“The European debt crisis – it’s baaa-aaaaak“
Dow: 13,001 (-0.81%) S&P 500: 1,399 (-0.78%)
So you’re enjoying your last summer beach BBQ and suddenly that moocher guy you haven’t seen since college passes by…and then invites himself to a burger, tells an offensive joke, uses up your last squirts of sriracha and makes your girlfriend cry. That’s basically the scenario in the market today –the European debt crisis hasn’t shown its face this August, then unpleasant Eurozone developments pulled stocks down for the 3rd day this quiet week. We had the 1st day of the central bank’s two-day meeting in Wyoming that concludes with Fed Chairman Ben Bernanke’s speech tomorrow, but US econ news wasn’t too exciting: the number of Americans filing for unemployment was unchanged while consumers’ personal spending rose big in July as economists expected. For those scandal-hungry MarketSnackers out there, we’ve got a Citibank $560 million lawsuit settlement from the ’08 financial crisis to satiate you…the Dow dropped 107 points.
Spain delays bailout decision, Euro confidence falls and German unemployment increases
The European debt crisis that smacked investors almost daily this spring has been quiet lately, but today bombarded US stocks. The main issue was Spanish Prime Minister Mariano Rajoy’s announcement that his government will delay the decision on whether to request another bailout until after meeting with the French president. Additionally, an economic-sentiment indicator that surveys financial confidence across the Eurozone dropped to its lowest level in almost 3 years. And just in case the situation across the pond wasn’t difficult enough, German unemployment increased for a 5th straight month…and then Slovakia’s prime minister channeled his inner Vegas appetite and estimated publicly that the odds of the euro currency breaking are 50%. Investors aren’t fans of how European policy makers kick the debt-filled can down the road without solutions and continue to respond with frowns and stock selling.
Citigroup pays $590 Million to angry shareholders to settle financial crisis lawsuit
The 99%ers planning their second wave of Occupy Wall Street protests may be ticked off that no major executive is are behind bars for financial crisis misdoings, but another big bank paid out hundreds of millions to settle lawsuits today. Citigroup (C) was sued by a group of former C-Shareholders for concealing information from regulators and deceiving shareholders right when the financial crisis was getting hot ‘07/’08. Citibank was the biggest packager of collateralized debt obligations (“CDOs”), the investment securities that were packaged by investment banks and sold to investors. The value of these CDOs originated from the interest and principal loan payments of home mortgages…But theses assets were toxic (finance-speak for crap) and Citi knew it. The housing market was crashing and Citi knew that waves of mortgages would soon default and the value of CDOs would fall. The problem? Citi had billions worth of CDOs that it couldn’t sell.
And so begins the corporate mischief. Instead of reporting its enormous holdings of toxic CDOs on its balance sheet as the law commands, Citi allegedly hid them from financial statements through some crafty (and illegal) accounting methods…but the world was bound to find out. Once it did, the market punished Citi and stockholders watched their shares drop in value from $500 in ’07 to a mere $29 today. The market dumped Citi like it was the 7th Season of the Jersey Shore (sorry Snooki, enjoy raising your kid). Citi’s massive holdings of CDOs were crashing in value and Citi was losing billions of dollars…and the rest is history (government bailout, quick return to profitability – and that’s how Occupy Wall Street protests are born). The stockholders who sued Citi were furious that they were hoodwinked by the misleading bank, so finally Citi paid them $590 million to settle the case today in the biggest settlement/fine associated with the financial crisis to date. The truth is that $590 million is chump change to the huge bank (Citi actually has a reserve of about ~$1 billion for just this purpose, legal settlements), so the stock dropped a mere .9% today.
Tomorrow:
- The speech you’ve all been waiting for – Ben Bernanke’s annual symposium address, straight from Wyoming
- Reuters/University of Michigan Final Consumer Sentiment poll for August
- More exciting econ news from rest of the world: Canada’s 2nd quarter GDP, German Retail Sales and Eurozone Unemployment…
- The online radio Pandora (P) we enjoy while writing your daily MarketSnack jumped 14% after its earnings report that the firm broke even in the 2nd quarter when analysts expected a loss – will investors still love it tomorrow?
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