Financial stocks slipped Wednesday after regulators lifted a ban on certain short selling instituted in the wake of massive bear raids last month on
"Naked" short selling, or the practice of selling a stock short without first borrowing it, was thought to be at least partly responsible for the run on the two government-sponsored mortgage giants last month, as well as for the downfall of Bear Stearns in March and similar runs on banks like
. Coincidentally or not, Fannie recently was slipping 3.1% to $7.77 and Freddie was off fractionally to $5.36.
Lehman was down 2.5% to $15.81, after it suffered earnings and price target cuts from Deutsch Bank analyst Mike Mayo. He retained his buy rating, but lowered the price target to $32 from $42.
Financial Sector Index was declining 131.20 to 6,272.
Bank of America
shares were giving back 6.2% to trade at $29.19 after the state of West Virginia filed a lawsuit against
, which BofA acquired last month. The suit, which alleges that Countrywide deceived consumers and exposed them to foreclosures, is just the latest in a string of such legal actions brought by state authorities.
Moody's Investors Service confirmed a negative outlook for commercial lender
, sending shares down 1.5% to $8.62. Moody's noted that CIT had made important strides in improving its liquidity situation, but recognizes that the company will face a difficult funding environment. It also pointed to the operating margins being under pressure.
Moody's also said it was reviewing regional bank
for a downgrade. The review is focusing on the portfolio concentrations that could affect the bank's profitability. Zion was losing 4.1% to $26.94. Fellow regional bank
was shedding 6.1% to $8.51.
American International Group
continued its downward trend on Wednesday as it initiated a $3.25 billion debt sale. The cost to insure AIG's debt rose 303.5 basis points up from 270 basis points on Tuesday according to
. AIG stock plunged another 3.7% to $22.01.
And finally, two big losers for the day were
. First Marblehead collapsed 13.5% to $2.51 following a negative article on student lending that ran in
The New York Times
on Tuesday. The company was also part of the short selling ban that was lifted. Synovus was losing 8.9% to $9.60 after being downgraded by Stifel Nicolaus to hold from buy.