Shares of some of Wall Street's most venerable names took a beating Thursday as concerns mounted that banks faced more serious troubles ahead.
In the wake of Lehman Brothers' disclosure that it suffered a $3.9 billion loss in the third quarter, investors shed shares of its competitors in the investment sector as well as of retail banks.
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Lehman tumbled more than 40 percent off the opening bell, while stock prices also moved sharply lower for Merrill Lynch , Goldman Sachs and Citigroup .
Traders undid some of the damage heading toward the noon hour as bargain hunters stepped in, but the sector was still broadly lower, with Lehman and Merrill leading the losers.
CNBC learned that Lehman CEO Richard Fuld is actively shopping the entire company for sale, but share losses for the trading day held around 30 percent.
At the same time, the future of Washington Mutual continued to be murky as the company tumbled again Thursday. Investors questioned the bank's standing despite having replaced its CEO on Monday.
WaMu's regulator said it is monitoring the bank's activity. A WaMu spokesman declined to comment on the company's standing. Though the stock was down most of the day, it recovered sharply in late trading, along with the rest of the market.
Worry grew that the problem with bank failures was about grow exponentially.
"I think WaMu's a bigger problem frankly," Richard LeFrak, president of the LeFrak Organization, said on CNBC. "If they start having a run on the banks and people see the lines to get (their) cash out, that's real hysterical behavior."
See analysis by LeFrak and Peter Cohen of Ramius in the accompanying video.
Wachovia was among the group's other big losers on the trading day.
Lehman on Wednesday announced earnings ahead of schedule in an effort to assuage investor fears and to tell Wall Street that it was looking for a buyer for its investment management business.
But the market grew jittery over the company's future, and a passel of analysts, from JPMorgan, Sanford Bernstein, Citigroup and others, sharply reduced their fourth-quarter forecasts for Lehman.
"As much as they try to calm people down or calm investors down, investors don't have yet the answers they need," Rose Grant, managing director of Eastern Investment Advisors in Boston, told Reuters. "There's a complete lack of faith, lack of confidence, and lack of trust."
Still, advisors were telling anxious clients not to panic.
"Investors are concerned about the safety and stability, not necessarily of Lehman Brothers but of the financial system and their securities," Lawrence Glazer, of Mayflower Advisors, said on CNBC. "What we try to do is hold their hand and remind them that we've been through these events before. And typically these cataclysmic financial events ... proved to be good equity buying opportunities. Investors need to be patient and not react to that market news."
But the contagion spread to other areas of the financial sphere, adding to investor worries.
Bank of America was the biggest Dow component losers among banks, but American International Group, an insurer that some analysts see as a bellwether for the sector, also saw its shares drop more than 10 percent and led the index's losers overall.
AIG, the world's largest insurer, holds between $550 million and $600 million in Fannie Mae and Freddie Mac preferred shares, according to a source familiar with the investment.
Also, bond insurer MBIA fell about 5 percent, a reflection of continuing fears exacerbated by the drop of Lehman bonds to near stressed levels.
The Dow Jones Full Line Insurance index fell more than 8 percent in early trading, while the Financial Service index and US Bank indexes both slipped about 4 percent.