Bank stocks plunged Monday along with the broader market after the government's bailout proposal failed to pass the House and Wachovia Corp. was forced to sell its banking operation in the latest big government-assisted bank deal.

The KBW Bank index sank nearly 21%, and the Dow Jones industrial average — in its biggest one-day point drop ever — shed 777 points, tumbling nearly 7%, the biggest percentage loss since Sept. 17, 2001.

Wachovia Corp.'s shares plunged more than 81% after it agreed to sell its banking business to Citigroup Inc. Citi shed nearly 12%.

However, Wachovia's bondholders fared better than did Washington Mutual Inc.'s in last week's sale to JPMorgan Chase & Co. The latter bought the Seattle thrift's assets and deposits, wiping out both Wamu's equity and debt.

David Hendler, a CreditSights Inc. analyst, wrote in a note Monday that Citi's deal for Wachovia may rid the market of the assumption "that all future deals would be asset strippers."

JPMorgan's acquisition of Wamu Thursday excluded the senior unsecured debt, subordinated debt, and preferred stock of its bank units. On Monday Citi agreed to assume roughly $53 billion of Wachovia's senior and subordinated debt, totaling about $53 billion.

Bank stock investors voted with their feet. Shares of National City Corp., which is laboring under bad mortgage loans, sank more than 63%.

However, Gary Townsend, the chief executive of Hill-Townsend Capital LLC, said Nat City bondholders should be protected because the company has a good capital position, something which would also make it more attractive to a buyer. The company raised $7 billion in capital in April from an investor group led by Corsair Capital LLC to cover future credit losses.

Lana Chan, an analyst at Bank of Montreal's BMO Capital Markets Corp., said that at Nat City "it's more of a liquidity concern versus a capital concern."

Kristen Baird Adams, a spokeswoman for Nat City, said: "National City fervently believes we have sufficient capital and liquidity to manage through these challenging times. Undoubtedly there's extreme volatility in the market today and, we believe, a bit of irrational speculation on unfounded rumors."

"We would suspect that part of the volatility" in our stock "relates to parallels being drawn between us and Wachovia and Wamu," she added, "but we are fundamentally different than those two institutions."

Other decliners included Fifth Third Bancorp, which shed 43.6%, and Sovereign Bancorp, which sank more than 72%.

Robert Patten, an analyst at Regions Financial Corp.'s Morgan Keegan & Co., said Monday's steep drops were mainly due to the uncertainty about the Treasury Department's bailout plan for financial companies with distressed assets. Some companies were being "sold indiscriminately," he said.

"The simple fact is that the market is really skittish," he said, "and everybody's trying to figure out what's going to happen in terms of deposit bleed."

In an e-mailed statement Stephanie Honan, a Fifth Third spokeswoman, wrote: "Today it's important that you know your banking company is strong and well capitalized. Fifth Third Bank is both."

Ellen Molle, a Sovereign spokeswoman, said: "We're not aware of anything specific in Sovereign's business that would justify the volatility of Sovereign's stock price. Sovereign is fundamentally sound by all financial and operational measures and is well-capitalized."

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