By Henrietta Rumberger and Elizabeth Stanton
Aug. 25 (Bloomberg) -- U.S. stock-index futures fell as oil's climb above $115 a barrel sent consumer companies lower and the nation's ninth bank failure of 2008 dragged down financial shares.
UAL Corp., parent of United Airlines, lost 2.2 percent as crude rose for the fourth time in five days. Bank of America Corp. and JPMorgan Chase & Co. dropped more than 1 percent each after Columbian Bank and Trust Co. of Topeka, Kansas, collapsed amid bad real-estate loans. Lehman Brothers Holdings Inc. declined more than 3 percent on concern a Korean bank will reconsider a potential investment in the fourth-biggest U.S. securities firm.
``The market's going to struggle until we get a clear indication that we know what the bottom is in the financials, and that may be a while,'' Peter Sorrentino, senior portfolio manager at Cincinnati-based Huntington Asset Advisors, which manages about $17 billion, told Bloomberg Television.
S&P 500 futures expiring in September dropped 7.5, or 0.6 percent, to 1,284.7 as of 8:56 a.m. in New York. Dow Jones Industrial Average futures retreated 54 to 11,563 and Nasdaq-100 Index futures decreased 10.5 to 1,919.
Futures indicated the S&P 500 will extend its first weekly decline since July. The benchmark for American equities slipped 0.5 percent last week as energy prices climbed and concern grew that the government may need to bail out Fannie Mae and Freddie Mac.
Morgan Stanley cut its year-end forecast for the index on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.
`Long Tail'
``Our biggest concern for 2009 earnings estimates is that a combination of global growth slowdown, declining operating leverage, a stronger U.S. dollar, less share count reduction and a long tail to dysfunctional credit markets will create powerful headwinds for what appear to very optimistic consensus expectations,'' Abhijit Chakrabortti wrote in a note to clients dated yesterday.
Oil's rebound today from a 5.4 percent drop on Aug. 22 reignited concern that higher fuel costs will curb profits at retailers and automakers. Crude rose as much as 1 percent to $115.80 on the New York Mercantile Exchange as Russian lawmakers voted to recognize the independence of two breakaway Georgian regions, raising fears of new tensions in the area.
UAL retreated 28 cents to $12.44. AMR Corp., parent of American Airlines, lost 31 cents to $10.21.
Stocks and Bonds
Consumer stocks in the S&P 500 have climbed 7.6 percent in August, the biggest monthly rally in five years. As the shares advanced, the extra yield bond investors demanded to own the industry's debt rose to 2.5 percentage points over U.S. Treasuries.
Every time bondholders sought that much compensation to guard against default, shares of retailers, restaurants, and hotels slumped an average 16 percent, according to data compiled by Bloomberg.
JPMorgan dropped 40 cents to $37.27. Bank of America retreated 36 cents to $29.85.
Columbian Bank, with $752 million in assets and $622 million in total deposits, was shuttered by the Kansas state bank commissioner's office and the Federal Deposit Insurance Corp., on Aug. 22.
The pace of bank closings is accelerating as global financial firms have reported more than $500 billion in writedowns and credit losses since 2007. The FDIC's ``problem'' bank list grew by 18 percent in the first quarter to 90 banks with combined assets of $26.3 billion. Prior to yesterday, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov. The U.S. shut 12 banks in 2002, the highest in the period, and 2005 and 2006 had no closures.
`Bad Memories'
``The closure of Columbian Bank awakened investors' bad memories and shows that we are not through with the topic yet,'' said Monika Rosen, head of research at BA-CA Asset Management in Vienna, which manages the equivalent of $41 billion.
Lehman slipped 46 cents to $13.95. Shares of the securities firm rose 5 percent in New York trading on Aug. 22 after Korea Development Bank said it's ``considering'' an investment in the company.
Lehman Talks
The Korean bank ended talks on a possible investment after Lehman demanded a price 50 percent higher than its book value, the Maeil Business newspaper said, citing an unnamed official in the banking industry. South Korea's financial regulator said today that state-controlled banks including Korea Development Bank should consider the risks of buying overseas rivals amid the global credit crisis.
New York-based Lehman has dropped 78 percent this year, the worst performance in the 11-company Amex Securities Broker/Dealer Index.
Lehman Chief Executive Officer Richard Fuld may face an ``internal coup'' to strip him of his executive duties, the Observer reported, citing bank ``sources.'' Mark Lane, a spokesman for Lehman Brothers, was not immediately available when contacted by Bloomberg News via telephone and e-mail.
Freddie Mac lost 11 cents to $2.70 and Fannie Mae declined 35 cents to $4.65. The cost to the largest U.S. mortgage finance companies of raising capital is getting more prohibitive by the day, making it likely that the government will have to inject cash into the two firms.
Bailout Concern
Declines in the common stocks of Freddie Mac and Fannie Mae accelerated last week to more than 90 percent for the year and yields on their preferred shares more than doubled on speculation Treasury Secretary Henry Paulson may need to bail them out, reducing or wiping out the value of the securities.
Financials shares last week fell the most in six weeks for the biggest drop among 10 S&P 500 industries. The group has retreated 29 percent this year as losses from the subprime mortgage collapse exceeded $500 billion. One year into the financial crisis, central bankers and scholars at the Federal Reserve's annual retreat this weekend couldn't agree on how to prevent a repeat.
Fed Chairman Ben S. Bernanke, European Central Bank President Jean-Claude Trichet, former officials and economists meeting in Jackson Hole, Wyoming, split over whether policy makers should be made responsible for financial stability and how closely to heed the concerns of Wall Street.
The yearlong credit crisis has yet to run its course, with continued turmoil likely in housing and banking, Bank of Israel Governor Stanley Fischer said Aug. 23 at the Fed's symposium.
Oilfield Acquisition
Energy producers climbed as oil rose and Precision Drilling Trust, Canada's largest oilfield-services provider, agreed to buy Grey Wolf Inc. for about $2 billion to add drilling in the U.S. market. Stockholders of Grey Wolf, based in Houston, will get $5 and 0.1883 trust unit per each share, the companies said today in a statement. The agreement comes two months after a previous bid was rejected.
Acquisitions of oilfield-services providers and drillers accelerated this year as record prices raised demand for rigs and support equipment. Grey Wolf rejected three previous bids from Calgary-based Precision in favor of its April agreement to acquire Basic Energy, a Midland, Texas-based oilfield contractor. Shareholders voted that deal down in July.
XTO Energy Inc., the oil and gas driller that's made more than two dozen acquisitions since 2000, advanced 51 cents to $48.85. Chesapeake Energy Corp., the second-biggest independent U.S. natural-gas producer, climbed 30 cents to $47.95.
Sales of existing houses in the U.S. probably rose in July from a 10-year low as declining prices helped stabilize demand, economists said before a report from the National Association of Realtors due at 10 a.m. in Washington today.
Dell Inc., Sears Holdings Corp. and Big Lots Inc. are among the companies scheduled to report earnings this week. Second- quarter profits for S&P 500 companies slumped 22 percent on average, based on Bloomberg data. Fewer than 50 companies in the U.S. stock benchmark have yet to release results.
To contact the reporters on this story: Henrietta Rumberger in Frankfurt at hrumberger@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.
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