A raft of negative bank disclosures filed late Monday doused what had been a relatively buoyant run for bank stocks after last month's earnings reports.
Having posted substantial gains in recent weeks, the KBW Bank Index fell 6.44% Tuesday, and every banking company with more than $10 billion of market capitalization finished the session in the red. The Standard & Poor's 500 index lost 1.2%, and the Dow Jones industrial average also shed 1.2%.
Late Monday JPMorgan Chase & Co. warned in its quarterly filing with the Securities and Exchange Commission that losses on mortgage-backed assets had reached $1.5 billion so far this quarter after trading conditions "significantly deteriorated" this month. The New York company attributed the losses to spreads that had "sharply widened" in recent weeks.
JPMorgan Chase's shares fell 9.5%.
The disclosure prompted Ladenburg Thalmann analyst Richard Bove to cut his 12-month price target by $4 a share, to $39, based on a belief that the company's "contra-cyclical" strategy of focusing on consumer finance and capital markets is not working. He also cut his earnings estimates for 2008 through 2010.
Wachovia Corp. also revealed bad news in its quarterly filing with the SEC Monday. The Charlotte company revised its second-quarter net loss to $9.11 billion, after reporting a loss of $8.86 billion last month. The company cited a $500 million legal reserve tied to a possible settlement over its dealings in auction-rate securities.
Wachovia's shares shed 12.1%.
Elsewhere, Vineyard National Bancorp said in its quarterly filing Monday that it had "determined that significant additional sources of liquidity and capital will be required … to continue operations through 2008 and beyond." The Corona, Calif., company's shares plummeted 43.8%.
Meanwhile, Downey Financial Corp. said in its filing Monday that it is operating under new restrictions from the Office of Thrift Supervision, including a requirement that the regulator must sign off on dividend payments, borrowings, or management changes. The Newport Beach, Calif., company also said it had "elevated" deposit withdrawals in the days after it reported a $219 million second-quarter loss last month.
Downey's shares fell 25.2%.
Tim Curran, a bank stock trader at Regions Financial Corp.'s Morgan Keegan & Co. Inc., said the quarterly filings "definitely" reminded investors that capital issues have persisted. "Some of the big names will still need to cut dividends and raise capital," he said, declining to specify any company. "We got ahead of ourselves a little too fast and had an irrational rally. Now we're getting some natural pullback."
Zions Bancorp. shares fell 14.3% after the company said it is restraining lending rather than cutting its dividend. Bloomberg News attributed the comments to chief financial officer Doyle Arnold at a conference in New York held by KBW Inc.'s Keefe, Bruyette & Woods Inc.
However, some banks gained Tuesday.
UnionBanCal Corp. shares jumped 12.7% after Japan's Mitsubishi UFJ Financial Group, its majority owner, made a hostile bid for the 34.6% of shares in the San Francisco company it does not already own.
Mitsubishi UFJ said it would pay $3 billion for the minority stake, an 8% premium over Monday's closing price.
Other gainers included Community Trust Bancorp Inc. in Pikeville, Ky., up 2.3%; 1st Source Corp. in South Bend, Ind., 2.3%; and Capitol Federal Financial in Topeka, Kan., 1.3%.
Decliners included Washington Mutual Inc. in Seattle, 9.3%, and SunTrust Banks Inc. in Atlanta, 7.3%.