Bloomberg News

U.S. Stocks Decline Amid ECB Draghi’s Comments as Banks Tumble

December 20, 2011

Dec. 19 (Bloomberg) -- U.S. stocks slumped, led by financial companies, as European Central Bank President Mario Draghi said substantial risks to the economy remain and the law forbids him from stepping up government bond purchases.

JPMorgan Chase & Co. and Morgan Stanley fell more than 5 percent on a report that large financial institutions will have to hold extra capital. Bank of America Corp. sank 3.6 percent to its lowest level since 2009. Alcoa Inc. and Hewlett-Packard Co. dropped at least 2.2 percent to pace losses in the Dow Jones Industrial Average. Freeport-McMoRan Copper & Gold Inc. slid 2.6 percent as copper fell on concern Chinese demand will slow.

The Standard & Poor’s 500 Index slipped 0.7 percent to 1,211.61 at 2:40 p.m. New York time. The benchmark gauge for U.S. equities gained 0.7 percent over the previous two days. The Dow lost 49.23 points, or 0.4 percent, to 11,817.16 today.

“It’s not all roses and candy,” Malcolm Polley, who oversees $1.1 billion as chief investment officer at Stewart Capital in Indiana, Pennsylvania, said in a telephone interview. “You have a stubborn debt problem in Europe. The level of distrust has been -- you guys say you have things fixed and then it turns out you don’t. Until it’s actually done, we’re not going to believe you.”

The S&P 500 has fallen 3.5 percent in 2011, poised to snap a two-year rally, amid concern about slower global growth as European leaders struggled to solve the region’s debt crisis. Financial shares had the biggest decline among 10 groups in the benchmark measure this year, tumbling 22 percent.

‘Forbids’

Equities slumped today as Draghi said the ECB can’t step up government bond purchases under its founding piece of legislation. “The treaty specifies very closely what our remit is, namely to ensure price stability in the medium term,” he told lawmakers in Brussels today. “The treaty also forbids monetary state financing.”

Euro-area governments met a target for boosting their anti- crisis warchest with a pledge to provide 150 billion euros ($195 billion) to the International Monetary Fund. Four non-euro users -- the Czech Republic, Denmark, Poland and Sweden -- will also pitch in, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a teleconference of finance ministers today.

The first part of 2012 will be “risk off” as Europe’s sovereign-debt crisis roils markets, Mohamed El-Erian, chief executive officer at Pacific Investment Management Co., said in an interview with Tom Keene on Bloomberg Television’s “Surveillance Midday.”

Get More Serious

“This has been frustrating because Europe hasn’t done enough yet in a timely fashion to alleviate the uncertainty,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “Hopefully we won’t see a situation in which the market, by dramatically increasing the cost of funding, forces European leaders to get more serious.”

Nine out of 10 groups in the S&P 500 retreated, as gauges of financial and commodity shares had the biggest declines. The Morgan Stanley Cyclical Index slid 1.6 percent amid concern about economic growth.

The KBW Bank Index slumped 2.2 percent as all of its 24 stocks fell. The Federal Reserve is expected to embrace a new global framework that requires big banks to hold extra capital, the Wall Street Journal reported, citing people familiar with the situation.

“For the large U.S. banks, it makes sense that they would be asked to hold higher levels of capital,” Stewart Capital’s Polley said. “They are a systemically bigger problem.”

Reveal More Data

Banks should be forced to reveal more data about their financial reserves so that they can’t conceal poor management decisions and excessive risk-taking, global regulators said. Lenders should “disclose the full list” of instruments that they are counting toward meeting their required minimum capital levels, the Basel Committee on Banking Supervision said in an e- mailed statement today.

Bank of America retreated 3.6 percent to $5.02, its lowest intraday level since March 2009. JPMorgan tumbled 3.6 percent to $30.75. Morgan Stanley dropped 5 percent to $14.23. Citigroup Inc. slumped 3.8 percent to $25.03.

Some of the biggest companies fell. Alcoa, the largest U.S. aluminum producer, dropped 2.7 percent to $8.57. Hewlett-Packard declined 2.2 percent to $25.28.

A measure of raw material shares in the S&P 500 lost 1.2 percent. Copper declined on concern that demand will ease after property prices dropped in China, the world’s top consumer of industrial metals. Freeport, the world’s largest publicly traded copper miner, lost 2.6 percent to $36.02.

Century-Old

Schnitzer Steel Industries Inc. tumbled 8.8 percent to $41.69. The century-old steel recycler reported preliminary first-quarter earnings that were less than analysts projected because of slower demand and a decline in sales prices.

Cablevision Systems Corp. rose 2.8 percent to $13.11, the biggest gain in the S&P 500. The cable company was added to the Top Picks Live list at Citigroup, which said the stock’s declines after earnings reports that missed analyst estimates and the departures of executives were “a touch extreme.” The company and Verizon Communications Inc. settled a lawsuit over ads that Cablevision claimed misrepresented its Internet speeds, a Verizon spokesman said.

--Editors: Jeff Sutherland, Michael P. Regan

To contact the reporter on this story: Rita Nazareth in Sao Paulo at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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