Bank stocks were down for most of Friday but rebounded late, as investors remained uneasy about the health of the industry in a worsening economy.
The KBW Bank Index spent most of the day in negative territory but closed up at 0.77%, ending the week down 8.38%. The index rose ahead of Tuesday's election, but bank stocks tumbled later in the week in response to uncertainty about the outcome of the presidential and congressional races could affect the economy.
Investors are also concerned that "loss rates on banks have not peaked," said Christopher Whalen, the managing director at Lord, Whalen LLC's Institutional Risk Analytics. "Even for good banks — which are trading at ridiculous valuations — more bad news is expected. You'll see rallies in financials, but they are not going to be long-lived."
Mr. Whalen expects the average chargeoff ratio for the banking industry to peak by the second quarter of next year at 4% of total loans — twice the average during the late 1980s and early 1990s at the height of the savings and loan crisis. The current average is 1.3%, he said.
Despite Friday's drop in bank stocks, the broader market rose as investors snatched up bargains. The Dow Jones industrial average rose 2.85%, and the Standard & Poor's 500 rose 2.89%.
The Labor Department reported that the country's unemployment rate rose 40 basis points last month from September, to a 14-year high of 6.5%. About 240,000 jobs were cut in October, the 10th straight month of payroll reductions.
JPMorgan Chase & Co. fell 1.3%. The New York company said in a Securities and Exchange Commission filing Friday that it expects consumer loan defaults to increase this quarter, particularly in credit cards, home equity loans, and mortgages.
David Trone, an analyst at Fox-Pitt Kelton Cochran Caronia Waller, cut his fourth-quarter earnings estimate for JPMorgan Chase by 25 cents, to 65 cents a share.
Wells Fargo & Co. fell 0.2%. Late Thursday the San Francisco company priced its $11 billion stock offering at $27 a share, a 6.2% discount to the stock's closing price that day. Wells plans to use the proceeds to help fund the Wachovia Corp. purchase.
Originally, Wells was slated to raise up to $20 billion for the purchase, but it scaled back its plans after selling $25 billion of preferred shares to the federal government as part of the Treasury Department's Capital Purchase Program.
Because of the smaller-than-expected stock issue, Frederick Cannon, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., raised his 2009 earnings estimate for Wells by 3 cents, to $2.78 a share. The average analyst estimate is $2.13.
Merrill Lynch & Co. Inc. rose 3.2%. Bloomberg News reported Friday that the company plans to sell about $4 billion of distressed debt securities before Bank of America Corp. acquires it. B of A rose 1.8%.
Webster Financial Corp. fell 1.2%. The Waterbury, Conn., company said Friday that it plans to sell $400 million of preferred shares to the Treasury. The government also would receive warrants to buy up to $60 million of common stock.
U.S. Bancorp fell 2.9%, Comerica Inc. dropped 2.3%, and KeyCorp fell 3.1%;
Citigroup Inc. gained 2.6%. Fifth Third Bancorp rose 5.7%. First Horizon National Corp. rose 6%. State Street Corp. climbed 6.7%, and Regions Financial Corp. rose 3.1%.
Richard Bookbinder, a managing member at Bookbinder Capital Management LLC, said that for the most part, he did not think there was "any logic" in why some bank stock rose Friday while others fell.