NEW YORK — Financial stocks fell Monday as several factors, including reports that Bank of America Corp. hit a snag in repaying Troubled Asset Relief Program funds and talk of legislation set to be introduced in Congress, weighed on shares.
Bank of America's attempt to repay federal bailout funds and escape the government's grasp has been snagged by a disagreement over how much additional capital the bank must raise to satisfy regulators, people familiar with the situation told The Wall Street Journal over the weekend.
That dispute is gaining urgency in the wake of restrictions handed down this week by the Obama administration's "pay czar," who clipped compensation for top employees of Bank of America and six other firms receiving large sums of government aid.
Bank of America's shares fell 3.5% to $15.66 in recent trading after falling more than 7% earlier.
On the regional bank front, stocks also were hurt as investors took time to process earnings and focus on commercial real-estate problems that regional banks will face, FBR Capital Markets analyst Scott Valentin said. Downgrades on several regional banks from Rochedale Securities' Dick Bove also hurt the sector.
Valentin said there's some talk that the regulation Congress is considering would put investors in more jeopardy in case of a bank failure. The bill to be introduced would make it easier for the government to seize control of troubled financial institutions that are considered too big to be allowed to fail, The New York Times reported late Sunday. The legislation would make it easier for the government to throw out the financial company's management, wipe out shareholders and change the terms of existing loans held by the institution, the report said.
Valentin said now that the bulk of bank earnings has been released, people are refocusing on risk, and on Monday they seemed to be more focused on banks that appear to have more risk, such as SunTrust Banks Inc. and Regions Financial Corp., both of which are heavily invested in the Southeast. Regions in particular is exposed to real estate in Florida, one of the hardest-hit markets by the downturn, he said.
SunTrust's shares declined 4.8% to $19.98 while Regions' slid 6.2% to $5.19.
Banks in the Southeast seem to be getting hit hardest, Fox-Pitt Kelton's Al Savastano said. He added that the possibility that the first-time homebuyer tax credit might not get extended would "clearly be a bad thing for the banks." What's selling is lower-end housing, so if that credit wasn't renewed, it would cause more pain in the housing market, he said.
Savastano added Southeastern banks might be hit extra hard because of the downgrades from Bove and worries about the tax credit, since many of them have exposure to real-estate markets that have been suffering.
Meanwhile, in a note to clients on SunTrust, Bove said "recognition is developing that many regional banks, SunTrust included, may not show a profit until 2011." He downgraded SunTrust and Fifth Third Bancorp to sell from neutral. Fifth Third's shares recently dropped 6.3% to $9.69.
Many financials had strong rallies in anticipation that results and the economic environment were improving, Sandler O'Neill's Jeffery Harte said, but now that big part of the earnings have been released, there might be some profit-taking. The big question, he said, is what the economy will look like in 2010, which will give some insight on banks' credit losses and investment banks' trading and revenue.
Other decliners included Marshall & Ilsley Corp., whose shares fell 5.5% to $5.64, Zions Bancorp, which saw shares decline 4.7% to $16.03, and KeyCorp, which lost 4.5% to $6.19.