup, the largest U.S. bank, posted its steepest loss since Aug. 28 after Chief Financial Officer Gary Crittenden said late payments on home loans may worsen in the fourth quarter. Bank of America Corp. and JPMorgan Chase & Co. also retreated. Eaton Corp., the world's second-biggest maker of hydraulic equipment, led industrial shares to their lowest since Sept. 26 after reducing its 2007 profit forecast because of the weak U.S. housing market.
The Standard & Poor's 500 Index lost 13.09, or 0.8 percent, to 1,548.71; energy companies posted the only advance among 10 industry groups in the index after the price of oil climbed to a record. The Dow Jones Industrial Average tumbled 108.28, or 0.8 percent, to 13,984.8. The Nasdaq Composite Index fell 25.63, or 0.9 percent, to 2,780.05.
``For the Citigroups of the world, there's too much unknown that still has to work itself out,'' said Tim Hartzell, who helps manage about $2 billion as chief market strategist at Kanaly Trust Co. in Houston. ``It's not a good spot to be in right now for a consumer here in America.''
Citigroup's warning spurred speculation that the impact of mortgage losses won't be limited to the third quarter, when bank earnings probably fell the most since 2001. Consumer stocks including Coach Inc. posted the second-steepest drop in the S&P 500 after financial shares.
`Frankly Surprising'
Citigroup retreated $1.63, or 3.4 percent, to $46.24 for the biggest decline since Aug. 28. Third-quarter earnings fell 57 percent to $2.38 billion, or 47 cents a share. The percentage of U.S. real-estate loans where borrowers were more than 90 days behind on payments climbed to 1.8 percent from 1.4 percent in the second quarter and 1 percent a year earlier, Citigroup said.
``This quarter's performance was well below our expectations and frankly surprising,'' Citigroup Chief Executive Officer Charles Prince said on a conference call with analysts. ``We are working very hard to make sure our return to strong performance is something we can be confident in.''
Citigroup is the first of the nation's biggest banks to report earnings for the quarter. JPMorgan, which releases its results on Oct. 17, slid 55 cents to $46.27. Bank of America, which is scheduled to report on Oct. 18, decreased 65 cents to $51.42. American Express Co. fell $1.43 to $61.80. The third- largest credit-card network reports earnings on Oct. 22.
Financial companies including banks and brokerages, which comprise 20 percent of the S&P 500's value, may report a 14.4 percent drop in average third-quarter profits, the biggest decline since 2001 and the largest decrease among 10 industry groups, according to Bloomberg data. The S&P 500 Financials Index declined 1.8 percent today as 89 of its 92 members retreated.
`Underweight' Financials
Goldman, Sachs & Co. today recommended investors ``underweight'' the financials sector before third-quarter earnings season because banks may reduce their 2008 profit forecasts amid declining revenue from debt trading and underwriting.
Eaton lost $3.36 to $93.04. Sluggish demand for heavy-duty truck parts and a weak housing market curbed sales of residential electrical and hydraulic construction equipment, the company said. Eaton lowered the top end of its annual profit forecast by 10 cents a share.
Coach, the largest U.S. maker of luxury leather handbags, declined $2.23 to $41.74. Phillips-Van Heusen Corp., the seller of Calvin Klein and Izod clothing, dropped $1.39 to $48.84. So- called consumer discretionary companies in the S&P 500, which are projected to report a 7.4 percent decline in third-quarter profit, retreated 1.4 percent as a group.
``The consumer area has been one that we've been avoiding,'' said Dan Bandi, who helps oversee $2.7 billion as chief investment officer at Integrity Asset Management in Independence, Ohio. ``The consumer slowdown has really just started and has a ways to go.''
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