NEW YORK (
) -- Following
and a report of a coming $10 billion lawsuit by
American International Group
over mortgage-based securities losses,
Bank of America
led bank stocks down on Monday, with shares plunging over 20% to close at $6.53, following last week's 16% decline.
were down 16% to close at $28.16, following last week's 13% drubbing.
Investors hammered the banking sector in reaction to the
, even though federal bank regulators said immediately after S&P's announcement that
S&P said in a statement early Monday that "the immediate effect" of its downgrade of U.S. treasury paper would "be neutral to banks," in light of the regulators' guidance on bank capital and because the
would "continue to accept Treasuries as collateral for overnight borrowings, with no capital penalty."
The ratings agency also said that "due to the downgrade, longer-term interest rates will likely start to rise gradually, as buyers of Treasury bonds demand higher rates to compensate for the added riskiness of U.S. Treasuries," but that with U.S. treasuries maintaining their status as the "preferred place for flight-to-safety movements...the net effect should be a slight increase in long-term rates. "
S&P said that it expected "bank net interest margins to increase slightly, going forward," with loan quality "unchanged by the downgrade."
Those comforting words had no effect on the market, as investors remained quite sour on the banking with the
KBW Bank Index
down 11% to close at 36.99, after last week's 10% decline.
The best performer among the 24 index components was
, which was down "only" 6% to close at $35.86.
saw its shares drop 14% to close at 4.41, following last week's 16% decline. Regions stands out as the only large publicly traded bank holding company still owing federal bailout funds received through the Troubled Assets Relief Program, or TARP. The company owes the U.S. Treasury $3.5 billion.
was down 12% to close at $37.63, as even a credit card lender with
can't hold back investor onslaught when facing the prospect of a decline in consumer sentiment and spending. The shares declined 10% last week.
was down 14% to close at $18.53, following last week's 12% decline.
were down 9% to close at $34.13, following a 7% pullback for the shares last week. KBW analyst David Konrad said that
-- which Konrad also likes -- were down 9% to close at $23, after sliding over 9% last week.
Kevin Petrasic, a partner in the Paul Hastings Global Banking practice, told
that a consequence of S&P's downgrade "one consequence may very well be a more conservative banking sector posture that impacts lending," which could hurt "small business lending activities, which, of course, goes to the heart of job creation." Petrasic added that the U.S. could "see a vicious downward cycle if we fail to get our house in order by putting a credible deficit reduction plan in place."
The private mortgage insurers were quite volatile, with
( PMI) up 15% to close at 29 cents, after the stock tanked 75% last week on word that its main private mortgage subsidiary was undercapitalized.
was down 40% to $2.90, following last week's 20% drop, and
was down 30% to $1.99, following a 13% decline last week.
American International Group -- which also has a major presence in the private mortgage insurance space -- was down 10% in afternoon trading to $22.61, following last week's 13% decline.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.