Bank stocks retreated Monday amid fresh concerns that financial firms will need additional capital to weather the ongoing credit crisis and recession.
The KBW Bank Index, which tracks 24 of the nation's largest banks, fell more than 7 percent Monday afternoon to 27.10.
On Sunday, Treasury Secretary Timothy Geithner said during television interviews that the struggling banking sector might need even more money to help it right itself and increase lending. The comments by Geithner just affirmed that the ongoing credit crisis and recession is still weighing on banks, who are facing mounting loan losses as more customers fall behind on repaying obligations. Geithner appeared on ABC's "This Week" and NBC's "Meet the Press."
"Putting that out there highlights the fact that we're not in the late stages of this," said Peter Jankovskis, co-chief investment officer at OakBrook Investments.
Friedman, Billings, Ramsey & Co. analyst Paul Miller said Geithner did not do a "great job of defending his position" during the interviews, which adds a bit more worry to the sector.
The government has been working feverishly for months to try and bolster the battered sector, pumping hundreds of billions of dollars into banks in hopes of loosening lending for consumers. Loose lending standards helped spur the current downturn as customers defaulted on those loans, but banks have greatly tightened their underwriting standards to help avoid future losses, which has drastically reduced available credit for all customers.
The decline Monday is also unsurprising as the banking sector led markets higher during a recent run up. The broader market declined Monday.
Banks had been among the leaders during the last three weeks when the stock market surged. Now, with investors becoming more cautious ahead of a key unemployment report at the end of the week and ahead of earnings season, bank stocks are likely to give up some of their recent gains.
Both Citigroup Inc. and Bank of America Corp., which have received among the most federal money and support, helped spur the three-week surge after the pair said they operated at a profit in January and February.
Each bank's stock fell Monday along with the broader sector. Shares of New York-based Citigroup tumbled 26 cents, or 9.9 percent, to $2.36. Shares of Charlotte, N.C.-based Bank of America declined $1.02, or 13.9 percent, to $6.32.
Miller noted JPMorgan Chase & Co. CEO Jamie Dimon's comments Friday afternoon about March being a weaker month than January and February also probably is pressuring the sector Monday.
Shares of New York-based JPMorgan Chase & Co. fell $1.56, or 5.7 percent, to $25.84.
Fox-Pitt Kelton analyst Andrew Marquardt affirmed his "Underweight" rating on the banking sector Monday, noting the sector is still vulnerable to rising credit losses and potential dilution from further capital raises.
In a research note, Marquardt said banks' loan-loss reserves are still too low based on loss expectations and uncertainty about recovery in real estate.
FBR's Miller said moving into earnings season in a couple of weeks, banks are likely to track a little lower and maybe get a bounce just before reports start to come out. But he expects earnings reports to still be weak, predicting that investors are underestimating the deterioration in credit quality banks will report.
Regional banks are more exposed to further deterioration in asset quality, Miller said, because they are less diversified than big, national banks. That worsening credit quality will lead to more downward pressure on bank stocks after earnings season ends, Miller said.
Among regional banks, shares of BB&T Corp., which was downgraded to "Sell" from "Hold" by
Stifel Nicolaus & Co. analyst Christopher Mutascio, fell $1.26, or 7.1 percent, to $16.51. Mutascio also cut his earnings estimates for the Winston-Salem, N.C.-based bank because of an expected increase in loan losses.
One of the lone bright spots amid the banking sector was Fifth Third Bancorp, which announced earlier in the day it would sell a majority stake in its payments processing business. The Cincinnati-based regional bank will sell a 51 percent stake in the business to buyout firm
Advent International for $561 million.
The sale helps Fifth Third raise additional capital to support its balance sheet.
Shares of Fifth Third rose 32 cents, or 13.6 percent, to $2.67.
