Bank stocks struggled in negative territory during a quiet trading session Tuesday.

The KBW Bank Index dropped 3.48%, extending the losses from Monday's session, when the index fell 3.83%.

Volume was very light as many investors prepared for a three-day Easter weekend. "It's a quiet day out there, and I also think there's a lot of anticipation with regard to how bank earnings will go," said Gary Townsend, the chief executive officer of Hill-Townsend Capital LLC. "Will earnings be as bad as some have said, or will they surprise to the upside?"

The broader markets also declined on light trading Tuesday. The Dow Jones industrial average dropped 2.34%, and the Standard & Poor's 500 dropped 2.39%.

A bright spot for the banking sector was First Niagara Financial Group Inc., whose stock rose 12.4%. The Lockport, N.Y., company announced Tuesday that it would acquire $4.2 billion of deposits and 57 bank branches in western Pennsylvania from National City Bank, which PNC Financial Services Group Inc. acquired last year, for a deposit premium of 1.3%. (See related story.)

First Niagara would receive $3.2 billion of cash and about $839 million of performing commercial and consumer loans.

The divestiture was required by regulators as part of PNC's acquisition of Nat City in December. PNC's stock fell 6% Tuesday.

Goldman Sachs Group Inc. was up most of the day but closed down 0.49%. Lloyd C. Blankfein, the New York company's chairman and CEO, said Tuesday at a Council of Institutional Investors conference that the financial services industry must toughen its compensation practices to stem excessive risk-taking, according to a Dow Jones report.

Bank of America Corp. fluctuated for most of the day but closed down 1.6%. The Charlotte company's Merrill Lynch & Co. announced Tuesday that it had hired Steven Niemczyk to be its global head of asset management investment banking.

Niemczyk, who held a similar position at UBS Ltd. in London, will join Merrill in June.

Michigan Heritage Bancorp Inc. declined 4 cents, to 5 cents. On Tuesday the Federal Reserve Board ordered the Farmington Hills company's Michigan Heritage Bank to raise capital by the middle of this month. The bank has been "critically undercapitalized" since late February, the central bank said.

In December, the Fed put restrictions on Michigan Heritage Bank's dividends and ordered it to charge off losses identified by examiners. The Fed said the bank must submit a plan "to improve the bank's position" through repayment amortization, liquidation, additional collateral or other means.

JPMorgan Chase & Co. fell 3.4%. U.S. Bancorp fell 5.4%. Wells Fargo & Co. fell 2.6%. Bank of New York Mellon Corp. fell TK%. State Street Corp. fell 3%, and Citigroup Inc. fell 2.7%.

Among regionals, KeyCorp fell 6.2%. M&T Bank Corp. fell 2.2%. Comerica Inc. fell 3.9%. Zions Bancorp. fell 6.6%, and SunTrust Banks Inc. fell 6.9%.

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