Markets plunge as $700-billion package fails
STEVE LADURANTAYE
Monday, September 29, 2008
North American stocks plunged Monday as the massive U.S. banking bailout was voted down by Congress.
Toronto stocks plunged 849.07 points, or 7 per cent, by mid-afternoon and the Dow Jones industrial average 443.08 points, or 3.98 per cent. The S&P 500 fell as much as 5.98 per cent, or 72.58 points, in its biggest drop since 1987.
The $700-billion (U.S.) plan, which appeared set for approval when a compromise was announced Sunday, was intended to increase liquidity in the markets and restore confidence in a shattered banking sector. The plan was rejected 228-to-205.
Critics said the bailout didn't address the concerns of the average citizen, such as job losses and the weak housing market that is at the source of the banking problems. If Monday's vote had passed, the plan would have been before the Senate Wednesday and signed by the President George W. Bush soon after.
“The immediate downside market reaction is appropriate for the decision made by the senate committee today,” said Sheryl Purdy, vice-president of Leede Financial Markets in Calgary. “They called the dare and now they're seeing what the free markets think of their decision to vote down this bill. I sincerely hope they will revise and reconsider their decision made today”
As lawmakers voted, the yield of the 3-month Treasury bill sank to 0.32 per cent – indicating their willingness to sacrifice returns for security.
Oil contributed to the deep losses in Toronto, with the energy sector down 9 per cent. Oil lost as much as $10.01 Monday to $96.88 a barrel, but had regained some of the losses to settled at $98.22.
“Oil is really down on all of the broader worries,” said Martin King, energy commodities analyst at FirstEnergy Capital Corp. in Calgary. “They're worried about demand and about this financial package in the United States. There is also general blowback – people need to raise cash again so they are selling their oil positions.”
David Cockfield, a portfolio manager at Leon Frazer Associates in Toronto, said “illogical” investors are abandoning sectors that are in relatively good shape in a bid to protect their assets. Oil may be falling, he said, but it's still 25 per cent higher than it was last year and profits are expected to by 50 per cent higher at oil producers this quarter than the same period a year ago.
“It's all somebody else's problems, being reflected in Canadian stocks,” Mr. Cockfield said. “All of our concerns are in Canada are so far imagined. We think this could hurt us, but we've seen very little evidence of that so far. People are just running for cover with the assumption that all those problems are going to cross over the border and there's no proof that this is happening.”
Earlier in the day, the credit crisis continued to claim victims.
The Federal Deposit Insurance Corp. said Citigroup Inc. would take over Wachovia's banking operations. Citigroup will absorb up to $42-billion (U.S.) in losses, with the government backing any further losses. In return, Citigroup will issue FDIC $12-billion in preferred shares and warrants.
Wachovia is the latest institution to succumb to the crisis – mortgage lenders Freddie Mac and Fannie Mae were taken over by the government to protect $5-trillion in mortgages, insurer American International Group was bailed out by the governments in an $85-billion effort, Lehman Brothers Holdings declared bankruptcy and Merrill Lynch was absorbed by the Bank of America.
The banking crisis also cut deeply into Europe over the weekend, with Fortis and Bradford & Bingley banks receiving government bailouts and other European banks getting hammered in the markets on Monday.
More to come
© Copyright The Globe and Mail
STEVE LADURANTAYE
Monday, September 29, 2008
North American stocks plunged Monday as the massive U.S. banking bailout was voted down by Congress.
Toronto stocks plunged 849.07 points, or 7 per cent, by mid-afternoon and the Dow Jones industrial average 443.08 points, or 3.98 per cent. The S&P 500 fell as much as 5.98 per cent, or 72.58 points, in its biggest drop since 1987.
The $700-billion (U.S.) plan, which appeared set for approval when a compromise was announced Sunday, was intended to increase liquidity in the markets and restore confidence in a shattered banking sector. The plan was rejected 228-to-205.
Critics said the bailout didn't address the concerns of the average citizen, such as job losses and the weak housing market that is at the source of the banking problems. If Monday's vote had passed, the plan would have been before the Senate Wednesday and signed by the President George W. Bush soon after.
“The immediate downside market reaction is appropriate for the decision made by the senate committee today,” said Sheryl Purdy, vice-president of Leede Financial Markets in Calgary. “They called the dare and now they're seeing what the free markets think of their decision to vote down this bill. I sincerely hope they will revise and reconsider their decision made today”
As lawmakers voted, the yield of the 3-month Treasury bill sank to 0.32 per cent – indicating their willingness to sacrifice returns for security.
Oil contributed to the deep losses in Toronto, with the energy sector down 9 per cent. Oil lost as much as $10.01 Monday to $96.88 a barrel, but had regained some of the losses to settled at $98.22.
“Oil is really down on all of the broader worries,” said Martin King, energy commodities analyst at FirstEnergy Capital Corp. in Calgary. “They're worried about demand and about this financial package in the United States. There is also general blowback – people need to raise cash again so they are selling their oil positions.”
David Cockfield, a portfolio manager at Leon Frazer Associates in Toronto, said “illogical” investors are abandoning sectors that are in relatively good shape in a bid to protect their assets. Oil may be falling, he said, but it's still 25 per cent higher than it was last year and profits are expected to by 50 per cent higher at oil producers this quarter than the same period a year ago.
“It's all somebody else's problems, being reflected in Canadian stocks,” Mr. Cockfield said. “All of our concerns are in Canada are so far imagined. We think this could hurt us, but we've seen very little evidence of that so far. People are just running for cover with the assumption that all those problems are going to cross over the border and there's no proof that this is happening.”
Earlier in the day, the credit crisis continued to claim victims.
The Federal Deposit Insurance Corp. said Citigroup Inc. would take over Wachovia's banking operations. Citigroup will absorb up to $42-billion (U.S.) in losses, with the government backing any further losses. In return, Citigroup will issue FDIC $12-billion in preferred shares and warrants.
Wachovia is the latest institution to succumb to the crisis – mortgage lenders Freddie Mac and Fannie Mae were taken over by the government to protect $5-trillion in mortgages, insurer American International Group was bailed out by the governments in an $85-billion effort, Lehman Brothers Holdings declared bankruptcy and Merrill Lynch was absorbed by the Bank of America.
The banking crisis also cut deeply into Europe over the weekend, with Fortis and Bradford & Bingley banks receiving government bailouts and other European banks getting hammered in the markets on Monday.
More to come
© Copyright The Globe and Mail