Updated from 3:35 p.m. EST
Financial stocks were mixed in trading Monday, as federal bank regulators said they would "ensure that banks have the capital and liquidity they need," even as
reportedly was lobbying the government to alter its stake in a way that severely dilutes common shareholders.
, according to
The Wall Street Journal
, citing people familiar with the situation, is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the bank to as much as 40%. Such a move would
Also on Monday, Robert W. Baird analyst David George warned that already-bad credit trends have recently worsened. He also suggested that uncertainty over government rescue efforts was scaring off investors.
Yet Citi and other major bank stocks were rallying. Part of the reason could be that Treasury, the Federal Deposit Insurance Corp.
, Office of Thrift Supervision and Office of the Comptroller of the Currency issued a joint statement reiterating their "determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments."
"A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery," the statement said. "The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth."
Citi shares were rose 9.7% to $2.14 in recent trading.
Bank of America
was up 3.2% to $3.91.
stock gained 1.1% to $11.03.
shares were down 2% to $19.51.
The NYSE Financial Sector Index, however, was fell 3.9% to 2,420, amid concerns in the insurance sector.
was losing 15% to $1.25.
Banks need private capital to regain momentum, George wrote in a research note.
George said Fed data as of Dec. 31 from 25 large banks showed credit delinquencies rising an average of nearly 19 percent from three months earlier. In comparison, payments overdue 30 to 89 days rose about 14 percent at the end of the third quarter, compared with the prior quarter.
George said three banks --
PNC Financial Services Group
, Wells Fargo and
-- saw unusually sharp credit deterioration, likely because of recent acquisitions those banks have made.
The fourth-quarter delinquency growth and overall credit weakness "is consistent with our thesis that the credit cycle will broaden in coming quarters as the cycle approaches its peak," George said.
In afternoon trading, shares of PNC Financial rose about 6%, to $24.61, while shares of US Bancorp was up 7.1%, to $11.33.
Among other banks that George cited as having high numbers of delinquencies, shares of
Capital One Financial
fell 8.8%, to $9.13.
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