Street Slacks After Dow Deal Crumbles

Kuwait bailed on a $17.4B joint venture with the company, dragging the major indexes down.

Dow Chemical Co.

12/29/2008 3:59PM ET

• $15.33
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• -20.73%

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Rohm and Haas Company

12/29/2008 3:59PM ET

• $53.40
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• -15.98%

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United States Oil Fund, LP

12/29/2008 3:59PM ET

• $30.86
• $1.76
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U.S. markets wobbled Monday, as investors weighed the impact of a collapsed petrochemical deal against good news for a failed bank.

Dow Chemical (nyse: DOW - news - people ) was reeling, after Kuwait said it was pulling out of a $17.4 billion joint venture, which was scheduled to begin at the start of the New Year. By scrapping the deal before Jan. 1, Kuwait dodged having to pay a $2.5 billion breakup fee.

Investors were pondering the impact of the collapsed venture on Dow's acquisition of rival Rohm and Haas (nyse: ROH - news - people ). Dow had planned to use proceeds from the Kuwait deal to finance part of its $15.0 billion purchase of Rohm & Haas. Citigroup analyst P.J. Juvekar said the collapse of the Kuwait deal was a huge negative for Dow investors, and that the company should try to protect its shareholders by renegotiating the Rohm and Haas takeover, or walking away and paying a termination fee. (See "Kuwait, Dow Chemical Deal Fizzles.")

Dow shares slumped $3.45, or 18.7%, to $15.05, Monday morning; Rohm and Haas tumbled $11.91, or 18.7%, to $51.65.

On a broader scale, the Dow Jones industrial average was off 92 points, or 1.1%, to 8,424 by midday; while the S&P 500 fell 10 points, or 1.2%, to 862; and the Nasdaq sank 28 points, or 1.8%, to 1,503.

Financial stocks softened, despite encouraging news regarding one of their fallen brethren. The Federal Deposit Insurance Corp. is nearing a deal to sell assets of failed bank IndyMac to a group composed of private equity firms J.C. Flowers and Dune Capital Management, and hedge fund Paulson & Co. According to reports cited by TradeTheNews.com, the consortium is close to buying the bank, its 33 branches, its reverse-mortgage unit and a $176.0 billion loan-servicing portfolio. The FDIC seized the assets of IndyMac, which had massive exposure to the subprime mortgage meltdown, in July.

Oil prices were on the rise, as Israel's air strikes against Hamas in Gaza jogged geopolitical fears. Crude came off its highs despite the turmoil, but traded up 35 cents, at $38.06 a barrel, heading toward the afternoon. United States Oil Fund (nyse: USO - news - people ), an exchange-traded vehicle that invests in crude and other products, gained 15 cents, or 0.5%, to $29.25.

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place.

"Most of us sign on to do jobs and we do them best we can," said Frank, a Massachusetts Democrat. "We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"

The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help. Among the findings: