BLBG: U.S. Stocks Rise After Citigroup Gets Government Loan Backing
By Elizabeth Stanton
Nov. 24 (Bloomberg) -- U.S. stocks climbed for a second day after the government said it will guarantee $306 billion of troubled Citigroup Inc. assets and Democratic lawmakers pledged to pass an economic stimulus package by January.
Citigroup, which lost more than 60 percent of its market value last week, rebounded 63 percent after the Treasury Department also agreed to inject $20 billion into the bank. JPMorgan Chase & Co. added 12 percent and Bank of America Corp. jumped 17 percent as the guarantee eased concern that a flight of depositors might destabilize Citigroup, which has $2 trillion of assets. Alcoa Inc. and Microsoft Corp. climbed more than 4.4 percent on speculation a new stimulus will spur economic growth.
The Standard & Poor’s 500 Index added 4 percent to 832.04 at 11:13 a.m. in New York, its first back-to-back gains this month. The Dow Jones Industrial Average climbed 275.34 points, or 3.4 percent, to 8,321.76. The Nasdaq Composite Index rose 3.8 percent to 1,437.23. Europe’s Dow Jones Stoxx 600 Index increased 7.1 percent, while the MSCI Asia Pacific Index slipped 0.5 percent.
“Job one is to continue to repair the psychology of this market, and the bailout or the help for Citigroup is an important part of that puzzle,” James Dunigan, managing executive for investments at PNC Wealth Management in Philadelphia, said on Bloomberg Television. PNC Wealth Management oversees $63 billion.
Citigroup Rallies
The S&P 500 rallied 6.3 percent on Nov. 21, paring a third straight weekly decline, after President-elect Barack Obama picked New York Federal Reserve Bank chief Timothy Geithner as Treasury secretary. The index has tumbled 43 percent this year and closed at an 11-year low on Nov. 20 after almost $1 trillion of financial-company losses caused corporate profits to decrease for five straight quarters.
Citigroup climbed $2.36 to $6.13 today. The cash injection from the Treasury adds to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend.
The Treasury, Fed and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial- market stability and help restore economic growth.
‘Main Focus’
“With Citigroup hanging in the low single digits, the market was calling for either a breakup or some kind of resolution,” said Jack Ablin, who helps manage about $60 billion as chief investment officer of Harris Private Bank in Chicago. “This is going to be the main focus of market activity. It should be good news.”
President George W. Bush today said he is prepared to make other financial-rescue moves like the one to help Citigroup. Treasury Secretary Henry Paulson also is considering asking Congress for the remaining $350 billion in the Troubled Asset Relief Program to help revive consumer credit, a shift in position from six days ago, after the slide in the value of Citigroup shares.
Concern that Citigroup may need a government rescue sent bank stocks down 24 percent last week, the steepest slide in at least 19 years.
The Financial Select Sector SPDR Fund, an exchange-traded fund of financial stocks known by its XLF ticker symbol, advanced 11 percent to $10.77. JPMorgan added $2.71 to $25.43 and Bank of America increased $1.93 to $13.40.
Stimulus Plan
Congress will send President-elect Barack Obama an economic stimulus package the day he takes office Jan. 20, Democratic lawmakers said. Senator Charles Schumer of New York said on ABC’s “This Week” program that the package will be between $500 billion and $700 billion. House Majority Leader Steny Hoyer of Maryland said on “Fox News Sunday” that he believed the Inauguration Day goal would be met. He declined to put a price tag on the bill.
Microsoft, the world’s software maker, gained 87 cents to $20.55. Alcoa, the biggest U.S. aluminum producer, increased 61 cents to $9.05.
Energy companies in the S&P 500 climbed 3.7 percent collectively as oil rallied above $52 a barrel in New York and copper and corn also gained as the rescue of Citigroup boosted confidence and a weaker dollar enhanced the appeal of commodities.
National-Oilwell Varco Inc., the largest U.S. maker of oilfield equipment, advanced 7.3 percent to $23.09. EOG Resources Inc., the former oil and gas unit of Enron Corp., rose 5.5 percent to $78.79.
General Motors Corp., the automaker in danger of running out of cash this year, will seek to negotiate a cut in debt levels and new union work rules to help boost its chances of winning federal loans, people familiar with the plan said. Directors are scheduled to meet by phone today, Nov. 26 and Nov. 28, and then gather Nov. 30 and Dec. 1 to review the plan, the people said. The shares gained 2 percent to $3.12.
Investors are paying $9.24 per dollar of operating profit forecast in 2009 for S&P 500 companies, half the two-decade median of $18.10, data compiled by Bloomberg show. Stock valuations suggest S&P 500 profits may decrease as much as 42 percent next year amid forecasts for the worst recession in more than two decades.
To contact the reporter on this story: Elizabeth Stanton in New York at estanton@bloomberg.net
