Financial stocks tumbled Monday, as

Lehman Brothers

( LEH) said it expects a big second-quarter loss and announced plans to raise $6 billion through common and preferred stocks offerings.

Lehman shares plummeted 8.7% to $29.48 after announcing the news, which further dilutes the value of the stock to existing shareholders. All last week the investment bank fought off rumors that it would suffer higher losses.

The

NYSE

Financial Sector Index declined 122.68 to 6,882.50.

Major bank stocks were casualties as well.

Washington Mutual

(WM) - Get Report

shares plunged 17% after a UBS analyst cut his price target and estimates after surmising that the bank would have much higher losses than originally anticipated. WaMu beat Friday's all-time low of $7.12 by trading down to $6.25.

Citigroup

(C) - Get Report

slid 46 cents to $19.60,

Bank of America

(BAC) - Get Report

gave back 2.9% to $29.61 and

Wachovia

(WB) - Get Report

fell 6.2% to $18.89. Wachovia also announced that its bank veteran Randy Johnson would be retiring.

Standard & Poor's on late Friday cut

XL Capital Assurance's

(XL)

rating by three notches, sending shares down 1.2% to $31.93. S&P said in a statement the company's potential loss tied to mortgage-backed securities "is higher than previous estimates." Fellow insurers traded down in sympathy.

Ambac

( ABK) sunk 10.2% to $2.11 and

MBIA

(MBI) - Get Report

dove 10.1% to $4.89.

Among the day's winners was

Hilb Rogal and Hobbs

( HRH). The insurance and risk management company's stock skyrocketed $12.93, or 41.9%, to $43.82 after it was acquired by insurance broker

Willis Group Holdings

(WSH)

for $2.1 billion in cash and stock.

CIT Group

(CIT) - Get Report

shares also jumped up as much as 15% after

Goldman Sachs

(GS) - Get Report

said it would extend up to $3 billion in credit. CIT has been raising capital on its own, but analysts contended it was not enough. Shares closed 3.2% higher to $9.48.

And finally,

First Marblehead

(FMD)

jumped 11.5% to $3.79 on word that the spread in private student loans was falling. First Marblehead would also benefit from the CIT deal since CIT can use private student loans as backing for the financing it is getting from Goldman.