Financial were largely flat but to the downside Thursday, as

Lehman Brothers

( LEH) disclosed it had liquidated three funds and absorbed $1.8 billion in shaky assets onto its balance sheet in the fourth-quarter.

The investment bank was mired in mixed trading like most financial stocks after initially starting the day down. It closed down 29 cents to $40.25. The

NYSE

Financial Sector Index was down fractionally to 7,445.67.

Capital One

(COF) - Get Report

slipped 2% after it said its loan losses continued to increase in March. The credit card company reported $268.1 million in net charge-offs last month. Shares closed down $1.01 to $49.62.

First Marblehead

plunged almost 10% at one point, after the Boston-based student loan packager said it would not tap into its $1 billion line of credit from Goldman Sachs. Shares have struggled since its guarantor, The Education Resources Institute, or TERI, filed for Chapter 11 bankruptcy protection late Monday. The stock ended the day 3% lower to $4.49.

Jumbo lender

Thornburg Mortgage

( TMA) dropped 4.6% after a Deutsche Bank analyst hacked his price target from $11.50 to $1.20 and slashed earnings estimate. The analyst wanted to reflect an increase in the number of shares from the company's capital raising plan. The stock shed 6 cents to $1.25.

UBS cut its target price for

Fifth Third Bancorp

(FITB) - Get Report

to $22 from $26, citing the bank's exposure to home equity loans. The stock lost 28, or 1.3%, to $21.36.

E*Trade Financial

(ETFC) - Get Report

crumbled 7.1% to $3.91. The online broker is expected to report earnings Wednesday.

Bucking the trend was

Federate Investors

(FII) - Get Report

, which was solidly in the green for the entire day. The investment manager announced that six of its mutual funds received Lipper Awards recognizing performance. The recognition boosted the company's shares 3.6% to $35.44.