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Bank Stocks: Fed Timing Losers

Stocks in this article: BAC COF FNMA FMCC I:BKX

NEW YORK ( TheStreet) -- Most of the nation's largest banks saw shares slide on Wednesday, led by Capital One Financial (COF - Get Report), which was down 2% to close at $67.93.

The broad indices all pulled back as trading volume remained light and investors continued to worry over the coming tapering of Federal Reserve bond purchases. As part of its monetary stimulus known as QE3, the Fed has been making monthly purchases of $40 billion in long-term agency mortgage-backed securities, as well as $45 billion in long-term U.S. Treasuries. Principal payments received from maturing securities are being reinvested, to keep the central bank's balance sheet expanding at a monthly pace of $85 billion.

The Federal open Market Committee has repeatedly said it will continue the securities purchases "until the outlook for the labor market has improved substantially in a context of price stability." Several presidents of Federal Reserve district banks on Tuesday and Wednesday indicated that a slowing of bond purchases was likely before the end of the year.

Federal Reserve Bank of Atlanta president Joseph Lockhart on Tuesday was quoted by Market News International as saying a slower pace of securities purchases could be announced at any of the three remaining FOMC meetings this year. The next meeting will be held on Sept. 17-18.

The market yield on 10-year U.S. Treasury bonds was actually down five basis points to 2.60% Wednesday afternoon. Investors have pushed the yield on the 10-year up from 1.70% since the end of April, in anticipation of a curtailment of Federal Reserve bond-buying.

The KBW Bank Index (I:BKX) was down 1% to close at 65.40, with all but two of the 24 index components ending with declines.

Shares of Bank of America (BAC - Get Report) recovered from earlier losses, ending with a 1% decline to close at $14.53, after the Justice Department and Securities and Exchange Commission late on Tuesday charged the company with mortgage fraud.

Freddie Ladles More Government Gravy

Freddie Mac (FMCC) on Wednesday announced second-quarter earnings of $5.0 billion, increasing from $4.6 billion the previous quarter. Freddie also announced it would pay the U.S. Treasury a dividend of $4.4 billion in September. Freddie's shares were up a penny in late trading, to $1.40.

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