Bank stocks fell Wednesday as the markets were unable to sustain the momentum fueled by an announcement Tuesday from the Federal Reserve Board.
On Tuesday the market shot up after the Fed said it would lend up to $200 billion of Treasury securities to banks and securities dealers. The Dow Jones industrial average rose more than 400 points Tuesday.
Trading on Wednesday stayed in positive territory for most of the morning, but "a healthy degree of skepticism" about the Fed plan emerged, said Jack A. Ablin, the chief investment officer at Bank of Montreal's Harris Private Bank in Chicago. "There's increased speculation that the Fed plan won't work to curtail credit losses."
By lunchtime Wednesday the tide started to turn.
"The market had the notion of heading lower earlier and then I think rebounded as traders celebrated Eliot Spitzer's resignation" as governor of New York, Mr. Ablin said. As trading continued in the afternoon, that effect wore off and bank stocks fell further.
The American Banker index of 225 bank stocks fell 2.1%, the index of the top 50 banks fell 2.2%, and the thrift index fell 2.3%. The Dow slid 0.4% and the Standard & Poor's 500 fell 0.9%.
Wachovia Corp.'s shares fell 5.8% as its chief risk officer, Don Truslow, spoke on a Deutsche Bank conference call about the state of the market.
"My hope would be that perhaps we see some rebounding as we head into 2009 and we avert or stay away from any significant kind of credit cycle in some of the other portfolios," Mr. Truslow said. "But to the extent the economy gets a lot worse, we could find ourselves right now in very early innings of the credit cycle."
At Wachovia, he said, "in January and February, we saw past-due roll rates worsen from we had experienced in the fourth quarter."
It took years for the industry as a whole to put extensive problem loans on the balance sheet, so one move by the Fed is not going to erase the larger concerns, said Anthony Conroy, head trader at Bank of New York Mellon Corp.'s BNY ConvergEx Group.
"I don't think that's going to go away overnight," he said. "A lot of the pain the credit markets is going to persist until you get a more stable housing environment."
Mortgage data out Wednesday was split. The Mortgage Bankers Association said Wednesday that mortgage loan application volume for the week that ended March 7 fell 1.9% from a week earlier on a seasonally adjusted basis. The Refinance Index fell 4.7% from the previous week and the seasonally adjusted Purchase Index increased 1.6%.
Large-cap bank stocks fell Wednesday. Wells Fargo & Co. was down 4.2%, JPMorgan Chase & Co. 0.6%, Bank of America Corp. 1.8%, Washington Mutual Inc. 2%, and Citigroup Inc. 1.3%.
Wamu fell after rising more than 18% Tuesday on rumors the company was close to securing a capital infusion from outside investors.
Regionals also fell. Regions Financial Corp. fell 2.5%, National City Corp. fell 5.5%., KeyCorp 4%, Fifth Third Bancorp 4.4%, and PNC Financial Services Group Inc. 1%.
Whitney Holding Corp. of New Orleans fell 5% Wednesday after JPMorgan Securities Inc. downgraded the company's stock, to "underweight" from "neutral." JPMorgan Securities' John Pancari wrote in his report that his firm expects credit trends to continue to worsen and net interest margin to compress.
The subprime mortgage servicer Ocwen Financial Corp. of West Palm Beach, Fla., fell 18.4% after it said it was "unable to reach an agreement" on a buyout proposal from a group of investors led by its chairman and chief executive, William C. Erbey.
In economic news, the Bureau of Labor Statistics said the number of job openings, hirings, and separations was virtually unchanged at Jan. 31 from a month earlier.
