Wachovia

(WB) - Get Report

was a drag on financial stocks Monday, after the nation's fourth largest bank swung to a first-quarter loss and said it was raising $7 billion.

The Charlotte N.C.- based bank said it lost $393 million, or 20 cents a share, vs. a profit of $3.2 billion, or $1.20 a share in the year-ago period. Wachovia also said it will slash its dividend, cut 500 jobs in its corporate and investment bank and raise $7 billion in a sale of common and preferred stock.

The stock dropped 8.1% to $25.55, while the

NYSE

Financial Sector Index declined 103.08 to 7,221.94.

The news from Wachovia sent jitters among other commercial banks, which dropped almost across the board.

National City

( NCC) was down 89 cents to $7.56, a loss of 10.5%;

Huntington Bancshares

(HBAN) - Get Report

HBAN slid 9.3% to $8.99; and

First Horizon

(FHN) - Get Report

tumbled 11.1% to $11.65.

Interactive Brokers

reported that options activity was heavy in several other regional banks, including southern bank chains

Colonial Bancgroup

( CNB) and

Synovus Financial

(SNV) - Get Report

, which were lost 6.1% to $8.82 and 5.2% to $10.26, respectively, and western bank

Zions Bancorp

(ZION) - Get Report

, which dropped 6.6% to $41.51.

But it wasn't all bad news, as some deal making in the financial stocks pushed a handful of names higher. Struggling California lender

Fremont General

( FMT) agreed to sell its bank to

CapitalSource

(CSE)

for $170 million. CapitalSource will also assume $5.6 billion in deposits held by Fremont Investment & Loan and take over 22 retail bank branches.

Fremont shares, which lost 93% of their value over a year in which the company has been beaten up by the subprime meltdown, managed to gain 20% Monday, gaining 9 cents to 54 cents. CapitalSource jumped 13.7% to $11.92.

In other deal news,

Clayton Holdings

( CLAY) soared 18.7% to $5.72 after news that an affiliate of private equity firm Greenfield Partners would be acquiring the mortgage debt consultant for $132 million. A Piper Jaffray analyst downgraded the stock to neutral from buy and lowered the price target to $6 from $8.

The same Piper Jaffray analyst had positive things to say about

Ocwen Financial Group

(OCN) - Get Report

, sending the stock surging 10.3% to $4.07. The analyst believes that the growth in delinquencies has slowed and that the trend should continue through the year. Ocwen provides outsourcing services to owners of residential loans.