April 21 (Bloomberg) -- U.S. stocks fell for the first time in five days after worsening credit losses at Bank of America Corp. and National City Corp. damped speculation that banks are overcoming the subprime mortgage market's collapse.
Bank of America, the second-largest U.S. bank, retreated after bad loans caused first-quarter profit to trail analysts' estimates. National City tumbled to a 17-year low as Ohio's biggest bank was forced to cut its dividend and sell stock at a 40 percent discount to last week's closing price. Caterpillar, the largest maker of bulldozers, declined on reduced ratings from Wachovia Corp. and Credit Suisse Group.
The Standard & Poor's 500 Index lost 8.53 points, or 0.6 percent, to 1,381.8 at 10:20 a.m. in New York. The Dow Jones Industrial Average retreated 79.95, or 0.6 percent, to 12,769.41. The Nasdaq Composite Index decreased 10.1, or 0.4 percent, to 2,392.87. Three stocks declined for every one that rose on the New York Stock Exchange.
``We're going to see continued sluggishness by the banks and a good deal more write-offs,'' Kevin Caron, a Florham Park, New Jersey-based market strategist at Stifel Nicolaus & Co., which oversees about $50 billion, said in an interview on Bloomberg Television. ``Earnings estimates are still too high, and we are still cautious on the economy.''
Earnings Slump
Today's earnings reports from Bank of America and National City spurred concern that Wall Street executives may be too optimistic about credit-market conditions. JPMorgan Chase & Co. Chief Executive Jamie Dimon, Goldman Sachs Group Inc. CEO Lloyd Blankfein, Lehman Brothers Holdings Inc. chief Richard Fuld and Morgan Stanley CEO John Mack all said this month that the worst of the credit crisis may have passed.
European shares retreated as record oil prices hurt earnings prospects for airlines and carmakers, while Asian stocks gained.
Bank of America dropped 90 cents to $37.66. Earnings trailed analysts' estimates as the bank set aside $6.01 billion for bad loans. The first-quarter results included $1.31 billion in trading losses and $2.72 billion in costs for uncollectible loans.
National City fell $1.36, or 16 percent, to $6.97 for the biggest drop in the S&P 500. The lender said a group of investors led by Corsair Capital LLC will buy shares for $5 each, about 40 percent less than the closing price on April 18. National City plans to slash the dividend to 1 cent a share from 21 cents, the second cut this year. The company also posted a first-quarter net loss of 27 cents a share.
$288 Billion
Banks, brokerages and insurance companies have led the S&P 500's decline from an October record as the deterioration in housing that sparked $288 billion in credit losses and asset writedowns pushes the economy to the brink of recession. Financial companies in the S&P 500 that reported first-quarter results had an average profit decline of 85 percent from a year earlier, the biggest drop among 10 industries, according to data compiled by Bloomberg last week.
Analysts surveyed by Bloomberg have cut their projections for first-quarter earnings at S&P 500 companies every week since Jan. 4. They now predict a 13.7 percent drop in the period, compared with an increase of 4.7 percent at the start of the year. Analysts have reduced their expectations for 2008 earnings growth to 9.5 percent from 15 percent in January, according to Bloomberg data.
Wells Fargo retreated 90 cents to $29.50. Oppenheimer & Co. analyst Meredith Whitney cut her recommendation on the shares to ``underperform'' from ``market perform,'' saying the stock has ``significant room for multiple contraction in the event of anything unexpected, and in this case an unexpected reserve build.'' The analyst reduced her 2008 per-share earnings estimate for Wells Fargo to $1.20 from $2.15.
Caterpillar lost $1.34 to $83.94. The shares were cut to ``market perform'' from ``outperform'' at Wachovia, which cited higher costs and reduced North American demand. Credit Suisse Group cut its rating to ``neutral'' from ``outperform.''
Sears, Mattel
Sears Holdings Corp. declined $4.01 to $100.71. The retailer being reorganized by hedge-fund investor Edward Lampert said Bank of America wouldn't renew a $1 billion letter of credit under existing terms. Losing the credit probably won't affect Sears's access to cash, the company said.
Mattel Inc. dropped $1.57 to $20.21. The world's largest toymaker posted its first quarterly loss in almost three years on higher manufacturing costs in China. Analysts had expected a profit.
Eli Lilly & Co. dropped $2.07 to $50. The world's biggest maker of psychiatric drugs trailed analysts' earnings estimates after booking higher charges than the company predicted for abandoning inhaled insulin.
Schlumberger Ltd., the world's largest oilfield contractor, was raised to ``overweight'' from ``equal-weight'' at Morgan Stanley, which also increased its share-price estimate to $135 from $125. The shares added $2.15 to $104.
Energy producers also rallied after crude oil rose above $117 a barrel in New York for the first time, as rebel attacks in Nigeria reduced output.
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