Continued concern about financial turmoil and a bank failure spooked investors and sent bank stocks lower Monday.
The KBW Bank Index fell 3.4%. The Standard & Poor's 500 fell 2%, and the Dow Jones industrial average lost 2.08%.
Anthony Conroy, the head trader at Bank of New York Mellon Corp.'s BNY ConvergEx Group, said in an interview that the initial shock to the sector came Friday when regulators announced that they had closed Columbian Bank and Trust Co. in Topeka, Kan.
"You've also got signs of slow growth and high inflation, which is putting the Federal Reserve in a precarious situation," Mr. Conroy said. "I think the market is trying to bottom out, but we won't be seeing a classic V-shape when it does."
JPMorgan Chase & Co. shares fell 4.1%. The New York company said in an regulatory filing that its preferred shares of Fannie Mae and Freddie Mac have lost $600 million of value this quarter, and that the losses could hurt its earnings. JPMorgan Chase cautioned that what will happen with those shares is unclear, given the "volatility" in the government-sponsored enterprises' shares.
In fact, shares of both GSEs rose Monday. Fannie gained 3.8%, and Freddie rose 17.1%.
Citigroup Inc. shares fell 2.9%. The New York company announced plans to dissolve its executive committee. Robert Rubin, the former Treasury secretary who chaired the committee, was given the title of senior counselor. Citi said he will remain on its board.
Not even an upgrade could help BB&T Corp., whose shares fell 3.2%. Greg Ketron, a Citi analyst, raised his rating for the Winston-Salem, N.C., company's stock to "buy," from "hold," saying it is outperforming other regional banking companies in the Southeast in terms of credit quality and capital levels.
Mr. Ketron also assumed coverage of SunTrust Banks Inc. with a "sell" rating. He cited concerns that the Atlanta company may not be able to maintain its quarterly dividend if its credit quality continues to deteriorate. SunTrust shares fell 6%.
Home resale data from the National Association of Realtors was mixed. Last month resales rose 3.1% from a month earlier but dropped 13.2% from a year earlier, to an annual rate of 5 million units.
Gainers included American National Bankshares Inc. in Danville, Va., which rose 3.5%; Capital Bank Corp. in Raleigh, which rose 3.1%; and Westamerica Bancorp in San Rafael, Calif., which gained 0.9%.
Decliners included PacWest Bancorp in San Diego; which fell 7%; Huntington Bancshares Inc. in Columbus, Ohio, which fell 6.8%; and Bank of America Corp., which fell 4.1%.