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Friday's Financial Winners & Losers

A rash of downgrades hit financial stocks.

Downgrades for giant mortgage buyers

Fannie Mae

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and

Freddie Mac

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helped send the financial stocks sliding Friday.

Merrill Lynch sliced its rating on government-sponsored entities Fannie and Freddie to sell from neutral, citing more deterioration in financial markets and credit conditions. Fannie shares were down 4.5% at $27.70, while Freddie Mac stock dropped 7.2% to $25.76.

The

S&P 500

Financial Sector Index was down 1.4% to 352.44, while the

NYSE

Financial Index slid down 58.41, or less than 1%, to 7,373.70.

The chopping continued at Deutsche Bank, which cut its earnings estimates for bond insurer

MBIA

(MBI) - Get MBIA Inc. Report

, basing the decision on the increased amounts of capital recently raised and the dilutive effect on earnings. The stock dropped 6.6% to $11.11. Not wanting to feel left out, rival

Ambac Financial

(ABK)

gave back 9%.

The downgrades continued at Keefe Bruyette, which cut

Sovereign Bancorp

(SOV)

from perform to underperform. Shares fell $1.02, or 8.4%, to $11.17. Late Thursday, the company announced its CFO would resign.

Not to be outdone, a Sanford C. Bernstein analyst slashed his first-quarter profit estimates by more than 40% on

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Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report

and

Bear Stearns

(BSC)

. Bear managed to tick fractionally upward to $82.81 after dropping to $80.21, but Goldman dropped $2.75 to $172.42.

Inter-dealer broker

GFI Group

(GFIF)

held its conference call Friday, a day after reporting its quarterly profit rose 88%, beating analysts' view. Investors didn't like what they heard on the call and slapped the stock down 7.9% to $80.86.

Citigroup

(C) - Get Citigroup Inc. Report

fell 74 cents, or 2.9%, to $24.50, when the news surfaced that former CEO Charles Prince will testify next week before Congress in a hearing that will review executive pay and the collapse of the mortgage market. Former

Merrill Lynch

(MER)

CEO Stan O'Neal will also be appearing, but the stock was managing to keep itself in positive territory trading up 7 cents to $50.97

Bucking the downward trend for the day, Morgan Stanley upgraded

Discover Financial Services

(DFS) - Get Discover Financial Services Report

, saying the credit card company would outperform rivals

Capital One

(COF) - Get Capital One Financial Corporation Report

and

American Express

(AXP) - Get American Express Company Report

on benefits from moderate credit losses, leverage to lower interest rates and strong liquidity. The investment bank raised its rating to overweight from underweight and expects the company to post 2008 results above consensus estimates. The stock was up 2.6% to $14.54 on the good news.