Bank stocks fell Thursday as investors took back gains from Wednesday's rally.
The KBW Bank Index fell 4.6% Thursday. On Wednesday the index rose 14.4% on reports that the Obama administration was thinking of creating a "bad bank" to buy toxic assets from lenders.
"We've had some very strong couple of days, particularly yesterday, and I think there was profit-taking today," said Gary Townsend, the chief executive officer of Hill-Townsend Capital LLC.
However, considering the "very impressive movement" upward in bank stocks recently, investor interest seems to have improved and the sector could start regaining some strength, Mr. Townsend said.
Cassandra Toroian, the president and chief investment officer of Bell Rock Capital LLC in Rehoboth, Del., said bank stocks could really start gaining traction once the Obama administration and Congress finalize their initiatives to help shore up the banking sector, including the development of any bad bank.
"You're not going to see any private-equity money coming in, nor any substantial buying to hold, until they see positive momentum in the government's plans — and until they see that those plans aren't going to change," Ms. Toroian said.
Under the original plan for the Troubled Asset Relief Program, the Treasury Department was supposed to use the $700 billion to buy bad assets from banks, but the Bush administration changed course and bought preferred shares in banking companies throughout the country, many of them healthy. The agency is now being roundly criticized for how it spent the money.
The broader markets also could not repeat Wednesday's gains. The Dow Jones industrial average fell 2.7% and the Standard & Poor's 500 fell 3.31%.
The Labor Department said Thursday that the number of Americans continuing to receive unemployment benefits was 4.79 million for the week that ended Jan. 17, the highest level since the agency started keeping records in 1967. Economists on average had expected the figure to be 4.65 million.
The Commerce Department said Thursday that December home sales fell 14.7%, to 331,000 — the lowest number since 1963.
Shares of Colonial BancGroup Inc. rose 7%, to 91 cents a share, after plunging 46% the day before. The Montgomery, Ala., company said late Tuesday that the Dallas private-equity firm SunTx Capital Partners LP had signed a "nonbinding letter of intent" to buy a 24.9% stake in Colonial for $1 to $1.50 a share. Analysts said even if the transaction went through at $1 a share, Colonial would still have to raise about $175 million from other investors to reach the necessary $300 million required by the Treasury Department to receive $550 million from its Capital Purchase Program.
Bank of America Corp. fell 8.3%. Connecticut officials announced Thursday that B of A, of Charlotte, has agreed to pay the state $350,000 and reimburse about 30,000 Countrywide Financial Corp. customers whose credit was frozen after a data breach. B of A bought Countrywide last year.
Bank of America officials did not return phone calls for comment.
Frontier Financial Corp. of Everett, Wash., fell 31.1%, to $1.93, after the $4.1 billion-asset company announced a fourth-quarter loss of $89.5 million, or $1.90 a share. Analysts on average were expecting a loss of 15 cents, according to Thomson Reuters.
Other decliners Thursday included JPMorgan Chase & Co., 8.1%; Citigroup Inc., 7.1%, Wells Fargo & Co., 11.4%; and U.S. Bancorp, 3.7%.