Subprime troubles down Wall Street
The Russell 2000 and the other major U.S. indices fell, wiping out early gains following a shakeup in the financial sector. The Russell 2000 lost 5.33 points, or 0.64%, to finish at 833.70. The Dow Jones Industrial Average fell 13.66 points, or 0.10%, to 13,408.62.
The positive momentum that dominated on Wall Street for much of the day quickly lost speed and went into reverse following news that the mess in the subprime mortgage sector took its first high-profile casualty.
The head of Bear Stearns Co.’s (NYSE: BSC) asset management unit was replaced today, no doubt as a consequence of the recent meltdown of two prominent hedge funds that had made their investments in debt backed by subprime mortgages.
On Friday, June 22, the investment bank said that it has assumed $3.2 billion in loans to bail out two hedge funds, but has since reduced that figure to $1.6 billion and decided to sacrifice the second, riskier fund.
Trading got off to a good start on news that the price index for personal consumption expenditures, a key inflation indicator, rose just 0.5% in May.
The core index, which excludes food and energy, added a tiny 0.1% in May, according to the U.S. Commerce Department. The index is up just 1.9% from a year earlier.
Federal Reserve Chairman Ben Bernanke has in the past said that his preferred core inflation is in the range of 1% to 2%.
Among specific small-cap companies:
Shares of Packeteer Inc. (Nasdaq: PKTR) ended the week on a negative note following news that the provider of wide area network applications owes the U.S. government more taxes. The Cupertino, Calif.-based company announced after the start of trading that it has received am examination report from the Internal Revenue Service informing it that it owes $122 million in additional taxes, plus penalties of $49 million. The IRS said the taxes originate from transfer pricing between Packeteer and a foreign subsidiary. Packeteer said that it will file a protest. Shares lost $1.67, or 18%, to $7.81.
Electrical equipment and components manufacturer AZZ Inc. (NYSE: AZZ) boosted its revenue 44% for the first quarter ended May 31, to $75.4 million, compared with $52.5 million a year earlier. Analysts were calling for the Fort Worth, Texas-based company to bring in $74 million. Net income was basically unchanged at $4.1 million, or $0.34 per share, compared with $4.1 million, or $0.35 per share, a year earlier, AZZ said before the opening bell. The earnings per share numbers are adjusted after a two-for-one stock split on May 4. Wall Street was expecting a profit of $0.42 per share. The stock added $2.83, or 9%, to $33.65.
Shares of Handleman Co. (Nasdaq: HDL), which focuses on two segments: category management and distribution operations, and video game operations, slid into negative territory following news that its quarterly loss widened. The net loss for fourth quarter ended April 28 was $37.5 million, or $1.85 per share, compared with a net loss of $6.5 million, or $0.32 per share, during the same three months of 2006, the Troy, Mich.-based company said after Thursday’s close. Two analysts polled by Thomson Financial were projecting much a much smaller loss of $0.47 per share. Handleman has responded to the disappointing results by introducing programs to streamline costs. Shares fell $0.54, or 8%, to $6.23.
