Bank stocks dipped Friday with the broader market on a report that the nation's unemployment rate rose last month a 16-year high of 7.2%.
The KBW Bank index fell 4.23% for the day and 11.8% for the week. The Dow Jones industrial average fell 1.64% Friday, and the Standard & Poor's 500 fell 2.13%.
The Labor Department said 524,000 jobs were cut last month, versus the average economist estimate of 550,000. However, economists also had expected the government to report an unemployment rate of 7%.
Last year's 2.6 million job losses were the most since 1945.
"The outlook continues to be murky at best," said Gary B. Townsend, the chief executive of Hill-Townsend Capital LLC.
Investors were likely bracing for more job losses, as well as the beginning of fourth-quarter earnings reports next week, Mr. Townsend said.
Eugenio J. Aleman, a senior economist at Wells Fargo & Co., wrote in a note that he expects the employment situation to continue to deteriorate for some time, "even if the new administration comes in with a stimulus package as large as what has been speculated during the last several weeks."
President-elect Barack Obama has signaled that he would ask Congress to approve a stimulus package of at least $775 billion.
Citigroup Inc. shares fell 5.7%. According to news reports Friday, the New York company is in talks with Morgan Stanley about merging their brokerage operations. Morgan Stanley rose 1.3%.
Citi said Friday that former Treasury Secretary Robert E. Rubin had retired as a senior counselor and would not stand for re-election as a director. Mr. Rubin will keep his board seat until his term expires in April.
Also Friday, Citi said it would likely report a fourth-quarter pretax charge of $1.4 billion, as a result of its exposure to the chemical firm LyondellBasell Industries, which filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code.
SunTrust Banks Inc. fell 5.9%. Adam Barkstrom, a Sterne, Agee & Leach Inc. analyst, downgraded the Atlanta company's shares Friday to "neutral," from "buy." He lowered his profit estimates by 17 cents for the fourth quarter, to 6 cents, and by 96 cents for this year, to $1.05.
"While we continue to view SunTrust as a survivor, and one of the few companies well positioned to take advantage of opportunities to acquire weaker institutions, we are increasingly negative on the sector as credit trends continue to deteriorate and given SunTrust's significant exposure to real estate in the Southeast, we think further credit erosion is unavoidable," Mr. Barkstrom wrote in a note to clients.
Ken Zerbe, a Morgan Stanley analyst, said six midsize regional banking companies could have the sector's biggest credit losses or reserve build-ups over the next few quarters.
They are First Horizon National Corp., whose shares fell 6.3%; Marshall & Ilsley Corp., which fell 6.6%; South Financial Group Inc., which fell 4.1%; UCBH Holdings Inc., which fell 8.5%; Zions Bancorp., which fell 1.9%; and East West Bancorp, which fell 6.2%.
Mr. Zerbe downgraded East West's stock to "equal-weight," from "overweight," citing its large California construction portfolio.
Other losers Friday included JPMorgan Chase & Co., whose shares fell 4.6%; Bank of America Corp., which fell 4.1%, Wells Fargo & Co., which fell 2.3%; and City National Corp., which fell 3.9%.