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Financial stocks declined ahead of the holiday weekend, and

Lehman Brothers

( LEH) lent heavily to the sector's downward move Friday.

David Einhorn, a hedge fund manager that shorts the stock and has much to gain if it trades down, publicly questioned the investment bank's quarterly profits in a speech Thursday,

The Wall Street Journal

reported Friday. Lehman fought back by publicly questioning the manager's motives, but the statement was not enough to stem the selling. The stock declined 6.4% to $36.03.

The NYSE Financial Sector index 1.3% to 7,291.50.

Elsewhere, insurance companies fell across the board after Moody's downgraded

American Insurance Group's

(AIG) - Get American International Group, Inc. Report

debt rating with a negative outlook. The downgrade was based on the losses the insurance giant has suffered as a result of the mortgage market meltdown and credit market disruptions. AIG fell 2.3% to $36.96.

Fellow insurance companies tumbled as well with


(MBI) - Get MBIA Inc. Report

dropping 7.9% to $7.41 and


TheStreet Recommends

( ABK) declining 5% to $3.22.

Bank of America

(BAC) - Get Bank of America Corp Report

traded down 2.1% to $33.98 on heavy volume after a class-action lawsuit was filed against the bank for allegedly misleading customers about the nature of auction-rate securities. The products were considered to be very safe; however the auctions that set the rates have failed, leaving the buyers stuck with illiquid products as opposed to having instruments that trade like cash.

Disappointing home data put pressure on

Washington Mutual

(WM) - Get Waste Management, Inc. Report

as the bank dropped 3% to $9.17. Inventory of unsold home jumped 10% and median home prices experienced the second largest price drop ever.


(JPM) - Get JPMorgan Chase & Co. (JPM) Report

lost 1.7% to $42.34 on news that the investment bank was beginning to lay off bankers in anticipation of

Bear Stearns

( BSC) employees taking some of those jobs. Layoffs are expected on both sides following the recent merger that saved Bear Stearns from bankruptcy. Bear Stearns fell 1.8% to $9.30.

And finally, the biggest loser of the day was

First Marblehead


, which plunged 11.6% to $3.45. The stock moved up on Thursday based on positive comments by an analyst and the selling is thought to be profit-taking as the stock recently has had very few upward trading days.