[southnews] Wall Street banks walloped by mortgage worries
 
Date: Tue, 13 Mar 2007 19:07:15 -0500 (CDT)


US stocks saw their second-worst sell-off of the year as the impact of 
losses in the subprime mortgage sector cascaded across the financial 
sector. Both the Dow and Nasdaq Composite Index lost about 2 percent.

Wall Street banks walloped by mortgage worries
By Tim McLaughlin

Wednesday March 14, 6:40 AM

NEW YORK (Reuters) - Worries about mortgage foreclosures whacked the 
giants of Wall Street on Tuesday -- from Bear Stearns to JPMorgan Chase 
& Co. -- as investors disregarded analysts' views that the concerns are 
overblown.

The question now is how much the U.S. stock market will suffer because 
mortgage lenders had provided loans without requiring income 
documentation, downpayments or collateral to people with poor credit 
histories, known as the subprime market.

The initiation of foreclosures on U.S. homeowner loans accelerated in 
the fourth quarter to a faster pace than any other time since the 
Mortgage Bankers Association began its survey 37 years ago.

Tuesday's nearly 3 percent drop by the S&P Financials index , which 
includes 88 companies, erased about $13 billion in investor wealth.

The subprime industry lubricates Wall Street's cash machine as 
investment banks package all types of loans into securities backed by 
mortgage payments and then sell them to pension funds and other 
institutional investors.

Over the past 18 months, virtually all mortgage lenders loosened 
standards for making loans, Morgan Stanley analyst Kenneth Posner said 
in a research note.

Last year Bear Stearns cut subprime originations in half, but its shares 
tumbled 6.3 percent in afternoon trade on the New York Stock Exchange, 
leading a pack of Wall Street firms whose shares took a hit.

INVESTORS CONCERNED

Merrill Lynch analyst Guy Moszkowski said in a research note earlier in 
the day that Bear Stearns executives, Chief Financial Officer Sam 
Molinaro and Chief Operating Officer Warren Spector, were relaxed on the 
subject of subprime lending during a recent meeting.

"Both managers showed little concern with the subprime meltdown, 
although we met with them before the market grew considerably worse," 
Moszkowski said in a research note.

Investors are plenty concerned, though.

Even Goldman Sachs Group Inc. fell 1.3 percent after the investment bank 
blew the lid off analysts' estimates with record fiscal first-quarter 
profits of $3.2 billion. The third largest U.S. bank, JPMorgan , fell 4 
percent.

In a move reminiscent of the dot-com bust, Massachusetts' top securities 
regulator issued subpoenas for documents from UBS Securities LLC and 
Bear Stearns over research analysis of subprime lenders.

Separately, Rep. Barney Frank, a Massachusetts Democrat, said he planned 
to introduce legislation that would restrict the riskiest mortgages from 
being made amid the current turmoil in the subprime market.

Shares of Friedman Billings Ramsey Group Inc. , a small investment bank, 
fell 14 percent to $4.77, and Washington Mutual , one of the largest 
U.S. mortgage lenders, fell 5 percent.