Bank stocks fell again Wednesday as investors continued to take some of the gains from Monday's rally after the government bailout of Fannie Mae and Freddie Mac.
The KBW Bank Index fell 1.24% Wednesday, its second consecutive down day after rising nearly 7% Monday. "Investors are still giving back some of the gains flowing from the Fannie Mae and Freddie Mac announcement," said Kevin Fitzsimmons, an analyst at Sandler O'Neill & Partners LP. "Even more broadly, bank stocks have had a tremendous run since July," and they "are just coming back to earth, as investors realize that credit is going to continue to be a problem for some time."
The broader market rose Wednesday as investors rotated into sectors such as energy, materials, and consumer staples. The Dow Jones industrial average was up 0.34%, and the Standard & Poor's 500 index 0.61%.
Lehman Brothers stock fell 6.9% after its preliminary report of a $3.9 billion third-quarter loss — the largest in the company's 158-year history — and its announcement that it plans to sell a majority stake in its asset management unit, spin off commercial real estate holdings, and cut its dividend in an effort to bolster capital and restore confidence.
Washington Mutual Inc.'s stock fell 29.7% Wednesday after a 20% drop a day earlier, fueling speculation from analysts that investor confidence in the Seattle thrift company as a stand-alone is dwindling fast and that this may force it to make a move.
On Monday, Alan Fishman succeeded Kerry Killinger as Wamu's CEO. In a research note Tuesday, Merrill Lynch & Co. analyst Kenneth Bruce wrote that Mr. Killinger's ouster signals to the market that "the last remaining hurdle for the board to consider pursuing a possible sale" has been cleared.
Mr. Killinger, who had been CEO for 18 years, said publicly several times this year that he opposed a sale.
Other decliners included Wachovia Corp., 7.1%; Fifth Third Bancorp, 6.8%; and SunTrust Banks Inc., 4.9%. Synovus Financial Corp. fell in the morning but regained some ground in the afternoon after the Columbus, Ga., company said it would cut its dividend by 65%, to 6 cents a share, because of uncertainty about an economic rebound. Synovus closed down 2.5%.
Scott Valentin, an analyst at Friedman, Billings, Ramsey & Co. Inc., wrote in a research note that Synovus' dividend cut would save the company $145 million and add 56 basis points to its Tier 1 capital ratio, which was 8.91% at June 30.
Synovus also said it would trim 650 jobs, or 9% of its work force, to help it cut $50 million of annual expenses during the next two years. The company, however, will also incur $21 million of restructuring charges, including $15 million this year.
Gainers included Wells Fargo & Co., up 1.7%; First Mariner Bancorp Inc. in Baltimore, 31.7%; and Park Bancorp Inc. in Chicago, 19.6%.
American Community Bancshares Inc. in Charlotte rose 50.1% on news that it was to be bought by Yadkin Valley Financial Corp. of Elkin, N.C., in a stock and cash deal for about $92 million. Yadkin's stock fell 26.2%.