Bank stocks plunged into the red in the first hour of trading Thursday and never recovered after being hammered by increasing signs that a turnaround could be months away.
The KBW Bank Index fell 6.7%. The decline was broad, and no bank with a market capitalization above $10 billion posted a gain. The Standard & Poor's 500 index fell 2.31%, and the Dow Jones industrial average 2.43%.
Data on housing and employment trends also cast shadows over the sector. The National Association of Realtors said existing-home sales fell 2.6% in June compared to a month earlier, to a 4.86 million annual rate. The slide was more than double economists' estimates. Also, the Labor Department reported that first-time claims for unemployment benefits rose 9.1% for the week ended July 19, compared to the week earlier, to 406,000. It was the highest level of initial claims since March.
Timothy Geithner, the president of the Federal Reserve Bank of New York, failed to deliver a lift, saying in congressional testimony that it could take the rest of this year before "substantial progress" results from continuing regulatory efforts to improve the financial system's ability to withstand stress. "These initiatives will take time," he told the House Financial Services Committee.
Tim Curran, a bank stock trader at Regions Financial Corp.'s Morgan Keegan & Co. Inc., said there was also "a little bit of a natural give-back" after a torrid rise in bank stocks the past few days. "If you were smart enough to buy on the lows, you are also smart enough to take money off the table when you get a 25% move up in a few days," he said. "You'd be foolish not to. A lot of these financials still face a lot of headwinds. Their credit problems didn't go away overnight."
Earnings reports released Thursday did little to ease fears.
Downey Financial Corp.'s shares plummeted more than 34% after the Newport Beach, Calif., company said it lost $218.9 million, or $7.86 a share, in the second quarter. The California thrift also said chief executive Daniel Rosenthal and chairman Maurice McAlister were retiring. The per share loss was $3.21 more than the average of analysts' estimates, according to Thomson Reuters.
National City Corp.'s shares slid 0.9% after the Cleveland company reported a net loss of $1.76 billion, or $2.45 a share. Analysts had expected a loss of 26 cents a share, according to Thomson Reuters.
Synovus Financial Corp. waited until the markets closed to report a narrow profit of $12.1 million, or 4 cents a share, down 92.6% from the year earlier in results hampered by a $27 million goodwill impairment charge tied to certain loans and lending commitments. Analysts had expected the Columbus, Ga., company to earn 13 cents. Its shares fell 10.3%.
Washington Mutual Inc. shares fell 13.3% after Gimme Credit LLC wrote in a note that unsecured creditors were "pulling funds" from the Seattle thrift company. Wamu responded with an e-mail to Bloomberg News saying that it "does not rely on commercial paper."
Wachovia Corp. in Charlotte fell 11.1%. It had enjoyed two days of positive returns, climbing more than 30% after giving assurances that it has no plan to sell more stock to raise capital.
Fannie Mae and Freddie Mac relinquished much of the gains they had made in recent days as housing reform legislation gained steam. Fannie Mae lost 19.9%, and Freddie Mac 18.4%.
Gainers included Wilshire Bancorp Inc. in Los Angeles, up 10%; Boston Private Financial Holdings Inc., 9.1%; and Pinnacle Financial Partners Inc. in Nashville, 2.6%.
Other decliners included Pacific Capital Bancorp in Santa Monica, Calif., off 17.4%; Regions Financial Corp. in Birmingham, Ala., 13.9%; and Citigroup Inc. in New York, 9.8%.