Banks and homebuilders, which had helped drag the market lower throughout the session, more than halved their losses after Reuters reported the government was working on a program that would help homeowners most in need before they fall into arrears.
The Dow Jones industrial average <.DJI> shed 6.77 points, or 0.09 percent, to end at 7,932.76. The Standard & Poor's 500 Index <.SPX> added 1.45 points, or 0.17 percent, to 835.19. The Nasdaq Composite Index <.IXIC> rose 11.21 points, or 0.73 percent, at 1,541.71.
Before the rally in the last hour of trading, which retraced a 3 percent drop in the Dow, investors feared a $789 billion economic stimulus package to be voted on as early as Friday would not be enough dig the economy out of recession.
Solid quarterly results from Coca-Cola Co <KO.N> underpinned the rally, as it ended up 7.6 percent at $44.39 making it top driver of the Dow.
Gains in big-cap technology stocks, including iPhone maker Apple <AAPL.O> and BlackBerry maker Research in Motion <RIM.TO><RIMM.O>, which rebounded after a 14.5 percent drop Wednesday, helped lift Nasdaq.
Apple <AAPL.O> ranked as the top gainer on Nasdaq, ending up 2.5 percent to $99.27.
The decline in the S&P 500 pushed it to near three-month lows earlier in the session, and the index is now up more than 12 percent from the bear-market intraday low set in November 21.
The KBW Bank index <.BKX> fell 2.8 percent and the S&P Financial Index shed 1.3 after earlier falling by over 6 percent and 7 percent, respectively.
Investors have grown increasingly wary of the government plan to cleanse the financial sector of toxic assets that have constrained lending, deepening the recession.
Among banking shares, Citigroup <C.N> fell 2.2 percent to $3.61; Wells Fargo <WFC.N>, fell 4 percent at $16.80, and Bank of America <BAC.N> dipped 3.3 percent to $5.87, each well above their session lows.
Government data showing that the number of people staying on unemployment benefits after drawing an initial week of aid hit a record in the last week of January, which underscored the toll of the 14-month-old recession on the labor market.
Volume was moderate on the New York Stock Exchange, where about 1.48 billion shares changed hands, roughly in line with last year's estimated daily average volume of 1.49 billion shares. On the Nasdaq, about 2.47 billion shares traded, slightly above last year's daily average of 2.28 billion.
Decliners outnumbered advancers on the NYSE by a ratio of about 11 to 10, while on the Nasdaq, the ratio was about even.
(Editing by Gary Crosse)
US bank bosses pilloried in Congress
AFP
February 11, 2009
US bank chief executives waded into the lion's den Wednesday for a public mauling by lawmakers furious at their uses and misuses of billions in government bailout money.
Lined up like defendants at a trial, the bosses of Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, State Street and Wells Fargo issued a collective mea culpa to the US public.
But at a grilling in the House of Representatives, they insisted they had not lined their own pockets with the bailout funds, were maintaining lines of credit to customers, and would pay back the money as soon as possible.
While Blankfein and the other CEOs spoke in tones of measured regret, adamant that they too were victims of a broader hurricane on the markets, members of the House Financial Services Committee expressed incredulity.Citigroup CEO Vikram Pandit donned metaphorical sackcloth after an outcry, expressed from President Barack Obama on down, over his aborted plans to treat his bank to a new private plane and pledged to take a salary of one dollar a year with no bonus until Citigroup is back in profit.
The now-canceled Citigroup jet was one of several instances of thumping insensitivity by banking bosses out of step with public fury over how they have used the government's 700-billion-dollar Troubled Asset Relief Program (TARP).
The banks are accused of pocketing the money to cushion their balance sheets or to buy up rivals. Lawmakers also decried "frivolous junkets" such as corporate retreats to swanky hotels in Las Vegas and other resorts.
The chief executives said they had not used money from the TARP program to pay out bonuses and were in fact taking salary cuts.
All stressed that they had continued lending, even as Obama Tuesday accused Wall Street of seeking an "easy" way out of the mire and promised more "tough love," after Treasury Secretary Timothy Geithner outlined a new bank bailout potentially worth up to two trillion dollars.
Lawmakers' approval will be required to release new taxpayer funds for Wall Street. And that could be a tough sell, with Congress already doing battle over a stimulus package worth upwards of 800 billion dollars.
Two Wall Street firms that received at least $60 billion in government bailout funds will be rewarding their financial advisers with controversial retention payments, the terms of which one senior executive described as "very generous" in audio obtained by the Huffington Post.
The payments, James Gorman said, will be calculated based on performance numbers from 2008 instead of 2009, when the merger is expected to be completed. That decision virtually guarantees an increase in the size of the awards. While 2008 was challenging for the firms -- Morgan Stanley's client assets in fee-based accounts dropped 25 percent in the fourth quarter, and a round of lay-offs is expected -- 2009 is expected to be substantially weaker.
"I think I can hear you clapping from here in New York," Gorman joked during the call, after announcing that the payments would be linked to '08 performance. "You should be clapping because frankly that is a very generous and thoughtful decision that we have made. We spent a lot of time kicking this around. We could easily have done it from the point of closing, which is obviously going to be somewhere in the latter half of this year or around the middle of the year. But we just decided... that it was right thing to do, to give you that certainty that it would be based off '08. '09 is a very difficult year... So that degree of anxiety, which many, many of you have emailed me about... is now off the table."
Audio of the conference call was provided by a reader who responded to the Huffington Post's call for information about wasteful or extravagant spending by bailout recipients.
Morgan Stanley and Citigroup, which will combine their brokerage firms into the world's largest, have received a combined $60 billion in government bailout funds. Officials with the firms said that the retention packages, which are rumored to value as much as $2 to $3 billion, would not come from that pool of money. But critics note that money is fungible, and question whether such payments are a proper use of funds for banks that are dependent on the government to stay afloat.
"They are putting lipstick on a pig," said Peter Morici, a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission. "Very often, retention bonuses are paid to undeserving executives who helped drive their enterprises into the ground. This is like people who hold up banks getting paid to stop holding up banks. It isn't good policy. It's not always the case, but on Wall Street, people were vastly overpaid for the value that they created."
Retention awards for Morgan Stanley and Smith Barney employees have been rumored since their merger talks began. But the terms of the payments, which are still being hammered out, are bound to spur critical questions.
An official for Morgan Stanley downplayed the decision to value the payments off the more favorable '08 numbers. "You pick a point in time that you base any retention program off of and the decision was to base these off of the production these individuals would have achieved in 08," said spokesman Jim Wiggins. "Whatever they end up getting paid will be based off their 2008 production. That doesn't say anything at all about the timing it is going to be paid or when it will be paid."
Wiggins also defended the decision to provide financial advisers with retention packages. Noting that the money would "be paid out of the operating revenues for business and not" TARP funds, he said the system was necessary to prevent an exodus of key personnel.
"Retention programs like this are standard practice in the industry whenever you do a deal like this one," he said. "This is a profitable business. Our financial advisers are being heavily recruited by other companies like UBS... It is absolutely critical to hold this together and hold them in their seats so this will be a successful joint venture."
This assessment is challenged by an array of industry observers. Noting that retention awards are a relatively small sum of cash when compared to the money that the U.S. government will be spending on subsidizing bondholders, Christopher Whalen of Institutional Risk Analytics nevertheless called it a gratuitous expense.
"These firms are attempting to continue to pay their people the way they have in the past and in the current job market here in New York, I don't think it is necessary," said Christopher Whalen of Institutional Risk Analytics. "You certainly don't need to pay people to stay in their jobs right now, because they are praying to Jesus that they just don't lose their job generally."
Certainly, as recipients of billions of dollars in government funds, Morgan Stanley and Smith Barney find their accounting decisions under greater scrutiny. As part of the merger, the two entities have promised to make $1.1 billion worth of budget cuts -- or roughly half the projected amount of retention payments. Bailed-Out Firms Distributing Cash Rewards: "Please Do Not Call It A Bonus"