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Bernard Madoff will file a list of his assets with the U.S. Securities and Exchange Commission today, his lawyer said, meeting the regulator’s deadline for disclosure of what money he has left.
“We are going to make the filing,” attorney Ira Sorkin said in an interview. A federal judge ordered Madoff on Dec. 18 to provide the SEC with a list of all investments, loans, lines of credit, business interests, brokerage accounts and other holdings. Sorkin and SEC spokesman John Heine declined to comment on whether the filing will be made public.
Madoff, 70, was charged earlier this month by federal prosecutors and sued by the SEC for securities fraud for allegedly directing a $50 billion Ponzi scheme through his New York investment firm. Sorkin has said Madoff’s company is cooperating with the government. His client met with prosecutors earlier this month, according to people familiar with the case.
Shortly before he was arrested, Madoff allegedly told employees that he had $200-$300 million left, according to an FBI complaint. Sorkin declined to comment on the amount of Madoff’s remaining assets. Yesterday, the trustee now in charge of Bernard L. Madoff Investment Securities LLC obtained court approval to use $28.1 million out of its accounts as it unwinds the firm.
“The estate requires the funding to get to the sale of certain assets,” said Richard Bernard, an attorney representing Irving Picard, the trustee appointed by Securities Investor Protection Corp. to supervise Madoff’s company.
Firm Collapse
The firm collapsed after Madoff was arrested Dec. 11. He allegedly told his sons that he directed the Ponzi scheme, in which old investors are paid off with money from new ones, according to an FBI complaint. The firm is liquidating under the SIPC, whose funds cover securities and cash claims of as much as $500,000 per customer, including as much as $100,000 in cash.
The use of the funds won’t diminish those customers’ returns because the trustee’s costs that aren’t covered by funds from the Madoff firm’s estate will be paid by SIPC, according to a statement from the agency and Picard.
Picard reached a deal with Bank of New York Mellon Corp., which holds the funds, to have them released. U.S. Bankruptcy Judge Burton Lifland in Manhattan said the court papers outlining the agreement were very basic and asked the lawyer for more information on the accounts.
More Funds
Bernard said there are more funds and accounts, without being specific. Bank of New York is holding some funds because it may have “set-off rights” on certain claims, he said, adding he was limited in what he could say in open court because of ongoing criminal investigations.
Picard will mail claim forms to customers and creditors of Madoff Securities by Jan. 9, the SIPC said.
Madoff’s firm was the 23rd-largest market maker on Nasdaq in October, handling an average of about 50 million shares a day, according to exchange data. It took orders from online brokers for some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.
Madoff, who hasn’t formally responded to the securities fraud charge, is due in court Jan. 12, unless he is indicted before then. Prosecutors and defense lawyers may also agree to postpone the court date.
Lifland last week gave Picard authority to share confidential information, such as proprietary trading programs, with potential buyers of the Madoff firm’s market-maker unit.
Picard is tasked with maximizing assets for the firm as investors that had about $36 billion with Madoff seek the return of their money.
The case is Securities and Exchange Commission v. Madoff, 08-cv-10791, U.S. District Court, Southern District of New York (Manhattan).
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Federal Reserve Chairman Ben S. Bernanke is basing hundreds of billions in emergency lending on credit ratings from companies that gave AAA grades to toxic securities.
The Fed has purchased $308.5 billion in commercial paper and lent $631.8 billion under eight credit programs, most of which require appraisals of short-term debt and loan collateral by “major nationally recognized statistical ratings organizations.” That, in effect, means Moody’s Investors Service, Standard & Poor’s and Fitch Ratings.
It is foolhardy to rely on the three New York-based companies, said Keith Allman, chief executive officer of Enstruct Corp., which trains investors in financial modeling and asset valuation. The major raters issued top marks to $3.2 trillion in subprime mortgage-backed securities at the root of the financial crisis.
“They’re outsourcing the credit assessment to a group of people whose recent performance has been unbelievably bad,” said Allman, the New York-based author of three books on structured finance and a former vice president in Citigroup Inc.’s securitized markets unit. “If their goal is to not take a loss on these assets, they should be hiring independent analysts.”
Rating companies are hired by debt issuers to analyze the quality of securities and the likelihood the borrowings will be repaid. Lenders demand higher interest when a rating is low. If the Fed is relying on unrealistic valuations, it may be charging too little and taking on greater risk than it intends, said Donald van Deventer, CEO of Honolulu-based Kamakura Corp., which provides financial software and consulting.
‘Favored Arbiters’
It’s impossible to gauge the analysis of debt in the Fed programs because the bank won’t reveal whom it’s lending to or the assets accepted as collateral.
Bloomberg News requested details under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure. In its Dec. 8 response to the lawsuit, the central bank said it was allowed to withhold information about trade secrets and commercial information.
Fitch and Moody’s declined to comment specifically on the Fed’s use of their evaluations.
Fed reliance on major rating companies is an important part of “restoring confidence in the financial markets,” said Chris Atkins, an S&P spokesman.
S&P and Moody’s said in statements e-mailed to Bloomberg that they had taken steps to improve the transparency of their ratings systems. Fitch CEO Stephen Joynt told a Congressional hearing on Oct. 22 that the company has become more conservative in its ratings.
Retaining Flexibility
Now is the time to end the trio’s “official status as the government’s favored arbiters of credit quality,” said Michael Aronstein, chief investment strategist for New York-based Oscar Gruss & Son Inc., a closely held broker and dealer.
“From my perspective, their assessments are not worth any more than any other form of advertising,” Aronstein said.
The Fed is confident it’s limiting the risks, said Andrew Williams, a spokesman for the Federal Reserve Bank of New York.
“Reserve banks are never obligated to lend,” Williams said. “We retain flexibility to decline an issuer if we do not feel secured to our satisfaction or otherwise comfortable with the credit.”
The Fed’s main goal in the rescue programs is to stabilize the banking system and get credit markets working again, Bernanke said in a December 1 speech to the Greater Austin Chamber of Commerce in Texas.
‘Last Resort’ Lender
The emergency loans are “consistent with the central bank’s traditional role as the liquidity provider of last resort,” he said.
“It should be emphasized that the loans that we make to banks and primary dealers through our standing facilities are both overcollateralized and made with recourse to the borrowing firm, which serves to minimize the Federal Reserve’s exposure to credit risk,” Bernanke said.
A senior Fed official told a conference call with reporters on Dec. 16 that the central bank is considering buying lower- rated securities in some of its lending programs to further boost liquidity.
The central bank is discussing with two independent analysis companies, Egan-Jones Ratings of Haverford, Pennsylvania, and Realpoint LLC of Horsham, Pennsylvania, how it might use their services, according to their CEOs. Williams said he couldn’t confirm the talks.
‘Dominant Ratings Agencies’
Policy makers should take the opportunity to spearhead a change in the system by elevating the independents, said Alex Pollock, a resident fellow at the American Enterprise Institute in Washington.
Unlike the top three, they are paid by investors who subscribe to their services, rather than by businesses whose products they rate. That makes them less likely to grade securities favorably, Pollock said.
“Why would you limit this to the dominant ratings agencies that helped get us into this situation?” he said.
While the Fed can look at appraisals from any of 10 companies certified by the Securities and Exchange Commission, the three biggest rate the vast majority of instruments.
The Fed also requires that the ratings be publicly available through third parties such as Bloomberg LP, owner of Bloomberg News, which provides assessments from seven certified companies, including Moody’s, S&P and Fitch.
Investment Grade
S&P, a unit of McGraw-Hill Cos. with 8,500 employees, last year rated 93.6 percent of the $707 billion of U.S. non-agency mortgage-backed securities. Moody’s, which employs 3,000, graded 80.2 percent and Fitch, with a payroll of about 2,100, judged 47.3 percent.
The fourth-busiest rater, DBRS Ltd. of Toronto, analyzed 6.8 percent, according to the newsletter Inside MBS & ABS based in Bethesda, Maryland.
Egan-Jones’s ratings for Bear Stearns Cos., which the Fed propped up with emergency funding in March, and on Lehman Brothers Holdings Inc., which filed for bankruptcy in September, were consistently lower than those from the major companies, according to Sean Egan, president of the service. Egan-Jones has 19 employees.
While Moody’s and S&P classified Lehman debt as A1 and A, respectively, Egan-Jones placed the bank several grades lower, at BBB, as early as May.
A Matrix
Under the emergency programs, the Fed is buying commercial paper that carries at least the equivalent of an A-1 rating, the second-highest for short-term credit. It is lending to banks that can post collateral the major raters deem to be investment grade, or eligible for bank investment. The central bank can reject collateral or commercial paper if it has doubts about creditworthiness or value.
In addition, policy makers reduce the risk of losing money on a declining asset by loaning as little as 75 percent of the market value. They value some securities according to a matrix and use outside firms to appraise the rest, Williams said. The Fed then cuts that figure by as much as 25 percent before lending, according to its Web site.
General Electric Co., Korea Development Bank and Morgan Stanley are among companies that have said they signed up for the commercial paper program.
GMAC LLC, the largest lender to General Motors Corp. car dealers, said in October that it was granted access to the commercial paper facility through its New Center Asset Trust unit. The unit’s paper earned top ratings of P-1 from Moody’s and F1+ from Fitch, though GMAC itself is rated 11 levels below investment grade by Moody’s. S&P on Dec. 5 put the New Center Asset Trust on watch for a possible downgrade.
‘Imprudent’ Lending
Former executives of the three major raters told a House Oversight and Government Reform Committee hearing Oct. 22 that they had relied on outdated models to maximize profits.
Originators of mortgage-backed and asset-backed securities and collateralized debt obligations “typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality,” Jerome Fons, a former managing director of credit policy at Moody’s, testified.
The U.S. Department of Housing and Urban Development said Dec. 4 that it would investigate a Nov. 18 complaint by the National Community Reinvestment Coalition, a Washington-based advocate for affordable housing. Moody’s and Fitch made “public misrepresentations” about the soundness of subprime securities that led to “imprudent” mortgage lending, the coalition said.
No Discussions
Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations, is conducting a “preliminary inquiry” into the companies’ role in the financial crisis, he said Dec. 5.
The SEC voted Dec. 3 to bar ratings services from discussing compensation with bankers seeking assessments and to limit gifts to their employees from the underwriters.
From 2002 to 2007, Moody’s and S&P provided top ratings on debt pools that included $3.2 trillion of loans to homebuyers with low credit scores and undocumented incomes, according to data compiled by Bloomberg.
$997.1 Billion
As subprime borrowers defaulted, the companies downgraded more than three-quarters of the structured investment securities known as CDOs that had been rated AAA.
Writedowns and losses on that debt incurred by banks, brokers, insurers and Fannie Mae and Freddie Mac totaled $997.1 billion worldwide, Bloomberg data show.
The central bank wants to stabilize financial markets and mitigate the effects of the recession, as well as “support the functioning of credit markets,” Bernanke said Dec. 1 in a speech in Austin, Texas. He didn’t address the credit rating system.
The Bloomberg lawsuit is Bloomberg LP v. Board of Governors of the Federal Reserve System, 08-CV-9595, U.S. District Court, Southern District of New York (Manhattan).
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The Bush administration dropped its opposition to using the $700 billion bank bailout fund to provide financing for U.S. automakers after the Senate yesterday failed to approve emergency loans.
The administration’s willingness to give short-term help to General Motors Corp. and Chrysler LLC eased the concern of at least some investors that the companies will collapse and worsen what is already the longest recession since the early 1980s. Stocks pared their losses.
“Congress has really punted the ball over to the White House,” John Bogle, 79, founder of the $80.6 billion Vanguard 500 Index Fund, said in a Bloomberg Television interview. “That will give them temporary stopgap aid. I do not think General Motors is going to go out of business.”
The economy’s accelerated decline prompted the reversal from the White House, which had insisted money from the Troubled Asset Relief Program be used only for financial firms. GM needs $4 billion from the government by the end of the month to pay its bills, and Ford Motor Co. Chief Executive Officer Alan Mulally isn’t asking for any federal aid now and last week predicted his company could be dragged into bankruptcy by a GM failure.
“Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry,” Treasury spokeswoman Brookly McLaughlin said in an e-mailed statement.
Stock Prices
Stocks in the U.S. and Europe rebounded somewhat after the announcement, Treasury notes declined and the dollar recouped some of its losses. The Standard & Poor’s 500 Index was down 11.01 points, or 1.25 percent, at 862.67 at 11:58 a.m. in New York. Before the announcement, S&P futures tumbled 4 percent.
GM shares fell 3 cents, or 0.7 percent, to $4.09 at 1:17 p.m. in New York Stock Exchange composite trading. Ford rose 12 cents, or 4.1 percent, to $3.02.
Treasury Secretary Henry Paulson had until today resisted calls to use the TARP to aid the automakers. The Treasury has committed all but about $15 billion of the first half of the funds since the plan was enacted Oct. 3.
Neither the Treasury nor the White House’s statements today indicated whether the TARP funds would come with terms or concessions. Paulson repeatedly insisted that any injection of funds must include a plan ensuring “viability” for the automakers.
“The intent of the TARP was to deal with financial institutions and major systemic issues and getting lending going in capital institutions,” Paulson said in a Nov. 13 Bloomberg Television interview. “Congress, I believe, should address the question of the auto industry.”
‘Other Options’
While the Treasury’s one-sentence statement didn’t mention the TARP, White House spokeswoman Dana Perino said earlier in a separate statement that the Bush administration is considering using some of the program to keep the auto companies afloat.
“Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms,” Perino said. “However, given the current weakened state of the U.S. economy, we will consider other options if necessary — including use of the TARP program — to prevent a collapse of troubled automakers.”
Chrysler was “pleased” to see the White House decision to consider TARP, Chief Executive Officer Robert Nardelli said in an e-mail to employees today.
GM ‘Encouraged’
GM, in a statement, said it was “encouraged” and will work with the administration “on possible solutions that could prevent further damage to our nation’s economy and also allow us to embark on an aggressive restructuring plan for long-term viability.” Ford had no comment.
Emergency loans for GM and closely held Chrysler were rejected late yesterday in the Senate after talks failed over Republicans’ demands that union workers accept a cut in wages next year. Ford said this week it doesn’t intend to seek loans from the emergency fund.
Senator Bob Corker, a Tennessee Republican involved in failed efforts to forge a compromise last night, said providing TARP money without union commitments to restructure and wage concessions would make it “less likely” that the companies become more competitive. Such a move would put “good money after bad,” Corker said in a Bloomberg Television interview.
UAW President Ronald Gettelfinger said today the union reached a tentative agreement last night with Corker, only to have it rejected by other members of his party in the Senate.
‘Tear Down’
Republicans “wanted to tear down any agreement we came up with,” Gettelfinger said at a news conference in Detroit.
Corker, speaking with reporters today, said talks with the UAW broke down because the union wouldn’t agree to a deadline for worker wage cuts.
“I basically pleaded with them to give me something,” Corker said. “So that is where it broke down.” He said his plan would have gotten 90 votes in the Senate.
House Speaker Nancy Pelosi, in a letter to President George W. Bush, said providing funds to the automakers “is the right decision” and urged him to require the same “tough accountability and shared sacrifice” from all sides in the industry as were set in a bill passed by her chamber.
Senate Majority Leader Harry Reid blamed last night’s failed vote on “stubborn Republicans” and said he was encouraged the Bush administration is considering emergency loans to the carmakers.
Connecticut Democrat Christopher Dodd, who negotiated with Corker, said on Bloomberg Television the Bush administration should announce plans today to aid the automakers because car dealers and suppliers can’t get credit from local banks.
‘Hurting Today’
“They’re hurting today,” Dodd said. “We need an announcement today out of the White House.”
GM Chief Executive Officer Rick Wagoner told Congress last week, and has said repeatedly, that the Detroit-based automaker is trying to avoid bankruptcy at all costs. Lead director George Fisher said last week that GM considered and rejected the option and it was “way down the list” of alternatives.
Still, GM also has said it will lack the minimum $11 billion needed to pay bills by the end of this month, raising the prospect of bankruptcy should it fail to win a cash infusion. GM reported having $16.2 billion as of Sept. 30.
An attempt to restructure GM in bankruptcy would end up as liquidation, because sales would plummet as buyers flock to solvent car companies, Wagoner has said.
Chrysler has said it will run out of money early next year. It ended the third quarter with $6.1 billion in cash and needs at least $3 billion on hand to operate, Chief Executive Officer Robert Nardelli told Congress on Nov. 18.
Pressure was mounting on GM and Chrysler this week before the congressional failure as both faced demands from a small number of parts makers for payments in advance because of the bankruptcy concerns, people familiar with the matter said.
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The debate over the automaker bailout in Congress has become a race against the clock and the companies’ dwindling cash.
The U.S. House voted 237-170 late yesterday to approve emergency loans for General Motors Corp. and Chrysler LLC, shifting the focus to the Senate, where Republican opposition threatens to delay or kill the legislation. Senate Republican Leader Mitch McConnell said he is against the bill because it “isn’t nearly tough enough.” The White House today issued a warning.
“We believe the economy is in such a weakened state right now that adding another possible loss of 1 million jobs is just something” it cannot “sustain at the moment,” White House spokeswoman Dana Perino told reporters today.
President-elect Barack Obama also urged Congress to act, saying today that the collapse of U.S. automakers would have a “devastating ripple effect throughout our economy.”
Pressure is mounting on GM as a small number of partsmakers ask for payments in advance, people familiar with the matter said. GM, which typically pays vendors about 45 days after getting an invoice, has said it won’t have enough money to pay its bills by month’s end without federal aid.
GM has rejected the requests for upfront payments, which so far have come from a fraction of its 3,600 suppliers, said the people, who asked not to be identified because the discussions are private.
A Deadline
Democratic leaders and the Bush administration are trying to beat a deadline to save the companies and the jobs dependent on the industry before Detroit-based GM and Chrysler burn through their remaining cash. GM has said it needs $4 billion this month, the same amount in January and a total of $10 billion to keep going through March 31.
“Without this bridge, we’re going to fall into the biggest calamity this country has known since the Great Depression,” said Representative John Dingell, a Democrat from Michigan, the carmakers’ home state. “A terrible disaster looms.”
Senate Majority Leader Harry Reid, a Nevada Democrat, said he’s working on an agreement that would allow the Senate to consider the House legislation, a Senate version and a Republican alternative. He said that if no agreement is reached the Senate will have to give up.
“If the Republicans want to have a better bill then they should offer an alternative and I invite them to do that,” Reid said.
2.5 million
Job losses would total 2.5 million to 3.5 million from an automaker failure in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a Nov. 4 report from the Center for Automotive Research, which conducts studies for government agencies and companies.
Federal, state and local governments would lose $108.1 billion in taxes over three years in the event of a 50 percent reduction in U.S. automaker operations, representing the failure of one or more domestic automakers, the Ann Arbor, Michigan-based group said.
“We should not go home and do nothing,” Republican Senator David Vitter of Louisiana said today in a Bloomberg Television interview. “We should do the right thing, which is to put the plan together with taxpayer help, but that demands a restructuring plan now,” said Vitter, who had threatened to use procedural methods to halt a vote.
House Speaker Nancy Pelosi tossed a challenge to senators, saying on Bloomberg Television that she wouldn’t bring her chamber back for further action if the Senate passed a different version of the plan.
Restructuring Deadline
The legislation would let GM and Chrysler draw on $14 billion of loans to keep operating while they develop restructuring plans required by March 31. Without the aid, the two companies would likely have to declare bankruptcy by year’s end. Ford Motor Co. has said it doesn’t need emergency aid.
Suppliers’ payment requests to GM began in the last several weeks and haven’t disrupted vehicle production, one person familiar with the matter said.
The people wouldn’t say how many partsmakers had made the requests, nor would they identify the companies. No suppliers have announced that they’re requiring payment in advance.
“Despite the current economic challenges, GM remains committed to maintaining a strong, open relationship with our suppliers,” said a spokesman, Dan Flores, who declined to give details on supplier discussions. “GM remains focused on maintaining payment terms and being a prompt payer.”
Monthly Bills
Paying monthly bills at GM requires a minimum of $11 billion, and there was $16.2 billion available at the end of September, GM has said.
Chrysler had $6.1 billion in cash at the end of the third quarter, Chief Executive Officer Robert Nardelli told Congress on Nov. 18. The Auburn Hills, Michigan-based company needs at least $3 billion on hand to operate, he said.
The automakers could still be forced into bankruptcy under the legislation if the so-called car czar, an official to be appointed by President George W. Bush to oversee the loan program, decides their restructuring plans are insufficient.
Republicans said yesterday the House measure wouldn’t give the czar enough authority to order cost cuts and other changes. They argued that only a restructuring under bankruptcy protection can make the companies more competitive.
“The car czar doesn’t have as much authority as he really needs,” said Senator Robert Bennett, a Utah Republican. “He needs the capacity of the master in bankruptcy to force things to happen.”
Republicans are also concerned about House bill language that requires that auto restructuring plans comply with “applicable fuel efficiency and emission requirements.” That might force the companies to follow state emission standards such as California’s that automakers oppose.
Veto Power
The czar would have the power to veto automaker expenditures over $100 million. Car companies that take loans would have to limit pay and ban bonuses for their 25 most highly paid executives. They also would be barred from owning or leasing passenger aircraft or paying dividends to shareholders.
Taxpayers would receive stock warrants equal to 20 percent of the aid. The U.S. may end up holding a large stake in the automakers based on that provision.
GM fell 33 cents, or 7.1 percent, to $4.27 at 11:35 a.m. in New York Stock Exchange composite trading, while Ford slid 15 cents, or 4.6 percent, to $3.10.
Clear a Hurdle
Senate Republicans emerged from a meeting yesterday with Vice President Dick Cheney and White House Chief of Staff Josh Bolten and said the measure doesn’t have enough support to clear a 60-vote legislative hurdle. Democrats control the chamber 50- 49.
“It has minimal, very little support in our caucus,” Tennessee Republican Bob Corker said after the meeting. He said Cheney and Bolten gave a “non-compelling” presentation in favor of the plan.
Deputy White House Chief of Staff Joel Kaplan today said the Bush administration is “going to try like heck to get the votes” from rebellious Senate Republicans. Kaplan said he would be on the phone lobbying this morning.
Republicans who oppose the measure said Congress should stay in session next week to allow time for changes. Any revisions in the legislation by the Senate would require the House to reconvene.
During last night’s debate, Massachusetts Democrat Barney Frank warned colleagues that further House action is unlikely. “This is the last train out of the legislative station this year,” he said.
Pelosi said on Bloomberg Television, “You never say never, but the fact is, I think it’s important for the Senate to know that this is a strong bipartisan bill.”
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A $15 billion automaker bailout measure backed by the Bush administration may not have enough support among Republicans to pass the Senate, a Republican who backs the rescue measure said.
“I don’t think the votes are there on our side of the aisle and I think that some effort needs to be made to respond to some of the concerns of my colleagues,” said Senator George Voinovich, an Ohio Republican, after a meeting of party caucus meeting.
Senate Democrats aren’t completely united. Democrat Max Baucus of Montana, the chairman of the Finance Committee, said he will vote against the legislation because it includes a tax provision he opposes.
General Motors Corp. fell 14 cents, or 3 percent, to $4.56 at 1:14 p.m. in New York Stock Exchange composite trading. Ford Motor Co. fell 15 cents, or 4.6 percent, to $3.08.
The legislation calls for the appointment of a so-called car czar who could force GM and Chrysler LLC into Chapter 11 bankruptcy if the companies don’t come up with a restructuring plan by March 31.
GM and Chrysler have said they need at least $14 billion in combined aid to keep operating through March 31. Until late yesterday, talks stalled over disputes such as Democrats’ requirement that automakers receiving federal loans end lawsuits challenging state auto-emission rules. That provision was dropped.
Car Czar
The House legislation, cleared by a panel for floor action today, would give the car czar power to veto automaker expenditures of more than $100 million. It also would ban bonuses for 25 most highly paid employees at each company, according to a summary of the bill.
The bill would give the government “super seniority” for any bridge loans so that taxpayers would be paid back before any other lenders to the companies, according to the summary.
House Speaker Nancy Pelosi said she hopes to have a vote today in the House, where Democrats have a large enough majority to make passage likely. In the Senate, Democrats have only 50 seats and 60 votes are required to overcome objections.
Vitter and several other Republican senators, including Richard Shelby of Alabama and Jim DeMint of South Carolina, oppose the measure. “My guess is that there aren’t 60 votes,” Tennessee Republican Senator Bob Corker said.
Procedural Vote
Senate Majority Leader Harry Reid, a Nevada Democrat, said today that the Senate would hold a procedural vote Dec. 12 and a final vote over the weekend if objections are raised to voting earlier. Reid said he’s “fairly confident” of getting support “from both sides of the aisle.”
Bush administration officials, including the president, are lobbying Republican lawmakers to back the plan, officials said. “A lot of people are making calls,” U.S. Commerce Secretary Carlos Gutierrez said in an interview.
Vice President Dick Cheney and White House Chief of Staff Josh Bolten attended a lunch meeting of Republican senators today.
GM Chief Executive Officer Rick Wagoner and Chrysler CEO Robert Nardelli both testified last week they will accept strict oversight and operating restrictions to win government loans.
“We welcome that oversight,” GM North American President Troy Clarke said yesterday in a Bloomberg Television interview.
Michigan Senator Carl Levin said “personal involvement” will be needed from Bush and President-elect Barack Obama for the plan to win approval. An Obama spokeswoman had no comment late yesterday.
The United Auto Workers “strongly supports” the compromise, union President Ron Gettelfinger said today.
GM’s Plunge
GM’s 81 percent plunge this year before today made it the worst performer among the 30 companies on the Dow Jones Industrial Average. Ford shares tumbled 52 percent this year through yesterday. While the second-largest U.S. automaker would be eligible to apply for the loans, it has said it doesn’t expect to.
Gutierrez said the auto czar who will be appointed by Bush should “transcend” the administration. Gutierrez told Bloomberg Television the czar must be “independent,” and he ruled himself out of the role.
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U.S. stocks rose, recovering more than one-third of yesterday’s slide, as speculation lawmakers will approve a $15 billion bailout to keep automakers afloat and boost the economy pushed commodity producers higher.
Freeport-McMoRan Copper & Gold Inc. jumped 13 percent amid bets that Congress will approve a rescue, lifting demand for metals. Chevron Corp. advanced 4.5 percent as oil climbed after Russia signaled it may coordinate a production cut with OPEC. American Express Co. dropped 8.3 percent after Citigroup Inc. recommended selling the credit-card company.
The Standard & Poor’s 500 Index added 1.3 percent to 900.29 at 12:53 p.m. in New York. The Dow Jones Industrial Average gained 102.59 points, or 1.2 percent, to 8,793.92. The MSCI World Index of 23 developed markets added 1.4 percent to 900.38. Energy and raw-material companies posted the largest rallies among 10 industries in the S&P 500 as the U.S. House neared a vote on the auto bailout.
“That has lessened some concern that we’re going to have massive layoffs, greater strains on the banks, that domino effect,” said Peter Sorrentino, a Cincinnati-based money manager at Huntington Asset Advisors, which oversees about $16 billion. “That has buoyed the market.”
The S&P 500 extended its rebound from an 11-year low to 21 percent this week, marking a technical end to a 14-month bear market, as President-elect Barack Obama stepped up efforts to pull the economy out of a recession. The index has tumbled 42 percent from its 2007 record as the collapse of the subprime mortgage market curbed earnings for five straight quarters.
Disappointing Forecasts
The S&P 500 slid 2.3 percent yesterday after companies from FedEx Corp. to Danaher Corp. forecast earnings that disappointed investors as the deepening recession crimps sales.
Democrats reached a tentative agreement with the Bush administration that calls for the appointment of a so-called car czar who could force General Motors Corp. and Chrysler LLC into Chapter 11 bankruptcy protection if the companies don’t come up with a restructuring plan by March 31, according to a senior Bush administration official who requested anonymity.
GM reversed a 6.4 percent rally today to fall 3.8 percent to $4.52, while Ford Motor Co. dropped 4.9 percent to $3.07 after Democrat Max Baucus of Montana, the chairman of the Finance Committee, said he will oppose the legislation. The proposal will probably run into Republican stalling tactics in the Senate.
Freeport-McMoRan, the largest publicly traded copper producer, rallied 13 percent to $22.30. Raw-material producers in the S&P 500 added 3.1 percent collectively, the second-biggest gain among 10 industries. Copper climbed 4.1 percent in New York.
Biggest Rally
Chevron, the second-largest U.S. energy company, advanced 4.6 percent to $79.03. Chesapeake Energy Corp. surged 18 percent to $17.03. The S&P 500 Energy Index increased 5 percent, the biggest rally among 10 industries.
Oil futures for January delivery rose 7.9 percent to $45.41 a barrel in New York on speculation that Russia and the Organization of Petroleum Exporting Countries will act to end the five-month, $100 slump in prices.
Coal producers Peabody Energy Corp. and Massey Energy Co. gained as the fuel rose to the highest in seven days in Europe, spurred by an increase in the cost to ship it. Peabody added 17 percent to $25.41, while Massey Energy rose 14 percent to $15.43. Consol Energy Inc. rallied 16 percent to $32.32.
American Express, the credit-card company most dependent on capital markets for cash, lost 8.3 percent to $21.35. Citigroup analyst Donald Fandetti rated the stock “sell” in new coverage, saying earnings will be hurt as the economy slows and the turmoil in credit markets eliminates cheap sources of funds.
Job Cuts
Yahoo! Inc., the owner of the second-most popular U.S. Internet search engine, climbed 6.2 percent to $12.94 after a person familiar with the plan said the company will begin cutting about 1,500 jobs today in response to a slowdown in Internet advertising. The shares have fallen 44 percent this year.
Electronic Arts Inc. lost 16 percent to $16.29. The world’s second-largest maker of video games predicted fiscal 2009 revenue and profit will be lower than previously forecast because of slow holiday sales in North America and Europe. The company said it will reduce costs by making fewer games and increasing job cuts.
Eastman Kodak Co. slumped 8.2 percent to $6.61. The 128- year-old photography company cut its second-half and full-year sales and profit forecasts on the deepening global recession and changes in the value of the U.S. dollar.
Nike Inc., the world’s largest athletic-shoe maker, slipped 4 percent to $50.82 after it was downgraded to “neutral” from “buy” at Bank of America Corp., which cited a slowdown in demand.
55% Plunge
A global stock slump may have further to go, according to Tobin’s Q ratio, which compares the market value of companies to the cost of their constituent parts, CLSA Ltd. strategist Russell Napier said.
The ratio, developed in 1969 by Nobel Prize-winning economist James Tobin, shows the S&P 500 is still too expensive relative to the cost of replacing assets, said Napier. While the 39 percent drop in the index this year pushed equity prices below replacement cost, history suggests the ratio must sink further as deflation sets in, he said. The S&P may plunge another 55 percent to 400 by 2014, Napier said.
S&P 500 companies reported an average 18 percent decline in profits in the third quarter, prompting analysts to cut estimates for next year. They now project profit growth of 8.2 percent for S&P 500 companies in 2009, about one-third of their forecast of 23 percent at the end of the third quarter, according to data compiled by Bloomberg.
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U.S. stocks fell, halting a two-day advance, after companies from FedEx Corp. to Danaher Corp. forecast earnings that disappointed investors as the deepening recession crimps sales.
FedEx, the second-biggest U.S. package-shipping company, lost 14 percent after projecting profit below analysts’ estimates amid a “significantly weaker” economy. Danaher, maker of Craftsman tools, slid as much as 5.9 percent. The market’s declines were limited as investors snapped up shares of technology and energy companies trading near their cheapest valuations on record, helping send Intel Corp. up 4.2 percent and National Oilwell Varco Inc. to a 10 percent rally.
“You’re going to have to get used to this for the next three months; you’re going to see lowering of guidance,” said Robert Lutts, president and chief investment officer at Cabot Money Management, which oversees $400 million in Boston. “This is the real economy.”
The S&P 500 lost 0.6 percent to 904.58 at 1:08 p.m. in New York. The Dow Jones Industrial Average declined 102.3 points, or 1.1 percent, to 8,832.15 and the Nasdaq Composite Index added 0.2 percent to 1,574.45. About five stocks fell for every four that rose on the New York Stock Exchange.
Rebound from 11-Year Low
The S&P 500 yesterday extended its gain from an 11-year low last month to 21 percent, marking a technical end to the 14-month bear market as President-elect Barack Obama pledged the biggest public-works spending package since the 1950s. The benchmark index is down 38 percent in 2008 after the collapse of subprime mortgages curbed earnings for five straight quarters.
European shares rose for a second day and Asian stocks climbed for a third on expectations stimulus plans from the U.S. to India will buoy the global economy. PPR SA, owner of the Gucci luxury-goods brand, and Daimler AG, the world’s second-largest maker of luxury cars, jumped more than 4 percent, while Australia’s BHP Billiton Ltd. climbed 4.5 percent.
More than $31 trillion has been erased from the value of global equities this year, while debt losses and writedowns at the world’s largest lenders and insurers approach $1 trillion.
Stocks will climb in 2009 in the face of falling earnings and a slowdown in economic growth because of cheap valuations, according to strategists at Credit Suisse Group AG, Deutsche Bank AG and Merrill Lynch & Co. The S&P 500 may rise to 1,050 by the end of 2009 from yesterday’s close of 909.7, a team of Credit Suisse strategists wrote in a note today. Goldman Sachs Group Inc. chief investment strategist David Kostin projected a 21 percent gain by the end of next year as the economy stabilizes.
FedEx, Con-Way
FedEx fell 14 percent to $64.15 after saying annual profit may be as much as one-third lower than analysts expected. United Parcel Service Inc., FedEx’s larger rival, fell 7.4 percent to $54.30, the most since Oct. 22.
Seven of the 10 industry groups in the S&P 500 fell, as FedEx led industrial companies to the biggest retreat. Union Pacific Corp. slid 7.1 percent to $47.03 after Merrill Lynch & Co. cut the shares to “neutral” from “buy.”
Con-way Inc., the second-biggest U.S. trucker, reduced its full-year 2008 earnings forecast to as much as 20 percent less than analysts’ average estimate as freight demand fell to 2003 levels. The company also cut 1,450 jobs. The shares slid 15 percent to $21.99 and earlier fell to the lowest since September 2000.
Danaher Corp. fell 2.4 percent to $50.72. The company said fourth-quarter profit will be lower than previously forecast. It will close 13 factories and cut 1,700 jobs because of the deteriorating economy.
Grocers Retreat
Kroger Co. led a group of companies that sell consumer staples down 1.8 percent after saying third-quarter profit fell because of insurance costs related to Hurricane Ike. Shares of the biggest U.S. grocery chain fell 7.1 percent to $25.36. Safeway Inc., the third-largest, lost 5.3 percent to $22.37.
Average profits at S&P 500 companies have fallen for five straight quarters. The 496 companies in the index that reported third-quarter results saw an average 18.3 percent decline in profits, prompting analysts to cut estimates for next year. They now project profits to grow 8.2 percent on average for S&P 500 companies in 2009, less than half a forecast of 23 percent at the end of the third quarter, according to data compiled by Bloomberg.
Housing Slump
Fewer Americans signed contracts to buy previously owned homes in October, signaling the housing slump will extend into a fourth year. The index of signed purchase agreements, or pending home resales, fell a less-than-forecast 0.7 percent to 88.9 from a revised 89.5 in September, according to a report from the National Association of Realtors. Gains in the South and Northeast offset weakness in the West and Midwest.
General Motors Corp., the largest U.S. automaker whose shares surged 21 percent yesterday, dropped 4.8 percent to $4.79. Congressional Democrats sent President George W. Bush a draft proposal for a $15 billion, short-term aid package for U.S. automakers. Some Senate Republicans yesterday expressed doubt about the plan, which is to be voted on in a special session this week.
Ford Motor Co., the second-biggest U.S.-based automaker, declined 3 percent to $3.28.
The U.S. government may end up holding stakes in GM, Ford and Chrysler LLC if Congress and the White House reach agreement.
Under the proposed rescue, details of which are still being discussed, the Treasury would get warrants for stock equivalent to 20 percent of any government loans. With GM seeking as much as $10 billion and valued at $3 billion, the government may become the biggest shareholder.
Financials Drop
A group of S&P 500 financial companies, which has climbed 45 percent from a low on Nov. 20, dropped 1.2 percent today.
T. Rowe Price Group Inc. was cut to “sell” from “neutral” at Goldman Sachs Group Inc. on “rising fundamental headwinds.” T. Rowe, the Baltimore-based money manager, slid 4.3 percent to $35.06, the first decline in six trading sessions.
The gains in computer shares came as companies in the S&P 500 Information Technology Index traded at 13.8 times reported profits, less than half their average price-to-earnings ratio over the past five years.
Micron Technology Inc., the fourth-largest memory-chip producer, rose 5.8 percent to $2.20. Dell Inc., the world’s second-biggest personal-computer maker, rallied as much as 2.4 percent to $12.29. Microsoft Corp., the world’s largest software maker, added as much as 1.1 percent to $21.25.
Marvell Technology Group Ltd., the maker of chips for mobile phones, climbed 14 percent to $6.55.
Energy shares in the S&P 500 traded at 6.7 times earnings, near last month’s low of 5.6, which was the cheapest level since Bloomberg began tracking the data in 1995.
National Oilwell Varco Inc., the largest U.S. maker of oilfield equipment, added 9.1 percent to $24.41. El Paso Corp., the owner of the biggest U.S. network of natural-gas pipelines, climbed 9.4 percent to $7.11 after saying it plans to raise $500 million to refinance debt maturing next year.
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U.S. stocks rose, reversing an earlier slide, as Hartford Financial Services Group Inc. led a rally in insurers after increasing its profit forecast and saying its businesses are weathering the credit crisis.
Hartford, which tumbled 92 percent in 2008 before today, doubled to lead an advance in 20 of 21 insurance companies in the Standard & Poor’s 500 Index. Prudential Financial Inc. and MetLife Inc. climbed more than 15 percent as UBS AG said they may benefit from potential regulatory changes. The gains helped the market overcome a morning slide spurred by government data showing the nation lost the most jobs in 34 years as the recession deepened last month.
“We’re looking at a pretty ugly economic outlook, but an awful lot of that is being reflected” in stock prices, Leo Grohowski, chief investment officer at Bank of New York Mellon Wealth Management, which oversees $158 billion, said on Bloomberg Television.
The S&P 500 rose 2.2 percent to 863.76 at 2:59 p.m. in New York after retreating 3.2 percent earlier. The Russell 2000 Index of small U.S. companies climbed 3.2 percent to 453.41. The Dow Jones Industrial Average added 162.09 points, or 2 percent, to 8,538.33.
The S&P 500, which has plunged 41 percent in 2008, is headed for its worst year since 1931 after the collapse of the subprime mortgage market reduced average profits for five consecutive quarters. Still, the benchmark index for U.S. equities has rebounded 12 percent from its 11-year low on Nov. 20. The recovery was fueled by speculation the Federal Reserve will cut interest rates and Congress will pass another economic stimulus.
Hartford Rallies
Hartford jumped a record 101 percent to $14.50 after the insurer raised its full-year operating profit forecast and said the capital outlook at its insurance subsidiaries is “strong.” The company’s operating businesses are “performing well, particularly in light of the challenging markets,” Chief Executive Officer Ramani Ayer said.
Insurers comprised eight of the top 10 gains in the S&P 500. Prudential rallied 32 percent to $27.93, MetLife gained 16 percent to $29.12 and Genworth Financial Inc. jumped 33 percent to $1.71.
Insurance Regulation
Hartford, Prudential, MetLife, Lincoln National Corp. and money manager Ameriprise Financial Inc. would benefit if the National Association of Insurance Commissioners, which begins a four-day meeting today, opts to relax capital requirements for managers of variable annuities, UBS’s Andrew Kligerman wrote in a report today. The association is likely to reach a decision by year-end and could announce one as early as Dec. 9, Kligerman said.
The S&P 500 Financials Index added 6.1 percent for the steepest advance among 10 industry groups, as insurance companies climbed 10 percent collectively.
Financial stocks in the S&P 500 last week traded at an average 0.8 times book value, the lowest in at l3 years. Banks are posed for their worst annual drop on record and have plunged 68 percent since reaching an all-time high in February 2007.
The earlier retreat in benchmark indexes came after the Labor Department reported that the nation lost 533,000 jobs last month, 59 percent more than the average estimate in a Bloomberg survey.
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General Motors Corp. Chief Executive Rick Wagoner told lawmakers he would accept strict conditions for a U.S. loan to stay afloat, including a promise to return the money and file for bankruptcy if his company doesn’t fulfill the terms.
Hurdles remain for a plan to keep GM and Chrysler LLC from running out of cash, as members of Congress and the Bush administration disagree on a funding source. Lawmakers are considering options such as providing automakers with enough aid to get them through next year’s first quarter on condition they make significant progress on restructuring their operations.
“We’ve got the makings of putting something together,” Senate Banking Chairman Christopher Dodd, a Connecticut Democrat, told reporters after a hearing by his committee yesterday in Washington. “We’ve got a working situation here, and I’m going to try to get it done.”
Wagoner, Chrysler’s Robert Nardelli and Ford Motor Co.’s Alan Mulally will face U.S. House members today as they renew their push for quick action. GM says it needs $8 billion while Chrysler is seeking $4 billion to keep from running out of cash by early next year.
Senator Bob Corker suggested giving GM $10 billion as long as bondholders settle for 30 cents on the dollar, workers accept wages similar to those of foreign automakers’ U.S. employees, and half of GM’s scheduled health care payment is folded into the company as equity. If the automaker fails to take the steps by March 31, it would have to return the money and declare bankruptcy, he said.
‘Take Our Money’
“Would you take our money?” with those conditions, Corker, a Tennessee Republican, asked Wagoner yesterday.
“Yes I would,” Wagoner replied.
“A big stick by the government in this case could actually cause your company, for the first time in modern history, to have the tools and the levers to actually do the things that will make you strong for the future,” Corker added.
The comments were a shift for Corker, who last month told reporters he was “very skeptical” about an auto aid package and that it may be better for the companies to reorganize in bankruptcy.
Lawmakers have said they may schedule votes next week. Yesterday’s hearing “was very helpful,” said Jim Manley, spokesman for Senate Majority Leader Harry Reid, a Nevada Democrat. “Any help must be conditioned on specific requirements to ensure viability and strong oversight.”
Bailout Funds
Senator Thomas Carper, a Delaware Democrat, said he is considering legislation to require banks that benefited from the federal bailout program to lend money to keep GM and Chrysler running. That would give time for Congress and President-elect Barack Obama to devise a longer-term solution, Carper said.
“The likelihood has improved” for getting something done, Carper told reporters.
Senator Charles Schumer, a New York Democrat, discussed the possibility of legislation that would give automakers “not a small sum” and have a designee of the president, probably the Treasury Secretary, bring the parties together and work out concessions that would allow the money to flow.
The three automakers together are asking for as much as $34 billion in federal aid. “I am sorry to be asking for this support,” Wagoner told reporters before yesterday’s hearing.
The companies’ leaders were trying to recover from their appearance before Congress two weeks ago when they were criticized for arriving in Washington in separate private jets to plead for funds. They left empty-handed.
Disagreement Over Funds
Disagreement between House Speaker Nancy Pelosi and President George W. Bush over the source of aid for U.S. automakers remains an impediment to getting a deal done.
Pelosi, a California Democrat, wants to rescue the car companies by tapping a $700 billion bailout fund for the financial industry. Reid said Dec. 3 that such a plan doesn’t have enough votes to pass. Bush and congressional Republicans are pushing to instead use $25 billion in Energy Department funds for the development of fuel-efficient vehicles.
In a letter to Bush yesterday, Pelosi, Reid, Dodd and House Financial Services Chairman Barney Frank of Massachusetts urged use of Treasury funds for emergency loans to the automakers. The lawmakers said it’s becoming clear that an automaker bankruptcy would have a “major direct and negative impact on the financial sector,” which the emergency Treasury money is designated to protect.
Plans Not ‘Serious’
Other Republicans have said they don’t want to aid automakers at all. Republican Senator Richard Shelby of Alabama told the auto chiefs yesterday their plans weren’t “serious” and that he still opposes giving them aid.
“If you made this presentation to get a bank loan I suspect that any sensible banker would summarily dismiss your request,” Shelby said.
Acting U.S. Comptroller General Gene Dodaro said yesterday, in response to a question from Shelby, that the Federal Reserve had authority to put money into the carmakers, as it did with insurer American International Group Inc. In a Dec. 3 letter to Fed Chairman Ben S. Bernanke, Dodd had also asked whether the Fed had the authority to put money directly into the automakers.
Fed officials have said they want the solution for automakers’ cash problems to come from Congress and taxpayers, not the central bank.
Edward Lazear, chairman of the White House Council of Economic Advisers, said that while Bush has expressed his desire for the U.S. auto industry to survive, the automakers must convince Congress and the administration they have a “viable” plan to continue in business.
‘Too Early’
“It’s too early to give them a grade,” Lazear said in an interview on Bloomberg Television. Still, Lazear said he has seen “some constructive” elements in the proposals.
Senator Bob Casey, a Pennsylvania Democrat, said he could support the money coming from the financial-rescue package or Energy Department loans. He predicted lawmakers would reach a deal. “We just have to be creative and dogged about trying to get there,” Casey said.
Dodd outlined the complexity of the task during his committee’s hearing. “To ask 535 members of Congress in the space of 72 hours to try and craft something here is challenging, to put it mildly,” he said.
Dodd added, “We need to try and sit down over these next 24, 48 hours or so and see what we can do.”
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U.S. stocks declined, halting a five- day advance, on growing concern the global economic slump is deepening and consumers’ access to credit is shrinking.
General Electric Co. and Caterpillar Inc. lost more than 6.5 percent following a report that manufacturing shrank in November at the fastest pace in 26 years. American Express Co. and JPMorgan Chase & Co. fell more than 9 percent on Oppenheimer & Co. analyst Meredith Whitney’s prediction that credit-card companies will cut lending by more than $2 trillion. Stock indexes from London to Tokyo slumped after reports showed record declines in European and Asian factory production.
“The economic news is going to continue to get worse before it gets better,” Leo Grohowski, the New York-based chief investment officer for the wealth management unit of Bank of New York Mellon Corp., which oversees $158 billion, told Bloomberg Radio. “The biggest single challenge in terms of the economy is the state of housing and it still remains precarious.”
The S&P 500 sank 5.9 percent to 843.57 at 12:31 p.m. in New York. The Dow Jones Industrial Average fell 432.65 points, or 4.9 percent, to 8,396.39. The Nasdaq Composite Index declined 5.8 percent to 1,446.18. About 28 stocks retreated for each that rose on the New York Stock Exchange.
The five consecutive advances in the S&P 500 before today marked the benchmark gauge’s longest streak of gains since July 2007 and sent it up 19 percent from an 11-year low on Nov. 20, the most over five days since 1933.
Recession Since ‘07
The U.S. economy entered a recession last December, according to a panel at the National Bureau of Economic Research that dates American business cycles. The S&P 500 is down 42 percent this year as credit losses and writedowns at the world’s largest financial firms approach $1 trillion and economists increasingly forecast that the economic slump will be one of the most severe in the postwar era.
GE, the world’s biggest maker of power-generation equipment, slid $1.37 to $15.80. GE may give lower expectations for the company’s performance next year during a webcast tomorrow to detail finance unit GE Capital’s 2009 outlook, Citigroup Inc. analyst Jeffrey Sprague said in a note to clients. Merrill Lynch & Co. analysts cut their profit forecasts for the company through 2010, citing a deteriorating environment for industrial and financial companies.
Caterpillar, the largest maker of bulldozers, retreated $2.85 to $38.14.
Manufacturing Shrinks
The Institute for Supply Management’s manufacturing index dropped more than forecast to 36.2, the lowest level since 1982, the Tempe, Arizona-based group reported. A reading of 50 is the dividing line between expansion and contraction. Similar measures from China, the U.K., euro area, and Russia all fell to record lows.
Financials retreated 8.8 percent, the most among 10 S&P 500 industries, following the group’s 31 percent rally last week. American Express, the largest U.S. credit-card company by purchases, slid $2.67 to $20.64. JPMorgan lost $3.08 to $28.58.
Card companies will cut loans by more than $2 trillion over the next 18 months in a “dangerous and unprecedented” move for U.S. consumer spending, Oppenheimer’s Whitney said in research report. There are signs of “broad-based declines” in consumer access to capital, Whitney said.
Goldman Sachs Group Inc. and Morgan Stanley tumbled more than 14 percent after Credit Suisse Group AG said the slowdown in investment banking and trading will force the New York firms to report fourth-quarter losses and weaker results for 2009.
Energy Slump
Energy producers in the S&P 500 slid 6.9 percent as oil tumbled more than $4 a barrel and the Organization of Petroleum Exporting Countries said slowing global growth means demand will be “much lower” than expected a month ago.
Crude oil for January delivery declined 8.1 percent to $50.05 a barrel in New York. OPEC deferred a decision to reduce output until its next meeting on Dec. 17.
Hess Corp., the fifth-biggest U.S. oil company, slipped 14 percent to $46.64. Anadarko Petroleum Corp., the nation’s second- largest independent oil producer, lost 6 percent to $38.57.
Merrill Lynch cut its recommendation on 11 energy stocks, including Schlumberger Ltd., whose shares lost 13 percent to $44.01. The company, the world’s largest oilfield-services provider, was downgraded to “neutral.”
‘Unrelentingly Negative’
“It’s hard to not be concerned about the prospects for a multi-year global economic contraction,” wrote Calgary-based Alan Laws of Merrill Lynch. “The daily flow of news is unrelentingly negative and comprised of many issues that should take quite some time to resolve.”
Raw-material producers in the S&P 500 lost 5.6 percent as commodity prices fell on worsening economic reports around the world. Manufacturing in China, the world’s biggest consumer of copper, shrank by the most on record and export orders plunged, according to the China Federation of Logistics and Purchasing and CLSA Asia-Pacific Markets.
Freeport-McMoRan Copper & Gold Inc., the world’s largest publicly traded producer of copper, retreated 8.6 percent to $21.93. U.S. Steel Corp., the largest U.S.-based steelmaker by 2007 sales, dropped 12 percent to $26.89.
The Reuters/Jefferies CRB Index of 19 raw materials slumped 3.3 percent, led by silver and oil.
Pilgrim’s Pride Corp., the largest U.S. chicken producer, filed for Chapter 11 bankruptcy protection after rising grain costs and surplus caused it to post four consecutive quarterly losses. The stock, which plunged 98 percent this year, was halted at 62 cents in New York Stock Exchange composite trading.
All thirty stocks in the Dow average declined and just six in the S&P 500 rose. Ford Motor Co. climbed 3.7 percent to $2.79 after saying it may sell its Volvo unit, the company’s sole remaining European brand.
Mentor Corp. soared 89 percent to $30.60. Johnson & Johnson, the world’s largest health-care company, said it will acquire the breast-implant maker for $1.07 billion in cash. Holders of Mentor will get $31 a share, almost double the $16.15 close from Nov. 28.
