Bank stocks fared better than the broader markets Monday as investors reacted positively to reports that the government may increase its ownership in some banks, without nationalizing them.
The KBW Bank Index rose for most of the day but closed unchanged from Friday's close of 21.70. The Dow Jones industrial average fell 3.41%, to 7114.78, its lowest since May 1997. The Standard & Poor's 500 dropped 3.47%.
Citigroup Inc. rose 19 cents, to $2.14 a share. A news report published Sunday night said the government might increase its stake in the embattled company to 40%.
The entire group was buoyed by a joint statement from regulators Monday morning indicating the government's willingness to invest more capital in banks that fail its stress test. The injection would be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed to keep banks well capitalized. Sunday's Wall Street Journal story had suggested regulators were discussing a similar solution with Citigroup. Citi declined to comment.
Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said Monday's statement from regulators "suggests that the notion of nationalization is not their first priority."
Most of the large-cap stocks rose Monday. Bank of America Corp. rose 3.2%, Wells Fargo & Co. rose 1.1%, and U.S. Bancorp rose 7.1%. Fifth Third Bancorp rose more than 20% or 21 cents, to $1.24.
JPMorgan Chase fell 2%.