Bank stocks endured yet another volatile session Friday as investors tried to digest the latest twists and turns in the financial crisis.
Both bank stocks and the broader market rose early Friday after Wachovia Corp. said it had accepted a deal to sell the entire company to Wells Fargo & Co., just four days after signing a deal to sell its banking operation to Citigroup Inc. at the urging of regulators. (See related story.)
Market indexes also gained ground early in anticipation that the House would approve the financial bailout bill. However, once the House approved the bill Friday afternoon, both bank stocks and the broader market started to slide into negative territory.
The KBW Bank Index fell 4.12% Friday, though it had been up 3.5% around noon. For the week, it gained 15.4%, despite being dragged down by a historic drop of nearly 21% Monday, after the House failed to approve the first version of the bailout measure. The Dow Jones industrial average shed 1.5% Friday, though it had been up 1.67% at noon. The Standard & Poor's 500, which had been up 2.23%, fell 1.35% for the day.
"It was so anticipated that this bill would pass, that it was a 'sell the news' reaction," said Joe Saluzzi, co-manager of trading at Themis Trading LLC in Chatham, N.J. "But I also think people still wonder whether this bill really will be a magic bullet and save the world."
Michael O'Boyle, Sterne Agee Financial Services Inc. elaborated on the "buy on rumor, sell on news" concept.
"The market will always anticipate something better" than what will actually happen, he said. "The finished product will at least meet or disappoint what has been rumored."
The Senate passed the bill Wednesday in a vote of 74 to 25. President Bush signed it late Friday afternoon.
Scott Anderson, a senior economist at Wells, wrote in a research note issued Friday that investor fears about a deepening recession have "truncated a bailout-fueled equity rally." At the same time, Mr. Anderson wrote, interbank money market rates and corporate bond credit spreads remain wide, and commercial paper outstanding has evaporated, making it much more difficult and expensive for businesses and consumers to obtain loans.
"Equities are really just the sideshow of this event; the fixed-income market is where this financial crisis and panic is really playing out, and the view from that end of the market has only gotten worse," Mr. Anderson wrote.
Early Friday the Labor Department reported that nonfarm payroll employment declined by 159,000 positions in September, much higher than the 100,000 reduction that economists had predicted. The unemployment rate held steady at 6.1%.
The announcement that Wells had made a $15.1 billion deal to acquire all of Wachovia, wiping out the government-assisted deal announced Monday with Citi, sent Wachovia's shares soaring 58.8%. Wells declined 1.7%, while Citi, a component of the Dow average, fell 18.4%.
In a press release Friday, Citi contended that Wachovia's deal with Wells was in clear breach of an exclusivity agreement between Citi and Wachovia, and that Wells' conduct "constitutes tortious interference" with that agreement. Citi demanded that Wachovia and Wells terminate their agreement.
JPMorgan Chase & Co., another component of the Dow average, fell 7.9%. Other decliners included State Street Corp., which fell 9.4% and Bank of America Corp., which fell 5.2%.
Gainers included National City Corp.,which rose 11.8% and Huntington Bancshares Inc., which rose 16%.