U.S. stocks fell today on news that Lehman Brothers Holdings Inc., Wall Street’s fourth-largest firm, will not raise fresh capital from Seoul-based Korea Development Bank.
The Dow Jones industrial average closed down 280.01, or 2.43%, at 11,230.73; the S&P 500 fell 43.28, or 3.41%, ending at 1,224.51; and the Nasdaq composite closed down 59.95, or 2.64%, at 2,209.81. All numbers are preliminary.
Today’s retreat erased most of the 289-point gain for the Dow on Monday following the U.S. Treasury’s bailout of mortgage lenders Fannie Mae and Freddie Mac.
Lehman shares lost about 45% amid talk that South Korean regulators had instructed KDB not to invest in the Wall Street firm, which has already written down $8.2 billion in mortgage-related assets. Some analysts said Lehman might stand a better chance of raising capital after it reports third-quarter results next week and discloses the exact amount of additional write-downs.
“What size will its (Lehman) commercial mortgage-backed securities write-downs be next week?” analyst Brad Hintz at Sanford C. Bernstein & Co in New York wrote in a note to clients today.
Lehman, which was hosting its Financial Services Conference in New York today, led brokerage and exchange stocks lower, with most losses ranging between 5% and 10%.
Giant insurer American International Group Inc. also faltered, hurt by talk it might also find it difficult to raise billions of dollars to make up for its mortgage exposure.
Finally, shares of commodities producers and oil companies declined after the crude oil contract for October delivery gave up $3.08 a barrel to close on the New York Mercantile Exchange at $103.26 or about 30% below its July 11 peak of $147.27.
