Shares of South Financial Group Inc. fell Monday as an analyst downgraded the stock to "Hold," due to its recent rally. Investor concern about the effectiveness of the government's proposed bailout plan also weighed on financial stocks.
South Financial shares dropped $1.60, or 15.3 percent, to $8.84 in afternoon trading. Shares have traded between $2.52 and $24.75 in the past 12 months.
Sandler O'Neill & Partners analyst Kevin Fitzsimmons lowered his rating on the shares to "Hold" from "Buy," noting their significant appreciation over the past few months.
Shares gained 19 percent last week, and have increased more than 200 percent since mid-July.
"We continue to believe that the next two to three quarters will be extremely challenging for South Financial, as non-performing assets and net charge offs continue to increase, funding costs experience competitive pressures, and management works to get elevated expenses under control," Fitzsimmons wrote in a note to clients. "That said, we think South Financial is in decent shape on capital and note that the company continues to shrink the balance sheet and take an aggressive approach to slowing the growth rate in expenses."
Analysts downgraded the shares of several regional banks on Monday, noting the recent run-up of the stocks due to the Securities and Exchange Commission's temporary ban on the short selling of nearly 800 financial firms, as well as initial positive reaction to the government's bailout plan, which was first announced on Friday.
While the government has said it will buy up to $700 billion in bad mortgage debt from banks, few details have been revealed, leading analysts and investors to question the plan's ultimate effectiveness.
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