Financial stocks ended the week on a down beat after Federal Deposit Insurance Corp. Chairman Sheila Bair said the heads of the largest banking companies could be replaced.
The leaders of the 19 banking companies that underwent stress tests will face "an evaluation process," Bair said on Bloomberg Television. "Have they been doing a good job? Are there people who can do a better job?"
Bair's comments were viewed as further government intrusion into the financial market, prompting the KBW Bank Index to fall 2.97% on Friday. The index lost the gains it posted after the government released the results of its stress tests May 7.
The comments "cast a pall over the financial sector, which then led the rest of the market lower," said Walter "Bucky" Hellwig, senior vice president of Regions Financial Corp.'s Morgan Asset Management. "This was viewed by investors as perhaps excessive intrusion."
Investors may have also used Friday's decline as an excuse to sell off stocks and take advantage of a two-month market rally that now appears to be over, Hellwig said.
The prospect of more banking companies issuing stock to meet the government's capital-raising requirement may also be depressing the market.
The Dow Jones industrial average fell 0.75%, and the S&P 500 fell 1.14%.
Though shares of most of the major banking companies declined, SunTrust Banks Inc. rose 0.13%. The Atlanta company said it would sell up to $1.25 billion of common stock and cut its dividend 90%, to a penny a share.
Wells Fargo & Co. dropped 3.19%. Bank of America Corp. fell 5.66%. JPMorgan Chase & Co. fell 1.77%. U.S. Bancorp fell 0.95%, and Citigroup Inc. fell 7 cents, to $3.48 a share.
Among regionals, KeyCorp dropped 2.19%. Regions Financial Corp. fell 2.61%. BB&T Corp. fell 3%. Fifth Third Bancorp dropped 5.59%, and PNC Financial Services Group Inc. fell 3.08%.