Bank stocks fell on a day when investors picked through some lackluster earnings reports from larger banking companies.
The American Banker index of 225 banking stocks fell 0.49% and the index of the top 50 banks fell 0.7%, despite a comment from William Poole, the president of the Federal Reserve Bank of St. Louis, after a speech in Memphis.
Mr. Poole said in a Bloomberg News report that he would be willing to back an interest rate hike "at some point" if September economic data showed that inflation did not dissipate.
The Standard & Poor's 500 gained 0.25%, and the Dow Jones industrial average gained 0.17%.
Wachovia Corp. fell 2.2% after reporting third-quarter earnings that met Wall Street expectations but left some investors on edge.
The $698 billion-asset Charlotte company said chargeoffs rose in part because of the auto portfolio that came with its March acquisition of Westcorp Inc. of Irvine, Calif., and its auto-lending unit, WFS Financial Corp.
Wachovia also suffered from margin compression and sluggish capital markets activity but said it controlled expenses, increased loans, and had $95 million in securities gains. Revenue fell 3% from the second quarter and rose 5.2% from a year earlier, to $7.04 billion.
Wachovia reported third-quarter earnings of $1.88 billion, up 13% from a year ago. Excluding $25 million in merger-related expenses, earnings of $1.19 per share met the average analyst estimate, according to Thomson Financial.
Shares of Marshall & Ilsley Corp. fell 2% after the Milwaukee banking company said that an adjustment in hedge accounting added to third-quarter earnings but also caused it to lower previously reported earnings and would prompt a charge in the fourth quarter.
Marshall & Ilsley said that, after reviewing its accounting for interest rate swaps this year, it concluded that some of the swaps no longer qualified as hedges, and that as a result it would terminate them before yearend. The change shaved 6 cents per share from its first-quarter profit and 5 cents from its second-quarter profit.
M&I earned $238.9 million, or 92 cents a share, in the third quarter. Excluding the hedging adjustment, it earned $210.9 million, or 81 cents a share, which met the average of analysts' estimates, according to Thomson Financial. Core net income improved 3.5% from the second quarter and 17.4% from a year earlier.
Shares of Commerce Bancorp Inc. fell 0.8% after the Cherry Hill, N.J., company said consumer banking, its bread-and-butter business, weakened in the third quarter. Consumer deposits fell 0.4% from the second quarter and rose 13% from a year earlier, to $15.7 billion.
"Deposit growth, while strong, was not as strong as we have seen in the past," said Vernon W. Hill 2nd, Commerce's chairman and chief executive.
Commerce said third-quarter profit was flat from a year earlier, at $79.7 million. Earnings per share of 41 cents met Wall Street expectations.
New Century Financial Corp. of Irvine fell 4.5% and Accredited Home Lenders Holding Co. of San Diego fell 3.9% after an analyst turned bullish on the subprime lenders.
A New Century spokeswoman said Monday that the company has tightened its underwriting standards for "at risk borrowers," which represent less than 5% of its borrowers.
In a report headlined "The Party Is Over," Chris Brendler, an analyst at Stifel, Nicolaus & Co. Inc., wrote that the subprime lenders would suffer from recently tightened bank regulatory guidelines on nontraditional mortgage products.
Mr. Brendler lowered his rating on New Century to "sell," from "hold" and wrote that its recent decision to tighten underwriting standards "will have a major negative impact on origination volume. Our analysis of NEW's subprime loan pools suggests that 20%-50% of loans would fail to qualify under this standard."
In the same report, he wrote that Accredited is at risk from the new rules and falling mortgage originations, and he cut his rating to "hold," from "buy."
A spokesman said Accredited does not comment on analyst reports. A New Century spokeswoman did not immediately return a call.
Monday's gainers included Santander BanCorp of San Juan, Puerto Rico, up 2.7%, and Seacoast Banking Corp. of Florida in Stuart, up 2.4%.
