U.S. financial-services shares rose for a second day, led by mortgage lender Countrywide Financial Corp., after the Federal Reserve cut banks' borrowing costs to alleviate a credit crunch.
The Standard & Poor's Financials Index advanced 3.2 percent to 459.07 at 1 p.m. in New York, after gaining 3.5 percent yesterday. Ambac Financial Group Inc., the world's second-largest bond insurer, climbed 9 percent and its larger rival, MBIA Inc., added 6 percent.
Regions Financial Corp., the biggest bank in Alabama, led a 3.6 percent gain in the Philadelphia KBW Bank Index, while E*Trade Financial Corp. paced a 4 percent increase in the Amex Securities Broker/Dealer Index.
The 0.5 percentage point reduction in the Fed's discount rate may encourage banks such as JPMorgan Chase & Co. and Citigroup Inc. to provide more cash to mortgage lenders, including Countrywide, and ease concerns that stock markets worldwide will fall further. Declines in all three indexes reached 10 percent or more for the year yesterday.
"It's a positive for the whole financial system,'' said Mark Batty, an analyst at Philadelphia-based PNC Wealth Management, which oversees $75 billion. "For lenders who are having difficulty accessing cheap sources of funding the discount rate coming down gives them more options to borrow at attractive rates.''
Countrywide, the largest U.S. mortgage lender, gained $2.17, or 11.5 percent, to $21.12 at 1:26 p.m. on the New York Stock Exchange.
Tapping the Lines
The Calabasas, California-based company remains the year's biggest decliner in the S&P Financials after tapping the entire $11.5 billion available in bank credit lines yesterday, a move that drove its shares down 11 percent.
"Yesterday's announcement that CFC is drawing on its $11.5 billion credit facility should provide it with the time to address liquidity/capital concerns,'' Bank of America Corp. analyst Robert Lacoursiere wrote in a note to investors today. He upgraded the stock to "neutral'' from"sale.''
The Fed's move buoyed banks and brokerages in the U.S. and Europe. Bank of America, the second-largest U.S. lender, climbed 5.6 percent, while Citigroup, the biggest U.S. bank, gained 1.7 percent. JPMorgan, the largest lender in the leveraged buyout market, advanced 3.3 percent.
Europe's Gains
Morgan Stanley, the world's second-largest securities firm by market value, climbed 4.5 percent. Lehman Brothers Holdings Inc., the No. 1 U.S. underwriter of mortgage bonds, rose 4.3 percent. Goldman Sachs Group Inc., the world's most profitable securities firm, increased 1.3 percent.
Deutsche Bank AG, Germany's biggest lender, added 2.8 percent. UBS AG and Credit Suisse Group, the No. 1 and No. 2 Swiss banks, gained 2 percent and 3.4 percent, respectively.
Bear Stearns Cos., which yesterday gained the most since October 1998 on speculation that it's close to getting a big investment, gained 1 percent today.
Buyers of asset-backed commercial paper lost confidence in the quality of mortgage loans made by lenders such as Countrywide and shut them out of the market for short-term financing this month.
Thornburg Mortgage Inc., a provider of so-called jumbo mortgages that don't qualify for purchase by federally sponsored agencies such as Fannie Mae, rose 23.3 percent today. IndyMac Bancorp, which lends to home buyers who fall just short of the qualifications for a prime mortgage, gained 8 percent. Thornburgh is down 39 percent for the year. Indymac is down 52 percent.
'Poster Child'
"The financials were the group that have basically been the poster child for this whole negative environment,'' said Theodore Weisberg, president of Seaport Securities Corp.
Bank of New York Mellon Corp., the world's largest custodian of investor assets, rose 5.3 percent. Rivals State Street Corp. and Northern Trust Corp. also advanced. Regional banks including Huntington Bancshares Inc. and National City Corp., two of Ohio's biggest banks, and Cherry Hill, New Jersey-based Commerce Bancorp rose at a faster pace than larger lenders such as Citigroup and Bank of America.
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