Bank Shares Plummet Amid Mortgage, Stability Fears

Shares of National City and Washington Mutual plummeted more than 25 percent, leading financial stocks lower Monday, amid fears about bank stability and the future of the mortgage market.

Shares of National City, a large Midwestern bank, were halted briefly Monday to allow the company to state that it is experiencing "no unusual depositor or creditor activity."

National City shares had fallen about 27 percent in morning trading. After the company issued its statement and resumed trading, National City shares briefly recouped some losses, before trending lower again.

The decline in banking stocks was widespread and follows a run on the bank at IndyMac, which forced regulators to step in and seize the bank. The failure of IndyMac, which is the third largest in U.S. history, has prompted investors to wonder if other banks are on the brink of failure.

In addition, the U.S. Sunday stepped in and pledged to support mortgage lenders Fannie Mae and Freddie Mac if they need more credit.

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"The fear factor is in play right now," said Michael Nix, portfolio manager Greenwood Capital Associates told Reuters.

National City said as of the close of Friday's business, it maintained more than $12 billion of excess short-term liquidity, the company said, in a press release.

In addition, the company said it maintains one of the highest Tier I regulatory capital ratios among large banks, as a result of its recent $7 billion capital raise.

Meanwhile, there was pressure on Washington Mutual shares in the wake of a Lehman Brothers research note, which said the bank could face $26 billion in losses, with $21 billion from mortgages.

Washington Mutual shares were off $1.45 to $3.50.

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