U.S. Stocks Drop on Mounting Bank Losses; Computer Shares Fall

Nov. 10 -- U.S. stocks tumbled to a two-month low after banks reported mounting losses from bad home loans and Cisco Systems Inc. said corporate spending on computer equipment may falter.

Citigroup Inc. shares fell to the lowest since March 2003. The biggest U.S. bank said its mortgage-backed bonds and related securities may have lost $11 billion in value. Morgan Stanley also disclosed losses, while New York expanded a probe into home- loan appraisals linked to Washington Mutual Inc.

``Every day it's a new bank that comes out with a write- off,'' said Jeremy Blackman, a research analyst at Austin, Texas- based Hester Capital Management LLC, which manages $1.5 billion. ``If the credit markets dry up and the economy starts to slow, that's going to transfer over to consumer spending and business spending.''

Cisco led technology stocks in the Standard & Poor's 500 Index to the steepest weekly decline since July 2002. The world's largest maker of networking gear said a ``dramatic'' decline in sales to car and financial companies is curbing growth. Qualcomm Inc. slid after the mobile-phone chipmaker reduced its profit forecast.

The S&P 500 retreated 3.7 percent this week to 1,453.70, the lowest since Sept. 10. The Dow Jones Industrial Average dropped 4.1 percent, the most since July, to 13,042.74. The Nasdaq Composite Index slumped 6.5 percent, the steepest weekly loss since April 2002, to 2,627.94.

Lower Fed Rates?

The yield on two-year Treasury notes tumbled 0.25 point to 3.43 percent, the lowest since February 2005, on increased bets that the Federal Reserve will lower interest rates in December and January. The benchmark 10-year note's yield declined 0.10 point to 4.21 percent, the lowest since September 2005.

The Fed has shifted to 4.50 percent from 5.25 percent in the past two months.

Citigroup tumbled 12 percent to $33.10. The shares closed at $32.90 on Nov. 8, the lowest in 4 1/2 years. The bank ousted Chief Executive Officer Charles O. ``Chuck'' Prince after saying additional charges from mortgage losses will cut profit by as much as $7 billion.

Morgan Stanley, the second-largest U.S. securities firm by stock market value, declined 8 percent to $54.20. It joined Citigroup and Merrill Lynch & Co. in booking losses on subprime mortgage-related assets and said the outlook for credit markets is bleaker than in September.

Citigroup, Morgan Stanley and other top banks have written down more than $40 billion after late payments on U.S. home-loans rose to a five-year high and foreclosures set a record.

`Black Hole'

``People on Wall Street don't know how big a black hole'' mortgage losses are, said Steve Demirjian, managing partner at Integrity Capital Management in Boston. ``That scares a lot of people.''

Third-quarter profit at banks, brokerages and all other financial institutions in the S&P 500 declined 22.7 percent as the housing slump deepened, according to data compiled by Bloomberg. Excluding their results, S&P 500 earnings increased 7.3 percent, exceeding analysts' estimates.

Washington Mutual declined 14 percent to $20.51 after New York Attorney General Andrew Cuomo said there's a ``pattern of collusion'' in mortgage appraisals made by the largest U.S. savings and loan.

Fannie Mae and Freddie Mac sank after Cuomo subpoenaed the two biggest U.S. providers of mortgage financing. Fannie Mae retreated 6.9 percent to $49. Freddie Mac lost 14 percent to $41.70.

Erased Almost Half

Technology shares in the S&P 500 declined 8.9 percent, posting the biggest loss in more than five years and erasing almost half of their 2007 advance. They entered the week with the second-biggest gain among 10 industries in the S&P 500 this year.

Cisco tumbled 12 percent to $28.58. U.S. companies have ``squeezed'' information-technology spending, Chief Executive Officer John Chambers said Nov. 7. Orders fell from Cisco's top 25 U.S. customers, which include eight financial services companies and two automakers, he said.

International Business Machines Corp., the world's biggest computer-services provider, tumbled 13 percent to $100.25 for the steepest weekly loss since October 2000.

Tenet Healthcare Corp. advanced 27 percent, the most among S&P 500 members, to $4.06. The second-biggest publicly traded hospital chain in the U.S. reported higher patient revenue and cost controls that produced a smaller quarterly loss than analysts estimated in a Bloomberg survey.

$39 Billion Loss

General Motors Corp. posted the steepest weekly decline since March 2005, slumping 15 percent to $31.28. The world's largest automaker reported a record $39 billion quarterly loss after three money-losing years forced the company to write down the value of future tax benefits.

Companies scheduled to release quarterly reports next week include Wal-Mart Stores Inc., the world's largest retailer; Home Depot Inc., the biggest home-improvement merchant; and Starbucks Corp., the largest coffee-shop chain.

Sales at U.S. retailers slowed in October as rising fuel prices and falling property values left Americans with little extra cash to spend, economists said reports next week will show.

Purchases rose 0.2 percent after increasing 0.6 percent in September, according to the median estimate in a Bloomberg News survey before a Nov. 14 Commerce Department report. Figures from the Labor Department may show consumer and wholesale costs rose.