Begin forwarded message:
From: [EMAIL PROTECTED]
Date: July 10, 2008 2:17:49 PM PDT
To: [EMAIL PROTECTED]
Cc: [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED], [EMAIL PROTECTED]
Subject: U.S. Financial Sector Has Lost $1 TRILLION -- Just in the
Last 9 Months!
Crisis wipes $1 trillion from financial stocks
By JOE BEL BRUNO,
AP
Posted: 2008-07-07 16:57:38
http://money.aol.com/news/articles/_a/crisis-wipes-1-trillion-from-financial/n20080707165709990009
NEW YORK - U.S. financial companies have lost more than $1 trillion
in value this year, and yet another decline on Monday shows concerns
aren't going away soon.
Banks and brokerages began the week lower on the same fears that
have been proven toxic since last summer in the ongoing credit
crisis. The financial sector was hit with a confluence of troubles
on Monday: cautious remarks from a Federal Reserve official and new
capital concerns at Freddie Mac and Fannie Mae .
The drop in names like Lehman Brothers , Morgan Stanley and Merrill
Lynch caused the financial section of the Standard & Poor's 500
index to lose almost $150 billion in value on Monday, according to
the rating agency. That means S&P 500's 85 financial components have
lost some $1.3 trillion since the sector reached a high last October.
Even more startling is that shares of 35 of the companies, which
include insurers, have lost more than half their value so far this
year. The financial sector used to be the index's main driver, and
many economists believe that the broader market will rise or fall on
their health.
"Some would argue that perhaps the sell-off in financials is
overdone, but at the same time there is just much uncertainty out
there about write-offs, loan losses, and how bad the housing market
is," said Jim Herrick, a director of equity trading at Baird & Co.
"For a period of time the pain was in the big money center banks,
but now it's spreading."
Fannie and Freddie fell sharply after Lehman Brothers analyst Bruce
Harting said the two government-backed lenders might need to raise
billions of dollars in new capital. Both are facing a proposed
change to accounting standards that would require financial services
firms move bonds backed by pools of loans, also known as
securitizations, off their balance sheets.
If this rule is passed, it would end Freddie and Fannie's primary
source of generating new revenue. Harting said Fannie Mae would need
to raise $46 billion in cash to meet capital requirements, while
Freddie Mac would need $29 billion.
The broader financial sector was hurt after San Francisco Federal
Reserve President Janet Yellen said problems in the housing market
and banking system could get even worse before the economy recovers.
Global banks and brokerages have lost nearly $300 billion from
investments in mortgage-backed securities and other risky
investments since the credit crisis began one year ago.
And there are fresh signs that Wall Street's biggest investment
houses are having trouble navigating through volatile markets.
Goldman Sachs Group Inc., the world's biggest investment bank,
disclosed in a regulatory filing that it lost at least $100 million
on nine trading days during the second quarter. Goldman reported
that total trading revenue in the second quarter fell 17 percent to
$4.87 billion, according to the filing.
The firm, known for aggressive trading tactics that can cause big
swings from week to week, still far surpassed many of its rivals on
the Street. That has put more focus on Merrill Lynch, which will
report its quarterly results next Thursday.
John Thain , Merrill's CEO, is said to be examining the sale of
stakes the brokerage has in asset manager BlackRock Inc. and in
Bloomberg LP. Money raised would be used to offset big write-downs
expected at the brokerage.
A spokeswoman declined to comment about numerous media reports.
However, Thain in the past has said he is open to selling the stakes
if Merrill can fetch a good price.
Howard Silverblatt, S&P's senior index analyst, said financial
stocks will likely continue to be hurt until some signs develop that
show banks and brokerages have a better grip on credit problems.
Merrill's earnings next week could provide that.
"There's still lots of uncertainty out there," he said. "And, the
financials need to turn around if the whole index wants to recover."
AP Business Writer Stephen Bernard contributed to this story from
New York.
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