U.S. Stock Futures Decline After Global Credit Crunch Deepens

By Sarah Jones and Elizabeth Stanton
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Oct. 6 (Bloomberg) -- U.S. stock-index futures dropped after bank bailouts in Europe widened and lower crude prices weighed on oil companies, deepening concern that credit-market losses will worsen a global economic slowdown.

Bank of America Corp., Merrill Lynch & Co. and Goldman Sachs Group Inc. fell more than 3.9 percent after the German government led a bailout of commercial-property lender Hypo Real Estate Holding AG and BNP Paribas SA bought Fortis's Belgium bank. Exxon Mobil Corp. slid 3.4 percent as crude traded below $90 a barrel. Hartford Financial Services Group Inc. added 3.5 percent after Allianz SE said it will invest $2.5 billion in the insurer.

Standard & Poor's 500 Index futures expiring in December lost 27.60 points, or 2.5 percent, to 1,080.70 at 9:09 a.m. in New York. Dow Jones Industrial Average futures retreated 206 to 10,158. Nasdaq-100 Index futures decreased 27.50 to 1,450.

``It will probably be a rough week for global investors as they realize the credit crisis has a long way to play out,'' said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``U.S. action was an absolutely essential first step, and global intervention is needed.''

The S&P 500, the benchmark index for U.S. stocks, tumbled 9.4 percent last week, the steepest slump since the September 2001 terrorist attacks, as concern the U.S. is headed for a recession overshadowed passage of a $700 billion bank bailout.

$900 Billion

Stock futures briefly pared their decline after the Federal Reserve doubled its emergency auctions of loans to commercial banks to as much as $900 billion. The central bank also will begin paying interest on bank deposits under authority it gained from financial-rescue legislation enacted last week.

Money-market interest rates remained elevated as lenders hoarded cash on speculation more financial institutions may collapse after governments in Europe and the U.S. intervened to salvage six in the past two weeks. The difference between what banks and the Treasury pay to borrow money for three months widened to 3.89 percentage points, the biggest since Bloomberg began compiling the data in 1984.

David Bianco, UBS AG's chief equity strategist, cut his 12- month forecast for the S&P 500 by 9.1 percent to 1,500 and abandoned his year-end target, citing deeper-than-expected recessions in the U.S. and Europe.

U.S. gross domestic product will drop the next two quarters, with unemployment reaching 8 percent by the end of 2009, Goldman Sachs wrote in a research note Oct. 3. Financial futures are pricing in 100 percent odds the Federal Reserve will cut the target rate for overnight loans between banks by at least 0.50 percentage point by Oct. 29.

Merrill, Goldman

Bank of America, which last month agreed to buy Merrill Lynch for about $50 billion, declined 6 percent to $32.41. Merrill Lynch lost 5.5 percent to $25.20 and Goldman, the biggest independent Wall Street bank, retreated 3.9 percent to $122.99.

Exxon Mobil, the world's largest energy company, fell 3.1 percent to $75.54. ConocoPhillips, the second-biggest U.S. refiner, slipped 3.1 percent to $64.10.

Crude oil sank below $90 a barrel in New York for the first time since February as the deepening credit crisis added to concern that slowing global economic growth will reduce demand for fuels.

Hartford Financial added 3.5 percent to $28.35. The insurer also reported a third-quarter loss of $8.50 to $8.80 a share.

The euro had its biggest one-day drop against the yen in seven years and declined to a 14-month low against the dollar as European governments pledged bailouts for troubled banks while stopping short of coordinated action.

Bank Guarantees

Denmark and Germany said they will guarantee all their countries' bank deposits. French President Nicolas Sarkozy and Italian Prime Minister Silvio Berlusconi have made verbal pledges to do the same. Fortis was driven to the brink of collapse after pouring 24.2 billion euros ($32.9 billion) into the acquisition of ABN Amro Holding NV assets last year just as the U.S. subprime-mortgage market collapsed and credit markets froze.

ImClone Systems Inc. climbed 3.9 percent to $67.50. Eli Lilly & Co. agreed to buy ImClone, the biotechnology company controlled by billionaire Carl Icahn, for $6.5 billion in cash, topping Bristol-Myers Squibb Co.'s hostile bid of $62 a share.

About $20 trillion in value has been erased from stocks worldwide in the past year. The MSCI World Index of 23 developed countries lost 28 percent through Oct. 3, which would be the worst annual performance on record dating back to 1970. Investors in the U.S. face their first annual loss in six years after the S&P 500 dropped 30 percent from its October 2007 record.

The S&P 500, down 25 percent in 2008, is still valued at 20.9 times profit from the past four quarters, according to data compiled by Bloomberg. Earnings at companies in the index are forecast to slip 5.6 percent in the three months ended Sept. 30, the fifth straight quarterly decline, matching a streak ended in March 2002.

To contact the reporters on this story: Sarah Jones in Copenhagen at sjones35@bloomberg.net; Elizabeth Stanton in New York at estanton@bloomberg.net.