On Wednesday it was credit card lenders' turn to suffer as lawmakers in Washington criticized three of the largest credit card issuers for what were called unfair and unreasonable lending practices.
Representatives of Citigroup Inc., JPMorgan Chase & Co., and Bank of America Corp. testified, and the stock prices of all three companies slid in morning trading but recovered somewhat in the afternoon, just after the Federal Reserve Board issued its January consumer credit report.
Citi and Bank of America each fell 0.7%, and JPMorgan Chase closed down 0.3%.
However, the shares of MasterCard Inc. closed down 4.1% after falling all day, and American Express Co. closed down 0.9%, though its shares had been down as much 2% in morning trading.
Investors might fear that a loss of fee and interest income by card issuers could result from the hearings, reducing MasterCard's share of interchange fees and slowing the issuance of new cards and the use of existing cards, said analyst Sanjay Sakhrani at KBW Inc.'s Keefe, Bruyette & Woods Inc.
Amex fell less because its prime and superprime focus would leave it less vulnerable to potential restrictions on fees and interest charges than MasterCard's broader-based business, he said.
Meanwhile, the Fed reported that consumer credit rose 3.25% in January from a year earlier. Revolving credit rose 1%, and nonrevolving credit grew 4.5%. The Fed also issued its Beige Book, saying, "Most Federal Reserve districts reported modest expansion in economic activity … but several districts noted some slowing."
Regionals had to digest generally much heavier losses than large-caps, dragging bank stocks down overall. Premierwest Bancorp in Medford, Ore., and Community Banks Inc. in Harrisburg, Pa., were among the group's biggest losers, down 5.1% and 4.6%, respectively.
The American Banker index of 225 banks fell 1.5%, and the index of top 50 banks fell 0.8%. The Standard & Poor's 500 closed down 0.3%.
Some mortgage lenders that have been battered in recent sessions regained more ground Wednesday.
Fremont General Corp. closed up 25.8%, making its biggest gain in afternoon trading after wire services reported that the troubled subprime lender had confirmed talks with potential buyers for its mortgage business. The Santa Monica, Calif., company's shares had risen 15.1% Tuesday after a 32% decline on Monday.
New Century Financial Corp. in Irvine, Calif., which had risen 10.1% Tuesday, gained almost 15% in morning trading Wednesday but lost some luster and closed up 2.8%. On Monday, the company's shares had lost nearly 69% after it disclosed late Friday that it is subject to three criminal investigations into its accounting and trading practices. Last month New Century said it would restate last year's earnings, because it had underreserved for forced loan buybacks.
Shares of another subprime lender, Delta Financial Corp., closed up nearly 5% after it reported a 40.4% year-over-year rise in fourth-quarter earnings, to $8 million. Its loss-provision expense increased 14.9% in the quarter, to $8.8 million, but only 1.7% for the full year, to $29.1 million.
Wall Street, meanwhile, continued to gauge the impact of the recent subprime mortgage trouble on the broader banking industry.
Frederick Cannon, an analyst at Keefe, Bruyette & Woods Inc., reduced his earnings estimates for Washington Mutual Inc. by 20 cents for this year and next, to $4 for 2007 and $4.30 for 2008. According to Thomson Financial, the average analyst estimate for the company this year is $3.92 and for next year is $4.38.
The Seattle company's annual earnings filing with the Securities and Exchange Commission, issued on March 1, is "adding to our concerns that Wamu will feel its share of pain from the deteriorating conditions currently being experienced in riskier mortgage loans," Mr. Cannon wrote in his report.
Sandler O'Neill & Partners LP analyst R. Scott Siefers, however, wrote in a report about Wells Fargo & Co., "Subprime concerns unfairly punish" the San Francisco company's stock. "We continue to stress Wells' superior, differentiated model," he wrote, adding that the company "remains insulated from many of the issues facing players in this space."
Shares of Washington Mutual fell 0.1%, and Wells closed down 1%.
AllianceBernstein LP's Sanford C. Bernstein & Co. LLC said in a report, "Subprime exposure is generally low at the mid-cap banks." But National City Corp. "stands out, with subprime mortgages representing just under 9% of total loans."
The Cleveland company's shares fell 1.8%.
"Mortgage banking earnings generally account for less than 5% of revenues at the mid-cap banks. We expect mortgage revenues to decline by roughly 20% in '07," the report said. "Credit concerns extend beyond subprime."