U.S. lawmakers rejected a $700 billion bailout plan for the financial industry in a shock vote that sent global markets sliding as European authorities scrambled to prop up a slew of banks.
The Dow Jones industrial average posted its largest point decline ever while the benchmark S&P 500 had its worst day since the 1987 crisis with an 8.8 percent drop. Latin American stocks tumbled 13 percent, their biggest decline in more than a decade.
Even before the vote, Asian and European markets had plummeted on fears the crisis was spreading, while U.S. regional lender Wachovia became the latest big bank to succumb to the crisis.
And global money markets were frozen even as central banks poured hundreds of billions of dollars into the financial system to persuade financial firms to stop hoarding cash.
"There's a monster amount of fear out there. This is global contagion. It's no longer just the United States," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
The House of Representatives voted 228-to-205 against a compromise bailout plan that would have allowed the Treasury Department to buy up toxic assets from struggling banks. House Republicans, in particular, balked at spending so much taxpayer money just before the November 4 U.S. elections.
"I can't believe they weren't able to come together and come up with a solution. Complete disaster was predicted if it didn't pass," said Stephen Berte, senior equity trader at Standard Life in Boston. "I can't see what the upside is right now."
U.S. President George W. Bush huddled with economic advisers, including Federal Reserve Chairman Ben Bernanke, to consider the administration's next move.
"We need a plan that works," said U.S. Treasury Secretary Henry Paulson, the Bush administration's point man on the bailout since the first plan was announced over a week ago. "We need it as soon as possible, and we're just committed to working with congressional leaders to get it done."
Investors rushed to assets considered a safe haven. Government bond prices and gold jumped, and oil fell below $99 per barrel on the view that world demand will contract as the financial crisis puts the brakes on economic activity.
"What should have been a day of hope turned into a day of desperation," said Marco Annunziato, chief economist for UniCredit in London. "We are facing a systemic crisis of confidence in the global financial system that is pushing us increasingly close to a complete meltdown."
World stocks, as measured by the MSCI's world index, lost about $1.7 trillion for the day.
BAILOUT PROSPECTS UNCERTAIN
In Washington, the failure of the bailout bill -- after more than a week of intensive closed-door negotiation intended to hammer out a compromise plan -- brought new uncertainty about the response of the U.S. government to the worst financial crisis since the Great Depression.
Republican House members voted against the rescue package by a more than 2-to-1 margin. A majority of Democrats voted in favor.
Both parties blamed each other for the failure of the closely watched bill after hours of closed-door negotiations intended to add provisions to protect taxpayers and head off criticism that Washington was riding to the rescue of bankers many Americans blame for triggering the housing crisis.
"What happened today cannot stand. We must move forward," House Speaker Nancy Pelosi told reporters. "We are here to protect the taxpayer as we work to stabilize the markets."
U.S. presidential candidates Barack Obama and John McCain had both offered qualified support for the bailout proposal, which now dominates the election with just over a month before the vote.
Obama, a Democrat, said he believed lawmakers would regroup to pass a financial rescue plan. "I'm confident we're going to get there," Obama said as he campaigned in Colorado. "It's going to be a little rocky.
McCain, a Republican who suspended his campaign last week in a failed attempt to broker a bailout deal, called on lawmakers to go back to work. "Now is the time for all members of Congress to go back to the drawing board," he said.
The Senate returns on Wednesday and the House on Thursday after a break for the Jewish New Year holiday of Rosh Hashanah. No laws can be passed in their absence but their staffs could work on a revised plan.
The high-stakes political showdown on the bailout proposal came after Wachovia Corp agreed to sell most of its assets to Citigroup Inc in a deal brokered by regulators. It was one of three U.S. financial deals struck as the crisis deepened.
Investors said there were ample signs that a financial crisis that started with risky lending to the overheated U.S. property market had gone rapidly global.
"The crisis is going to affect everybody. It's a very difficult situation and it's going to affect economies everywhere," Mexican billionaire Carlos Slim said.
Earlier, the governments of Belgium, the Netherlands and Luxembourg moved to partly nationalize Belgian-Dutch group Fortis NV, and German lender Hypo Real Estate Holding AG secured a credit line from the German government.
Earlier, European shares had dropped to a 3-1/2-year closing low, with bank shares weighing heavily.
The world's central banks, led by the U.S. Federal Reserve, announced a $330 billion expansion of currency swap arrangements, which allows them to increase the amount of money they can provide in their home markets, effectively throwing more money at the crisis.
The Wachovia deal was the latest in a series of events that has transformed the American financial landscape and wiped out hundreds of billions of dollars of shareholder wealth.
The changes include the government takeover of mortgage finance companies Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers Holdings Inc, the failure of giant savings and loan Washington Mutual, and Bank of America Corp's purchase of Merrill Lynch & Co Inc.
(Additional reporting by Patrick Rucker in Washington, Philip Blenkinsop in Brussels, Reed Stephenson in Amsterdam, Jan Dahinten in Singapore, Andrew Callus in London, Krista Hughes in Frankfurt and Chris Aspin in Mexico City; writing by Kevin Krolicki; editing by Jeffrey Benkoe, John Wallace, Gary Hill and Carol Bishopric)
Shares in the nation's second-largest consumer electronics retailer fell more than 20 percent and fell to its lowest point in 22 years as investors worried about Circuit City's future and analysts questioned how long vendors will keep supporting the company's turnaround efforts.
The Richmond, Va.-based consumer electronics retailer, which has seen only one profitable quarter since the second quarter of 2007, said it plans to focus on making customer service state of the art as it battles sluggish sales, poor traffic and heightened competition for customers who are already buffeted by the poor economy.
"We realize the performance of this company is unacceptable to all of our stakeholders and that it is imperative that we take the right steps to accelerate our turnaround," James A. Marcum, vice chairman and the new acting president and chief executive, said in a conference call with investors.
"The past several years have been difficult for this company. ... We must get back to the basics and, make no mistake, this is all about our customers."
Circuit City — which replaced its CEO last week — said it lost $239.2 million, or $1.45 per share, in the three months ended Aug. 31, compared with a loss of $62.8 million, or 38 cents per share, in the same quarter last year. Excluding $73 million of non-cash asset impairment charges, the loss came to $162.7 million — better than earlier forecasts for a loss from continuing operations of between $170 million and $185 million.
Sales declined 10 percent to $2.39 billion from $2.64 billion, with consolidated same-store sales falling 13.3 percent.
Analysts polled by Thomson Reuters had expected a loss of $1.04 per share and $2.53 billion in sales.
But given the headwinds Circuit City is facing — Chief Financial Officer Bruce H. Besanko cited significant declines in traffic, heightened competition and a weakened brand position — the company said it was "prudent" to withdraw its previous outlook for fiscal 2009.
Many analysts on a conference call questioned Circuit City's relationship with vendors as it continues its multiyear turnaround heading into the holiday season.
"It is clear that the vendors do view us as relevant, they do view us as having a reason for being," said Marcum, who replaced Philip J. Schoonover last week. "They are very supportive of where we are, they are actually very happy with a number of the initiatives we're talking about ... and the speed at which we are moving."
Meanwhile, Stifel, Nicolaus & Co. analyst David Schick told investors in a note Monday that Circuit City had $215 million in short-term borrowings under its credit facility, up from $55 million from last quarter.
"Circuit City's pressures are coming from all sides and the overarching macroeconomic economic conditions are still quickly worsening," Schick said. "The risks of bankruptcy are very real. ... Vendors will have to decide how they plan to do business at CC."
Besanko said the company feels vendors will keep providing the support the company needs to move through the holiday season.
"So far we've had no issues in building the inventory we need for the holiday and I'm not anticipating any issues on a go-forward basis," Besanko said.
Marcum, one of three directors elected to Circuit City's board in June as part of a deal to defuse a proxy fight one of the company's major shareholders, said that heading into the most important selling season, the company is "focused on consistent and successful execution in key areas that will drive traffic and build customer confidence."
The company is undertaking a comprehensive review of its business and identifying key initiatives for the holiday season, including improving customer service, improving inventory on key items and launching a new marketing brand campaign.
In May, Circuit City announced it had hired Goldman Sachs & Co. to explore strategic options, but has never given an official timetable for any action. The move came as the retailer opened its books to Blockbuster Inc., which had made a takeover ccbid of more than $1 billion with plans to create a 9,300-store chain to sell electronic gadgets and rent movies and games. The Dallas-based movie-rental chain withdrew its bid in July because of market conditions.
While strategic options will always be explored, Circuit City said Monday, it is "prudent to focus internally on improving the company's performance in order to operate as a standalone business." Circuit City also suspended store openings beginning with fiscal 2010.
Circuit City shares fell 29 cents, or 21.2 percent, to end at $1.08 Monday, after hitting a low of $1.01 earlier in the session. The stock had not traded that low since 1986.
On the Net:
There could be more pain ahead for Wall Street on Tuesday as the odds of quick passage of the $700 billion bill to bail out the financial sector looked slim after lawmakers rejected the first version on Monday.
With Asian stocks set to follow Wall Street's biggest slide since the 1987 crash, investors' fear threatened to grip markets further after U.S. lawmakers rejected the proposed $700 billion plan to stabilize the U.S. financial sector and contain the credit crisis.
"Short term, the market is getting crushed. But more importantly, we are telling clients we could be at the beginning of a whole new down phase," said Bill Strazzullo, partner and chief market strategist at Bell Curve Trading in Boston.
He said the benchmark S&P 500 (.SPX) falling to the 1,000 level was not out of the question.
The U.S. House of Representatives voted 228 to 205 against a compromise bailout plan that would have let the Treasury Department buy toxic assets from struggling banks. House Republicans, in particular, balked at spending so much taxpayer money just before the November 4 U.S. elections.
On Monday the Dow Jones industrial average (.DJI) sank 777.68 points, or 6.98 percent, to 10,365.45. The Standard & Poor's 500 Index (.SPX) dropped 106.59 points, or 8.79 percent, to 1,106.39. The Nasdaq Composite Index (.IXIC) lost 199.61 points, or 9.14 percent, to 1,983.73.
"We have to see what happens here," Strazzullo said. "It is totally uncharted. I think it is very difficult to gauge. It's not trying to predict an economic event. It's a political event and you never know what is going on behind the scenes."
Analysts said the freezing of credit markets and signs that more and more banks are now succumbing to the strains stemming from the U.S. housing slump probably will fuel more volatility.
S&P 500 futures dropped 3.50 points late on Monday, while Dow Jones industrial average futures declined 40 points and Nasdaq 100 fell 3 points.
On the Asian front, Nikkei futures traded in Chicago were down 905 points, or 7.5 percent.
"Everyone is talking about when are they going to have another vote. The big thing this market wants is some type of a resolution on whatever bailout plan we get," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.
"Fear seems to be really ramping up. Tomorrow's open is going to be the most anticipated opening since the reopening of the market on September 17, 2001."
That day, which was a Monday, marked the first day of trading after the September 11 attacks on the United States in 2001.
The failure of the bailout bill -- after more than a week of intensive closed-door negotiations intended to hammer out a compromise plan -- brought new uncertainty about the response of the U.S. government to the worst financial crisis since the Great Depression.
U.S. President George W. Bush was set to huddle with economic advisers to consider the administration's next move.
Any action, however, might be complicated by the observation of Rosh Hashanah, the Jewish New Year holiday, from sunset on Monday, September 29, until sunset on Wednesday, October 1.
"The world is obviously looking for some type of leadership from the United States, but the crisis is bigger than just the U.S. obviously," said Detrick.
(Additional reporting by Kristina Cooke)
(Reporting by Ellis Mnyandu; Editing by Jan Paschal)