Global credit fears pummelled bank stocks Thursday and sent the Dow Jones industrial average spiraling below 9,000 for the first time in more than five years.
The KBW Bank Index fell 11.8%, its sixth straight loss and the benchmark's second-worst performance in a single day in its 16-year history. (It fell nearly 21% on Sept. 29.)
The Dow Jones industrial average shed 7.3%. The Standard & Poor's 500 fell 7.6%. Both indexes have suffered from seven consecutive sessions of losses. The Dow is down nearly 21% over that period and the S&P 500 almost 22%.
Thursday's bloodletting marked the first day of the lifting of the Securities and Exchange Commission's broad ban on short-selling of financial stocks. The ban expired at midnight Wednesday.
Anthony Conroy, the head trader at Bank of New York Mellon Corp.'s BNY ConvergEx Group, said in an interview Thursday that widespread concerns about global credit dealt "hefty hits" across the board. "There is a tremendous amount of nervousness out there," he said. "Uncertainty yields volatility and these issues aren't going to go away overnight."
Investors were so edgy that even reports that the Treasury Department might retool its $700 billion bailout plan to directly inject capital into struggling banks created anxiety, particularly among those who invest in regional banking companies.
Observers said the plan has encouraging elements but would create more trepidation than relief about capital adequacy.
The KBW Regional Bank Index lost 13.19%. Among the regional banking companies that endured massive hits Thursday were South Financial Group Inc. in Greenville, S.C., which fell 32.3%; Regions Financial Corp. in Birmingham, Ala., which fell 22.1%; Huntington Bancshares Inc. in Columbus, Ohio, which fell 17.6%; and SunTrust Banks Inc. in Atlanta, which fell 16.8%.
National City Corp. was among the handful of banking companies that defied the undertow, posting a 2.2% gain amid mounting speculation that the Cleveland company was talking with possible buyers. A spokeswoman said she would not comment on market speculation.
Robert Albertson, the chief strategist at Sandler O'Neill & Partners LP, said the Treasury Department's latest plan to aid banks "carries some taint because it is coming from the government." Investors are wary of federal intervention, and the plan, besides highlighting the banking sector's dire need for capital, would be dilutive, he said.
Anthony Davis, an analyst at Stifel, Nicolaus & Co., said in an interview, "The real issue is capital adequacy."
William S. Demchak, the vice chairman and head of corporate and institutional banking at PNC Financial Services Group Inc. in Pittsburgh, called the plan "good thing" from a proactive government. "Regulators haven't gotten everything right, but they have come at it aggressively," he said Thursday. "I applaud their efforts." (See related story.)
There was no resolution over the fate of Wachovia Corp., which Wells Fargo & Co. and Citigroup Inc. have been trying to acquire. The parties had been working a standstill agreement for litigation that was set to expire at 8 a.m. today.
After markets closed Thursday, Citi said it had broken off talks after failing to reach an agreement with Wells after four days of discussions. "The dramatic differences in the parties' transaction structures and their views of the risks involved made it impossible to reach a mutually acceptable agreement," Citi said.
Wachovia shares fell 21.7%. Wells Fargo shares 17% and Citi shares 10.2%.