Bank stocks tumbled Monday, amid a steep decline in the broader market, as a gloomier forecast on the economy stirred up fresh fears that the recovery from recession will be slow at best.
The KBW Bank Index, which tracks 24 of the nation's largest banks, dropped 4.9 percent in early afternoon trading.
Among the sector's biggest decliners were Bank of America Corp., which fell 93 cents, or 7 percent, to $12.29, and Wells Fargo & Co., which lost 98 cents, or 4.1 percent, to $23.21. JPMorgan Chase & Co. fell $1.33, or 3.8 percent, to $33.67.
The World Bank on Monday lowered its expectations for the global economy, saying it would shrink by 2.9 percent this year, compared with a prior estimate for a 1.7 percent decline.
This rattled investors already worried that the economy's recovery will be less robust than previously hoped. The revised outlook drove investors away from stocks and commodities and back into safe investments like Treasurys and the dollar.
Investors also are anxious ahead of the Federal Reserve's two-day policy meeting, which begins on Tuesday. While the central bank is expected to keep its benchmark interest rate at a record level of near zero, investors want to know if the Fed will increase its purchases of government debt to help keep interest rates down.
Low interest rates are key to encouraging borrowing, which can help jump-start the economy.
Concerns about the massive amounts of government debt being issued to fund the Obama administration's stimulus efforts have pushed yields on long-term Treasurys higher in recent weeks. This has been worrisome to investors because those yields are closely tied to interest rates on mortgages and other consumer loans, which have also been rising. Such a scenario, if prolonged, could seriously impede the economy's recovery.
Shares of Huntington Bancshares Inc. fell as a Stifel, Nicolaus & Co. analyst maintained a "Hold" rating on the stock, noting the bank's high level of exposure to areas where the unemployment rate is well above the national average.
However, the company has successfully boosted its common equity by $707 million during the second quarter through a stock offering and the conversion of preferred shares, among other efforts. As such, analyst Anthony Davis raised his 2009 estimate slightly to a loss of $6.72 per share from a loss of $6.76 per share. He also expects the bank to turn a profit in 2010.
Shares of the Columbus, Ohio-based bank sank 40 cents, or 8.8 percent, to $4.14.
Other regional banks that fell Monday included KeyCorp, which lost 54 cents, or 8.9 percent, to $5.53; Zions Bancorp Inc., which shed $1.04, or 7.8 percent, to $12.30; and Fifth Third Bancorp, which fell 56 cents, or 7.6 percent, to $6.78.
Citigroup Inc. shares fell 4.7 percent, losing 15 cents to $3.02, after an analyst said its shares could face additional pressure after it completes a debt exchange next month.
Fox-Pitt Kelton analyst David Trone wrote in a research note that Citi's shares could fall as much as 21 percent because of forced selling after it completes a conversion of $58 billion of debt into common shares in July.
Citi is in the process of converting preferred stock and trust preferred securities into common shares as it looks to bolster its capital position.
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