- The Washington Times - Friday, January 16, 2009

Wall Street turned negative after stocks shot to a higher opening Friday, apparently still worried about the banking sector despite a government decision to bail out Bank of America with $20 billion.

By midday, the Dow Jones Industrial Average, which includes bank components, slumped 66.67, or 0.81 percent, to 8145.82. The tech-leaden Nasdaq sank 13.54, or 0.90 percent, to 1498.30. The broader Standard & Poor’s 500 sagged 8.31, or 0.98 percent, to 835.43.

With its focus on the banks, the markets apparently ignored a Labor Department report saying consumer prices fell for the third consecutive month in December, dropping a seasonally adjusted 0.7 percent from November.

The Consumer Price Index, which measures inflation, rose 0.1 percent for all of 2008, the smallest annual increase since 1954, during President Dwight D. Eisenhower’s first term.

An 8.3 percent decline in energy prices, which had fallen 17 percent in November, had much to do with the December drop in the CPI. Transportation costs fell by 4.4 percent.

The markets shot up at the opening bell because of relief over government intervention in the banking sector but turned south, apparently still troubled by the poor earnings reports from the banks.

Worries about the banks have been at the forefront of market news for the past week, dragging down the markets generally because of fears they will need more help from the government to get them through the financial crisis.

Bank of America, the nation’s largest bank, said it lost $2.39 billion, or 48 cents per share, during the fourth quarter and posted its report after it reached a deal with the federal government to receive another $20 billion from the $350 million earmarked in the fall to help financial institutions.

That will bring its total government aid to $45 billion.

The loss marked the bank’s first quarterly decline in 17 years, and it immediately cut its dividend from 32 cents to a penny. The bank, based in Charlotte, N.C., had earned $238 million during the fourth quarter in 2007.

“It is difficult to focus on what is going right at this time,” Chief Executive Kenneth Lewis said in a conference call with reporters, according to Reuters. “The economy and subsequently the credit marks literally hit a wall starting in September and culminating in late December, with the greatest impact of my almost 40 years in banking.”

The government also will guarantee to cover up to $118 billion in losses on loans and securities backed by commercial and residential real estate, a deal similar to one reached in the fall with Citigroup. The deal is meant to help the bank with its recent purchase of Merrill Lynch, the huge brokerage house.

In exchange, the government will receive preferred stock plus an 8 percent dividend.

The bank said Thursday that it may dismiss 35,000 workers over the next three years as part of its absorption of Merrill Lynch workers.

Citigroup, which earlier in the week sold its brokerage arm, Bear Stearns, to Morgan Stanley for $2.7 billion in a bid to raise cash, said it will split its traditional banking business away from its riskier holdings.

The giant company, hardest hit by the difficulties in the mortgage and credit markets, posted a loss of $8.29 billion, or $1.72 a share, for the fourth quarter.

“We are setting out a clear road map to restore profitability and enable us to focus on maximizing the value of Citi,” the company said in a statement that accompanied the earnings report.


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