became anxious about internal accounting controls in the nation's top banks.
All stock groups were down Tuesday, but bank stocks fell most sharply. The American Banker index of the nation's 50 largest banks declined 2.06%; the Standard and Poor's 500 index, only 0.86%.
Analysts attributed the sharper decline in bank stocks to two reports from Washington. Investigators for a Senate panel said Tuesday that Citicorp, now a part of Citigroup Inc., was slower than others in taking steps to prevent money laundering by its private banking clients. Citigroup was among the biggest losers Tuesday. Its stock fell $1.125 a share, or 2.09%, to $52.8125.
In addition, The Wall Street Journal reported that Chase Manhattan Corp. is being investigated by the Securities and Exchange Commission for a $40 billion discrepancy in its capital markets fiduciary services division. The discrepancy evolved over 10 years and has been reduced to $5 billion. No loss to the company is expected, but the incident prompted market doubts about Chase's controls. Its stock fell $1.3125 a share, or 1.56%, to $83.0625.
"We have seen two banks that appeared tightly controlled turn out not so tightly controlled," said John Lyons, president of Keefe Managers, a financial hedge fund in New York. "Bank of New York also had a problem with money laundering. These stories have had a negative impact on investors."
Also depressing bank stocks on Tuesday was a fear of rising interest rates. The Federal Open Market Committee, the Federal Reserve System's policy-setting arm, is to meet next Tuesday.
Some market observers said they were worried that the producer price index, slated to be released today by the Labor Department, will show a larger-than-expected increase.
"The market is trying to price in what could be a bad PPI number," said Andy Collins, a bank analyst at ING Barings. "The PPI results figure heavily in what the (Fed) may do. Right now it is a close call whether it raises rates or not."