(Source: Business Week)
U.S. stocks closed lower Monday, depressed by profit taking after a two-month run-up. Financials, which have led many a recent rally, fell after US Bancorp (USB), Capital One Financial (COF), and BB&T Corp. (BBT) said they would sell more shares to repay government bailout funds. Energy issues eased with oil prices.
Market watchers said investors are starting to wonder whether the market has come too far too fast from early March lows. Economic data due later this week, including Tuesday's trade gap figures, should help shed more light on the market's prospects.
On Monday, the 30-stock Dow Jones industrial average finished lower by 155.88 points, or 1.82%, at 8,418.77. The broader S&P 500 index fell 19.99 points, or 2.15%, to 909.24. The tech-heavy Nasdaq composite index shed 7.76 points, or 0.45%, to 1,731.24.
Treasuries surged. The dollar index rose, sending gold futures lower.
There were no major economic reports scheduled for release Monday or Tuesday. Federal Reserve Chairman Ben Bernanke was slated to speak on bank stress tests in a speech Monday night.
Four big U.S. banks announced large common stock offerings and said they would use proceeds to repay funds received under the government's bank bailout program. Reuters reported US Bancorp plans to sell $2.5 billion of stock, and is also selling $1 billion of debt. Capital One Financial is selling roughly $1.75 billion of stock, BB&T Corp. (BBT) $1.5 billion and KeyCorp (KEY) $750 million. BB&T also reduced its quarterly dividend 68% to 15 cents per share from 47 cents, saving $725 million a year, following 37 straight years of dividend increases.
The roughly $6.5 billion of stock offerings were announced three days after Wells Fargo (WFC) and Morgan Stanley (MS) sold a combined $12.6 billion of stock. Morgan Stanley also sold $4 billion of debt.
The banks were among the 19 lenders to undergo government "stress tests" of their ability to weather a deep economic downturn. U.S. Bancorp, Capital One and BB&T were among the nine found not to need more capital, while KeyCorp was ordered to raise $1.8 billion. KeyCorp said it may conduct other transactions that result in more common stock issuance. Wells Fargo and Morgan Stanley were also told to find new capital. U.S. Bancorp took $6.6 billion from the government's Troubled Asset Relief Program, while Capital One took $3.55 billion, BB&T $3.1 billion and KeyCorp $2.5 billion.
Hundreds of lenders took money from TARP, which was designed to spur lending and improve the economy. Yet many now view TARP as an albatross that imposes too many restrictions, including on executive pay, and suggests that recipients are desperate for capital.
