Citigroup Inc.'s loss was the industry's gain Monday.
Citi shares fell 6.3% after the company said it would sell $20.5 billion in stock and debt to begin the process of exiting the Troubled Asset Relief Program. The sales, which would dilute investors, would help Citi repay $20 billion in Tarp funds. The Treasury Department also plans to sell its 34% stake in Citi some time next year, accounting for the remaining $25 billion in Tarp funds Citi has received since fall 2008.
Confirmation that one of the nation's most beleaguered financial companies had been given a green light to exit the federal assistance program helped lift the banking industry, with the KBW Bank Index rising 0.48%.
The Dow Jones industrial average gained 0.28% and the Standard & Poor's 500 rose 0.70%.
"We're getting some uncertainty out of the way," said Anthony Conroy, head trader at BNY ConvergEx Group.
Yet Conroy said he is still cautiously optimistic. "Don't get me wrong, because I think it is positive that the Tarp is getting paid back and we're getting back to more stable times … but there are still going to be speed bumps ahead," he said.
Investors also paid close attention to Monday's meeting in Washington between President Obama and top banking CEOs, where topics were to include making more loans to small businesses and legislation to reform bank regulation.
The meeting led to several commitments from top bankers. U.S. Bancorp, which exited Tarp earlier this year, offered to give rejected small-business loan applications a second look. Bank of America Corp., which last week paid off its $45 billion in Tarp funds, said it would boost small-business lending by $5 billion next year.
U.S. Bancorp shares edged down slightly. B of A shares were unchanged.
A pair of banking companies agreed to sell significant stakes in themselves.
Spain's Santander said it would launch a bid to buy the remaining 9.4% in Santander BanCorp that it does not already own. Santander is offering $12.25 a share for the San Juan, Puerto Rico, company in a deal valued at roughly $50 million. It is expected to close by mid-January.
Santander BanCorp shares rose 8.9%.
Capital Bank Corp. in Raleigh announced a letter of intent to sell a 9.9% in itself to Philadelphia private-equity group Patriot Financial Partners LP in a deal valued at $55 million, or $3.75 a share. Capital Bank said it expected to complete the sale in February, which would also allow Patriot to name a director to Capital's board.
Capital Bank shares fell 2.2%.
Other stocks benefited from analyst upgrades.
Huntington Bancshares Inc. rose 4.3% after Robert Patten at Morgan Keegan & Co. Inc. raised his rating on Huntington to "outperform" from "market perform." Though it was a valuation upgrade, he wrote in a note to clients that Huntington is benefiting from "the commendable job management has done bolstering capital, proactively dealing with credit issues, providing transparency, and enhancing long-term earnings potential."
Trustmark Corp. shares rose 5.1% after Keefe, Bruyette & Woods raised its rating to "outperform" from "market perform." Analyst Brian Klock wrote in a note that the Jackson, Miss., company has "substantial dry powder" for government-assisted and traditional acquisitions.
TCF Financial Corp. shares rose 2.9%. The Treasury said it would auction about 3.2 million warrants to buy common stock in TCF Tuesday, beginning at a minimum bid price of $1.50 a warrant and increasing a 5-cent increments. The Treasury has already auctioned warrants for Capital One Financial Corp. and JPMorgan Chase & Co.
Other gainers included City National Corp. in Los Angeles (3.15%), JPMorgan Chase (2%) and Capital One (1.6%).
Decliners included City Bank in Lynnwood, Wash. (1.2%), Farmers Capital Bank Corp. in Frankfort, Ky. (0.7%) and UMB Financial Corp. in Kansas City, Mo. (0.8%).