U.S. Stocks Fall, Led by Regional Banks; Regions, M&I Tumble

Sept. 22 (Bloomberg) -- U.S. stocks fell following the biggest two-day rally since 1987, dragged down by regional banks, on concern smaller lenders are unlikely to profit from the government's $700 billion bailout of the financial system.
Regions Financial Corp., Alabama's biggest bank, tumbled 17 percent and Marshall & Ilsley Corp., Wisconsin's largest, dropped 21 percent after Merrill Lynch & Co. said the Treasury's proposal may accelerate credit losses at small and mid-sized banks by forcing them to write down real-estate assets. D.R. Horton Inc. and Lennar Corp. led declines among all 15 homebuilders in Standard & Poor's indexes. Ford Motor Co. and American Airlines' parent AMR Corp. lost more than 5 percent as oil had its biggest four-day gain since 2000.




The S&P 500 lost 17.85, or 1.4 percent, to 1,237.23 at 10:36 a.m. in New York. The Dow Jones Industrial Average slid 131.02 to 11,257.42. The Nasdaq Composite Index decreased 28.63, or 1.3 percent, to 2,245.27. Three stocks retreated for each that rose on the New York Stock Exchange.
``They really haven't changed the economic fundamentals at all,'' said Jeffrey Coons, co-director of research at Manning & Napier Advisors Inc. in Fairport, New York, which manages $18 billion. ``We still have a debt-laden U.S. consumer facing falling employment. That's going to be overhanging our economy for some time.''
Regionals Pare Rally
The S&P 500 Regional Banks Index slumped 7.4 percent today as all 12 of its companies declined. The group rallied 101 percent from its July 15 low through Sept. 19, more than three times a measure of large-cap financial companies in the index. Zions Bancorp., the Salt Lake City-based lender with operations in 10 Western states, led regionals with a 163 percent advance, while Columbus, Ohio-based Huntington Bancshares Inc. climbed 143 percent.
The government's plan to purge banks of toxic assets and crack down on speculators who bet against shares of financial companies sent the S&P 500 up 8.5 percent in the final two days of last week.
For Barclays Global Investors' Russ Koesterich, Treasury Secretary Henry Paulson's move to shift the burden of subprime- mortgage related losses to taxpayers ``put a floor under the equity markets.'' James Swanson, who oversees about $200 billion at MFS Investment Management in Boston, says the S&P 500 may rise 15 percent after the Treasury immunized investors from ``the brunt of the economic cycle.''
Two-Day Rally




The S&P 500's rally at the end of last week followed a rout that began when Lehman Brothers Holdings Inc. filed for bankruptcy, Merrill Lynch & Co. was sold to Bank of America Corp. and the U.S. took control of American International Group Inc.
The Federal Reserve yesterday approved bids by Goldman Sachs Group Inc. and Morgan Stanley to become banks, ending the ascendancy of the securities firms 75 years after Congress separated them from deposit-taking lenders.
More than $500 billion in losses at banks stemming from the first nationwide drop in home prices since the 1930s has pushed the S&P 500 15 percent lower in 2008. U.S. economic growth may slip to 1.7 percent this year and 1.5 percent in 2009, the slowest since the last recession in 2001 and its aftermath in 2002, according to the median of 80 economist forecasts compiled by Bloomberg.
Bailout Widened
The Bush administration widened the scope of its plan to include assets other than mortgage-related securities. The change to potentially allow purchases of instruments such as car loans and credit-card debt may force an increase in the size of the package as the legislation proceeds through Congress.
Morgan Stanley rallied $3.23 to $30.44. Mitsubishi UFJ will buy 10 percent to 20 percent of the securities firm and decide on a price after conducting due diligence, the Japanese bank said in a statement.




Goldman Sachs Group Inc. slipped 74 cents to $129.06. The announcement that the two firms will become banks paves the way for Goldman and Morgan Stanley, both of which will now be regulated by the Fed, to build their deposit base, potentially through acquisitions. That will allow them to rely more heavily on deposits from retail customers instead of using borrowed money -- the leverage that led to the undoing of Lehman and Bear Stearns Cos.