Bank stocks fell sharply with the broader markets Wednesday over investor uncertainty about how President-elect Barack Obama and a strengthened Democratic Congress will handle the financial crisis.
The KBW Bank Index fell 8.73%, the Dow Jones industrial average fell 5.05%, and the Standard & Poor'’s 500 fell 5.27%.
Frank Barkocy, the director of research at Mendon Capital Advisors Corp., said that, in addition to anticipating a weak jobs report Friday, investors are unsure what the Obama administration will do about matters such as direction of the government's rescue efforts for the industry, foreclosures, reforming the regulatory system, and reworking Fannie Mae and Freddie Mac.
"The market can deal with good news, and it can deal with bad news, but it has problems with dealing with uncertainty," Mr. Barkocy said.
He said there’ is pressure on Sen. Obama to begin naming Cabinet members, including a new Treasury secretary, by as early as next week to work with the Bush administration on resolving the financial crisis.
Analysts with the Financial Insights unit of International Data Group Inc. wrote in a research note Wednesday that they did not expect significant financial regulation to be enacted until late 2009 or 2010.
"Overly constrictive new regulation could hamper the largest U.S. institutions from competing in a global market, and legislators will need to recognize the need to retain balance,"” the analysts wrote.
Investors were also concerned about what the Labor Department employment report due out Friday will say, traders said.
Moreover, the Institute for Supply Management reported Wednesday that its services sector index fell to 44.4 in October, from 50.2 in September. Economists on average had expected a reading of 47.5.
Bernstein Research downgraded shares of Synovus Financial Corp. in Columbus, Ga., and Marshall & Ilsley Corp. in Milwaukee to "market perform," from "outperform." Bernstein said the companies' valuations were approaching their targets and said their residential construction portfolios' losses would likely be worse than forecast.
Synovus shares fell 13.2% Wednesday and Marshall & Ilsley fell 9.9%.
However, Bernstein raised its ratings on Fifth Third Bancorp in Cincinnati, Regions Financial Corp. in Birmingham, Ala., and Comerica Inc. in Dallas, to "outperform" from "market perform." It said the stocks appeared to be undervalued against expected 2010 earnings.
Still, Fifth Third fell 10.4%, Regions 8.2%, and Comerica 7%.
South Financial Group shares fell 16.6% after word got out that the Greenville, S.C., company had backed out of an investor conference Sandler O'Neill & Partners LP is hosting next week in Palm Beach, Fla. South Financial was to make a presentation on the second day of the conference, Nov. 13 — the day before the deadline to apply for the Treasury Department's capital assistance program.
It was not clear on Wednesday whether South Financial would apply. In an earnings conference call on Oct. 22, James Gordon, its chief financial officer, said South Financial was "carefully examining opportunities to participate in" the Treasury's programs.
In an interview Wednesday, Mr. Gordon, confirmed that his company would not attend the investor conference, because its board would rather its top executives focus on the company's day-to-day operations. In September, South Financial announced that Mark Whittle, its chief executive officer, would retire by yearend. A successor has not been named.
Other decliners Wednesday included JPMorgan Chase & Co., 7%; Citigroup Inc., 14%; Bank of America Corp., 11.3%; SunTrust Banks Inc., 7.9%; PNC Financial Services Group Inc., 6%; KeyCorp, 7.7%; U.S. Bancorp, 7.7%; and National City Corp., off 6.3%.
Hanmi Financial Corp. rose 1.3%. The Los Angeles company said late Tuesday that four directors on its bank board retired Wednesday after the company received a regulatory order to enhance board oversight.
Last month Hanmi Bank signed a memorandum of understanding with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions. Among other things, the agreement requires Hanmi to beef up senior management, improve oversight of its board and its lending and fund management policies, and maintain minimum ratios to be considered well capitalized.
Hanmi Financial would not comment further Wednesday. A source close to the company said that the regulatory order did not require the directors to retire, and that the company asked them to do so, because under the order Hanmi must enhance the board and improve succession planning. (All four directors were over 60.) The company said it is searching for successors.