Wednesday's Financial Winners & Losers

Financial stocks started off generally dragging lower on Wednesday amid the usual slew of bad news, but the Federal Reserve's 50-basis-point interest rate cut this afternoon spurred the sector choppily higher along with the rest of the market.

Recently, the NYSE Financial Sector Index was up 0.6% at 7,969.19, and the KBW Bank Index gained 0.3% at 86.81.

Today's rate slashing comes on the heels of last Tuesday's giant three-quarter-point cut, which was an emergency response to the prior day's fear-ridden worldwide market plunge.

Still among Wednesday's financial decliners, however, was insurer Allstate (ALL Quote). The Illinois-based firm said fourth-quarter operating income dropped 37.5% year over year to $701 million, or $1.24 a share -- 8 cents under the average analyst estimate, per Thomson Financial.

As Allstate warned last month, claims regarding the Southern California wildfires in October weighed in heavily, with associated costs totaling $318 million. That's near the low end of the range Allstate originally cited, but it still helped vault total catastrophe-related losses by 69.2% year over year to $472 million. Allstate shares were recently off $1.89, or 3.6%, to $50.36.

Swiss bank UBS (UBS Quote) also wound down after estimating a 2007 loss of $4.03 billion (4.4 billion Swiss francs), firming significantly from last month's prediction that a full-year loss was merely "possible."

As for fourth-quarter losses from U.S. mortgage exposure, UBS upped its December subprime-writedown estimate by $2 billion to $12 billion, and expects to write down $2 billion from other mortgage-related losses. Its fourth-quarter loss should come to some $11.48 billion. Shares were down substantially today before hoisting themselves up to a 2-cent loss at $43.03.

In downbeat analyst notes, T. Rowe Price (TROW Quote) was cut to underperform at Friedman Billings a day after the investment manager advised its investors "to have modest market return expectations" as the broad market "goes through a period of transition and adjustment," even as it topped fourth-quarter expectations. Shares were losing significant ground earlier, but recently hovered around the flat line.

Michigan's Flagstar Bancorp (FBC Quote) swung to a fourth-quarter loss from a year-earlier profit, after which Moody's knocked its long-term deposit rating to Baa2, according to the Associated Press. That's just a notch above junk status. Shares were sliding $1.04, or 12.5%, to $7.27.

Insurer Conseco (CNO Quote) was cut to neutral from outperform at Credit Suisse, and Merrill Lynch (MER Quote) got an Oppenheimer downgrade to underperform. Conseco shares were down 2.2%, though Merrill was recently paring back today's early losses to just 13 cents at $57.34.

The Oppenheimer analyst, Meredith Whitney, also cut UBS and Citigroup (C Quote). She predicted that the trio would be among the hardest hit by the downward spiral of bond insurers MBIA (MBI Quote) and Ambac (ABK Quote), since they collectively hold some 44% to 45% of that risk exposure.

The struggling bond insurers, which depend heavily on their pristine triple-A rankings at credit-rating agencies, have been under intense fire lately: earlier this month, Moody's put MBIA on review for downgrade and Ambac's rating got cut by Fitch. Ambac is also on review for downgrade at both Moody's and Standard & Poor's.

Citi shares traded lower for most of the day, but shot up 1.7% at $28.39 following the rate-cut announcement. MBIA stock lost 7.1% lately and Ambac was down 2.1%.

Among the day's solid winners was online broker E*Trade (ETFC Quote) after 10 directors upped their holdings in the company, among them acting CEO R. Jarrett Lilien. He picked up about another 7,000 shares for a total stake of 892,694 shares. Donald Layton more than tripled his E*Trade interest to some 365,000 shares, and Randal Lewis brought his direct holdings above the 500,000-share mark with a 29,500-share purchase. E*Trade shares were lately jumping 13.8% at $4.71.