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<< Previous   of   Next >>   ADVERTISEMENT   CONTACT THE HERALD Mike Benbow, Business Editor benbow@heraldnet.com   Published: Friday, June 20, 2008 Credit losses cap bad week for stock markets By David Cho The Washington Post WASHINGTON -- The specter of mortgage-related losses at the nation's largest financial firms reemerged today, spooking major stock indexes into losses of nearly 2 percent. Those fears, along with a jump in the price of oil, capped one of the worst weeks of the year for the Dow Jones industrial average. Today it tumbled 220 points, or 1.8 percent. For the week, it has lost 465 points, or 3.8 percent of its value. The Standard and Poor's 500-stock index, a broader measure, was down 1.9 percent today and 3.1 percent for the week. Every sector of the S&P was in the red today with consumer-discretionary businesses seeing the sharpest declines with a 3 percent drop. This group, which includes restaurants, retail stores and media entertainment companies, tends to suffer in inflationary environments, when consumers have to reserve more of their money for basic such necessities as gas and food because those prices are going up. Jittery commodity markets, reacting to media reports that Israel has been carrying out military exercises that could presage an attack on Iran, sent the price of oil up by $2.69 to $134.62 a barrel, just a few dollars off its all-time high. Meanwhile, Standard & Poor's announced that it is considering cutting its credit ratings on Ford Motor, General Motors and Chrysler, due to the damage to auto sales caused from high gasoline prices. The embattled financial sector also made headlines after Merrill Lynch analyst Edward Najarian cut his earnings estimates for a dozen U.S. banks by 22 percent for 2008 and 19 percent for 2009, saying they are in "capitulation mode." Citing uncertainty over the banks' capital reserve levels, he added that he does not expect credit conditions to recover until 2010. "Our higher credit loss outlook is driven by higher loss assumption in nearly all consumer and commercial loan categories," Najarian wrote in a note to clients. "We have especially increased our loss assumptions for residential construction loans and home equity." Najarian's comments echoed those from other analysts from Credit Suisse, Deutsche Bank and Goldman Sachs, who have been downgrading national and regional banks in recent weeks. Goldman, for one, forecasted Tuesday that U.S. banks will need to raise $65 billion of additional capital to deal with credit losses. Most banks were in the red today. The nation's largest bank, Bank of America, slid 3.7 percent, and Wachovia fell 1.9 percent. Merrill Lynch itself fell 4.6 percent on rumors that it would announce big losses from its mortgage-related lending activities. The brokerage firm also has investments in bond insurers. Two leading insurers, MBIA and Ambac Financial, were downgraded by Moody's today due to worsening financial health at the firms. MBIA said it was "baffled" by the move by Moody's, adding that it had "more than enough capital to meet obligations to policyholders." Ambac also affirmed that it has a strong capital base. MBIA shares slid a 13.3 percent, but Ambac was up nearly 1 percent by the close of trading. Continental Airlines fell $1.36, to $14.23. The carrier and United Airlines announced an alliance, but the soaring price of oil sent airline stocks tumbling. Winnebago Industries dropped $1.23, to $11.59. High gas prices and tightening credit caused the motor home manufacturer's profit to drop 73 percent in its fiscal third quarter. Western Union rose $1.94, to $25.10.

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