BofA shares tumble 25 percent
NEW YORK (Reuters) - Financial stocks, led by Bank of America Corp (BAC.N), fell sharply on Tuesday, a day after the bank said it is selling $10 billion in new stock and on worries other banks may also need to raise cash as they struggle with the weak economy.
Bank of America shares fell 25 percent, while JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) slumped 9 percent and 11 percent respectively. The Dow Jones U.S. financial index .DJUSFN sank nearly 9 percent.
Charlotte, North Carolina-based Bank of America reported a steeper-than-expected 68 percent fall in quarterly profit on Monday, cut its dividend in half and announced the plans to raise fresh cash.
Some investors and analysts saw the capital raise as an attempt to beat rivals to the market while there is still an appetite for financial shares as the credit crunch intensifies.
"(Lower) earnings, cutting dividends, forecasting difficult times ahead -- I think that's going to be the mantra for most companies reporting, particularly in the financial area," said Robert Lutts, chief investment officer of Cabot Money Management in Salem, Massachusetts.
"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth Lewis, chairman and chief executive officer, said Monday in a statement.
"It was a perfect storm kind of quarter," he said later in a conference call with analysts.
Last month, Goldman Sachs Group Inc (GS.N) sold $10 billion in securities, and Citigroup and Wells Fargo & Co (WFC.N), said they will raise capital if they succeed in their bids for Wachovia Corp WB.N.
"With such massive capital raises, we believe a 'sooner-is-better' mentality will prevail as far as capital raises and distinguish survivors and the more challenged among banks," wrote analyst Meredith Whitney at Oppenheimer & Co.
Citigroup has already forecast a third-quarter loss, while quarterly results at top rivals such as JPMorgan Chase & Co (JPM.N) remain a big question mark.
Analysts at JPMorgan and Credit Suisse noted Bank of America's results showed credit quality weakening across most types of loans, and the bank said it sees declines in both debt and credit card purchase volumes, which are also important businesses at Citi and JPMorgan.
"Bank of America is so large, it's such an industry bellwether, how can these other banks not be experiencing the same thing?" said David Dietze, chief investment officer at investment manager Point View Financial Services.
Shares of financial companies were also some of the top performers over the last quarter, said Dietze. Bank of America was up more than 30 percent from the start of July to the end of September.
"I think, given industry conditions, that was a bit of an overshoot," said Dietze, speaking about the magnitude of the sell-off after the earnings announcement.
An additional concern for Bank of America is the financial health of Merrill Lynch, which it is set to buy early next year.
Merrill is likely to post large write-downs from its fixed-income, currencies and commodities business this quarter, and its valuable wealth management business may also be starting to feel the pinch, according to Wachovia Capital Markets analyst Douglas Sipkin.
Trouble at the wealth management unit would not be a positive for Bank of America. Chief Executive Kenneth Lewis described the business as the "crown jewel" of the Merrill acquisition when the deal was announced last month.
Bank of America shares fell $8.17 to $24.05 on the New York Stock Exchange.
(Reporting by Elinor Comlay and Juan Lagorio; Editing by Derek Caney, Lisa Von Ahn and Jeffrey Benkoe)
