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Shares of major US banks are battered again

Shares of major US banks are battered again

Bank shares slid again Thursday, a day after Moody's Investors Service said it might downgrade its ratings of Wells Fargo & Co. and Bank of America Corp. because of heightened concerns over future loan losses.
Fears about the stability of the banking sector have heightened in recent weeks, amid dwindling dividends, rising loan losses and a worsening economy. Investors are also worried that the government's efforts to prop up the financial system will fall short.
Wells Fargo shares tumbled nearly 16 percent, while Bank of America shares fell more than 11 percent. Shares of regional banks fell across the board, some of them more than 20 percent.
"I think we have a lot of contagious negativeness piling up on the bank stocks," said banking industry consultant Bert Ely, adding he believes a lot of banks stocks are oversold. "It's not clear what will break the fever so to speak."
The KBW Bank Index, which tracks 24 of the nation's largest banks, hit a record low Thursday of 18.60, before paring some of its losses. The index closed down 11.8 percent to 18.97.
Moody's also cited concerns about the outlook for JPMorgan Chase & Co., which is considered one of the strongest banks in the industry. Its shares dropped 14 percent.
The ratings agency said it could cut BofA's investment-grade "A1" senior debt rating after reviewing the effect of loan losses on the bank. Further loan-loss provisions could also weigh on the bank, Moody's said.
Nearly all banks have been forced to drastically increase their loan-loss provisions as more customers fall behind on paying off loans. What started as primarily a problem with mortgages given to risky borrowers has expanded into nearly every loan category as the economy has worsened.
Shares of Bank of America fell 42 cents, or 11.7 percent, to $3.17 in trading Thursday.
Moody's also said it was reviewing the long-term ratings of Wells Fargo. The bank currently carries an investment-grade "Aa3" senior debt rating, and has been considered one of the stronger banks amid the credit crisis.
Moody's is also reviewing the effects of potential loan losses on Wells Fargo's financial strength. Moody's noted that Wells Fargo's ability to make and retain money could be hindered over the next two years because it could face additional loan losses beyond those it already took in connection with its purchase of Wachovia Corp. Shares of Wells Fargo fell $1.54, or 15.9 percent, to $8.12.
JPMorgan saw its outlook lowered by Moody's to negative from stable. The bank is also reeling from recently cutting its dividend.
Banks have been forced to slash their dividends in recent months to help conserve cash as loan losses mount. With the recession deepening, loan losses are widely expected to continue to rise from already elevated levels. That has forced banks to look for new ways to help offset the losses, and dividend cuts have been one option for making up for such losses.
Investors had long been accustomed to receiving regular payouts from banking stocks, and punished the shares of banks who cut their dividends recently. Since the beginning of last week, U.S. Bancorp, PNC Financial Services Group Inc. and JPMorgan Chase have all cut their dividends, and all have seen their shares fall.
JPMorgan Chase fell another $2.70 Thursday to $16.60; U.S. Bancorp lost $2, or 18.2 percent, to $9.01; and PNC Financial lost $3.26, or 14 percent, to $20.
Citigroup Inc. also continued its plunge, falling as low as 97 cents. Shares fell 11 cents, or 9.7 percent, to $1.02.
Citi has been among the hardest hit by the ongoing financial crisis. Last week, the government restructured its support for the bank, increasing its stake to more than 30 percent.
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AP Business Writer Ieva M. Augstums in Charlotte, North Carolina, contributed to this report.


Updated : 2021-10-27 15:52 GMT+08:00