Investors continued to abandon risk on Monday despite the rise in shares of Citigroup and Bank of America, which gained 11.28% and 2.59% respectively.
The government sought to downplay the possibility of nationalization for the two beleaguered banks, but a joint statement from the Treasury, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve did say that future cash injections (if necessary) would be in the form of non-voting preferred shares which could then be converted to common stock, increasing the government's ownership stakes. Such conversions would only occur as needed over time to keep banks in a well-capitalized position, the statement said.
Federal Reserve chairman Ben Bernanke, set to testify before Congress on Tuesday, is sure to be questioned closely on the matter by lawmakers.
Monday's joint statement concluded by saying that, because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.
CNBC reported that American Insurance Group, the insurance giant that is 80% owned by the US government, is in discussions with the government to secure additional funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history. Sources close to the company said the loss will be near $60 billion due to write downs on a variety of assets including commercial real estate, CNBC said. That massive loss is likely to spur downgrades in its insurance and credit ratings that will force AIG to raise collateral that it doesn't have.
At Monday's close of floor trading on the NYSE, the DOW was on 7114.78 after falling 250.89 points (-3.41%), its lowest closing price since October 1997. The S&P finished on 743.33 with a loss of 26.72 points (-3.47%), making a new closing low for the bear market which began in October 2007 and finishing at its lowest price since April 1997. The technology-heavy NASDAQ closed on 1387.33 after declining by 53.51 points (-3.71%).
The dollar was mixed but mostly higher, ending the day with a gain of 0.97% on the euro, 1.24% against the yen and 0.57% on Australia's dollar as it fell 0.33% to sterling.
Treasuries rose as stocks declined. Yield on the 2-year note fell 1.6 basis points to 0.940% while yield on the 10-year note fell 1.9 basis points to 2.775%.
Crude for March delivery was recently trading down $1.96 (-4.85%) to $38.09 per barrel.
Gold for April delivery was recently trading lower by $6.30 (-0.63%) to 995.50 per ounce after hitting a high on $1004.90 last Friday.