Fifth Third Bancorp was one of the few bright spots in bank stock trading Monday.
The Cincinnati company's share price rose 5.5%, to $2.48, on news that it is selling a majority stake of its payment processing unit to the Boston private-equity firm Advent International for $561 million.
Most bank stocks fell in light trading as investors continue to tread cautiously in the run-up to the release of first-quarter results. The KBW Bank Index fell 10.29% on the day.
"Investors may be waiting to pick up stocks at better multiples after the quarterly results," said Michael O'Boyle, an investment banker with Sterne Agee & Leach Inc. "Credit deterioration is still the main concern, and we're going to see a little more of that this quarter."
According to a research note Monday from a Friedman, Billings, Ramsey & Co. team led by analyst James Abbott, a number of banking companies risk seeing deterioration in their commercial and industrial loans, as the U.S. economy continues to struggle. These include Comerica Inc., which fell 10.8%, City National Corp., down 6.4%, PNC Financial Services Group Inc. 11.9%, SunTrust Banks Inc. 13.8%, Webster Financial Corp. 9.9%, U.S. Bancorp 11.9% and M&T Bank Corp. 7.8%.
Treasury Secretary Timothy Geithner's comments Sunday on ABC's "This Week" also appeared to affect bank stocks. Geithner said a number of banks likely will need additional government capital to offset further losses.
Other decliners Monday included JPMorgan Chase & Co., 9.3%, Bank of America Corp., 17.9%, Wells Fargo & Co., 14.2%, Zions Bancorp., 10.3%, Valley National Bancorp of Wayne, N.J., which fell 6.3%, and Citigroup Inc., down 31 cents to $2.31. (Bank of America may boost the annual salaries of some of its investment bankers to be on par with their counterparts at Merrill Lynch & Co. Inc., which B of A acquired on Jan. 1, according to Bloomberg, citing sources familiar with the proposal.)
BB&T Corp. fell 8.4% after Christopher Mutascio of Stifel, Nicolaus & Co. lowered his rating on the Winston-Salem, N.C., company's stock to "sell," from "hold." Mutascio also cut his estimates for the next two years, saying BB&T has not reserved enough capital to guard against rising credit costs. The analyst cut his 2009 earnings estimate on the stock to $1.25 per share, from $1.70 per share, and lowered his 2010 estimate to $2.05 per share, from $2.20.
As for Fifth Third, Robert Patten, an analyst at the Morgan Keegan & Co. Inc. unit of Regions Financial Corp., wrote in a research note Monday that investors would react positively to the banking company's move to divest noncore assets.
Yet while the Advent deal gains time for Fifth Third by boosting its capital reserves, Patten noted its tangible common equity ratio remains below that of competitors. It may have to raise more money, he said.
The broader markets also fell Monday, dragged down by news that the Obama administration had rejected the restructuring plans of General Motors Corp. and Chrysler.
The White House forced out GM chief executive Rick Wagoner, replacing him with chief operating officer Fritz Henderson.
The Dow Jones industrial average fell 3.27% Monday and the Standard & Poor's 500 fell 3.48%.