Green light for rescue plan; markets look weak

By Charley Blaine and Elizabeth Strott

The nation's lawmakers will be asked this week to vote on a $700 billion rescue package for the distressed financial markets.

The hope is that the package will stabilize financial markets. But U.S. financial markets now look headed to a weak Monday opening after stocks in Asia and Australia retreated.

Futures trading early Monday eastern time suggested that the Dow Jones industrials will open down roughly 110 points to around 11,033 after jumping 121 points on Friday. The Standard & Poor's 500 Index may open down 15 points to 1,199, and Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, may open with a loss of 13 points to 1,661.

Japan's Nikkei Index($N225) opened higher in Monday trading but fell back late in the session to a loss of about 166 points, or 1.4%, to 11,727.

Markets in Hong Kong; Bombay, India; and Sydney, Australia were all 2% lower.

Meanwhile, the dollar was higher in electronic trading, and crude oil was at $105.75 a barrel, down 62 cents from Friday.

The market reaction appears to signal worry that the U.S. economy and economies elsewhere will be soft for an extended period of time, in large part because of banking system weakness around the world.

Over the weekend, central banks in the Netherlands, Belgium and Luxembourg, for example, injected $16.4 billion to keep Fortis Group, Belgium's largest banking company, afloat.

The economic weakness will continue even with the rescue plan for the banking system that Republican and Democratic leaders in Congress endorsed on Sunday. The plan also won the support of the Bush Administration.

The new U.S. rescue plan deals with the specific problem of how to get bad assets off the books of banks around the country so that banks will boost their lending. Text of the plan was announced Sunday afternoon and can be found at financialservices.house.gov.

• Read the details of the plan

The final plan is based on the one first introduced by Treasury Secretary Hank Paulson last Thursday, but a number of compromises have been included to ensure support from both parties.

• The price tag has changed: The government will get $250 billion up front, with an additional $100 billion upon the president's certification. The last $350 billion would be subject to congressional review.

• The legislation will be expanded to include the bad assets of pension plans, local governments and small banks.

• The plan also includes a Republican demand that would allow the government to insure some of the bad loans, rather than buying them outright.

• New executive compensation limits would also be included in the legislation

House members will vote Monday, with the Senate voting later this week.

The stock market had put in a modest rally Friday on hopes that the White House and Congress would agree on a plan to rescue the nation's financial system.

At Friday's close, the Dow was up about 121 points, or 1.1%, to 11,143. The S&P 500 was up 4 points, 0.3%, to 1,213, but the Nasdaq Composite Index was off 3 points to 2,183. The Nasdaq-100 fell 16 points to 1,672.

The finish was gratifying especially since the market opened so badly; the Dow had fallen as much as 153 points before 10 a.m. ET. But the rebound was without much conviction. Trading volume on the New York Stock Exchange was just under 1.2 billion shares, well below normal.

• Get free, real-time stock quotes on MSN Money

A deal had to get done

"We're very pleased with the agreement," White House spokesman Tony Fratto said on Sunday. "It has taken an extraordinary bipartisan effort."

Democrats and Republicans alike stressed the importance of decisive action.

"This could have resulted, if we don't get this done, in a major meltdown of our economy," Senator Christopher Dodd (D-Conn.) said Sunday. "If we approve the measures this week, the ... process and investments can begin immediately. This would begin to right this problem rather quickly."

• Analysis: Trust them? We don't have a choice

Republicans joined in the expressions of relief.

"This is the bottom line: If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Senator Judd Gregg (R-NH) told The Associated Press.

House Republicans, including Rep. John Boehner, R-Ohio, and Rep. Eric Cantor, R-Va., also signaled they would support the bill. "We have reduced the amount of taxpayer risk in this bill significantly," Boehner said after meeting for over three hours with fellow Republicans.

What's not known is how close the House vote will be. Most indications are that the vote will be close.

Wachovia looks for a buyer

Stress in the financial markets was high enough that Wachovia (WB, news, msgs) was actively searching for a merger partner this weekend.

The Wall Street Journal reported late Sunday that the $812-billion asset company was primarily negotiating with Wells Fargo (WFC, news, msgs). It is also talking to Citigroup (C, news, msgs).

The Journal and The New York Times had reported Friday that feelers had also been put out to a number of suitors, including Banco Santander of Spain.

Wachovia, which had lost more than $11 billion in the last three quarters, slumped badly onFriday, falling 27% to $10 in regular trading and an additional 12.8% to $8.72 in after-hours trading.

The decline was a reaction to the government's seizure of Washington Mutual late on Thursday. WaMu's deposits and branches were sold to JPMorgan Chase (JPM, news, msgs).

WaMu's failure was the biggest ever for a U.S. bank and is the 13th bank collapse so far this year.

Financials make a comeback

Despite Wachovia's slump, financial stocks, which had been weak for most of Friday, rallied at the close, led by JPMorgan Chase, up 11% to $48.24, and Bank of America (BAC, news, msgs), up 6.8% to $36.70. The WaMu news had pushed the group lower at the open, but the bailout discussion brought the group back.

National City (NCC, news, msgs) was down 25.7% to $3.71 and Morgan Stanley (MS, news, msgs) was down 8.7% to $24.75.

Energy stocks were weak because of falling crude oil. Crude was at $106.89 a barrel Friday, down $1.13 from Thursday. Chevron (CVX, news, msgs) was down 0.6% to $86.95. Anadarko Petroleum (APC, news, msgs) was down 4% to $52.73.

Tech stocks were weak because of the weak profit outlook for Research In Motion (RIMM, news, msgs). RIM was down 27.5% to $70.76 -- the biggest loser among Nasdaq-100 stocks because of investor fears that the company will be spending massive amounts of money to promote new versions of its BlackBerry device to a mass audience.

Research In Motion's decline was why Apple (AAPL, news, msgs) was off was 2.8% to $128.24.

The Nasdaq-100 finished down 33 point, or 2.2%, to 1,650.

Thankfully, a lousy week ends

It was not much of a week for stocks, and the disappointment had to gall many investors who had watched the Dow soar nearly 800 points on Sept. 18 and Sept. 19.

The blue-chip index dropped 563 points on Monday, Tuesday and Wednesday. Thanks to Friday's gain and a 197-point gain on Thursday, the blue-chip index finished the week down 2.2%; the loss was the Dow's sixth in the last seven weeks.

The S&P 500 was down 3.3%, and the Nasdaq dropped 4%. It was a tough week for smaller stocks.

The quarter ends Tuesday. Right now, it looks like a loser as well, with the Dow off 1.8%, the S&P 500 down 5.2%, and the Nasdaq losing 4.8%. For the year, the Dow is down 16%, the S&P down 17.4%, and the Nasdaq down 17.7%.

Since bottoming at $91.02 on Sept. 16, crude has jumped 17%.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	11,143.13	11,388.44	-2.15%	-15.99%
S&P 500	1,213.27	1,255.08	-3.33%	-17.37%
Nasdaq Composite	2,183.34	2,273.90	-3.98%	-17.68%
Russell 2000	704.79	753.74	-6.49%	-7.99%
Crude oil per barrel	$106.89	$101.18	5.64%	11.37%
10-yr. Treasury yield	3.83%	3.77%	1.54%	-5.15%
Gold per troy ounce	$888.50	$864.70	2.75%	6.03%

Biggest bank failure ever

There was talk today that the WaMu seizure and JPMorgan Chase's move to purchase its assets for $1.9 billion provided evidence that the markets can fix themselves.

Either way, WaMu's failure came as a jolt to a financial system already struggling with doubts about the stability of large institutions. WaMu closed at 16 cents on the down, down nearly 91%, but, the fact is, they're basically valueless.

• Read more: WaMu seized

Washington Mutual has been slammed by losses related to the mortgage-market crisis over the past year and was forced to put itself up for sale on Sept. 15. No buyers had come forward, and the bank's customers had pulled $16.7 billion in deposits since it went on the block 10 days ago.

In December, the bank closed its subprime-lending business, cut its dividend and announced layoffs. In an ironic twist, Washington Mutual rejected an $8-per-share offer from JPMorgan in March. WaMu continued to struggle, and the stock spiraled lower. The thrift finally ousted CEO Kerry Killinger on Sept. 8.

The collapse of Washington Mutual is the biggest bank failure in U.S. history and the 13th so far this year.

As it prepares to absorb WaMu, JPMorgan has announced plans to raise $8 billion by selling common shares of its stock.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$106.89	$108.02	-$1.13	-7.42%	11.37%
Heating oil (per gallon)	$2.9949	$3.0258	-$0.0309	-5.88%	13.04%
Natural gas (per million BTU)	$7.6280	$7.7240	-$0.0960	-3.97%	1.94%
Unleaded gasoline (per gallon)	$2.6651	$2.6973	-$0.0322	-11.46%	7.00%

KB Home's nasty loss

The housing slump has been the core issue of the financial crisis, and quarterly results released this morning by homebuilder KB Home (KBH, news, msgs) didn't paint a pretty picture.

KB Home said its third-quarter loss quadrupled from last year as the housing crunch continues to get worse. The homebuilder lost $144.7 million, or $1.87 per share, worse than the loss of $35.6 million, or 46 cents per share, in the third quarter of 2007.

"Continued deterioration in new home demand, new and existing home prices, excessive inventories and mortgage credit availability prevailed across most U.S. housing markets in the third quarter," CEO Jeffrey Mezger said in a press release. "These difficult conditions have now been exacerbated by the recent, unprecedented turmoil in financial and credit markets, and it is too early to assess whether the federal government's proposed interventions will be effective."

The stock managed to gain 1.9% to $21.50 Friday.

Research In Motion's grim forecast

Research In Motion late Thursday reported better-than-expected earnings, but the stock slid on a weak forward-looking forecast.

RIM earned $495.5 million, or 86 cents per share, in the second quarter, a 72% jump from the $287.7 million, or 50 cents per share, the company earned in the same period a year ago. The results were in line with analysts' expectations.

But shares plunged after the company cautioned that the current quarter would be tough.

Research In Motion expects third-quarter earnings of 89 cents to 97 cents per share, while Wall Street's estimate is 97 cents per share. The company said it expects to add 2.9 million subscribers in the third quarter and to operate with a gross margin -- basically sales minus operating costs -- of 47%.

"This is a surprise, and not a positive one," Canaccord Adams analyst Peter Misek said of the results. "For next quarter, gross margin . . . is way lower than we thought."

RIM is introducing four new versions of its handheld device as it continues to compete with rival Apple's iPhone.

GDP revised lower

There was economic news out today, and it wasn't terrible.

U.S. gross domestic product was revised down to 2.8% in the second quarter, the Commerce Department reported this morning. That was down from a previous reading of 3.3% but in line with economists' expectations.

Consumer spending, the biggest component of GDP, rose 1.2%, which was higher than the first quarter's 0.9% increase but down from the previously forecast rise of 1.7%.

Most economists expect GDP to shrink in the third quarter.

HSBC to cut jobs

British bank HSBC (HBC, news, msgs) this morning said it is cutting 1,100 jobs.

The layoffs represent 4% of the bank's global banking and market division.

"We've taken the action because of the current market conditions, the economic environment and our cautious outlook of 2009," spokesman Gareth Hewett told The Associated Press.

In August, HSBC reported a 29% decline in first-half profit to $7.7 billion. It was the steepest profit decline for the bank since 2001.

"The financial sector is facing revenue pressure everywhere, and on jobs," Sunil Garg, head of Asian financials research for JPMorgan Chase, told Bloomberg News. "Everybody is trying to right-size their business."

HSBC was one of the first big financial institutions to feel the heat of the mortgage-market meltdown. In February 2007, the bank warned that its charge for bad debts in 2006 would be 20% higher than analysts had expected. It was the first crack in what became a demolished mortgage-backed banking system.

Short hits from the markets -- 4 p.m.

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	0.830%	0.710%	0.120	-50.89%	-73.57%
5-year Treasury note yield	3.020%	3.042%	-0.022	-2.23%	-12.59%
10-year Treasury note yield	3.827%	3.862%	-0.035	0.37%	-5.15%
30-year Treasury bond yield	4.357%	4.414%	-0.057	-1.25%	-2.29%
Currencies
U.S. Dollar Index	77.045	77.110	-0.065	-0.59%	0.46%
British pound in dollars	$1.8382	$1.8389	-0.0007	0.92%	-7.59%
Dollar in British pounds	£0.5440	£0.5438	0.0002	-0.91%	8.22%
Euro in dollars	$1.4603	$1.4622	-0.0019	-0.48%	-0.09%
Dollar in euros	€ 0.6848	€ 0.6839	0.0009	0.48%	0.09%
Dollar in yen	106.14	106.45	-0.31	-2.42%	-5.11%
Canadian dollar in U.S. dollars	$0.968	$0.969	-$0.0003	2.95%	-2.49%
U.S. dollar in Canadian dollars	$1.033	$1.033	-$0.0003	-2.90%	2.52%
Commodities
Gold	$888.50	$882.00	$6.50	6.38%	6.03%
Copper	$3.0745	$3.1345	-$0.06	-9.23%	1.10%
Silver	$13.5030	$13.2750	$0.23	-1.49%	-9.50%
Corn	$5.4300	$5.4300	-$0.15	-4.44%	19.21%
Crude oil (NYMEX) (per barrel)	$106.89	$108.02	-$1.13	-7.42%	11.37%