Bank stocks traded in a narrow range of modest gains and losses Wednesday, lifted by news of Berkshire Hathaway Inc.'s plan to invest $5 billion in Goldman Sachs Group Inc. but tempered by uncertainty about the timing of a federal bailout plan for struggling banks.
The KBW Bank Index lost 1.6% Wednesday after posting steeper losses the two previous days. The broader markets followed a similar pattern. The Dow Jones industrial average lost 0.3%, and the Standard & Poor's 500 declined 0.2%.
"The market moved back and forth, literally, based on all the jibber-jabber" in Washington, Joseph Morrissey, who co-heads bank stock trading at Boenning & Scattergood Inc., said in an interview Wednesday. "Having a plan is a lot better than having no plan at all, and I think when it goes through, we should see a relief rally. But right now we need clarity on how it's going to work and just when it's going to happen."
Goldman led the charge on the positive side after Berkshire Hathaway injected a big dose of optimism with its infusion. The shares rose 6% — a notable jump for a stock trading at $133 a share — on news that Warren Buffet had agreed to buy $5 billion of Goldman preferred stock with a 10% dividend, with an option to buy $5 billion more in the firm's shares.
Downey Financial Corp. of Newport Beach Calif., rose 30%. UCBH Holdings Inc. in San Francisco climbed 16%, and Hampton Roads Bankshares Inc. in Norfolk, Va., climbed 20%.
It was a rough day for several other companies, particularly those deeply bruised by the housing market meltdown.
Washington Mutual Inc.'s share dropped 29%. Standard & Poor's Corp. on Wednesday cut its rating of Wamu's counterparty credit to CCC/C, from BB-minus/B. Wamu, which has posted three straight quarterly losses, has been pursuing a buyer for more than a week. But S&P cited concerns that, because the Seattle thrift company has yet to announce a deal, investors might grow overly skittish if they fear a deal is not in the works.
Wachovia Corp. fell 6.4%. Community Trust Bancorp Inc. in Pikeville, Ky., declined 5%, and Columbia Banking System Inc. of Tacoma fell 15%.
As they did throughout the previous day, Washington lawmakers peppered Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson with questions and criticism about the Treasury Department's plan to create a facility that would buy up to $700 billion of troubled assets.
The markets have come to expect a decision this week, Mr. Morrissey said, and the uncertainty of meeting that informal deadline has kept stock gains in check.
In televised remarks, Mr. Paulson said the plan was necessary to prevent a "continuing serial" of home foreclosures and bank failures.
In prepared remarks intended to urge senators to push the legislation through this week, Mr. Bernanke reinforced the tenuous status of financial markets and the economy and warned of severe consequences if lawmakers reject the proposal.
Struggling financial markets "are directly affecting the broader economy through several channels, most notably by restricting the availability of credit," the Fed chief said. Mortgage terms have tightened, fees have risen, and potential borrowers who have blemished credit histories are all but closed out of the credit market, he said.
He cited federal employment data: Private payrolls shed about 100,000 jobs last month, bringing the cumulative drop since November to about 770,000, and the August unemployment rate rose 40 basis points from July, to 6.1%.
"Stabilization of our financial system is an essential precondition for economic recovery," Mr. Bernanke said. "I urge the Congress to act quickly to address the grave threats to financial stability that we currently face."
His comments were amplified by housing data released Wednesday. The National Association of Realtors said August sales of existing homes fell 2.2% from July, to an annual rate of 4.91 million. The drop was nearly twice what economists had forecast. The trade group also said the average home price fell 9.5% from a year earlier, to $203,100.
"Home sales will be constrained without a freer flow of credit into the mortgage market," Lawrence Yun, the chief economist for the trade group, wrote in its report. "The faster that happens, the sooner we'll see a broad stabilization in home prices that in turn will help the economy recover." Historically, "housing has led the nation out of economic doldrums — there will not be an economic recovery without a housing recovery."