Bank stocks fell sharply again Tuesday despite the Federal Reserve Board's move Tuesday to jump-start the credit markets and its signal of a willingness to lower key interest rates.
The KBW Bank Index tumbled 10.66%, after dropping 5.57% Monday.
The broader markets also declined. The Dow Jones industrial average fell 5.11%, to 9,447.11, a day after falling below 10,000 for the first time since October 2004, and the Standard & Poor's 500 fell 5.74%.
"It's just more of the same — uncertainty in the market," said Matthew Shields, a trader at FIG Partners LLC in Atlanta. "Bank of America's announcement that it was raising capital is hurting things as well."
Bank of America Corp. fell 26.23%, a day after it released its third-quarter earnings and announced plans to sell $10 billion of common stock in response to what it called "significantly" changing market conditions, including rapidly deteriorating credit quality.
The Charlotte company's profit fell 68% from a year earlier, to $1.18 billion, or 15 cents a share, 47 cents below the average analyst estimate, according to Thomson Reuters.
Bank of America also said it would slash its quarterly dividend in half.
Stocks fell Tuesday despite the early news from the Fed that it would create a commercial paper funding facility to purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers, to provide a "liquidity backstop" to issuers of commercial paper.
"This facility should encourage investors to once again engage in term lending in the commercial paper market," the Fed said.
Mr. Shields called the Fed's move a "step in the right direction" but said its impact on financial institutions remained unclear.
The markets continued to fall in the afternoon after Fed Chairman Ben Bernanke indicated in a speech Tuesday to the National Association for Business Economics that the central bank may be willing to lower interest rates.
"Overall, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased," Mr. Bernanke said.
"In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate."
Michael O'Boyle, with Sterne Agee Financial Services Inc., said that even if the Fed lowers rates, asset-sensitive banks will continue to have earnings problems. Their "cost of funds may not go down, but their net interest margin will," he said.
Mr. O'Boyle said the markets did not react positively to the Fed's announcements Tuesday because of continued uncertainty about how the government's bailout plan will actually help financial companies.
Shares fell at the two banking companies, Citigroup Inc. and Wells Fargo & Co., locked in a legal battle over Wachovia Corp., with Wells losing 9% and Citi 13%. Wachovia lost 9.2%.
At the urging of regulators, Citi and Wells agreed Monday to halt formal litigation until noon Wednesday to allow time for a possible compromise.
Other decliners included National City Corp., 11.3%; Huntington Bancshares Inc., 15%; Zions Bancorp., 14.3%; KeyCorp, 10%; SunTrust Banks Inc., 7.7%; Fifth Third Bancorp, 8.7%; and PNC Financial Services Group Inc., 8.1%.