By Adam Haigh
March 2 (Bloomberg) -- Stocks in Europe and Asia fell, U.S. futures slumped and Treasuries rose as Warren Buffett said the economy is in a “shambles” and American International Group Inc. announced a $61.7 billion loss.
HSBC Holdings Plc tumbled 19 percent in London, the biggest drop since at least 1992, after saying it plans to raise 12.5 billion pounds ($17.7 billion) in a rights offer, increasing concern that financial firms need more capital. General Electric Co. and Caterpillar Inc. slumped more than 2 percent before a report that may show U.S. manufacturing contracted. BHP Billiton Ltd., the world’s largest mining company, lost 5.2 percent as copper and nickel decreased and oil slid more than 5 percent.
“Things are getting worse,” said Alex Crooke, portfolio manager at Henderson Global Investors in London, which has about $125 billion. “The economy is still deteriorating and bad debts are still going to appear,” he said in a Bloomberg Television interview.
The MSCI World Index of 23 developed countries sank 1.9 percent to 736.99 at 1:33 p.m. in London, extending its 2009 decline to 20 percent, the worst start to a year since the gauge was created in 1970. The MSCI Emerging Markets Index slid 3.4 percent, while Hungary’s forint fell after European Union leaders spurned aid pleas for eastern Europe.
Worst ‘Freefall’
Futures on the Standard & Poor’s 500 Index expiring this month dropped 2.2 percent, while Dow Jones Industrial Average futures suggested the 30-stock gauge will fall below 7,000 for the first time since 1997. Buffett, chairman of Berkshire Hathaway Inc. said in his annual letter to shareholders that the U.S. economy will be a “shambles” this year and perhaps longer, before recovering from the reckless lending that caused the worst “freefall” he ever saw in the financial system.
U.S. futures extended their drop after AIG posted its record loss. The S&P 500 slid to a 12-year low last week as the U.S. Treasury agreed to convert as much as $25 billion of Citigroup Inc. preferred shares into common stock in a third rescue attempt for the lender.
The yield on the 10-year Treasury note fell seven basis points to 2.95 percent, according to BGCantor Market Data. Bullion for immediate delivery rose as much as 1.7 percent to $958.51 an ounce in London as investors sought assets perceived as safe.
The MSCI Asia Pacific Index slid 3.4 percent as Mizuho Financial Group Inc. and Hynix Semiconductor Inc fell, while Europe’s Dow Jones Stoxx 600 Index slumped 3.7 percent, as the U.K.’s FTSE 100 Index sank 3.9 percent.
Bear Market
The Stoxx 600 has posted six straight monthly declines as the U.S. economy contracted at the fastest pace since 1982, forecasts at companies from Novartis AG to Deutsche Post AG disappointing investors, and the economic crisis in eastern Europe deepened.
“This is a bear market and patience is what you need,” said Lucy MacDonald, London-based chief investment officer of global equities at RCM UK Ltd., which has about $100 billion under management. “We need to see stabilizing of economic and corporate profit growth,” she said in a Bloomberg Television interview.
HSBC tumbled 19 percent to 399 pence. The bank reported 2008 net income of $5.73 billion, compared with $19.1 billion a year earlier. HSBC will raise about 12.5 billion pounds by offering investors 5 new shares at 254 pence each for every 12 they own already.
European Banks, AIG
Commerzbank AG, Germany’s second-largest bank, lost 6.8 percent to 2.60 euros. Chief Executive Officer Martin Blessing said Germany’s second-largest bank may need more cash from the government, though it’s fine for now, Frankfurter Allgemeine Sonntagszeitung reported.
BNP Paribas SA, France’s biggest bank, slid 8.3 percent to 23.72 euros, extending its 2009 drop to 22 percent.
AIG, the insurer deemed too important to fail, will get up to $30 billion in new government capital in a revised bailout, the U.S. Treasury and Federal Reserve said. The shares gained 8 cents to 50 cents in New York.
Citigroup slipped 6.7 percent to $1.40 after sinking 39 percent on Feb. 27. Bank of America Corp. lost 14 percent to $3.41 in New York.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest bank tumbled 6.8 percent to 423 yen. Mizuho Financial lost 3.7 percent to 181 yen. Monthly wages in Japan fell 1.3 percent in January from a year earlier, after declining 0.8 percent in December.
The cost of protecting European and Asia-Pacific bonds from default jumped, credit-default swaps show. The Markit iTraxx Europe index of 125 companies with investment-grade ratings rose 7 basis points to 187, JPMorgan Chase & Co. prices show. The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan rose 17.5 basis points, according to ICAP Plc.
Hynix, BHP
Hynix, Asia’s second-biggest maker of memory chips, slumped 4.2 percent to 8,280 won in Seoul after the country’s exports dropped for a fourth month in February.
BHP fell 5.2 percent to 1,049 pence. Rio Tinto Group, the world’s third-largest mining company, declined 4.6 percent to 1,718 pence. Copper fell 1.4 percent on the London Metals Exchange, while nickel slid 3 percent.
Royal Dutch Shell Plc, Europe’s largest oil producer, lost 3.8 percent to 1,486 pence. BP Plc, the region’s second biggest, slid 3.7 percent to 431.5 pence. Crude oil fell for a second day on signs that manufacturing in the world’s two biggest energy consumers contracted last month, cutting fuel demand.
Eastern Europe
The MSCI EM Eastern Europe Index slid 3.3 percent after European Union leaders spurned pleas for special aid for eastern Europe and a rescue package for automakers, bowing to German concerns over budget deficits as the economic crisis escalates.
Last week three international lenders -- the World Bank, the European Bank for Reconstruction and Development and the European Investment Bank -- announced loans of up to 24.5 billion euros ($30.9 billion) for eastern European banks.
The Hungarian forint dropped 2.4 percent to 306.70 versus the euro and the Czech koruna depreciated 1.2 percent to 28.458 against Europe’s common currency.
General Electric slid 3.2 percent to $8.24 in pre-market trading in New York. The only company left in the 30-stock Dow Jones Industrial Average from its founding in 1896 is adding to investor pessimism as credit analysts threaten to reduce its AAA rating.
GE, Options Market
GE sank to its lowest price since 1995 in New York Stock Exchange composite trading after cutting its dividend for the first time in 71 years on Feb. 27. Even that wasn’t enough to convince Moody’s Investors Service to say the Fairfield, Connecticut-based company’s credit profile would be left unchanged.
The Institute for Supply Management’s factory index fell to 34 in February from 35.6 the prior month, according to the median economist estimate in a Bloomberg survey. A reading of 50 is the dividing line between growth and contraction.
Stocks remained lower after a Commerce Department report showed consumer spending in the U.S. rose in January for the first time in seven months as Americans took advantage of post- holiday discounts that hurt retailer profits. The 0.6 percent increase was larger than anticipated and followed a 1 percent decrease in December.
Stock options traders in the U.S. are paying twice this decade’s average to protect against losses in U.S. stocks through 2011, signaling the bear market that already wiped out $10.4 trillion of equity value may last two more years.
Contracts to protect against a decline in the Standard & Poor’s 500 Index for two years cost $15,160 on the Chicago Board Options Exchange, compared with $6,875 in 2007, according to price-adjusted data compiled by Bloomberg.
To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net
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