Bank stocks maintained last week's momentum on Monday as investors began to turn their sights on the third quarter and beyond.
The KBW Bank Index rose 3.16%, and every banking company with a market capitalization above $1 billion finished in the black. The Standard & Poor's 500 index gained 0.69%, and the Dow Jones industrial average 0.41%, feeding off the strengthening dollar and a continued slide in oil prices.
Anthony Conroy, the head trader at BNY ConvergEx Group, said other dynamics are in play with financial stocks, which rose 3.11% last week. "A lot of the nervousness is out the marketplace for now," particularly in terms of writedowns in securities, he said in an interview. "We're seeing some people put their money to work. That's not to say we're out of the woods, but maybe we're off life support for a while."
There were also signs that banks were getting more aggressive to reduce credit exposure; the Federal Reserve reported that about three-fourths of the banks participating in its July survey said they had tightened lending standards on prime mortgages. That compared to 60% in April.
The rally in bank stocks even overshadowed reports of probes involving financial companies.
New York Attorney General Andrew Cuomo expanded his investigation into the collapse of the auction-rate securities market to include JPMorgan Chase & Co., Morgan Stanley, and Wachovia Corp.
JPMorgan Chase rose 2%, Wachovia 1.6%, and Morgan Stanley 0.8%.
National City Corp. shares swooned 3% in early trading but recovered to a 1.4% gain after the Cleveland company's disclosure Friday that it faces an informal inquiry by the Securities and Exchange Commission tied to loan underwriting, dividends, regulatory matters, and its 2006 sale of First Franklin Financial Corp.
Fannie Mae's shares fell 7.2% after KBW Inc.'s Keefe Bruyette & Woods Inc. downgraded the government-sponsored enterprise to "market perform," from "outperform," and adjusted its 12-month price target to $10 a share, from $48. Analyst Frederick Cannon also reduced his 2008 estimate, to a loss of $7 a share, from a loss of $2.77, due to higher credit-loss expectations.
Freddie Mac fell 5.1%.
The gainers included Sterling Financial Corp. in Spokane, Wash., up 18.1%; Cathay General Bancorp in Los Angeles, 15.3%; and Capital One Financial Corp. in McLean, Va., 6%.
Decliners included First Bancorp Inc. in Damariscotta, Maine, off 14.7%; Century Bancorp Inc. in Medford, Mass., 2.8%; and Kearny Financial Corp. in Fairfield, N.J., 0.8%.