Financial Winners & Losers: Citi

Still rallying and trying to recover from its massive selloff were big lenders Fannie Mae (FNM Quote)and Freddie Mac (FRE Quote). Fannie Mae shot up 21% to $13.19, while Freddie Mac catapulted 10% to $9.19.

The surge in shares was attributed to the successful issue of two-year notes by Freddie Mac. Banks lapped up the bonds, showing strong support for the governement-sponsored entities. Additionally, The Wall Street Journal reported that Freddie was considering raising as much as $10 billion in new shares. That would boost the balance sheet, but at the expense of dilution to existing shareholders.

Regional bank KeyCorp (KEY Quote) climbed as much as 9% in early trading but then slid back to a gain of 5.8% to sell at $11.39. Rumors were being floated that Key could be a good fit if Wells Fargo (WFC Quote) did indeed look to buy more regional banks.

The NYSE Financial Sector index advanced1.3% to 6,352.39.

One regional bank not faring as well Friday was Zions Bancorp (ZION Quote), which posted a 55% plunge in second-quarter profit. The stock sunk 8% to $25.32. Analysts had estimated income of 74 cents a share, but Zions posted only 65 cents a share. The Salt Lake City-based bank had to set aside $114.2 million during the quarter for bad loans.

Capital One Finance (COF Quote) also saw its second-quarter earnings fall 40% as a result of problem loans. Net income fell to $452.9 million from the $750.5 million it enjoyed a year ago. Capital One is seeing the same credit-card default problems that Citigroup has experienced and is forced to set aside more cash to cover the defaults. The stock dropped 11 cents to $42.69.