Market Summary ~ Dow up 69 despite banking, economic woes
Citigroup posts a loss and will be split up. Bank of America has its first quarterly loss in 17 years -- and gets billions more in government aid. More company announce layoffs; Circuit City will liquidate. Markets will be closed Monday for Martin Luther King Day.
[Related content: stocks, investments, stock market, financial crisis, economy]
By Charley Blaine and Elizabeth Strott
Stocks rose Friday for a second day in a row, despite awful earnings reports from Bank of America (BAC, news, msgs) and Citigroup (C, news, msgs) and new reports of major layoffs.
A late-day rally pushed the major indexes solidly into the black, ahead of a long weekend and President-elect Barack Obama's inauguration on Tuesday. Markets will be closed Monday for Martin Luther King Day.
The Dow Jones industrials closed up 69 points to 8,281. The Standard & Poor's 500 Index was up 6 points to 850, and the Nasdaq Composite Index was up 17 points to 1,529.
The gains for the Dow and the S&P 500 were remarkable, given the weakness in financial stocks. Bank of America was off 13.8% to $7 17 and Citigroup fell 8.6% to $3.50. Wells Fargo (WFC, news, msgs) was off 7.8% to $18.58. JPMorgan Chase (JPM, news, msgs) fell 6.2% to $22.82.
Will the rally translate into more gains next week? The S&P 500 has been struggling to get past 851, an important resistance level. That is a signal that the stock market may remain flat.
And there are worries about whether the government will need to prop up the banking system again after agreeing to support Bank of America.
A flood of earnings are scheduled, along with important economic data, including Thursday's report on building permits and housing starts.
Earnings are due from Johnson & Johnson (JNJ, news, msgs) (Tuesday); Apple (AAPL, news, msgs), U.S. Bancorp (USB, news, msgs), and United Airlines parent UAL (UAUA, news, msgs) (Wednesday) and Google (GOOG, news, msgs) and Microsoft (MSFT, news, msgs) (Thursday).
For the week, the Dow dropped 323 points or 3.8%, its second weekly loss in a row. The S&P 500 shed 40 points, or 4.5%, and the Nasdaq fell 42 points or 2.7%. The Dow is off 5.7% this month, with the S&P 500 off 5.9% and the Nasdaq off 3%.
The Dow had risen 125 points right after the open on investor relief about a new government aid package to help Bank of America deal with much larger than expected losses from Merrill Lynch. At the same time, Citigroup announced an $8.3 billion loss for the fourth quarter and said it would split itself.
Amid worries, the Dow slumped to a 105-point loss by 12:20 p.m. before a recovery kicked in.
It was hard to be optimistic about stocks given the news, which included:
* More job cuts. Advanced Micro Devices (AMD, news, msgs) will cut 1,100 jobs. Pfizer (PFE, news, msgs) will chop 2,400 sales slots. General Electric (GE, news, msgs) is expected to cut 7,500 to 11,000 jobs from its finance business. Auto rental company Hertz (HTZ, news, msgs) is cutting 4,000 jobs.
* A major liquidation. Electronics retailerCircuit City (CCTYQ, news, msgs) said it couldn't find a buyer and has won bankruptcy court permission to liquidate itself. That will result in 30,000 jobs losses. The shares fell 77% to 3 cents.
Offsetting that bad news was relative optimism about Intel (INTC, news, msgs), whose fourth-quarter earnings last night met analyst estimates. The stock was up 3.5% to $13.54 Friday and was the top performer among the 30 Dow stocks.
And if anyone had any worries about inflation in the short run, Friday's Consumer Price Index report put them to rest. Consumer prices fell 0.7% in December from November, the biggest drop since 1954.
Crude oil was up $1.10 a barrel to $36.50, giving energy shares a boost. Exxon Mobil was up 1.2% to $77.56.
* Top Stocks blog: Circuit City bows to the inevitable
Apple (AAPL, news, msgs) was down 1.3% to $82.33. Bloomberg News reported that CEO Steve Jobs is considering a liver transplant as a result of complications from treatment of pancreatic cancer in 2004. Jobs announced this week he would take a medical leave of absence after learning his health problems were more complex than he'd thought.
Energy prices -- New York close Fri. Thur. Chg. Month chg. YTD chg.
Crude oil (NYMEX) (per barrel) $36.51 $35.40 $1.11 -18.14% -18.14%
Heating oil (per gallon) $1.4734 $1.4871 -$0.0137 4.82% 4.82%
Natural gas (per million BTU) $4.8010 $4.8430 -$0.0420 -14.60% -14.60%
Unleaded gasoline (per gallon) $1.1672 $1.1742 -$0.0070 15.77% 15.77%
Ugly losses for Bank of America, Citigroup
Citigroup reported an $8.29 billion quarterly loss, or $1.72 per share, far worse than the consensus estimate of a loss of $1.12 per share.
In the same period for 2007, Citigroup lost $9.8 billion, or $1.99 per share.
"It looks like a kitchen-sink quarter," said Peter Sorrentino, money manager at Huntington Asset Advisors. "Sweep it all in there and get this behind us."
Meanwhile, Bank of America posted a loss of $1.79 billion for the quarter, or 48 cents a share; analysts were looking for profit of 8 cents per share. It was the bank's first quarterly loss in 17 years, and a huge drop from the $268 million in profit it earned last year.
* Top Stocks blog:Citi's earnings -- from bad to . . . 'Oh my!'
The loss at Merrill Lynch, which Bank of America officially acquired on Jan. 1, was huge: $15.31 billion, or $9.62 per share.
On a conference call with analysts this morning, Bank of America CEO Ken Lewis defended his decision to buy Merrill Lynch, saying that investors "will see the benefits" of the deal when the economy recovers.
"The severe recession and credit crisis will end someday, and people will remember that our company was there for them in hard times," Lewis said.
But analysts were skeptical. "The acquisition of (Merrill) significantly increases (Bank of America's) exposure to currently depressed capital-markets-related revenues," wrote Jeff Harte, analyst with Sandler O'Neill & Partners, in a note to clients this morning.
"Bank of America didn't do proper due diligence," Bradley Dorman, managing partner at investment adviser WhaleRock Point Partners, told The Wall Street Journal, adding that Lewis "probably jumped the gun" on the Merrill deal.
Bank of America also said it is slashing its quarterly dividend to a penny from 32 cents. The company also will cut 30,000 to 35,000 jobs over the next three years, in addition to the 7,500 jobs the bank announced after its purchase of Countrywide Financial.
Citi to split
In addition to its loss, Citigroup announced plans to divide itself into two entities.
Citicorp, the "good" bank, will include the company's private and investment banking groups, as well as its credit card and consumer banking businesses. Citi Holdings will be the "bad" bank, and encompass the company's noncore businesses -- including CitiFinancial, Primerica Financial Services, its brokerage business, the retail asset management unit and other risky assets. Citi Holdings will also include the 49% stake in its joint venture with Morgan Stanley (MS, news, msgs), a deal that was announced just days ago.
This morning, Citigroup CEO Vikram Pandit said the Citicorp unit will generate 80% of the company's profits.
* Top Stocks blog: Return of the 'bad bank'
The new structure will enable the newly created Citicorp "to focus on driving the performance of its core businesses and, separately, on realizing value from noncore assets," Citigroup said in a statement this morning.
The move is a drastic change from the mega "supermarket" banking model that was created by the 1998 merger between Travelers and Citicorp -- a deal that was spearheaded by Sandy Weill and John Reed.
"In this day and age, with the Internet and access to information, a lot of savvy consumers have figured out that it's better to shop around," Michael Pagano, a finance professor at the Villanova University School of Business, told The Associated Press.
Bank of America gets more aid
Bank of America also announced an additional $20 billion in government aid to help the bank absorb its recent acquisition of Merrill Lynch. In exchange, the government will get preferred stock paying an 8% dividend.
The federal government will also guarantee $118 billion of the bank's assets.
The company's stock slumped 18% in trading Thursday, after reports first appeared suggesting the bank's need for more assistance from the government. Bank of America has already received $25 billion from the Treasury Department's Troubled Assets Relief Program.
Meanwhile, the Senate voted Thursday to allow the release of $350 billion in financial-rescue funds sought by President-elect Barack Obama.
In a 52-42 vote, the Senate defeated a resolution that would have prevented the release of the second half of the $700 billion in the TARP, which was enacted last year to boost the sagging U.S. economy.
Consumer sentiment perks up in January
Consumers were feeling a little better in early January, according to the University of Michigan/Reuters consumer sentiment survey.
The index showed a reading of 61.9 for the beginning of this month -- an improvement, albeit slight, from the 60.1 reading in December.
While the report was the highest level since the reading of 70.3 seen in September, and higher than economists' expectations for a 59 reading, the report found "no signs of significant change over the past six months."
More inflation data out
The December Consumer Price Index fell 0.7%, the Labor Department reported this morning. An 8.3% drop in energy prices helped contribute to last month's drop in the CPI.
The CPI has been falling since July, when it rose 0.8%.
For all of 2008, consumer prices rose a mere 0.1%, the smallest increase in 54 years. Economists contrast this figure with that of the Depression years, when a 10% annual fall was seen for several years.
The core CPI, which excludes food and energy, was unchanged, in line with expectations.
Intel posts 90% drop in profit
Tech bellwether Intel late Thursday announced dismal fourth-quarter results.
The company said net income was $234 million, or 4 cents per share, a whopping 90% plunge from the $2.27 billion, or 38 cents per share, in the same quarter last year. Revenue fell 28% to $8.2 billion.
Still, shares were up 18 cents, or 1.4%, to $13.47 because the results were in line with analysts' expectations.
Chief Executive Paul Otellini told analysts it was only the second time in 20 years that fourth-quarter revenues were below those of the third quarter. The last time was in 2000.
Intel didn't give a revenue outlook for the current quarter.
Andrew Rosenbaum contributed to this report.
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