Bank stocks fell Thursday on growing concerns that fourth-quarter earnings reports will be disappointing.
The Standard & Poor's bank index fell 2.50% and the Dow Jones industrial average fell below 9,000 for the first time in two weeks as bank analysts worried that trading revenue, fee income, and corporate borrowing are vulnerable to problems in overseas markets.
News that Brazil's legislature struck down a tax increase that would have helped reduce its deficit fueled selling of shares in banks with exposure there, including BankBoston, off $3.6875, to $38.9375; Citigroup $2.125, to $48.1875; and J.P. Morgan $4.0625, to $107.25.
Before the news from Brazil, Carla D'Arista, a banking analyst at Friedman, Billings, Ramsey, slashed fourth-quarter profit expectations for Citigroup to 43 cents a share, from 63 cents. She cited lagging revenues on the corporate side of the business, particularly at Salomon Smith Barney.
Ms. D'Arista also cut her fourth-quarter earnings estimate for First Union Corp. by 5 cents, to 98 cents a share, noting a sluggishness in capital markets activity and a likely slowdown in securitizations.
The moves may not be the last by Ms. D'Arista and other analysts. "My sense is there will be some residual weakness," Ms. D'Arista said. "This could be especially true for banks with significant capital markets operations."
Smaller banks are not immune from the problems, said analysts who follow these operations. "I'll probably reduce estimates for a number of banks I follow," said Collyn Bement, regional banking analyst with Ferris Baker Watts. Among signs of weakness, Ms. Bement sees fee income from trust operations down because of reduced trading volumes.
"There's a feeling of nervousness out there," said Charles Vincent, banking analyst at PNC Asset Management. "Given the general corporate picture, you've got to be concerned about surprises" by financial institutions.
Indeed, fee income, a growing part of banks' revenue, could be compromised by more lingering strains from Asia's economic crisis and drop- offs in domestic stock trading, some analysts said.
Weakness could make its way into banks' balance sheets through deteriorating loan volumes and margins as more U.S. companies cut back, analysts said.
Manufacturers like Boeing & Co. and retailers like Sears, Roebuck and Co. are among a growing group of big corporations to announce shortfalls in the fourth quarter.
On Thursday, Canada's largest banking company said earnings for the fourth quarter that ended Oct. 31 were wiped out by trading losses and lower capital markets revenue.
Canadian Imperial Bank of Commerce reported only $34 million of net income or 1 cent a share, off from $405 million or 91 cents a share in the same quarter a year earlier.
Market watchers said the decline, while serious, represented continued fallout from conditions in emerging markets that hit other institutions earlier this year, not new problems.
"This is a ripple effect from events that were taking place over the summer," said Joseph Battipaglia, chairman of investment policy at Gruntal & Co.
"If anything all these types of activities have come to a screeching halt" throughout the industry, Mr. Battipaglia said.
But the midafternoon announcement by CIBC accelerated the downturn in banking stocks.
The S&P bank index shed 16.52 points to close at 64.39 and the Dow 184.86 points, to 8,879.68.
BankAmerica Corp. was off $2.6875, to $62.375; Chase Manhattan Corp. $1.75, to $61.25; and Wells Fargo & Co. $1.625, to $35.5625.
Among regionals, Fleet Financial Group was off $2, to $40.125; KeyCorp $1.0625, to $30.75; and Mellon Bank Corp. $2, to $64.