Bank stocks fell Monday after Wachovia Corp. announced a first-quarter loss at the start of what is scheduled to be a busy week of banking company earnings reports.
Wachovia's stock fell 8.1% on the announcement that it had cut its dividend 41% after losing $350 million, or 20 cents a share, in the first quarter. The Charlotte banking company said it would raise $7 billion of fresh capital.
"We are taking appropriate and prudent actions to further enhance our capital position in response to unprecedented economic conditions," Ken Thompson, Wachovia's chairman and chief executive, said in a press release. "These actions will significantly increase our capital ratios and enhance our ongoing financial flexibility."
Joe Morrissey, a vice president of bank stock trading at Boenning & Scattergood Inc., said the market Monday was "all about Wachovia." The market's recent trading is focused on "earnings, earnings, earnings," he said.
Tim Curran, a trader at Regions Financial Corp.'s Morgan Keegan & Co., said the Wachovia news was "spooking a bunch of other people."
Shares of Washington Mutual Inc., which last week announced it would raise $7 billion, fell 5.5%.
The KBW Bank Index fell 4.2%; the Dow Jones industrial average 0.2%; and the Standard & Poor's 500 index 0.3%.
Some of the day's biggest banking sector decliners included Fifth Third Bancorp, off 8.8%; SunTrust Banks Inc., 6.6%; Regions Financial Corp., 6.1%; BB&T Corp., 4.6%; Huntington Bancshares Inc., 9.3%; Zions Bancorp., 6.6%; and KeyCorp, 5.9%.
Other banking companies fared better but still ended the day in negative territory. Citigroup Inc. was down 3.6%; Bank of America Corp., 3.7%; JPMorgan Chase & Co., 2.4%; Capital One Financial Corp., 2.4%; Wells Fargo & Co., 2.8%; and U.S. Bancorp, 3%.
National City Corp.'s shares fell 10.5%. The Cleveland banking company has been the subject of takeover speculation for weeks.
But Morgan Keegan's Mr. Curran said the rumors had "lost some steam" on Monday, causing the stock to slide.
Fremont General Corp. rose 20% Monday after the Brea, Calif., company said it had agreed to sell most of its assets and deposits to a subsidiary of CapitalSource Inc.
The sale was announced after Fremont's regulators issued a supervisory prompt corrective action directive last month, saying that Fremont must become "adequately capitalized" or sell itself by May 26.
Boenning & Scattergood's Mr. Morrissey said that Monday's volume was relatively strong and some positive signs were evident. "We're starting to see the buyers start to filter in here and there," he said.
But Mr. Curran was more pessimistic, saying he expects the bank stock volatility to persist for several quarters. "People are waiting for this turnaround to happen," he said. "One, two pieces of news is not going to break us out of this cycle."
In economic news, an advance estimate of March retail and food services sales was up 0.2% from February and 2% from the year earlier.
