U.S. Stocks Retreat, Led by Financials; Regional Banks Tumble

By Elizabeth Stanton

June 17 (Bloomberg) -- U.S. stocks fell for the first time in four days as Goldman Sachs Group Inc. predicted banks will have to raise $65 billion in new capital to cover losses and housing starts and industrial production trailed forecasts.

Zions Bancorporation tumbled the most in eight years after the Salt Lake City-based lender projected more losses from bad loans and Goldman said it remains ``cautious'' on regional banks. All 23 companies in the Standard & Poor's 500 Banks Index declined as the group slumped to its lowest level since 1996. Boeing Co. and Deere & Co. retreated on the unexpected drop in factory output, while Lennar Corp. led builders lower on a report showing new-home starts slumped to a 17-year low.

The S&P 500 lost 9.21 points, or 0.7 percent, to 1,350.93. The Dow Jones Industrial Average declined 108.78, or 0.9 percent, to 12,160.3. The Nasdaq Composite Index slid 17.05, or 0.7 percent, to 2,457.73. Two stocks decreased for each that advanced on the New York Stock Exchange.

``The growth in the market is going to be in companies that increase the supply of materials and commodities, and the area that's going to struggle is going to be financials because they're going to go through this long period of deleveraging,'' said Richard Campagna, portfolio manager at Provident Investment Counsel in Pasadena, California, which manages $3 billion. ``I don't see that changing for the next bunch of years.''

Stocks opened higher after better-than-estimated earnings at Goldman, the world's biggest securities firm, spurred speculation that the worst losses at financial companies are over. Today's retreat snapped a three day streak of gains for the S&P 500, its longest of the month.

Regional Banks Tumble

Zions, the lender with operations in 10 western U.S. states, tumbled 10 percent to $33.37 for the steepest decline in the S&P 500. Weakness in residential construction and land values in the Southwest will harm loans and is ``expected to persist into 2009,'' Zions said in a presentation attached to a regulatory filing today.

Goldman analysts led by New York-based Richard Ramsden said investors should sell regional banks such as Marshall & Ilsley Corp., which is on its ``conviction sell'' list, and buy trust banks such as Bank of New York Mellon Corp. and State Street Corp., on the firm's ``conviction buy'' list.

Marshall & Ilsley, Wisconsin's biggest bank, fell 5.2 percent to $18.21, a seven-year low.

$65 Billion More

Large lenders also declined. The Goldman analysts said U.S. banks may need to raise $65 billion in additional capital as losses and writedowns continue into the first quarter of 2009. Declining home prices, expected to continue falling through the year, are driving the deterioration in the credit markets, Goldman said.

Bank of America Corp. lost $1.08 to $29.24. JPMorgan Chase & Co. retreated 90 cents to $39.04. American International Group Inc., the world's largest insurer by assets, fell 5.1 percent to $32.38 for the biggest drop in the Dow average after saying it will take a $27 million pretax charge in the second quarter to cut jobs in a home-lending unit.

The S&P 500 Banks Index declined 4.2 percent, while the S&P 500 Financials Index fell 2.9 percent as 87 of its 90 companies retreated.

Boeing, the world's second-largest commercial airplane maker, lost 64 cents to $74.38. Deere, the biggest maker of tractors, slid $1.40 to $79.20.

Production in factories, mines and utilities declined 0.2 percent last month after dropping 0.7 percent in April, the Fed reported. Economists had forecast a gain of 0.1 percent. Capacity utilization, which measures the proportion of plants in use, fell to 79.4, the lowest since September 2005, when Hurricane Katrina disrupted manufacturing and oil production along the U.S. Gulf Coast.

Housing Slump

Lennar led declines in 13 of 15 homebuilders in S&P indexes. Housing starts fell 3.3 percent to a 975,000 pace from a revised 1.008 million in April, the Commerce Department said. The reading was below economists' forecasts and the lowest since March 1991. Building permits, a sign of future construction, fell 1.3 percent to a 969,000 rate.

Marathon Oil Corp. added 3.1 percent to $53.07, its seventh straight advance. The market is undervaluing the company's production operations, wrote Sanford C. Bernstein analyst Neil McMahon. The company ``could be on the radar screen as an acquisition target,'' Bernstein said.

Energy Rally

Thirty-six of 37 energy companies in the S&P 500 advanced, leading the group to a 1.7 percent gain, even as crude oil fell for a third straight day. Chevron Corp., the second-biggest U.S. oil company, rose the most in the Dow average. Energy is the best-performing group in the S&P 500 over the past 12 months as oil has almost doubled and natural gas has climbed more than 60 percent.

Crude oil for July delivery fell 0.5 percent to settle at $134.01 a barrel on the New York Mercantile Exchange, while natural gas added 0.2 percent to $12.952 per million British thermal units, the highest price since December 2005.

Goldman lost $2.65 to $179.44 after climbing as much as $3.80 earlier. Net income declined to $2.09 billion, or $4.58 a share, in the three months ended May 30 from $2.33 billion, or $4.93, a year earlier, the New York-based company said. The average estimate of 19 analysts surveyed by Bloomberg was for $3.42 a share.

``When any major financial reports you always worry about skeletons in the closet, and for the most part Goldman's seems pretty clean,'' said Robert Stimpson, portfolio manager at Oak Associates Ltd. in Akron, Ohio, which manages $1.4 billion, including Goldman shares. ``It's kind of a sigh of relief.''

CME, Monsanto

CME Group Inc. climbed 5.3 percent to $441.82 for the biggest gain in the S&P 500. The world's largest futures exchange received Department of Justice approval yesterday for its planned acquisition of the New York Mercantile Exchange. The $8.6 billion deal still requires shareholder and regulatory approval. Citigroup Inc. raised the shares to ``buy'' from ``hold.''

Monsanto Co., maker of Roundup weed killer, advanced 5 percent to a record $142.69, leading gains in materials companies. Syngenta AG of Switzerland, the world's biggest maker of agricultural chemicals, may raise pesticide prices 10 percent next year to offset rising oil prices, its chief executive said.

CF Industries Holdings Inc., operator of North America's two largest nitrogen-fertilized plants, and Mosaic Co., the world's biggest maker of phosphates for agriculture, also rallied to records.

Prices paid to U.S. producers rose 1.4 percent in May, the biggest increase since November, a Labor Department report showed. Food prices increased 0.8 percent and fuel advanced 4.9 percent. Excluding food and energy, prices climbed 0.2 percent, matching economists' forecasts.

Infinera Corp. fell 26 percent to $10.28, the biggest drop since its June 2007 initial public offering. The maker of high- speed network systems forecast 2008 revenue below its previous projection. Adjusted revenue for the year will rise 10 percent from fiscal 2007 invoiced shipments of $309.3 million, the company said. Infinera previously projected 25 percent growth on the same basis.

To contact the reporters on this story: Elizabeth Stanton in New York at estanton@bloomberg.net.

Last Updated: June 17, 2008 16:27 EDT