Financial pain drops small caps

The Russell 2000 (NYSE: IWM) and the other major U.S. indices are falling on more news of financial trouble stemming from the subprime meltdown.
 
At 10:33 a.m. ET, the small-cap index had lost 9.64 points, or 1.34%, to 710.57. The Dow Jones Industrial Average (INDU) was off 184.12 points, or 1.43%, to 12,668.97.

Stocks opened in negative territory following news that Merrill Lynch & Co., Inc. (NYSE: MER) may suffer $15 billion in losses from investments in securities backed by mortgage loans.

The loss, which is twice what the New York-based investment bank had initially estimated, is an unpleasant reminder of how shockwaves from the stagnating U.S. housing market continue to ripple through financial markets.

There was more bearish news from the financial sector as credit card issuer American Express Co. (NYSE: AXP), announced that it will absorb a fourth-quarter pretax charge of about $440 million due to slower spending by card members and an increase in delinquencies. The company said that it now expects fourth-quarter earnings below the level a year earlier.

Many mortgage lenders nationwide have taken a hit and even declared bankruptcy as U.S. home prices have stagnated and many borrowers have defaulted on their loans and gone into foreclosure. Lenders frequently packaged loans and sold them as securities to financial companies, which have in turn also incurred billions in losses.

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