Wachovia Loss May Spell End For Bank Rally
Steve Schaefer, 07.22.08, 10:27 AM ET
The recent run of success for the battered financial sector was derailed Tuesday morning, after a key earnings report came in well below expectations before the open of New York trading.
Wachovia disappointed investors with an $8.9 billion net loss. The $4.20 per share loss was stunning at first blush and far worse than the $1.23 to $1.33 per share loss the Charlotte-based bank had forecast July 9, when it named Robert Steel its new chief executive. Excluding a $6.1 billion goodwill impairment charge and certain restructuring expsenses, the loss fell within the range, at $1.27 a share. (See "Wachovia Steels Itself For Uncertain Future")
The regional bank also slashed its quarterly dividend to 5 cents, an 86.8% cut that it said will save $700 million a quarter.
The disappointment comes after major banks like Bank of America, JPMorgan Chase, Citigroup and Wells Fargo beat expectations, and ahead of results from Washington Mutual, due after the close. (See "Citigroup Hurts So Good")
Shares of Wachovia fell 95 cents, or 7.2%, to $12.23, and the broader market followed suit, as the Standard & Poor's 500 lost 9 points, or 0.7%, to 1,251.
The blue-chips were also reeling, as the Dow fell 57 points, or 0.5%, to 11,411. American Express was a primary culprit in that instance, after the company's outlook distressed investors Monday evening. After reporting second-quarter earnings that fell short of expectations, American Express said it does not expect to meet or exceed long-term financial targets until the economy recovers because conditions worsened more rapidly than expected. (See "AmEx Results Show Pain Spreading To High End") Shares of the credit card company were down $4.57, or 11.2%, to $36.33, in early trading.
Fellow Dow components Caterpillar and DuPont were in better shape, after both beat estimates with their quarterly results. Shares of Caterpillar picked up $1.87, or 2.6%, to $75.10, while DuPont added 63 cents, or 1.4%, to $44.68.
Tech stocks were also battered by an earnings report from late Monday, as Apple fell despite meeting expectations on profits and gross margins. The iPhone maker offered conservative guidance for its current quarter, as is habitual for the company, but this time it riled investors, and shares tumbled $17.27, or 10.4%, to $149.02. (See "Apple Makes No Promises")
The drop in tech dragged the Nasdaq lower, as the index fell 24 points, or 0.7%, to 1,251, at the open.
Yahoo! will also be in the sights of market watchers Tuesday, with second-quarter earnings due later in the day, following Monday's news of a truce with billionaire activist investor Carl Icahn. (See "Fox In Yahoo!'s Henhouse") Shares of Yahoo! lost 63 cents, or 2.9%, to $21.04, in early trading.
Oil prices slipped after sharp gains Monday, on expectations that Tropical Storm Dolly will miss major oil and gas installations in the Gulf of Mexico. Crude fell $1.43, to $129.61 a barrel, in early floor trading.
On the economic front, Treasury Secretary Henry Paulson said the stability of government-sponsored enterprises Fannie Mae and Freddie Mac are crucial to the recovery of the housing market. Reforming the GSEs, better regulation and more market discipline are needed in order to support the broader financial system. |
