Bank Stocks Pounded on Day 2 of Shutdown: Financial Losers

NEW YORK ( TheStreet) -- Bank stocks were hammered on Wednesday, as investors considered the second day of the federal government shutdown and digested some disappointing employment growth numbers.

The broad indices reversed course from Tuesday, ending with declines, led by a 0.4% dip for the Dow Jones Industrial Average . The KBW Bank Index ( I:BKX) was down 0.7% to 62.38, with all but four of the 24 index components showing declines.

The exceptions included Bank of America ( BAC), which stood out with shares rising over 1% to close at $14.05, after New York Attorney General Eric Schneiderman announced the state was dropping its suit against the bank for its alleged failure to adhere to the $25 billion mortgage settlement. Schneiderman in a statement said Bank of America "has agreed to implement a robust set of systemic reforms intended to ensure that the servicing standards outlined in the National Mortgage Settlement are honored across New York State."

But Schneiderman also announced a new lawsuit against Wells Fargo ( WFC), since the company had "taken a different path" and had "declined to sign any agreement aimed at improving its customer service practices." That is, Wells Fargo declined to sign an agreement drawn up by Schneiderman. Wells Fargo did agree to the National Mortgage Settlement, which included loan servicing reforms.

Wells Fargo in a statement made clear its intention of seeing Schneiderman in court: "We are continuously implementing additional customer-focused measures based on the constructive feedback we receive from our customers, the National Mortgage Settlement Monitoring Committee and individual states, including New York." Wells Fargo went on to say "We are doing everything we can to help our customers remain in their homes, and over the last four years have completed more than 880,000 loan modifications nationwide including 26,000 modifications for borrowers in New York. That means we have done six modifications for every one foreclosure sale in the state since the beginning of 2009."

Shares of Wells Fargo were down 0.6% to close at $41.26.

In addition to the continued saturation of the federal government shutdown, which could lead to quite a painful spot for the U.S. Treasury if Congress fails to raise the federal debt limit by mid-October, investors on Wednesday were presented with some disappointing data from Automatic Data Processing.

ADP said that private sector employment in the United States increased by 166,000 during August, which was significantly lower than the average estimate of 180,000 jobs being added, among economists polled by Reuters.

What may have disappointed investors even more was the downward revision of ADP's July employment growth number to 159,000 from 176,000.

The ADP report may carry more weight than usual this month, since the federal government's shutdown is likely to delay the Department of Labor's employment report, which would normally be released early Friday.

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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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