Financials plunge after bank rescue plan unveiling
By SARA LEPRO
AP Business Writer
(AP:NEW YORK) Bank and insurance stocks took a beating Tuesday, a clear sign of investors' extreme disappointment in the government's overhaul of the financial rescue package.
Treasury Secretary Timothy Geithner on Tuesday announced plans to expand the government's effort to unfreeze the credit markets, increasing the amount of bailout funding devoted to the effort to $100 billion.
If a total of $100 billion from the bailout fund were used, it would be enough to support an additional $1 trillion in lending support through the Fed's program, known as the Term Asset-Backed Securities Loan Facility, the administration said.
The administration also unveiled plans for a government-private sector partnership designed to get private investors to buy bad assets that are currently weighing down banks' balance sheets. Geithner said the program initially will aim to support the purchase of $500 billion in bad assets, but could ultimately support up to $1 trillion in purchases.
Investors were largely dissatisfied with the plans, critical of the government's lack of clarity in how the programs will be implemented.
"We have an insolvent financial system," said Jeff Buetow, senior portfolio manager at Portfolio Management Consultants. "The government is trying to find a comprehensive way to save it. They can't afford to just throw money at it. That's what they tried to do in the fall and that clearly did not work."
Last fall, Congress passed a $700 billion financial rescue package, and has since pumped billions of dollars directly into banks to get them to lend again. But the program has been widely criticized for giving banks billions in taxpayer money without much oversight, while at the same time failing to increase lending and remedy the financial crisis. Since then, financial stocks have been pummeled as investors fear rising loan losses could lead to a major bank failure.
On Tuesday, regional bank stocks suffered the biggest losses.
Regions Financial Corp. tumbled $1.12, or 24 percent, to $3.52. Fifth Third Bancorp dove 63 cents, or 22 percent, to $2.26. Marshall & Ilsley Corp. fell $1.34, or 25 percent, to $4.08.
KeyCorp lost $2.04, or 23 percent, to $6.99, while Huntington Bancshares Inc. shed 59 cents, or 23 percent, to $2.02. SunTrust Banks Inc. fell $3.12, or 25 percent, to $9.32.
Money-center banks like Bank of America Corp. and Citigroup Inc. also dropped sharply. Both banks have struggled to contain losses from bad bets on mortgages and other investments and have already received $45 billion apiece in government aid.
Bank of America shares plunged $1.07, or 16 percent, to $5.82, while Citigroup dropped 41 cents, or 10 percent, to $3.54.
JPMorgan Chase & Co. fell $1.85, or 6.8 percent, to $25.43. PNC Financial Services Group Inc. shed $3.50, or 10 percent, to $30.01.
Not all banks are in dire shape, Buetow said. Some, like Wells Fargo & Co. and U.S. Bancorp, are in better shape than many of their counterparts, but their shares are being pressured nonetheless because of investors' overall uneasiness about the financial sector.
Wells Fargo shares fell $2.25, or 12 percent, to $16.81, while U.S. Bancorp lost $1.70, or 10 percent, to $15.01.
Insurance companies also declined. American International Group Inc. fell 3 cents, or 2.9 percent, to $1.01. Prudential Financial Inc. dropped $3.37, or 11 percent, to $26.93, while Principal Financial Group Inc. plunged $4.67, or 27 percent, to $12.36.
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