Bank stocks continued to decline Thursday as a rough and tumble earnings season continued.
The KBW Bank Index fell 1.46%. It had dropped as much as 6.55% in afternoon trading but began to recover in the last hour as investors snatched up bargains.
"The earnings releases coming out are scaring the hell out of people, as the growth in nonperforming assets across the board were a lot bigger than what firms had been modeling," said Michael O'Boyle, an investment banker at Sterne, Agee & Leach Inc. Moreover, not a lot of banking companies will be eligible to raise capital through the government's Tarp program, "and that's starting to scare some people."
The broader markets fluctuated Thursday as investors balanced opportunities to pick up stocks on the cheap with concerns about a deepening recession.
The Dow Jones industrial average rose 2.02%, and the Standard and Poor's rose 1.26%.
The Labor Department reported Thursday that initial unemployment claims for the week that ended Oct. 18 rose by 15,000, to a seasonally adjusted total of 478,000. Analysts had expected a total of 470,000.
SunTrust Banks Inc. declined 9.8%. The $174.8 billion-asset Atlanta company said Thursday that third quarter net income fell 42.2% from the second quarter and 25.5% from a year earlier, to $307.3 million, or 60 a share, which missed the average estimate of analysts by 28 cents, according to Thomson Reuters.
Noninterest expenses rose 21% from the second quarter and 29.7% from a year earlier, to $1.7 billion.
The results included $20 million of expenses tied to Visa Inc. litigation, $38.1 million of real estate and collections expenses, and $48 million of reserves tied to mortgage application fraud at SunTrust's Twin Rivers Mortgage Reinsurance Co.
SunTrust recorded several special items in the third quarter, including $341 million of mark-to-market gains on public debt and related hedges and an $82 million gain from selling its fuel card business. Those items offset $173 million of expected losses tied to addressing issues with auction-rate securities and $137 million of mark-to-market losses on illiquid securities and loan warehouses.
The loan-loss provision climbed 12.4% from the second quarter and 242.6% from a year earlier, to $503.7 million. Net chargeoffs rose 21.5% from the second quarter and 278% from a year earlier, to $392.1 million.
Valley National Bancorp fell 4.1%. The $14.3 billion-asset Wayne, N.J., company said third quarter net income fell 90% from a year earlier, to $3.6 million, or 3 cents a share, principally because of a loss of $70.9 million loss (or $44.1 million after taxes) on Fannie Mae and Freddie Mac preferred stock.
Excluding the one-time charge, Valley's core operating earnings rose 30%, to $47.7 million, mainly because of its July acquisition of the $976 million-asset Greater Community Bancorp of Totowa, N.J.
Citigroup Inc. fell 1.6%. Regions Financial Corp. dropped 8.8%. KeyCorp declined 6.3%. Marshall & Ilsley Corp. dropped 5.6%. National City Corp. dropped 2.1%, and Zions Bancorp. dropped 4.2%.
JPMorgan Chase Co. climbed 1.8%. Bank of America Corp. gained 1.5%. U.S. Bancorp climbed 2%. Wells Fargo & Co. rose 0.1%, and State Street Corp. climbed 3.3%.