As investors digested more negative economic news Thursday — and continued to wonder how the changes in Washington would affect the economy — bank stocks tumbled with the broader market.
The KBW Bank Index fell 5.89%, the Dow Jones industrial average fell 4.85%, and the Standard & Poor's 500 fell 5.03%.
"Bank stocks are way down for the same reason that the Dow Jones has tanked: There is fear about the economy, and there is worry about exactly what Obama will do" once he is inaugurated as president in January, said Theodore Kovaleff, a bank and thrift analyst at Granta Capital Group LLC in New York.
One issue that may concern investors is whether President-elect Barack Obama and the strengthened Democratic majority in Congress would increase the capital gains tax, Mr. Kovaleff said. "I would suggest that there are a number of people who are deciding to take their profits now at a 15% tax rate, rather than waiting and being taxed higher."
The Labor Department reported Thursday that initial unemployment claims for the week that ended Nov. 1 fell 0.8% from the previous week, to 481,000. However, the total number of people receiving unemployment benefits for the week that ended Oct. 25 rose 3.3% from the previous week, to 3.84 million.
Wells Fargo & Co. said it was set to price $10 billion of stock late Thursday to fund its purchase of Wachovia Corp. Wells was originally slated to raise up to $20 billion, but it scaled back its plans after selling $25 billion of preferred shares to the federal government as part of the Treasury Department's Capital Purchase Program.
In a conference call Wednesday, Wells also said that it would likely downsize the "higher-risk" portions of Wachovia's investment banking, commercial real estate, and adjustable-rate mortgage business.
Wells' stock fell 9.2% Thursday. Tim Curran, a bank stock trader at Regions Financial Corp.'s Morgan Keegan & Co. Inc., said the decline had more to do with the overall slide in bank stocks.
"Banks are going to be facing problems," Mr. Curran said.
JPMorgan Chase & Co. fell 2.5%. Citigroup Inc. dropped 8.8%. Bank of America Corp. dropped 7.5%. First Horizon National Corp. fell 6.3%. U.S. Bancorp fell 5.7%. Comerica Inc. dropped 7.4%. Fifth Third Bancorp fell 8.7%, and Regions Financial Corp. fell 7.5%.
More banking companies announced plans to participate in the Treasury's program, including Pacific Capital Bancorp in Santa Barbara, Calif. (which plans to raise $188 million); Columbia Banking System Inc. in Tacoma ($76.9 million); and Heritage Commerce Corp. in San Jose ($40 million).
All three stocks fell Thursday. Pacific Capital fell 7.6%, Columbia fell 7%, and Heritage fell 0.4%.
