U.S. Stock-Index Futures Retreat; Lehman, GM, UAL Shares Drop

By Adam Haigh and Eric Martin

Aug. 21 (Bloomberg) -- U.S. stock-index futures dropped as investors speculated that writedowns at financial companies will increase and a climb in oil damped the earnings prospects for retailers and airlines.

Lehman Brothers Holdings Inc. slid 4.1 percent as Citigroup Inc. reduced its earnings estimates for the fourth-largest U.S. securities firm and the Financial Times said Korea Development Bank and China's Citic Securities Co. abandoned talks to buy a stake. General Motors Corp. and UAL Corp. fell as oil posted the first three-day advance in more than five weeks. Investors will also focus on reports that may show the U.S. economic outlook dimmed for a third straight month and manufacturing in Philadelphia contracted.

``Smart investors are treading carefully,'' said Chirin Gill, a London-based fund manager at Daiwa SB Investments, which oversees about $60 billion. ``Investors are confused about the outlook for the economy over the next few months.''

Standard & Poor's 500 Index futures expiring in September retreated 6.80, or 0.5 percent, to 1,267 at 8:39 a.m. in New York. Dow Jones Industrial Average futures lost 59 to 11,347. Nasdaq-100 Index futures declined 10.25 to 1,905.75.

The S&P 500 has dropped 13 percent this year as the worst U.S. housing slump since the Great Depression slowed consumer spending and spurred turmoil in mortgage markets that saddled banks with more than $500 billion of losses. Earnings at financial companies in the S&P 500 declined 91 percent last quarter, according to Bloomberg data.

`The Gradual Decline'

``One characteristic of the third quarter is going to be the gradual decline in estimates for corporate earnings,'' said Bob Parker, London-based vice chairman of Credit Suisse Asset Management, which has $600 billion. He spoke in a Bloomberg Television interview.

Lehman fell 56 cents to $13.17. The company may post a third-quarter per-share loss of $3.25, wider than the 41-cent loss Citigroup analyst Prashant Bhatia had previously predicted. He also cut earnings forecasts for Morgan Stanley and Goldman Sachs Group Inc.

Korea Development Bank and Citic held talks in the first week of this month about buying a stake of as much as 50 percent in Lehman, the Financial Times reported, citing unidentified people familiar with the matter. The pair walked away after deciding Lehman was asking too high a price, the newspaper said.

Matthew Russell, a spokesman for Lehman in Hong Kong, declined to comment on the report, as did Sung Joo Yung, a spokesman at Seoul-based Korea Development Bank. Raymond Tang, a spokesman for Citic in Beijing, said he hadn't heard about the discussions.

Earnings Estimates

Separately, Lehman cut its third-quarter earnings estimates for Morgan Stanley and Goldman, and the cost of protecting bank debt from default rose to a five-week high. Goldman lost $1.55 to $156.70, Morgan Stanley retreated 50 cents to $36.90.

An advance in financial shares yesterday helped snap a two- day, 2.4 percent slide in the S&P 500, its worst retreat in a month. Concern funding shortages at Fannie Mae and Freddie Mac will add to banks' $500 billion in credit losses sent financial shares down 6.3 percent during the week's first two days.

Fannie Mae today fell 43 cents to $3.97, while Freddie Mac lost 40 cents to $2.58. They have both plunged more than 88 percent in 2008.

GM, the largest U.S. automaker, dropped 17 cents to $9.99. United Airlines parent UAL slid 85 cents to $11.55.

Supply Disruption

Oil rose on speculation that Russian crude may be disrupted because of rising tensions with the U.S., and as the weaker dollar bolstered the hedging appeal of commodities. Crude added 2.3 percent to $118.19 a barrel.

The Conference Board's index of leading indicators, a measure of the economy's direction over the next three to six months, fell 0.2 percent, according to the median forecast in a Bloomberg News survey. The Philadelphia Federal Reserve's gauge of manufacturing was probably less than zero for a ninth month, signaling a contraction in the economy. The two reports will be released at 10 a.m. New York time.

Salesforce.com Inc. dropped $6.60 to $58.70 after revenue growth slowed and the company said acquisition costs will trim profit.

JDS Uniphase Corp. slumped $1.30 to $10.60. The maker of phone equipment for AT&T Inc. posted an unexpected net loss after sales of products that test networks declined.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Eric Martin in New York at emartin21@bloomberg.net.
Last Updated: August 21, 2008 08:40 EDT