Deal-related financial stocks were in the red as investors digested a bevy of news that suggest that the credit crisis has shown no signs of weakening. Washington Mutual Inc., MBIA Inc. and Ambac Financial Group Inc. all backpedaled as the Dow declined 136.87, or 1.13%, to 11,926.22, and the Nasdaq declined 48.02, or 1.93%, to 2414.27 in early-afternoon trading.
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WaMu [WAMU] fell .02, or .31%, to $6.34 as the struggling thrift will cut 1,200 jobs. The reduction precedes next week's shareholder vote on its $7 billion capital infusion. The thrift has been doing everything short of an outright sale, which its troubled brethren Countrywide Financial Corp. did with its sale to Bank of America Corp.
Meanwhile, MBIA [MBIA] fell 7%, and Ambac [ABK] slipped 2% as Moody's Investors Service cut its ratings on both bond reinsurers. The agency downgraded MBIA to A2 and Ambac to Aa3. The moves put both companies in a precarious situation that threatens their livelihoods of reinsuring debt. Moody's offered in a statement that it downgraded MBIA because of its "insured portfolio remains vulnerable to further economic deterioration, particularly given the leverage contained in its sizable portfolio of resecuritization transactions, including some commercial real estate CDOs."
Lastly, although Yahoo! Inc. [YHOO] was able to fight off Microsoft Corp., the price may be the flight of top executives who may have favored the merger. Shares of the Internet giant are falling because high-level executives such as Qi Lu and Vish Makhijani joined communications honcho Brad Garlinghouse in quitting Yahoo!, according to press reports. - Gerald Magpily
