It was the one day when no bank wanted to be Goldman Sachs.
After running at the head of the banking pack for years, Goldman took its rivals down with it yesterday after fraud charges filed by the Securities and Exchange Commission triggered a sell-off rout that wiped out more than $57 billion in value for stocks of the country’s biggest banks.
The allegation that Goldman misled investors about details of the sale of a collateralized debt obligation helped send the broader stock market tumbling as well, leading the Dow Jones industrial average to pierce through the 11,000 mark — but in the wrong direction.
Goldman’s surprise legal tangle led its shares to plunge 13 percent to suffer the industry’s biggest loss in value at $12.4 billion. Bank of America’s setback reached $10.7 billion, while JPMorgan Chase lost $9 billion in value and Citigroup lost $7.1 billion.
While the situation involving Goldman appears to be isolated, Wall Street was more worried that the Goldman mess might be just the thing needed to trigger much tougher rules on how the financial industry operates.
“If the government wants to make a case and set some examples, the industry could be in for a fair amount of heartburn,” said Harris Private Bank Chief Investment Officer Jack Ablin.
The Dow ended the day at 11,018.66, off 125.91, or 1.1 percent.
Meanwhile, the two other major indexes failed to hold their respective milestone levels. The Standard & Poor’s 500 Index slipped below its 1,200-mark, losing 19.54, or 1.6 percent, to 1,192.13. The Nasdaq fell below its 2,500-point level, sliding 34.43, or 1.4 percent, to 2,481.26.
In the battered financial sector, Goldman dived $23.57 to $160.70, just two days after hitting a new yearly high of $193.60. Morgan Stanley lost 5.6 percent to $29.16, Citigroup dropped 5.2 percent to $4.56 and Bank of America slumped 5.5 percent to $18.41.
Banks in Europe also got clobbered, with Deutsche Bank’s US-traded shares skidding 9.2 percent to $74.17. Like Goldman, Deutsche Bank had been a major player in the junk-mortgage paper market just ahead of the collapse of the housing industry.
Meanwhile, Oppenheimer piled more humiliation onto Goldman by downgrading its shares and suspending a favorable $228 price target.