(Citigroup and other stock prices brought current in this update.)

NEW YORK (

TheStreet

) --

Citigroup

(C) - Get Report

was among several financial stocks trading sharply lower Tuesday amid rising financial and geopolitical tensions.

Citigroup

and other global financial stocks sank as North Korea has threatened to retaliate against South Korea with military action and a report that eurozone countries will be forced to impose a tax to cover future bank failures.

EU countries will be forced to impose an upfront levy on banks, with the proceeds to be paid into national funds to insure against future financial failures,

The Financial Times

reports. The proposals, expected to be unveiled Wednesday, is designed to prevent future bank failures from destabilizing the broader financial system and could raise billions once implemented, the

FT

reports.

Meanwhile, several news agencies reported that North Korea will sever all relations with South Korea and has threatened military action after the alleged trespassing into its waters. Asian markets tumbled on the tensions between North and South Korea.

Citigroup shares traded as low as $3.56 earlier in the session and were lately down 2.4% to $3.69. More than 617 million shares changed hands by 1:20 p.m. ET, close to the three-month average daily share volume of 780 million.

Among other U.S. financial stocks,

Bank of America

(BAC) - Get Report

lost 2.4% to $15.03,

Wells Fargo

(WFC) - Get Report

slid 2.1% to $28.11,

Morgan Stanley

(MS) - Get Report

gave back 1.4% to $25.38, and

JPMorgan Chase

(JPM) - Get Report

was down 1.2% to $38.15.

On the other hand,

Goldman Sachs

(GS) - Get Report

shares rose 2% to $139.43.

Rochdale Securities analyst Dick Bove wrote in a research note Tuesday that value is being created in bank stocks by investor panic.

"If the economy improves so that loan losses fall, the revenues are there to drive bank profits and stock prices higher," Bove wrote. "There is a panic in the markets at present. This is creating solid buys in bank stocks."

European bank stocks were hit hard Tuesday. Shares of

Allied Irish Banks

(AIB)

trading in New York dropped 7.6% to $2.32,

Bank of Ireland

(IRE)

lost 7.3% to $4.70,

Lloyds Banking Group

(LYG) - Get Report

slid 7.3% to $2.93, and

National Bank of Greece

(NBG)

fell 7.2% to $2.44.

Citigroup Sell Citigroup!: Against the Grain

The fall in overseas bank stocks came as an agreement between

Spanish regional banks

Caja de Ahorros de Mediterraneo

,

Cajastur

,

Caja de Extremadura

and

Caja Cantabria

was announced to create a joint banking group that seeks to "strengthen solvency and assets of the participating banks," the banks said in a statement.

The four banks said they would remain separate entities but would merge their risk policies, treasury operations, credit evaluation, internal controls and regulatory requirements,

Reuters

reports.

Elsewhere,

E*Trade Financial

(ETFC) - Get Report

said its previously approved reverse stock split will take effect on June 2.

E*Trade

shareholders approved a 1-for-10 reverse stock split at their annual meeting on May 13.

E*Trade shares were down 4.1% to $1.40.

Meanwhile,

PNC Financial

(PNC) - Get Report

shares tacked on 0.1% to $60.64 after Keefe Bruyette & Woods analysts upgraded the stock to outperform from market perform with a price target of $72. The firm cited the recent pullback in shares, saying that a stronger premium is warranted.

Most other U.S. financial stocks, though, were trading lower.

Ambac Financial

( ABK) dropped 7.9% to 87 cents,

The PMI Group

( PMI) fell 5.8% to $3.62,

Fannie Mae

( FNM) was down 3.8% to 90 cents, and

American International Group

(AIG) - Get Report

lost 3.5% to $33.33

-- Written by Robert Holmes in Boston

.

Follow Robert Holmes on

Twitter

and become a fan of TheStreet.com on

Facebook.