Investors weighed news of government loans to the beleaguered U.S. auto industry and an S&P Ratings downgrade of 12 big banks
U.S. stocks finished mixed Friday following news of a $17.4 billion rescue plan from the federal government for beleaguered U.S. automakers General Motors (GM) and Chrysler LLC.
The funding is expected to be sufficient to carry the auto makers until the Obama administration has a chance to present its own plan. The rescue plan removes a layer of uncertainty in the market, at least for the near term, though the overall economic outlook remains bleak, according to S&P MarketScope.
Details on the auto sector bridge loans were released by the White House Friday morning. The plan includes $17.4 billion in TARP funds, with $4 billion of that contingent on a second drawdown of the TARP and the balance given in December and January to GM and Chrysler, which are expected to agree to terms today. The loans can be recalled if the companies are not viable by March 31, 2009.
Limits to executive pay and jet perks will be put in place and warrants will be required in exchange to the government for non-voting stock, which would be senior to other debt outstanding. The government can also block any corporate transactions over $100 million and no new dividends can be declared under the plan, while compliance with Federal fuel efficiency and emissions regulations will be mandated.
Shares of GM and Ford Motor Co. (F) were higher Friday.
Treasury Secretary Henry Paulson told BusinessWeek Editor-in-Chief Stephen Adler Thursday night that an orderly bankruptcy might end up being the right solution for troubled U.S. automakers if other measures fail.
On Friday, the 30-stock Dow Jones industrial average finished down 25.88 points, or 0.30%, to 8,579.11. Exxon Mobil (XOM), DuPont (DD), Bank of America (BAC), Home Depot (HD) and Disney (DIS) were among the blue chips weighing down the DJIA.
The broader S&P 500 index edged up 2.60 points, or 0.29%, to 887.88.
The tech-heavy Nasdaq composite index rose 11.95 points, or 0.77%, to 1,564.32. Gains in Research In Motion (RIMM) and Oracle (ORCL) amid earnings news helped boost the index.
Bonds fell Friday, snapping a string of gains won since Tuesday's Federal Reserve interest rate cut. Oil futures were mixed after sinking below $35 per barrel. Gold futures were off as the dollar rose.
There were no significant economic reports scheduled for release Friday.
Also on the auto front Friday, GM reportedly said that it and Chrysler LLC are not in merger talks. The comments were issued in response to a Wall Street Journal article reporting that GM and Chrysler have reopened merger talks, as Chrysler owner Cerberus Capital Management LP has signaled a willingness to cede part of its stake in the automaker.
Standard & Poor's Ratings Services on Friday announced downgrades and outlook changes to the ratings of 12 major U.S. and European financial institutions: Bank of America (BAC), Barclays Bank PLC (BCS), Citibank N.A. (C), Credit Suisse (CS), Deutsche Bank AG (DB), Goldman Sachs Group (GS), HSBC Bank PLC (HBC), JPMorgan Chase Bank N.A. (JPM), Morgan Stanley (MS), Royal Bank of Scotland PlC (RBS), UBS AG (UBS), and Wells Fargo Bank N.A. (WFC). S&P Ratings said the moves reflect its view of "the significant pressure on large complex financial institutions' future performance due to increasing bank industry risk and the deepening global economic slowdown."
On Thursday, S&P Ratings revised its outlook on General Electric Co. (GE) and its units, including General Electric Capital Corp., to negative from stable, and affirmed GE's AAA long-term and A-1+ short-term credit ratings. S&P Ratings said its negative outlook is based partly on concerns regarding General Electric Capital Corp.'s future performance and funding, and that fundamentals-based earnings and cash flow could decline sufficiently during the next two years to warrant a downgrade.
In other U.S. markets Friday, the 10-year Treasury note was lower in price at 114-16/32 for a yield of 2.12%, while the 30-year bond was down 32/32 at 140-05/32 for a yield of 2.55%.
The U.S. dollar index was higher at 81.41.
January Nymex crude oil futures fell $2.35 to $33.87 per barrel, extending recent losses as global economic weakness continues to weigh on the outlook for consumer demand for crude oil and other commodities. The sharp drop precedes the January contract's expiration at the close of trading later today. Market watchers expect potential wild price swings in the contract through the session, reports S&P MarketScope.
February gold futures were lower at $837 per ounce as the dollar continued its recent rebound against key foreign currencies.
European stocks were lower Friday, with major indexes in London finishing down 1.01%, Frankfurt fell 1.26%, and Paris lost 0.26%. Asian equity markets ended mixed, with Tokyo stocks falling 0.91%, Hong Kong down 2.39%, and Shanghai edging higher by 0.14%.