U.S. Stock Futures Decline After Global Credit Crunch Deepens

By Nick Baker and Sarah Jones

Oct. 6 (Bloomberg) -- U.S. stock-index futures dropped after bank bailouts in Europe widened and lower crude prices weighed on oil companies, deepening concern that credit-market losses will worsen a global economic slowdown.

Bank of America Corp., Merrill Lynch & Co. and Goldman Sachs Group Inc. fell more than 3 percent in Europe as the German government and financial industry agreed on a 50 billion-euro ($68 billion) bailout for commercial-property lender Hypo Real Estate Holding AG. France’s BNP Paribas SA said it will pay 8.25 billion euros to purchase Fortis’s Belgium bank after a government rescue failed. Exxon Mobil Corp. and ConocoPhillips slipped more than 2 percent as crude traded below $90 a barrel.

Standard & Poor’s 500 Index futures expiring in December lost 27.8, or 2.5 percent, to 1,080.5 at 9:56 a.m. in London. Dow Jones Industrial Average futures retreated 225 to 10,139. Nasdaq- 100 Index futures decreased 34.5 to 1,443.

’It will probably be a rough week for global investors as they realize the credit crisis has a long way to play out,’’ said Frederic Dickson, who helps oversee $25 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. "U.S. action was an absolutely essential first step, and global intervention is needed.’’

The benchmark index for U.S. stocks tumbled 9.4 percent last week, the steepest slump since the September 2001 terrorist attacks, as concern the U.S. is headed for a recession overshadowed passage of a $700 billion bank bailout.

Slowing Growth

U.S. gross domestic product will drop the next two quarters, with unemployment reaching 8 percent by the end of 2009, New York-based Goldman Sachs Group Inc. wrote in a research note Oct. 3. Financial futures are pricing in an 84 percent chance the Federal Reserve will cut the target rate for overnight loans between banks by 0.5 percentage point by its Oct. 29 meeting.

The euro had its biggest one-day drop against the yen in seven years and declined to a 14-month low against the dollar as European governments pledged bailouts for troubled banks while stopping short of coordinated action.

Denmark became the latest European nation to guarantee all bank deposits in an agreement funded by the country’s commercial lenders to bolster the stability of its financial markets.

Germany’s financial industry and the nation’s banks and insurers agreed to double a credit line for Hypo Real Estate to 30 billion euros, Torsten Albig, a spokesman for Finance Minister Peer Steinbrueck, said in an e-mailed statement.

European Casualty

BNP will buy 75 percent of Fortis Bank Belgium from the government for 8.25 billion euros in stock, and purchase the Belgian insurance operations, Prime Minister Yves Leterme said.

Fortis became a casualty of the global financial turmoil after pouring 24.2 billion euros into the acquisition of ABN Amro Holding NV assets last year just as the U.S. subprime-mortgage market collapsed and credit markets froze.

Bank of America, which last month agreed to buy Merrill Lynch for about $50 billion, declined 4.1 percent to $33.07 in German trading. Merrill Lynch lost 3.1 percent to $25.87 and Goldman, the biggest independent Wall Street bank, fell 3.1 percent to $123.96.

Exxon Mobil, the world’s largest energy company, fell 2.2 percent to $76.23 in Germany. ConocoPhillips, the second-biggest U.S. refiner, lost 2.4 percent to $64.56.

Crude oil fell below $90 a barrel in New York for the first time since February as the credit crisis deepened in Europe, adding to concern that global economic growth will slow and reduce demand for fuels.

Earnings Estimates

About $20 trillion in value has been erased from stocks worldwide in the past year. The MSCI World Index of 23 developed countries lost 28 percent through Oct. 3, the worst annual performance on record dating back to 1970. Investors in the U.S. face their first annual loss in six years after the S&P 500 dropped 30 percent from its October 2007 record.

The S&P 500, down 25 percent in 2008, is still valued at 20.9 times profit from the past four quarters, according to data compiled by Bloomberg.

Profits among S&P 500 companies are forecast to slip 5.6 percent in the three months ended Sept. 30, the fifth straight quarterly decline, matching a streak ended in March 2002.