Hedge fund near-failure sends stocks plummeting Dow closes down 152.42, with Morgan, two others blamed for 33% of loss

Wall Street

September 25, 1998|By BLOOMBERG NEWS

NEW YORK -- U.S. stocks fell after the near-collapse of hedge fund Long-Term Capital Management LP raised concern about the health of the financial system. J. P. Morgan & Co. and other banks that lend money to hedge funds led the decline.

The Dow Jones industrial average fell 152.42, or 1.9 percent, to 8,001.99.

The average's three financial stocks -- J. P. Morgan, American Express Co. and Travelers Group Inc. -- accounted for almost one-third of the Dow's loss.

The Standard & Poor's 500 index dropped 23.37, or 2.2 percent, to 1,042.72, its first decline in a week. The Nasdaq composite index sank 39.93, or 2.3 percent, to 1,720.34.

Among other broad indexes, the Russell 2,000 index of small capitalization stocks lost 5.75 to 370.26; the Wilshire 5,000 index dropped 200.99 to 9,566.24; the American Stock Exchange composite index slid 3.78 to 642.30; and the S&P 400 midcap index fell 6.11 to 312.54.

The Sun-Bloomberg Maryland lost 2.60 to 185.36.

Banks tumbled after UBS AG, the world's second-largest bank, said it expects a third-quarter loss of as much as 1 billion Swiss francs ($720 million) related to losses in emerging markets and its exposure to Long-Term Capital.

J. P. Morgan dropped $6.125 to $87. American Express fell $4.1875 to $79.25.

Chase Manhattan Bank Corp., the largest U.S. bank, fell $3.75 to $46.375, and No. 2 bank Citicorp lost $5.625 to $99.875. Travelers Group, which is buying Citicorp, fell $3.3125 to $39.625.

Two stocks fell for every one that rose on the New York Stock Exchange. Almost 803 million shares changed hands, above the three-month daily average of 706 million shares.

EBay Inc., which runs the most active Internet auction site, bucked the market's trend, rising $29.375 to $47.375 in its first day of trading.

It was the U.S. market's first initial stock sale in four weeks.

Coca-Cola Co. fell $1.3125 to $56.6875 on continued expectations that slowing economies are hurting its profit.

FDX Corp., the holding company for Federal Express Corp., rose $1.375 to $51.375 after reporting better-than-expected fiscal first-quarter net income of $1 per share.

Mattel Inc., the world's largest toy maker, warned after the market's close that it may report third-quarter net income of 75 cents a share because of inventory cutbacks at its largest customer, Toys 'R' Us.

Mattel's shares closed up 50 cents yesterday at $29.25.

Harris Corp., an electronics company whose products range from copy machines to defense-communications systems, fell $3.625 to $33.4375 after warning that fiscal first-quarter earnings will be below expectations.

SCI Systems Inc., the world's largest contract maker of computer components, slid $2 to $27.8125 after it said fiscal first-quarter revenue will be below expectations by "a single-digit percentage."

Baker Hughes Inc., the fourth-largest oil field services company, dropped $2.3125 to $21.4375 after warning that lower crude-oil prices cut demand for its drilling products, so its third-quarter earnings before a charge will be about half the 36 cents analysts had expected.

Wal-Mart Stores Inc. fell $1.6875 to $62.8125. A federal magistrate recommended ordering the company to pay up to two years of back overtime, plus damages, to more than 1,100 pharmacists who were incorrectly classified as salaried, rather than hourly, workers, the Rocky Mountain News reported.

Pfizer Inc., the maker of Viagra and the No. 4 U.S. drugmaker, rose 93.75 cents to $107.4375 after saying it will buy back about 4 percent of its common shares.

Morgan Stanley Dean Witter & Co. posted a 5 percent decline in earnings for its third quarter, beating Wall Street's expectations.

But its stock price sank 10 percent anyway in trading on the New York Stock Exchange. The shares dropped $5.6875 to $51.5625.

The company said a decline in profits from its asset management business more than offset improvement in its securities and credit card activities.

Morgan Stanley earned $645 million, or $1.05 a share, for the three months ended Aug. 31, compared with $678 million, or $1.09 a share, a year ago.

Revenue less interest expense and a provision for loan losses fell 6 percent to $3.84 billion from $4.11 billion a year ago.

Pub Date: 9/25/98

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