Stocks tumbled Monday on skepticism over financial sector earnings, despite a better-than-expected earnings report from Bank of America. A reporter updates the state of the banking sector.
Read the Full Transcript
A major bank set off new tremors that rattled the financial world today. It sparked a sell-off in the stock market, and the Dow Jones Industrial Average lost nearly 300 points.
Ray Suarez has our lead story report.
Bank of America sowed new doubts in the markets when it set aside $13 billion for loan losses in the first quarter. That was a sharp increase from the previous quarter, and it overshadowed the bank's profit of nearly $3 billion.
Chief Executive Kenneth Lewis issued a statement, saying, "We continue to face extremely difficult challenges, primarily from deteriorating credit quality."
Bank stocks had led the way in Wall Street's recent rally, but today's news rekindled fears.
Bank of America shares plunged 24 percent, and overall the Dow Jones Industrial Average fell more than 289 points to close below 7,842. The Nasdaq was down nearly 65 points to close at 1,608, a loss of nearly 4 percent.
There were also concerns about a New York Times report that the administration may convert federal loans to the banks into common stock. The move would delay having to ask Congress for more money, but it also raised new questions about nationalizing major banks.
On Sunday, White House Chief of Staff Rahm Emanuel tried to allay those fears on ABC.
RAHM EMANUEL, White House Chief of Staff: This is very important, and rightfully so. I believe we have the resources. I believe — not only — I believe we will not have to deal with nationalization, and that's not the goal, nor do we think that's the right policy objectives here.
Banks also faced new questions about how they're using all that federal aid. The Wall Street Journal reported lending at the largest institutions has fallen more sharply than government reports indicate.
Still, the president defended the bank rescue effort, as he met with his cabinet.
BARACK OBAMA, President of the United States: We've had to spend a significant amount of money, both on the recovery act to create and save jobs and to lay the foundations for long-term sustainable economic growth, also in order to make sure that the financial systems are strong enough to start lending to businesses and communities so that we can start creating jobs again. That was the right thing to do and the necessary thing to do.
Mr. Obama also said he means to begin cutting government spending by $100 million, for starters.
And General Motors announced new cost-cutting of its own in the form of 1,600 white-collar jobs.