June 2 (Bloomberg) — U.S. stocks fell for the first time in five days after Wachovia Corp. ousted its chief executive officer and Standard & Poor’s lowered its debt ratings on three of Wall Street’s biggest securities firms.
Wachovia slid to the lowest level since 1995 after saying Kennedy Thompson will step down, reigniting concern that subprime losses will deepen. Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. tumbled after S&P said the firms will be forced to report more writedowns. Marriott International Inc. spurred declines in consumer shares as the largest hotel chain said lower U.S. demand is hurting revenue growth.
The S&P 500 Index lost 14.71 points, or 1.1 percent, to 1,385.67. The Dow Jones Industrial Average decreased 134.5, or 1.1 percent, to 12,503.82. The Nasdaq Composite Index retreated 31.13, or 1.2 percent, to 2,491.53. Three stocks dropped for each that rose on the New York Stock Exchange.
“Everyone’s trying to pick the bottom in financials, and what the news flow is showing you is that we’re not there yet,” said Paul Kandel, a New York-based money manager at Sentinel Asset Management, which oversees about $5 billion. “Certainly the changing command at Wachovia isn’t helpful and the downgrades aren’t helpful.”
Banks and brokerages started their retreat today after U.K. lender Bradford & Bingley Plc warned that the housing market is deteriorating in Great Britain and Treasury Secretary Henry Paulson predicted that it will take “months” before financial- market turmoil ends. Financial shares have led the S&P 500’s 11 percent decline from a record in October as writedowns and credit losses stemming from the subprime-mortgage market’s collapse approach $400 billion worldwide.
Banks, Brokers Retreat
Nine of 10 industry groups in the S&P 500 fell today, with 423 companies in the index posting losses.
Wachovia fell 40 cents, or 1.7 percent, to $23.40 after Thompson’s ouster signaled the company may report a second- quarter loss. Chairman Lanty Smith was appointed interim CEO, the lender said in a statement that cited “a series of previously disclosed disappointments and setbacks” for the change. Thomson joins half a dozen CEOs at financial companies including Citigroup Inc. and Merrill who lost their jobs after the global credit crunch.
Morgan Stanley, the second-biggest U.S. securities firm by market value, was lowered to A+ from AA-, S&P said. Merrill Lynch, the third-biggest firm, was cut to A from A+, as was Lehman Brothers, the fourth-biggest. Goldman Sachs Group Inc., the largest of the group, was affirmed at AA-. The outlook on all four New York-based companies remains negative, S&P said.
`Continued Weakness’
“The negative actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters,” Tanya Azarchs, an S&P analyst, said in a statement.
Merrill tumbled $1.30 to $42.62. Morgan Stanley lost $1.13 to $43.10. Lehman, whose shares also were downgraded by Merrill analysts to “underperform” from “neutral,” slumped $2.98 to $33.83. Goldman Sachs declined $4.07 to $172.34.
S&P also revised its outlooks on Bank of America Corp. and JPMorgan Chase & Co. to negative. Citigroup was taken off review for a downgrade and given a negative outlook, while Wachovia was placed on review for a downgrade.
Bank of America, the second-largest U.S. bank by assets, fell 43 cents to $33.58. JPMorgan, the third-biggest, lost 85 cents to $42.15. Citigroup, the largest, dropped 43 cents to $21.46.
`Tough Environment’
“We still are in a very tough operating financial environment for these institutions,” Michael Nix, a money manager at Greenwood Capital in Greenwood, South Carolina, said in an interview on Bloomberg Television. “It will be hard to invest in banks overall.”
The KBW Bank Index lost 1.8 percent to 74.48, below its lowest closing level since April 2003.
Bradford & Bingley plunged 24 percent in London trading and sent U.S. financial shares lower before the open of exchanges in New York after the company said repayments three months or more in arrears have increased and it’s raising capital by selling shares at a discount.
“We are in very tricky waters,” said Philippe Gijsels, senior equity strategist at Fortis Global Markets, which oversees $62 billion in Brussels. “Especially with this mortgage lender this morning, it shows there is reason to be quite cautious on markets in general.”
Paulson, a former chief executive officer of Goldman Sachs, said in Abu Dhabi that there will be more “bumps in the road” before markets recover. He also reiterated his commitment to a “strong” U.S. currency.
Hotels Slump
Marriott retreated 72 cents to $32.19 after saying second- quarter North American revenue will increase at a slower pace than it previously forecast. The company said it’s facing “weak weekend leisure demand,” slowing midweek reservations and fewer last-minute group bookings in the U.S.
Starwood Hotels & Resorts Worldwide Inc. declined $2.04 to $46.36. Wyndham Worldwide Corp. dropped 99 cents to $20.89. The S&P 500 Consumer Discretionary Index retreated 1.2 percent, with 77 of its 86 companies posting losses.
Airlines including Delta Air Lines Inc. and Southwest Airlines Co. fell after the International Air Transport Association said the industry may report a collective loss of $6.1 billion this year as spiraling fuel costs and a slowing economy wipe out earnings.
Delta, based in Atlanta, declined 30 cents to $5.85. Dallas- based Southwest lost 7 cents to $12.99.
Unisys Corp., the manager of computer services for the U.S. Army and UBS AG, led declines in technology shares after Merrill analyst Gregory Smith said a slowdown in hardware orders may hurt revenue. The stock lost 24 cents, or 4.7 percent, to $4.82.
Refiners Climb
Independent oil refiners including Tesoro Corp. and Frontier Oil Corp. climbed after Deutsche Bank AG analyst Paul Sankey upgraded the shares. Tesoro gained $2.71, or 11 percent, to $27.56 for the biggest rise in the S&P 500. Frontier Oil added $2.69 to $32.80.
Energy shares posted the only advance among 10 industries in the S&P 500 as higher oil also boosted the group. Crude for July delivery rose 41 cents, or 0.3 percent, to settle at $127.76 a barrel in New York.
Economy Watch
Manufacturing in the U.S. shrank less than forecast in May. The Institute for Supply Management’s factory index rose to 49.6 from 48.6 in April, the Tempe-Arizona-based group said today. Fifty is the dividing line between contraction and expansion. Economists predicted the index would decrease to 48.5 from 48.6 in April, according to the median of 75 projections in a Bloomberg News survey.
Production expanded for the first time in three months while a measure of prices climbed to the highest level since 2004, the ISM also reported. The figures, along with a Commerce Department report today showing April construction spending dropped less than forecast, eased concern that the economic downturn will intensify.
European stocks dropped for the first time in four days, while Asian shares rose. Treasuries rose, pushing two-year note yields down the most since March.
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net.
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