U.S. Stocks Drop After Thornburg, Carlyle Get Default Notices
03/06/2008
By Michael Patterson
March 6 (Bloomberg) -- U.S. stocks fell to a six-week low on concern credit-market losses are widening after Thornburg Mortgage Inc. and a Carlyle Group bond fund received default notices and an analyst said UBS AG may face more writedowns.
Thornburg, the lender that's been running short on cash since August, tumbled the most ever as the notice reinforced speculation the company will go bankrupt. Citigroup Inc., Bank of America Corp. and Merrill Lynch & Co. dropped after a JPMorgan Chase & Co. report said UBS may have unloaded $24 billion in mortgage securities in a ``fire sale.'' J.C. Penney Co. and Gap Inc. fell on February sales that trailed estimates.
The Standard & Poor's 500 Index slid 9.04 points, or 0.7 percent, to 1,324.66 at 9:43 a.m. in New York. The Dow Jones Industrial Average lost 69.52, or 0.6 percent, to 12,185.47. The Nasdaq Composite Index decreases 4.3, or 0.2 percent, to 2,268.47. European shares extended declines after the European Central Bank kept interest rates at a six-year high to curb inflation. Asian stocks rose.
``It's a tough environment,'' Paul Rasplicka, who manages $4 billion at AIM Investments, said in a Bloomberg Television interview in New York. ``Lending terms are tighter. The willingness to extend credit is less. It's making it very tough for business.''
Financial shares in the S&P 500 fell for a sixth day, the longest losing streak since May. The group extended its 2008 loss to 16 percent and tumbled to the lowest since May 2003. About four stocks retreated for every one that rose on the New York Stock Exchange.
Investors also speculated that a report today will show the housing slump has deepened. Economists in a Bloomberg survey forecast the National Association of Realtors' index of signed purchase agreements for homes dropped to the lowest level since the group began keeping records in 2001.
Thornburg, Fannie Mae
Thornburg lost $2.12, or 62 percent, to $1.28. JPMorgan, the third-biggest U.S. bank by assets, sent a letter dated Feb. 28 after Thornburg failed to meet a $28 million margin call, the Santa Fe, New Mexico-based company said in a regulatory filing yesterday. That triggered defaults on other financing agreements and the amounts involved are ``material,'' the company said.
RBC Capital Markets said in a research note today that ``bankruptcy is now a more likely outcome'' for Thornburg.
Fannie Mae, the largest source of money for U.S. home loans, declined 90 cents to $23.37. Freddie Mac, the second biggest, lost 44 cents to $21.20. Washington Mutual Inc., the largest U.S. savings and loan, declined 48 cents to $12.32.
UBS's U.S.-traded shares dropped 47 cents to $30.36. Europe's biggest bank by assets ``likely'' sold its 25 billion francs ($24 billion) prime Alt-A portfolio in a ``fire sale,'' JPMorgan said as it lifted its ``credit-crisis'' writedown estimate for the bank to 18.5 billion francs.
Carlyle Default
Carlyle Capital Corp., Carlyle Group's publicly traded mortgage bond fund, said it missed four of seven margin calls yesterday totaling more than $37 million. The fund, which raised $300 million in July and used loans to buy about $22 billion of AAA-rated mortgage securities issued by Fannie Mae and Freddie Mac, expects to get at least one more notice of default related to the margin calls.
Citigroup, the biggest U.S. bank by assets, fell 28 cents to $21.87. Bank of America, the second-largest, dropped 46 cents to $37.09.
Merrill Lynch declined $2.37 to $46.95, the lowest since June 2003. Merrill and four of its Wall Street rivals had their first-quarter profit estimates cut by Keefe, Bruyette & Woods Inc. analyst Lauren Smith for the second time in less than a month.
In the last two weeks, more than a dozen analysts have lowered first-quarter profit estimates for the biggest U.S. securities firms on expectations of more writedowns related to the collapse of the subprime mortgage market.
J.C. Penney lost $2.36 to $45.75. Gap fell 83 cents to $19.69.