The U.S. stock market continued its downward dive Tuesday as bad news in the banking sector overrode signs of an early morning rally.
The Dow Jones Industrial closed down 82 points at 7,702. The technology-heavy Nasdaq Composite dropped almost 54 points, more than 4 percent. And the broader Standard and Poor's 500 Index was down 22 points to finish the day at a 52-week low.
The banking sector was battered as a U.S. Senate hearing delved into the relationship between two financial powerhouses, Citigroup and J.P. Morgan Chase and the now bankrupt Enron Corporation. The two are charged with earning millions of dollars in fees by helping Enron use complicated financial transactions to hide $8 billion worth of loans. Michigan Senator Carl Levin grilled Jeffrey Dellapina about an off-shore corporation JP Morgan Chase allegedly set-up to hide the debt.
"It was a shell. It was created by Chase, wasn't it, solely for your transactions? That is its registration statement?" asked Senator Levin. "I went through the registration statement with you. That is the purpose of Mahonia, to assist you in transactions. There is no operation except to assist you."
Mr. Dellapina denied that J.P. Morgan Chase did anything illegal. "Every financing is not a loan," he said. "These transactions had different features, benefits, and risks than loans. These prepaid transactions were accounted for on the books of J.P. Morgan Chase. It is our understanding that Enron recorded these transactions as liabilities on its balance sheets."
An article in The Wall Street Journal alleges that the two financial companies also helped other firms devise deceptive transactions. Citigroup ended the day down 16 percent. J.P. Morgan Chase was down 18 percent.
Companies that make household products such as toothpaste and toilet paper provided some good news to the markets. Colgate Palmolive, Kimberly Clark and the Gillette Company all posted higher quarterly earnings. But drugmaker Bristol-Myers Squibb stumbled.
Phillips Petroleum and Conoco, who are merging to become the third largest U.S. oil company, also declined sharply in second quarter earnings.