As the federal government lends Freddie Mac and Fannie Mae a helping hand and thrift IndyMac Bancorp crumbles, the commercial banking sector suffered a massive sell-off, pulling the broader market down with it. The Dow Jones Industrial Average lost 45.35 points on Monday to close at 11,055.19.
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Fannie Mae fell 5.07% on Monday to close at $9.73 per share, and Freddie Mac slid 8.26% to $7.11 following indications on Sunday from Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke that the federal government will shore up the mortgage intermediaries, both of which have been battered by the housing debacle and subprime mortgage crisis. Paulson issued a statement saying the Treasury will extend its line of credit to the two companies and may even take equity stakes in them.
In worse shape on Monday was IndyMac, which tumbled 57.14% to close at 12 cents per share following a Friday announcement from the Office of Thrift Supervision that the Federal Deposit Insurance Corp. would take over IndyMac operations immediately and it would reopen Monday as the IndyMac Federal Bank. The thrift had grown rapidly in recent years, and much of its business was built on Alt-A single-family mortgages, often issued to borrowers with weak credit.
The stark reminders of the paltry shape of home lending pulled down commercial banks National City Corp. and Washington Mutual Inc. 14.71% to close at $3.77 and 34.75% to close at $3.23, respectively.
While bank shares were garbage on Monday, the street was banking on garbage. Republic Services Inc., the second-largest U.S. garbage company, soared 13.86% to close at $31.76 as Waste Management Inc. offered to acquire it for about $6.2 billion, or $34 per share, in a move to prevent Republic's agreement to an all-stock merger with Allied Waste Industries Inc. - Michael Rudnick
