Updated index, share prices throughout.Bank stocks closed down Tuesday, as investors considered a mix of bearish news on credit costs that will broadly hurt the industry and some positive company-specific reports. The KBW Bank Index dropped fractionally to 34.81 at the close, as the Dow Jones Industrial Average fell 1.9% to 8,163.60 on economic concerns. The American Bankers Association said earlier in the day that delinquencies on credit card debt and home equity loans soared to all-time highs during the first quarter, a trend that bodes poorly for bank results. A report by Deutsche Bank on Tuesday also weighed on bank stocks. Analyst Matt O'Connor estimated that U.S. banks may need to raise as much as $300 billion to cover credit losses and boost capital levels to meet new regulatory requirements. O'Connor also said he expects "weak" second-quarter results as banks continue to face higher charge-offs on bad consumer loans. There were also reports that the country's biggest banks do not plan to accept IOUs from California as the state struggles to close a $26 billion budget gap. It may set up a contentious battle for bailed out banks like Bank of America ( BAC), Citigroup ( C), Wells Fargo ( WFC) and JPMorgan Chase ( JPM), which are apparently giving a cold shoulder to a state with severe economic stress from the housing bubble and surging unemployment. It is unclear what the result will be, though California had planned to distribute over $3 billion of IOUs this month. Banks had earlier indicated that they would accept the vouchers until a resolution could be reached. Citi shares closed off 3.6% to $2.69. JPMorgan shares were adding 21 cents to $32.81. Wells Fargo shares were adding 1% to $23.33. BofA shares closed flat at $12.15, after reports on more turnover in the executive ranks of Merrill Lynch. Bank of America acquired the firm at the start of 2009, but scores of employees have departed due to cultural clashes and more competitive offers, as well as to escape congressional scrutiny and public outcry over several contentious issues related to the merger. The Wall Street Journal reported that the firm named Stefan Selig as executive vice chairman of its global corporate and investment bank and Steven Baronoff as chairman of global mergers and acquisitions, among other changes.
Goldman Sachs ( GS) fell 2.7% to $142.54 after news that a renegade computer programmer was arrested for stealing some of the firm's valuable trading codes. The employee, Sergey Aleynikov, was released on $750,000 bail on Monday after being arrested by the Federal Bureau of Investigation and charged with "theft of trade secrets." Of course, on all investors' minds are upcoming second-quarter earnings reports that will begin surfacing next week. KeyCorp ( KEY) seemed to be one of the winners after KBW analyst David Konrad upgraded its stock to outperform in a note on Tuesday. KeyCorp shares jumped 4.1% to $5.29, with investors apparently agreeing with Konrad's analysis that its capital levels are strong and share price is cheap. In terms of earnings forecasts, Pali Capital's research division raised estimates for Goldman, as well as Morgan Stanley ( MS), whose shares fell 2.6% to $26.15. Credit Suisse cut estimates on Bank of New York Mellon ( BK), State Street ( STT) and Northern Trust ( NTRS), whose shares all declined.