Financial stocks were marginally lower in Monday morning trade, with regulatory issues involving two prominent banking companies in focus.
The benchmark financial sector exchange-traded fund, Financial Select Sector SPDR Fund, fell 0.3% to 11.88.
First, State Street Corp. in a filing Monday said its principal subsidiary, State Street Bank and Trust Co., has received a so-called Wells notice from the Securities and Exchange Commission informing the company it may face civil charges for possible violations of securities laws.
The bank's shares were off 1.75%.
"The notice relates to an ongoing SEC investigation into disclosures and management by State Street Global Advisors of certain active fixed-income strategies during 2007 and prior periods," State Street said in the filing.
The Boston-based company said it has been cooperating with the SEC and other regulators in their inquiries.
In 2007, State Street established a reserve of about $625 million to address lawsuits and other costs related to complaints about its fixed income strategies managed by State Street Global Advisors, which suffered large losses related to exposure to subprime mortgage markets.
The bank already paid out $417 million in settlements relating to such issues, according to a February filing with the government.
A State Street spokeswoman declined to comment with MarketWatch on the matter beyond Monday's SEC filing.
In related news, UBS AG may be close to settling a civil suit with U.S. authorities that could cost the bank as much as $4.6 billion, Swiss newspaper Sonntag reported Sunday.
The civil case was filed in February, shortly after UBS agreed to pay $780 million and hand over a limited amount of client data as part of a deferred prosecution agreement over charges it conspired to defraud the U.S. by impeding the Internal Revenue Service.
The Department of Justice is seeking information on around 52,000 clients of UBS as part of a probe into possible tax evasion by U.S. citizens.
Elsewhere, Barclays PLC was upgraded to hold from sell by analysts at Societe Generale Monday, saying the group's sale of its fund business to BlackRock Inc., along with other actions in the second quarter, significantly added to its capital position.
The broker said it now expects Barclays to be profitable in 2009 and 2011, following the BlackRock deal and an increase in revenue expectations from the investment banking arm, but added it still expects the bank will lose money in 2010.
Shares of Barclays were up 1.45%.
Overseas, Mizuho Financial Group Inc. is preparing to raise up to 600 billion yen ($6.3 billion) through a new share issuance, according to media reports.
The bank, Japan's second largest bank by assets, fell 2.4% in New York trading. Its Tokyo listed shares fell 3.4%.
Also, First Niagara Financial Group Inc. on Monday said it completed the final step in its previously announced plan to return the funds invested by the U.S. Treasury Department under the Troubled Asset Relief Program with the repurchase of the warrant for the remaining 953 thousand shares of common stock issued to Treasury on Nov. 21, 2008, for $2.7 million.
The repurchase will not have an impact on earnings per share, the company said.
On May 27 First Niagara returned all $184 million received from the preferred stock that had been issued to the Treasury under TARP.
Its shares were up 1.75%.
Finally, in an ongoing effort to raise cash to pay-back the federal government, American International Group Inc., said Monday that it will sell 98% of the shares in its consumer-finance operations in Russia to Banque PSA Finance SA, a subsidiary of PSA Peugeot Citroen Group.
AIG said Banque PSA Finance also has an option, not exercisable until March 2011, to buy the remaining 2%. Terms of the deal were not disclosed.
The insurer's shares were down 2% to $1.43.