What started as a bad year for L.A. stocks only got worse.

With very few exceptions, the share prices of companies headquartered in Los Angeles County declined dramatically in 2008. Though much of the drop-off came near the end of the year as Wall Street was put through the wringer, the declines started on Day One.

“There really isn’t one (industry) that has been a safe haven every sector and industry has really produced negative returns in 2008,” said Pat Everett, west region chief investment officer for the Personal Financial Services unit of wealth management firm Northern Trust Corp. “It has been a year with more uncertainties than I’ve seen since really the ’70s.”

The LABJ index of 200 local stocks hit its 2008 high Jan. 2, the first trading day of the year, and it was downhill from there. Since then, the index has dropped 36 percent to 96.62, even going as low as 78.45 on Nov. 20 its lowest level in five and a half years. That drop is slightly better than the 38 percent decline in the Standard & Poor’s 500 stock index, but worse than the 32 percent loss in the Dow Jones industrial average over the same period.

The problems that infected the mortgage market last year spread throughout the economy in 2008. Yet while the first three quarters of the year were bad, most of the declines have come in the past three months after a financial crisis decimated Wall Street and plunged the country deep into a recession.

And the losses have come across the board.

Since mid-September, shares of Burbank-based Walt Disney Co. are off 35 percent as weak consumer spending has cut everything from theme park attendance to advertising revenue. Macerich Co., a Santa Monica developer in the weak

mall sector, has seen its stock plummet 78 percent. Shares of Los Angeles oil and natural gas company BreitBurn Energy Partners LP have fallen 58 percent, mirroring the sudden decline in oil prices.

Now consider the peculiar fate of Los Angeles aerospace giant Northrop Grumman Corp. It suffered its biggest setback of the year in July when it lost a $35 billion contract to build aerial refueling tankers for the U.S. Air Force, yet its stock price barely wavered. But in the past three months, shares fell 44 percent and hit their lowest point in more than eight years.

Already, however, some investors are eyeing opportunities, as there is a sense that Wall Street may have finally realized the extent of the economy’s troubles and dropped stock valuations to corresponding levels. That means investors have a chance to get in on the ground floor of a future market upswing if they have the stomach for it.

“Most bottoms in the security markets sell-off are followed by pretty substantial rebounds,” said Edward Wedbush, president of Los Angeles-based investment firm Wedbush Morgan Securities Inc.

Widespread pain

While 2007 was a tale of corporate blunders, including Mattel Inc.’s repeated recalls of lead-tainted toys, 2008 was another story altogether as a deepening recession ate away at virtually every industry.

“It’s one of the worst years I can remember,” said Joe Gladue, a financial stock analyst with B. Riley & Co. Inc. “There’s certainly a lot of fear driving the markets right now.”

The stock markets in particular have been hammered as individual investors suffered mounting job losses and rising foreclosure rates. Perhaps more damaging, in the face of rising redemption requests, highly leveraged institutional investors such as hedge funds have been forced to sell off securities in order to liquidate their positions.

More than 180 of the stocks in the LABJ index declined over the past year, and 25 of those have fallen more than 90 percent. Most of the worst performers were penny stocks, but several noteworthy companies find themselves on the list.

FirstFed Financial Corp., a savings and loan in Santa Monica, has dropped nearly 96 percent this year to $1.50. Investors have fled the institution, which has a large portfolio of risky option-adjustable rate mortgage loans on its books. Those types of loans are expected to contribute to a wave of foreclosures as their interest rates reset at much higher levels in the coming months.

Indeed, two of the poorest performing stocks are those of companies that collapsed under the weight of bad loans: IndyMac Bancorp Inc. and PFF Bancorp Inc.

IndyMac was once one of the largest companies in Los Angeles, but the Alt-A mortgage lender which targeted borrowers with less than perfect credit succumbed to the deteriorating markets and was seized by federal regulators in July. IndyMac shares, which traded for more than $10 early in the year, were less than $1 at the time of its seizure.

PFF failed in November and its assets were transferred to U.S. Bancorp. PFF’s stock is still being traded, but it has fallen below a penny per share, a far cry from February when it topped $13 per share.

Meanwhile, Los Angeles lost another of its name public companies after Countrywide Financial Corp. once the nation’s largest subprime loan originator but now emblematic of the industry’s catastrophic collapse was acquired by Bank of America Corp. in a $2.5 billion deal that closed July 1.

Still, Gladue said there is hope for the industry. Financial stocks typically rebound before the rest of the market, if only because they are the first to get hit in many downturns.

“Bank stocks typically start to improve before we start to come out of a recession typically six months before,” he said, adding that any recovery is likely well off into 2010 or later.

Moreover, the problems of the financial sector are closely intertwined with those of the real estate industry, which isn’t likely to hit bottom anytime soon.

While the meltdown of the residential real estate market has received the most attention, commercial real estate has been mired in a slump after its own bubble of rising prices burst this year. Vacancies are rising and prices are falling as owners are having a difficult time selling properties, but some believe that the market is not even halfway through its troubles.

Maguire Properties Inc., a Los Angeles-based office landlord, is a microcosm of the problems facing the industry. Its troubles began after the company took on large amounts of debt in 2007 in order to buy a $3 billion portfolio of office buildings located primarily in Orange County. But as subprime lenders disappeared, the company had difficulty finding tenants for the buildings, leaving Maguire with too much debt.

In May, Chief Executive Robert Maguire was ousted from the company he had helped lead since 1983, but the move could not save the sinking stock. Shares are off more than 92 percent for the year, trading at just $2.33.

“Investors are pretty concerned about the balance sheet,” said David Aubuchon, an analyst who tracks the company for Robert W. Baird & Co. “They clearly used too much debt to build the portfolio and now in a capital-constrained environment, that’s not a good place to be. Until they delever the balance sheet pretty dramatically, I would think that the equity price will linger where it is today.”

Of course, with rampant vacancies lowering its income, it could take quite a while for the company to pay down its debt enough to satisfy Wall Street and an asset sale at good prices likely isn’t in the cards.

“They need to find buyers and buyers are few and far between right now,” Aubuchon said.

Diamonds in rough

Amid the carnage, however, a handful of companies managed to eke out gains.

Fourteen local firms managed to buck the trend in 2008 and finish up, including one of L.A.’s biggest, Amgen Inc. Shares of the Thousand Oaks-based biotech company climbed 26 percent to $58.42 as the company rebounded from a poor showing last year. Amgen had been hurt by product safety concerns after its anemia drug was thought to accelerate tumor growth in some cases. But the company has since cut costs and investors have a more tempered expectation of Amgen’s future performance. The biomedical industry overall, though, had a poor year as no company besides Amgen managed to boost its stock price.

One company that has thrived in a down economy is 99 Cents Only Stores, the Commerce-based discount retailer. With its chain of stores where every item costs less than $1, the company has increased its appeal among bargain-hungry shoppers.

“Everyone is thinking about their future, their nest egg,” said Eric Schiffer, chief executive of 99 Cents Only, at a recent business conference in Beverly Hills.

Revenue and profits are up, and the company plans to open at least five stores in 2009. The company generated headlines in September when it raised prices from 99 cents to 99.99 cents a move that helped the company cope with rising commodity and fuel costs, yet did not force it to rebrand.

Then, as it turned out, fuel prices moderated, inflation cooled and the company’s stock has risen 41 percent this year to $11.25 per share.

Now, if only some of the other companies could share in such luck.

“There is some chance that we’re at the bottom, have seen the bottom, are close to the bottom,” said investment banker Wedbush, who nevertheless warned that this decline has been so substantial that it may take longer to recover.

“I see the rebound coming in piecemeal, if you will a much more long, drawn-out process,” he said.