Moving the Market
Stocks fell as an initial burst of buying after the Federal Reserve's interest-rate cut wilted amid fears about the potential damage to banks such as Merrill Lynch, Citigroup and UBS from exposure to troubled bond insurers.</br></br>The turnaround was due to a combination of technical resistance and rising fears about downgrades for bond insurers, said Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund. Downgrades "would be devastating" for banks, Mr. Di Mattia said.</br></br>Fitch Ratings cut its credit ratings on one closely held bond guarantor, FGIC, a major player in municipal-bond insurance. Oppenheimer warned that credit-rating downgrades at major bond insurers could generate $40 billion in write-downs at banks in 2008. Oppenheimer said the write-downs would be concentrated at Merrill, which fell $1.38, or 2.4%, to $56.09; Citigroup, which shed three cents to 27.88; and UBS, which declined 79 cents, or 1.8%, to 42.26.</br></br>Usually, shares of banks and lenders lead "rate-cut rallies," because the more favorable borrowing rates allow them to turn a greater profit when lending out those borrowings. Not this time.</br></br>Even shares of Lehman Brothers Holdings, which increased its quarterly dividend in what some saw as a show of strength as its rivals seek capital to shore up balance sheets, gained six cents to 62.59.