Flood of Financial-Sector Write-downs Continue, Causing Stocks to Swoon

By Mike Caggeso
Associate Editor

Financial institutions dominated the headlines yesterday (Thursday), with yet another round of write-down worries – this time related to the banks’ fourth-quarter results.

• Investors and analysts believe Citigroup Inc. (C) may face $8 billion to $11 billion in fourth quarter write-downs, according to the Wall Street Journal – a huge leap from the $1.8 billion in third quarter write-downs.
• A planned $1.2 billion write-down at Bear Stearns Cos. Inc. (BSC) induced leading credit-rating agency Standard & Poor’s Inc. to lower its long-term credit rating on the company, from A+ to A. The write-down would give Bear Stearns its first quarterly loss, WSJ also reported.
• Shares of HSBC Holdings PLC (HBC) dipped after the global lender announced it would write down $3.4 billion because of its exposure to subprime loans, the Toronto Star reported. The number was well above the $1.9 billion and $2.2 billion the company wrote down in the first and second quarters, respectively
• And fellow London-based lender Barclays PLC (BCS) will follow suit, announcing it would write down $2.7 billion, Bloomberg reported. 

"If the housing market continues to weaken and if it has a broader impact on the underlying real economy, then charges will stay elevated and could increase," HSBC Finance Director Douglas Flint told the Toronto Star. [For a news report containing the industry wide write-down predictions of newly appointed Merrill Lynch & Co. (MER) Chief Executive Officer John Thain, please click here].

That sums up the mood for all lenders.

After news of the write-downs pelted the markets like hailstones, a hopeful day of trading turned negative by mid-afternoon as investors realized the subprime jitters are running deeper and spreading further than originally conceived. Indeed, the Dow Jones Industrial Average fell 120.96 points, or 0.91%, to close at 13,110.05. Its high for the year was 14,198.10. The Dow is down 8% from that record peak.

News and Related Story Links:

• Wall Street Journal:
  Subprime Hits Seem Likely To Keep Coming

• Wall Street Journal:
  S&P Cuts Rating on Bear Stearns

• Toronto Star:
  HSBC takes another hit, bad debts might jump

• Bloomberg:
  Barclays Writes Down $2.7 Billion on Mortgage Losses