Financial Winners & Losers: BofA

Another Countrywide lawsuit dragged on its new owner's stock.
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Financial stocks finished lower Wednesday, as positive news for several stocks failed to outweigh bearish comments from Treasury Secretary Henry Paulson.

Paulson, speaking at the G8 summit in London, touted the Bush administration's plan for regulatory reform as the best way to deal with the potential failures of individual financial firms while preserving the integrity of the wider system. Paulson said he expected more foreclosures and financials stocks to remain a concern.

The

NYSE

Financial Sector Index closed down 87.53 to 6,116.96.

Bank of America

(BAC) - Get Report

tumbled 5.3% to $22.54 after Florida Attorney General Bill McCollum filed a lawsuit against

Countrywide Financial

for deceptive practices. BofA completed its acquisition of Countrywide on Tuesday, a move that many investors fear will hit the bank. The lawsuit claims the lender put borrowers into mortgages they couldn't afford or loans with rates and penalties that were misleading.

Morgan Stanley

(MS) - Get Report

is selling about half of its stake in index provider and investment research provider

MSCI

(MXB)

for $900 million. MSCI was originally spun off from Morgan Stanley and reported a 6% drop in profits for the second quarter. Investment banks have been aggressively raising capital to combat the effects of losses in crumbling credit markets. Morgan bounced around in mixed trading, but closed down 2% to $35.87.

Keefe Bruyette upgraded regional broker

Raymond James

(RJF) - Get Report

to outperform from market perform. The analyst gives the stock a $33 price target and increased the third quarter estimates on expectations of higher commission and investment banking revenue. Raymond James still fell 1.3% to $26.19.

On a positive note,

Deutsche Bank

(DB) - Get Report

said that it expects to record a profit for the second quarter. Germany's biggest bank said that its Tier-1 ratio would remain above 9% and remove the need to raise capital. Deutsch Bank also announced that it would acquire ABN AMRO's commercial banking activities in the Netherlands for 709 million euros in cash, or about $1.13 billion. Investors pushed the shares up 2.4% to $85.64.

Beaten down

Washington Mutual

(WM) - Get Report

climbed 1.1% to $5.31 after the Mortgage Bankers Association said that mortgage applications volume rose 3.6% during the week ending June 27. The mortgage lender also benefited from news that late payments on consumer loans had declined.

Cincinnati-based

Fifth Third Bank

(FITB) - Get Report

fractionally to $10.65 after a

Robert Baird

analyst upgraded the stock to outperform from neutral based on valuation. Separately,

Bernstein Research

noted that Fifth Third was at a low risk for a capital event.

Bernstein also highlighted several banks that they considered to be undervalued like

National City

(NCC)

and

Capital One Financial

(COF) - Get Report

. Nat City has lost 86% of its value over the last 12 months and merger rumors have swirled around the bank as it struggles to survive the mortgage meltdown. But the analyst's comments drove the stock up a penny to $4.61. The Bernstein analyst suggested that Capital One was a merger candidate, while a UBS analyst upgraded the stock to neutral from sell. The stock gained over a one dollar in early trading, but closed down 3.1% to $38.89.

Synovus Financial

(SNV) - Get Report

shares also rose, even though the Bernstein analyst said the bank could cut its dividend. On the other hand, the analyst gives the bank an outperform rating and said it was one of the "best-capitalized banks in the industry." Shares in the Columbus, Ga.-based bank shot up 3.4% to $9.41.