US STOCKS spun sharply lower yesterday as Wall Street was flooded with fears over corporate balance sheets, high debt levels in the telecommunications sector and the health of financial firms.
IBM slid to a four-month low after a Wall Street investment firm said worries about the company’s complex accounting practices would continue to weigh on the share price.
Telecoms shares slid on worries a credit crunch could drag more firms into bankruptcy.
The blue-chip Dow Jones industrial average slumped 159.21 points to 9,743.83, yanked down by IBM and the financial services giant Citigroup.
The broader Standard & Poor’s 500 Index dropped 20.78 points, or 1.88 per cent, to 1,083.40.
Adding to the investor jitters about the quality of corporate earnings, PNC Financial Services Group said it would cut 2001 results from discontinued operations by $35 million, due to a bookkeeping mistake. The announcement came just weeks after the bank said it would restate 2001 results downwards. PNC shares fell 3 per cent, or US$1.69, to $55.26
IBM slid $3.79 to $99.10 – its lowest intra-day level since 19 October – after Prudential Securities analyst Kimberly Alexy said long-standing concerns about IBM’s earnings “engineering” would hurt the stock in the coming year. The analyst, who rates the stock a “hold”, cut her target price to $100 from $111.
The computer-server maker plans to start releasing details of financial income which it previously recorded as offsets to its expenses, responding to investors’ demands.
The latest trigger for balance-sheet nerves arose from a story in the New York Post, which raised questions about deal-making structures within Cisco Systems.
Investors are also worried that telecommunication companies’ credit-worthiness could lead to capital squeezes, increasing the firms’ borrowing costs and decreasing profits.
Qwest Communications recently chose to draw down bank credit lines because it could not sell short-term debt. Qwest shares lost 29 cents to $7.27.
A recent Financial Times story suggested that Sprin, the US long-distance phone company, might become a bankruptcy story. Sprint shares lost 45 cents to $12.85.
Separately, Sprint said it will cut 3,000 customer-service jobs and close five call centres at its Sprint PCS Group wireless telephone subsidiary, to cut costs amid a slowdown in growth in the US wireless telephone industry. Sprint PCS shares lost 17 cents to $9.10.
Financials slid on worries their profits may be at risk as the firms’ clients struggle. Citigroup lost $1.78 to $42.35 and was the most actively-traded stock on the NYSE. Other stocks to decline included JP Morgan Chase, which lost $1.02 to $29.03.
In other corporate news, Wal-Mart Stores fell 74 cents to $59.29, after the world’s largest retailer posted a 9.2 per cent rise in fourth-quarter earnings as consumers sought discounted goods in the US recession.
The results were in line with forecasts. The company said it would probably earn 35 or 36 cents per share in the first fiscal quarter.
THE technology-laced Nasdaq Composite Index fell 55.35 points, or 3.07 per cent, to 1,749.49 to fall to a four-month low yesterday. Nasdaq’s most actively-traded stock was Nextel Communications, which fell more than 26 per cent, or US$1.31 to $3.55. The shares fell after the wireless operator said its international subsidiary, NII Holdings, will have to take a pre-tax non-cash restructuring charge of $1-$2 billion in 2001.
Cisco Systems was another company to inspire worries about its accounting practices. Shares of the number one maker of equipment to manage traffic on the internet lost 28 cents to $16.81.
ONI Systems rose 40 cents to $5.94 after the developer of optical telecommunications systems said networking company Ciena would buy ONI for $900 million. Ciena lost 28 cents to $8.45.