general pessimism offset supportive comments from banking analysts.
The Standard & Poor's bank index dropped 1.90%, and the Nasdaq bank index 1.06% as the Dow Jones industrial average shed 0.49% and the S&P 500 1.26%.
Chase Manhattan Corp. shares lost $1.3125 to $74.3125, Citigroup Inc. 37.5 cents to $42.25, and J.P. Morgan & Co. $3 to $121.9375.
Among regionals, KeyCorp was down $1.25 to $29.3125, and Mellon Bank Corp., $1.3125 to $32.3125.
It's a bloodbath today, said Christopher Bamman, equity analyst for Advest Inc. Everyone is down across the board. The impulse is to shoot first.
Recent economic data suggested to investors that rate hikes could derail the economic expansion.
The market is fearful the Fed will raise interest rates not only this time, but again, said James Schutz, banking analyst at Stephens Inc., Little Rock, referring the Open Markets Committee which meets Aug. 24. It could be reminiscent of 1994, when the Fed raised rates several times. There's some feeling that if rates go up, it could nudge the economy into a slowdown and this could spark concerns about asset quality, Mr. Schutz said.
People think that August of '98 is going to be repeated, added Walter P. Fitzgerald, vice president of money manager Breen, Murray, New York.
Back then, Russia defaulted on its loans and its currency collapsed, sparking stock selloffs in this country. Mr. Schutz remains upbeat about the prospects for banks. Absent a recession, I see the banks posting pretty good numbers the rest of this year, he said.
But positive talk was falling on deaf ears in Tuesday's selloff. PNC Bank Corp. shares were down $1.1875 to $50 despite boosts from two analysts.
The Pittsburgh banking company should experience solid and sustainable growth in fee-based businesses, resulting in strong earnings gains,'' said Mr. Schutz of Stephens. However, if earnings growth does sputter, PNC could become an acquisition candidate.
PNC continues to pursue a strategy of redeploying capital from underperforming businesses, such as credit cards into autonomous fee income-generating profit centers that are recognized among the best in class, said Carla D'Arista, a banking analyst at Friedman, Billings, Ramsey & Co., Arlington, Va.
The purchase of First Data Investor Services Group is an example of the strategy, Ms. D'Arista said.
The investors services group, a subsidiary of First Data Corp. will position PNC's investment services subsidiary as a leader in the shareholder services marketplace, Ms. D'Arista said.
Silicon Valley Bancshares gained $1, to $26.25, on positive comments from Mark Alpert, a banking analyst with Deutsche Banc Alex. Brown & Co.
The Santa Clara, Ca., banking company is among the few institutions that can benefit from higher rates, Mr. Alpert said. Virtually its entire $1.6 billion loan portfolio is priced off of the Prime Rate and 31%, or $1.2 billion, of deposits are demand deposits that have no interest expense.
The stock ran into trouble last year due to some poorly performing loans.
But Mr. Alpert said the recent weakness in the stock appears related to the general malaise in bank stocks, not fundamentals.
In terms of credit quality, which has plagued the company for about a year, the second quarter seems to represent a turning point,'' Mr. Alpert said.
Nonperforming loans fell $5 million, to $48 million, and another $7.5 million was resolved this summer, he said.
Additionally, net charge-offs were the lowest in two years and Silicon Valley's strong performance should continue in the second half of this year, Mr. Alpert said.