Bank stocks sank Monday on news that Bank of America Corp. posted a hefty loan-loss provision, even though the Charlotte company's earnings beat analyst expectations.
The KBW Bank Index fell 15.35%, after three days of gains on positive earnings news from companies such as Citigroup Inc. and JPMorgan Chase & Co.
The Dow Jones industrial average fell only 3.56%, and the Standard & Poor's 500 fell 4.28%.
B of A said Monday that its first-quarter profit more than tripled from a year earlier, to $4.2 billion. After preferred dividends — including $402 million paid to the government — B of A cleared 44 cents a share, or 11 times the average estimate of analysts. However, the provision for credit losses climbed by more than half from the fourth quarter, to $13.4 billion.
B of A's stock fell 24.3%. (See related story.) James Bradshaw, a buy-side analyst at Bridge City Capital LLC in Portland, Ore., said the results punctuated investors' concerns over credit deterioration.
"We're seeing a bit more asset deterioration in commercial real estate, credit cards and home equity lending, so we're not through the downdraft in credit quality just yet," Bradshaw said.
Investors were also reacting to news reports that the Obama administration may convert the government's preferred shares of the top 19 banking companies into common stock. Bradshaw said that investors were likely concerned that the move would give the government more direct control over the private companies.
A morning blog report on Turner Radio Network said the government's stress tests had revealed 16 of the 19 companies were "technically insolvent." But Andrew Williams, a Treasury Department spokesman, told Reuters that the report was wrong.
Bank of Hawaii Corp.'s stock fell 9.6%. The Honolulu company said Monday that its first quarter net income fell 37% from a year earlier, to $36 million, or 75 cents a share.
Sterne Agee & Leach Inc. analysts downgraded shares of First Horizon National Corp. and SunTrust Banks Inc. to "neutral," from "buy," and BB&T Corp. to "sell," from "neutral." First Horizon fell 12.1%. SunTrust dropped 18.5%, and BB&T fell 15.5%.
Goldman Sachs analysts downgraded City National Corp. from "neutral" to "sell," and downgraded KeyCorp from "conviction buy" to "buy." City National fell 13.2% and Key, 18.2%.
Other decliners Monday included JPMorgan Chase, which fell 10.7%, Wells Fargo & Co., which fell 16.1%, U.S. Bancorp, which fell 14.3%, and Citi, which fell 71 cents, to $2.94.