January 20, 2011 in Business

Investors drop bank shares

Sell-off appeared to stop bull run
Associated Press photo

Goldman Sachs headquarters is shown in New York in September. The company’s earnings fell 53 percent in the fourth quarter due to sharp declines in its investment banking businesses.
(Full-size photo)

NEW YORK — Investors dumped bank shares Wednesday after weak financial news from industry giants triggered concerns that financial sector profits might not support a recent upsurge in share prices.

The sell-off appeared to put the brakes on a rally in financial stocks. The S&P Financials index shed 2 percent Wednesday after a bull run that still has the index up more than 12 percent over the last three months.

Shares of regional banks such as Regions Financial Corp. and PNC Financial Services Group Inc. tumbled amid fears that new fee limits, low interest rates and a lack of strong lending prospects will drain bank revenue in the coming quarters.

If costs rise and revenue falls as expected, analysts warn, banks might close branches and begin a fresh wave of consolidation. That would limit consumers’ and businesses’ ability to support the economic recovery by borrowing and spending.

Wednesday’s sell-off followed grim news from banks such as Goldman Sachs Group Inc. and American Express Co. It spread quickly to regional players such as U.S. Bancorp, despite that company’s saying that fourth-quarter revenue and net income rose sharply.

Goldman Sachs’ earnings fell 53 percent in the fourth quarter due to sharp declines in its bond trading and investment-banking businesses. American Express said it will take $113 million in charges in the fourth quarter because of consolidation plans that will eliminate 550 jobs.

Banks that manage money for big investors shared the pain. Northern Trust Corp. said Wednesday that its fourth-quarter profit fell by 21.6 percent because of lower interest rates. State Street Corp. said fourth-quarter income tumbled by 84 percent as the company took losses on bad investments.

Bert Ely, an independent banking analyst, said the investors are realizing that all types of banks will face higher costs and reduced revenue in the coming year.

“We’re seeing some real concern about top-line revenue numbers and weaknesses from several standpoints,” including new limits on fees charged to consumers and retailers and rock-bottom interest rates that are reducing investment profits.

Ely said banks facing a revenue crunch are likely to close lower-traffic branches and merge with competitors. He said they can’t raise fees because of new rules aimed at protecting consumers, and have few other options.

Others called the decline a normal correction after an unrealistic bull run this fall and winter.

Shares of Regions, based in Birmingham, Ala., dropped 42 cents, or 6 percent, to $7.13 Wednesday.

Shares of PNC Financial Services Group Inc., based in Pittsburgh, gave up $1.43, or 2 percent, to $61.81.

Shares of Goldman fell $8.19, or 5 percent, to $166.49.

Shares of American Express dipped $1.13, or 2 percent, to $45.24.

Shares of Northern Trust, based in Chicago, sank $3.15, or 6 percent, to $52.49.

Shares of State Street Corp., based in Boston, skidded $2.06, or 4 percent, to $48.

Shares of U.S. Bancorp, based in Minneapolis, fell 79 cents, or 3 percent, to $26.52.

Shares of Hudson City Bancorp Inc., based in Paramus, N.J., tumbled $1.12, or 9 percent, to $12.04.

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