FT: Regulation fears trigger sell-off in financial sector
By Samantha Pearson in New York Published: January 22 2010 02:00 | Last updated: January 22 2010 02:00
A sell-off in the financial sector forced Wall Street to give up its early gains yesterday.
Banking shares plunged after reports that the Obama administration was planning an aggressive series of regulatory changes that would ban proprietary trading at deposit-taking banks.
Bank of America dropped 3.9 per cent to $15.85, Goldman Sachs was down 2.9 per cent at $163.00 and Citigroup had lost 3.5 per cent to $3.34 before Mr Obama's speech. Overall, the S&P 500 financial sector was down 2.2 per cent.
After dipping in and out of the red, the S&P 500 was down 1.5 per cent at 1,121.33 in late morning trading. The Dow Jones Industrial Average had lost 1.6 per cent to 10,429.71 and the Nasdaq was 1 per cent lower at 2,268.10.
The financial sector was already in focus after a rush of quarterly results unsettled the market.
Goldman reported a higher profit for the fourth quarter than analysts had forecast. The bank also responded to the public outcry over bankers' pay by slashing compensation.
PNC Financial Services , the Pittsburgh-based bank, beat profit expectations after a decline in loan losses. The group said it had benefited from its acquisition in 2008 of National City, a bank based in Ohio. But PNC shares lost 5.8 per cent to $55.41.
Keycorp , which is also based in the state, reported a narrower loss than analysts had been expecting but said it was still struggling with a high number of loan defaults. The Midwest region has been hard-hit by the subprime mortgage crisis. Keycorp's shares surged 7.8 per cent to $7.50.
Fifth Third Bancorp also reduced its fourth-quarter loss due to fewer writedowns on mortgages and others loans. Shares in the Cincinnati-based bank rose 8.3 per cent to $12.25.
Material stocks fell for the second straight day as concerns lingered over the effect of China's move to rein in lending.
Bob Baur, chief global economist at Principal Global Investors, said fears over the effect of China's move to tighten monetary policy was also still weighing on the market.
"We are seeing a transition from a fast-paced cyclical rally by basic materials, financials and industrials. We had a synchronised global recovery after a synchronised global recession and now we're seeing some differentiation in monetary policy."
An unexpected jump in claims for unemployment benefits in the US also dragged the market lower from the opening bell.
Analysts had been expecting fewer Americans to file fresh claims for unemployment benefits last week. However, the labour department reported initial jobless claims had risen to 482,000.
The market had initially edged higher after positive results from Ebay lifted the technology sector. A strong performance by its PayPal payment processing business and a surge in online Christmas holiday shopping helped Ebay to post a higher-than-expected profit for the last quarter. The shares were still up 9.1 per cent at $24.25 in spite of the mood of pessimism on Wall Street.
Elsewhere in the technology sector, satellite navigation manufacturers were under pressure after Nokia announced it would offer free maps on its mobile phones.
Companies such as Garmin are suffering from Google's assault on the market late last year. While Nokia shares climbed more than 1 per cent in Finland, Garmin was down 5.3 per cent at $34.23.
Shares in Inspire Pharmaceuticals plunged 15.1 per cent to $5.61 after the drugmaker reported disappointing results from a late-stage trial of its treatment for dry eyes.
However, Fairchild Semiconductor added to the sector's gains by giving a higher-than-expected forecast for the first quarter. The chipmaker's shares rose 8.3 per cent to $12.25.
Continental Airlines announced a surprise profit for the fourth quarter. The carrier said it had seen an improvement in lucrative business traffic. However, the shares were later down 3 per cent to $20.01. Southwest Airlines reported a higher-than-expected profit for the quarter. But its shares succumbed to the market mood, losing 0.7 per cent to $11.25.
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