Goldman Sachsled financial stocks lower after a Senate report said that the bank had misled investors, while in the wider markets Wall Street was flat after the disappointment caused by weak jobs data were offset by some positive first-quarter earnings reports.
The investment banking group was down 2.7 per cent to $155.79 after Carl Levin, the Democratic chairman of the Senate permanent subcommittee on investigations, said a two-year probe found that banks, including Goldman, mis-sold mortgage-backed securities and misled investors and lawmakers.
“We will be referring this matter to the justice department and to the SEC [Securities and Exchange Commission],” said Mr Levin. “In my judgment, Goldman clearly misled their clients and they misled Congress.”
Last year, Goldman paid $550m to settle SEC allegations that it defrauded investors in Abacus, a complex security linked to subprime mortgages.
The S&P financial index was down 0.9 per cent, the worst-performing S&P sub-index, not helped by news that analysts at Goldman had downgraded the financial sector to “neutral” from “overweight”. SunTrust Banks lost 2.8 per cent to $28.19 while JPMorgan Chase fell 2.8 per cent to $44.97.
The financial sector also continued to be weighed on by news from the previous session that US banking regulators had ordered 14 large mortgage servicers to overhaul their foreclosure practices and set up a process to recompense borrowers who improperly lost their homes.
In the wider markets the S&P 500 index was flat at 1,314.52, with sentiment weighed on by data from the Labor Department showing that initial jobless claims in the US had unexpectedly jumped by 27,000 last week to a seasonally adjusted 412,000. This was ahead of the 3,000 increase that had been expected by economists.
The previous week’s jobless figures were also revised up, causing further uncertainty about the strength of the recovery in the US labour market.
Helping to encourage the markets, however, and limit any losses were some promising first-quarter earnings reports. Supervalu, the third-largest US supermarket chain by sales, was up 16.9 per cent to $10.61 after reporting better-than-expected profits and giving a yearly earnings forecast that topped analysts’ estimates. This left the Dow Jones Industrial Average up 0.1 per cent at 12,285.15 while the Nasdaq Composite lost 0.1 per cent to 2,760.22.
The S&P index is down 1 per cent so far this week. “We are getting to the point where the market is a little fatigued, and a lot of the good news about the generally improving economy and the earnings season is already priced in,” said Channing Smith, managing director of Capital Advisors.
The S&P index is still up 4.5 per cent this year and 25.3 per cent since late August when Ben Bernanke, chairman of the Federal Reserve, started hinting that the central bank would support financial markets with a renewed bond-buying programme. “We have had some powerful tailwinds recently thanks both to the Fed and to companies successfully streamlining their businesses and improving margins” said Mr Smith. “But now rising commodity prices are hurting margins and the era of easy money is drawing to a close, these two headwinds are starting to reverse.”
Arcos Dorados, the world’s largest McDonald’s franchisee, priced at $17 a share, above its projected range of $13 to $15, after the closing bell on Wednesday, making it the most successful Latin American flotation since the financial crisis. In its first day of trading, the company was up 24.7 per cent to $21.20.
ZipCar, the web-based hourly car rental group, saw an even more successful first day of trading after its IPO late on Wednesday. The company priced at $18, also above the projected range and began trading up 55.6 per cent at $28.
Elsewhere on Wall Street, Hasbro, the toymaker, reported first-quarter earnings down 71 per cent from the same period last year, sending the shares 3 per cent lower to $44.40.
Google was up 0.4 per cent to $578.51 in anticipation of its first-quarter results, which were due to be released after the closing bell. Analysts were expecting earnings of $8.11 per share for the quarter.
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