Financial Winners & Losers: Citigroup

Financial stocks were mainly dropping Monday, as investors assessed the possibility of a joint venture between Morgan Stanley and Citigroup's Smith Barney.
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Updated from 11:22 a.m. ET

Financial stocks were mainly dropping Monday, as investors assessed the possibility of a joint venture between

Morgan Stanley

(MS) - Get Report

and

Citigroup's

(C) - Get Report

Smith Barney.

Expectations that fourth-quarter and 2009 earnings would be soft further dragged down other financial names. The KBW Bank Index was shedding 2.5% to 38.87, and the Amex Securities Broker/Dealer Index was down 1.1% to 77.79.

Citi shares fell 17% to $5.60 following reports that the company would give Morgan Stanley a 51% stake in its Smith Barney brokerage arm, with provisions for Morgan Stanley to eventually take over the rest of Smith Barney. Speculation that Citi needs cash and may be willing to spin off its interest in Mexican bank

Banamex

was adding to pressure on Citi shares.

Morgan Stanley, meanwhile, started among the day's few winners. However, the shares closed down 1.4% to $18.79.

Elsewhere,

Bank of America

(BAC) - Get Report

, which would face increased competition as a result of a potential Smith Barney-Morgan Stanley joinup, lost 12% to $11.43. A Citigroup analyst also projected a fourth-quarter loss and slashed dividend for BofA as the company tries to shore up its capital position.

Fellow large bank

JPMorgan Chase

(JPM) - Get Report

was down 4.1% to $24.91, as worries about the financial sector's future earnings power persisted.

Regional banks were also suffering, after a Morgan Keegan analyst cut the group's fourth-quarter and 2009 earnings estimates. The analyst cited dividend payments owed to the

Treasury Department

following capital injections under the Troubled Asset Relief Program bailout, as well as increased credit losses, as the source of potential earnings declines.

Among companies impacted by the report,

Fifth Third Bancorp

(FITB) - Get Report

shed 8.3% to $6.87, and

SunTrust

(STI) - Get Report

gave back 7.4% to $23.67.

First Horizon

(FHN) - Get Report

gave back 8.8% to $8.96.