Stocks slide as Mnuchin’s call with bank CEOs raises eyebrows

Stocks are resuming their decline, with key U.S. indexes on track for their worst December since the 1930s. Heightening investor anxiety is U.S. Treasury Secretary Steve Mnuchin’s statement this weekend that he spoke to the CEOs of six major U.S. banks about their financial stability.

The Dow on Monday fell 315 points, or 1.1 percent, to 22,123 in early trade, while the S&P 500 and Nadsaq both fell more than 1 percent. Markets are closing early for the holidays.

The weak opening follows a bruising week that put the major indexes in negative territory for the year. On Friday, the S&P 500 closed at 2,416, leaving it down 17 percent on the quarter and more than 9 percent for the year. The Nasdaq is in a “bear” market, down 20 percent from its August peak.

Treasury protests too much?

Late Sunday, Mnuchin disclosed calls with the heads of Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo. Mnuchin said the CEOs all assured him they have ample money to finance their normal operations. 

The call struck market observers as curious given that investors have expressed no concerns about the banks’ financial condition.

“Treasury’s readout is unusual, in our view, given that bank liquidity is not a risk or concern that has been raised by regulators, economists or analysts,” analysts at Height Securities said in a note. “While the statement appears to be an attempt to calm the markets, the timing coupled with a general lack of concern on financial system liquidity, may cause a negative market reaction as investors discern if this is an issue that could affect financial companies and/or the financial markets.”

In addition, Mnuchin said he will host a call Monday with the President’s Working Group on Financial Markets, known unofficially as the “Plunge Protection Team.” The group includes officials from the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission. Mnuchin also said he invited the Comptroller of the Currency and the FDIC chairman to participate.

“This is the type of announcement that raises the question of whether Treasury sees problems that the rest of the market is missing,” said Jaret Seiberg, an analyst with Cowen Washington Research Group, in a note. “Not only did he consult with the biggest banks, but he is talking to all of the financial regulators on Christmas Eve. We do not see this type of announcement as constructive and worry that it can trigger the vary panic that Treasury wants to avoid.”

Global worries

In Europe, France’s CAC 40 was down 1.5 percent lower at 4,626.39 while the FTSE 100 index of leading British shares fell 0.5 percent to 6,685.99. Germany’s DAX was closed.

The global stock sell-off, which has accelerated in December, is fueled by concerns about slowing economic growth along with the U.S. central bank’s interest-rate hikes.

-With reporting by Alain Sherter and Irina Ivanova

Categories: Business

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