U.S. financial stocks fell sharply for a second consecutive session Friday as banks again led the way lower, with investors' focus turning to southern regional banks a day after their midwestern cousins got bruised.
Shares of Synovus Financial Corp. and Capital One Financial Corp. both fell, under pressure after reporting weakening earnings and continuing credit woes.
The Financial Select Sector SPDR, which tracks the financial stocks in the S&P 500, fell just under 5%.
SunTrust Robinson Humphrey downgraded Capital One to reduce from neutral, saying revenue opportunities appear to be less than it previously assumed.
SunTrust also said it now expects the credit-card company to post a much bigger loss of $2.65 a share in 2009, compared to its previous forecast for a loss of 67 cents a share, and losses are forecast to carry over in 2010.
"The resiliency of card revenue we believe is impaired given the depth of the economic pressures facing troubled borrowers; furthermore the extent of governmental regulations places an unknown incremental risk premium on the ability of card lenders to recapture revenue opportunities," they said.
Late Thursday, Standard & Poor's downgraded Capital One after it posted a fourth-quarter net loss of $1.4 billion, or $3.74 a share. The company had been expected to make 33 cents a share, based on the average estimate of 19 analysts in a Thomson Reuters survey.
For its part, Synovus posted a fourth-quarter loss of $637 million and said real estate loans were to blame.
Other banking shares also took part in the early retreat.
Shares of Bank of America Corp. were down more than 9%, with more than one million shares traded, betraying investor concerns about the company's leadership in the wake of John Thain's departure.
Thain, former chief executive of Merrill Lynch, was ousted as head of Bank of America's global banking and wealth-management unit on Thursday.
The Wall Street Journal reported Friday that Bank of America CEO Ken Lewis was angry at the way Thain handled unexpectedly large fourth-quarter losses at Merrill.
Meanwhile, analysts at Morgan Keegan downgraded Fifth Third Bancorp, which reported a big loss on Thursday, and credit-rating agency DBRS downgraded the issuer and senior debt rating for Citigroup Inc. to A from AA.