Financial stocks tumbled again Thursday as the Dow Jones industrial average entered bear territory.

Brokerage and investment bank stocks were hit hard after Charles Schwab Corp. announced that it will slash its work force as much as 13% and fall short of its first-quarter earnings projections (see story, page 1). Schwab shares fell 4.4%, to $15.20, and Morgan Stanley Dean Witter & Co. fell 2.54%, to $53.25, this the day after Morgan Stanley and the two other big investment banks - Lehman Brothers and Bear Stearns Cos. - announced double-digit declines in first-quarter profit. Shares of commercial banks with big capital markets businesses also plummeted Thursday. Citigroup Inc. fell 3.91%, to $40.60, and J.P. Morgan Chase & Co. 3.21%, to $38.91. Both are components of the Dow average.

The American Banker index of 225 banks followed the major indexes, falling 3.55%, while its index of the top 50 banks fell 3.21%. The Standard & Poor's 500 also fell, 0.41%, but the Nasdaq composite rose 3.61%.

Analysts and strategists remain divided about the outlook for brokerages and investment banks, and some traders say the financial service sector is being unfairly maligned.

"Nobody is escaping the selloff," said Bruce Simmons, head trader at Sandler O'Neill & Partners. "It's mystifying. One should assume that financials are doing better," but recession fears are sapping all sectors.

Meanwhile, some analysts who follow broker-dealers adjusted their outlook after the first round of earnings announcements this week.

Joan Solotar of Credit Suisse First Boston and Meredith Whitney of First Union Securities maintained their "strong buy" ratings for Goldman Sachs Group, Lehman Brothers, and Morgan Stanley.

But Dean Eberling and Lauren Smith, who cover broker-dealers at Keefe, Bruyette & Woods, lowered their rating for A.G. Edwards & Sons to "market perform" from "buy" on Thursday after making the same downgrade Wednesday on Goldman Sachs.

They reiterated Lehman's "buy," but Mr. Eberling cut his earnings estimates for Lehman by $1.16 a share to, $5.24 for this year, and by 85 cents, to $5.45, for 2002. He lowered his 2001 estimates for A.G. Edwards by $1.20, to $2.60, for Morgan Stanley by 41 cents, to $4.20, and for Goldman by 75 cents, to $4.90.

Weak demand for underwriting services and a sluggish market for mergers and acquisitions are dragging profits at investment banks down. Trading revenues were the bright spot at Goldman, Lehman, and A.G. Edwards this quarter, but Mr. Eberling warned that volumes could decline with increasing market uncertainty.

But some strategists came out in full support for the financial services sector. Francois Trahan, a strategist at Brown Brothers Harriman who is rating the entire sector "neutral," said he continues to "overweight" investment banks, citing rising liquidity, faster money growth, and interest rate cuts as reasons for a bullish outlook.

Tobias M. Levkovich, senior institutional equity strategist at Salomon Smith Barney, wrote Thursday that "investment banks continue to look attractive, especially given their share-price pullbacks and the seeming trough in underwriting activity," which cannot get much worse.

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