Bank stocks underperformed the broader market on a fairly quiet day in the stock market with little economic news.
The index of banks in the Standard & Poor's 500 briefly posted gains in the afternoon, but like other bank indexes, it ended up falling. It closed down 0.5%, while the S&P 500 was unchanged and the Dow Jones industrial average fell 0.1%. The American Banker index of 225 banks fell 0.3%.
Mortgage issues remained a talking point. Shares of First Horizon National Corp. rose 0.9%. The Memphis company said at the Lehman Brothers Financial Services Conference that it would cut 1,500 mortgage-related jobs, or 50% of its mortgage sales force, and shutter 50 offices.
Gerald Baker, First Horizon's chief executive, cited projections by the Mortgage Bankers Association that originations could decline 25% over the next two years. "We think it's important to get in front of that, because we think … [the decline in originations] might be greater than that," he said.
Washington Mutual Inc. also rose 0.9%. David C. Schneider, the president of the Seattle thrift company's Wamu Home Loans, said in an internal memo distributed Wednesday that it plans to shutter its conduit production unit, stop lending to other mortgage companies, and combine its subprime and prime sales forces.
The changes, which will result about 1,000 job losses, the memo said. In the coming months Wamu also plans to hire about 1,000 mortgage consultants to handle originations in branches.
MidWestOne Financial Group Inc. jumped more than 41% in morning trading. The $742 million-asset Oskaloosa, Iowa, company said it would merge with the $678 million-asset ISB Financial Corp. of Iowa City.
The $96.5 million deal values MidWestOne at $26.13 a share, or a 54% premium over its closing price Tuesday. But the stock lost some luster later in the day and closed up 10.8%. ISB fell 7.3%.
AmeriCredit Corp. was also among the top gainers in financial services, rising 9.9%. The Fort Worth subprime auto lender said late Tuesday that it had priced a $1 billion offering of receivables-backed securities. Securitizations are the company's main source of funds.
A team of Oppenheimer & Co. Inc. analysts warned that bank stocks might continue to suffer. "Sluggish economic growth with a legitimate question mark surrounding a recession, rising financial stress beyond mortgages for the consumer, and continued aggressive competition amongst the banks should put pressure on earnings in second half '07 and '08," Terry J. McEvoy, Jennifer Thompson, and Christopher Nolan wrote in a research report.
Oppenheimer lowered estimates for several companies, including BankAtlantic Bancorp of Fort Lauderdale, Fla., and UCBH Holdings Inc. of San Francisco, two of the day's biggest losers. BankAtlantic fell 3.1%, while UCBH fell 2.7%.
M&T Bank Corp. fell 1.1%. Todd L. Hagerman, a Credit Suisse Group analyst, initiated coverage of the Buffalo company's stock with a "neutral" rating.
"The company has a long history of consistent, double-digit earnings growth, conservative and prudent management team," Mr. Hagerman wrote in a research note. "Although it is tough to go against M&T management, our sense is that normalizing credit, slowing mortgages, and persistent pressure on the net interest margin will each serve to weigh on M&T's earnings growth and valuation over the near term."
