Bank shares tumbled Monday, hit by a ratings downgrade in the sector and growing concerns that the U.S. and Europe are not doing enough to address their escalating debt problems.
The financial sectors stumbled as U.S. lawmakers scrambled to avoid a government debt default ahead of the deadline to raise the $14.3 trillion limit on borrowing, while the euro zone's regulatory stress tests for banks were increasingly being viewed as unrealistic.
Bank of America fell 4 percent to $9.61 to a 52-week low earlier in the day and was the biggest percentage loser in the S&P 500 index.
The bank was heading for first close below $10 since May 2009. The nation’s largest bank by assets recently announced an $8.5 billion settlement with a group of mortgage bond investors, and is due to report earnings Tuesday.
"The decline is playing off of the uncertain economic environment and the constraints those banks have been placed under," said Larry Peruzzi, senior equity trader at Cabrera Capital Markets in Boston, told Reuters. Peruzzi added that even if Bank of America reports strong earnings results, he doesn't expect a boost to its stock.
Other financial stocks were also trading at 52-week lows, including Goldman Sachs , Genworth Financial and JPMorgan , which is also slated to report earnings Tuesday.
Separately, Citigroup slipped after Barclays cut its price target on the bank to $55 from $60. Its shares were down 2.5 percent to $37.40.
Financial stocks in general are down nearly 9 percent so far this year, falling far short of gains in the rest of the market. The S&P 500 is up 3.65 percent on the year. (Read More: Financial Stocks Hit 2011 Low.)
Bank stocks were hammered in European trading, with
The STOXX Europe 600 Banks index fell 3.1 percent Monday, and has lost 27.6 percent since mid-February, when worries intensified about euro zone debt concerns.
Shares of UniCredit, Italy’s biggest bank, sank 6.4% Monday. Its shares are down 25% over the last month and 40% over the past year. Shares of Germany’s second largest bank, Commerzbank, closed 7% lower and are off 22% for the month.
“The bigger issues are clearly in Europe. The debt ceiling debate in this country I’m actually looking for a resolution, I think that’s why the dollar is strong. Perversely strong dollar is bad obviously for stocks, but it’s bad for the euro as well,” Keith McCullough, CEO of Hedgeye Risk Management, told CNBC.
“As the euro goes so will the fear about European banks, you’re seeing that obviously with Unicredit and Commerzbank today," he added. "I think that’s really just getting started because the biggest issues are really in the sovereign debt (credit-default swaps) spread that you see in Spain and Italy, and those are really bumping up against huge debt maturities in August and September.” (Get the latest quotes on sovereign credit-default swaps here.)
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