Big Banks Tank on War Fear (Update 2)

Updated from 3:12 p.m. ET with market close information.

NEW YORK ( TheStreet) -- Large banks saw their stocks hammered Tuesday as investors grew jittery over the possible use of force by the U.S. and European allies against the government of Syria.

The Dow Jones Industrial Average was down nearly over 1% to close at 14,776.13, while the S&P 500 ( SPX.X) declined 1.6% to close at 1,630.48 and the Nasdaq Composite sank over 2% to close at 3,578.52, following U.S. Secretary of State John Kerry's strong language late Monday condemning "the indiscriminate slaughter of civilians, the killing of women and children and innocent bystanders by chemical weapons," by the government of Syria last week.

The KBW Bank Index ( I:BKX) saw its worst performance in over two years, down 3%to close at 63.27, with all 24 index components showing declines.

Large U.S. banks seeing shares decline 4% included State Street ( STT) of Boston, which closed at 66.87; SunTrust ( STI) of Atlanta, closing at $32.444; Keycorp ( KEY) of Cleveland, at $11.65; and Comerica ( CMA) of Dallas, which closed at $40.86.

Big banks ending with declines of over 3% included Regions Financial ( RF) of Birmingham, Ala., trading for $9.46; BB&T ( BBT) of Winston-Salem, N.C., at $34.49; Bank of New York Mellon ( BK), at $29.66; M&T Bank ( MTB) of Buffalo, N.Y., at $114.41; and PNC Financial Services Group ( PNC) of Pittsburgh, which closed at $72.24.

Shares of Wells Fargo ( WFC) were down 3%, to $41.11.

Kerry said it was overwhelmingly clear that the government of Syrian president Bashar Assad has used chemical weapons against rebels. "President Obama believes there must be accountability for those who would use the world's most heinous weapons against the world's most vulnerable people. Nothing today is more serious, and nothing is receiving more serious scrutiny," he said.

While it might seem strange to some readers for Kerry to term any weapon that kills people as more "heinous" than another weapon that can leave someone just as dead, the U.S. is a signatory to the Chemical Weapons Convention and a member of the Organization for the Prohibition of Chemical Weapons. This means President Obama could decide that the credibility of international law is on the line.

Syria has agreed to let United Nations inspectors into the country, so it remains to be seen whether the U.S., the United Kingdom, France and other countries might take quick action, or wait for the UN, or North Atlantic Treaty Organization to take a stand in favor of military action against Assad's government. The Arab League on Tuesday after an emergency meeting said it held Syria "fully responsible for the ugly crime and demands that all the perpetrators of this heinous crime be presented for international trials," but stopped short of supporting a military strike, according to a Reuters report.

With Assad's government having the backing of Iran and the Hezbollah group in Lebanon, while the Syrian rebels, or some elements thereof have the backing of terrorist group Al Qaeda -- according to various reports -- the United States seems to have no interest in the Syrian civil war, outside the apparent chemical weapons use.

Hand-in-hand with the stock market decline, gold for December delivery at the COMEX division of the New York Mercantile Exchange was up $25.10 to $1,418.20 an ounce.

Meanwhile, government bonds were strong, with the yield on 10-year U.S. Treasury paper down seven basis points to 2.72%.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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