Bank stocks lose ground again
A slew of banks were battered as investors waited to see the fate of Citigroup, but stocks lifted off lows on reports that Obama will tap Geithner as Treasury Secretary.
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| Shares of Citigroup, Bank of America and JPMorgan Chase have plunged during the past year. |
NEW YORK (CNNMoney.com) -- A handful of big banks recovered from steeper losses earlier in the day Friday, following reports that President-elect Barack Obama will tap New York Fed President Timothy Geithner as Treasury Secretary.
Bank stocks were trading sharply lower most of the day, with the most notable loser being Citigroup. Executives met Friday morning to discuss ways for the battered financial giant to raise capital, including a potential sale of the company.
Shares of Citigroup (C, Fortune 500) were down more than 35% at one point as investors waited for some resolution of the bank's fate but recovered slightly later in the day as the broader market rallied. The stock finished the day down 20%.
The New York City-based bank announced earlier in the week that it would be shedding more than 50,000 workers. In the past year, shares of Citigroup have fallen more than 80%.
Citigroup has been hit particularly hard in the wake of the mortgage meltdown as it racked up losses from risky subprime mortgages. But it is not the only bank hurting. Shares of many other banks, including Bank of America and JPMorgan Chase, were being battered Friday as well, with several falling to multi-year lows.
"Citigroup is dragging down the market for large cap institutions," said Frederick Cannon, head of equity strategy at Keefe, Bruyette & Woods. "People are trying to figure out where Citigroup goes."
Cannon added that since all the major banks lend to and borrow from each other, trouble at a big financial company like Citigroup will have a major ripple effect on the rest of the industry.
Another analyst echoed that sentiment.
"There is a lot of speculation that something is going happen to Citigroup over the weekend," said Paul Miller, managing director at Friedman, Billings, Ramsey.
Because Citigroup is such a large and dominant financial institution and its future seems to be in limbo, Miller said investors are nervous about other financials.
But many of these larger banks also rallied off their lows at the end of the day.
JPMorgan Chase (JPM, Fortune 500) was down 3% after being down as much as 16% Friday and the stock has lost nearly half its value in the past year. The bank bought failed savings and loan Washington Mutual after it collapsed in September. On Thursday, WaMu announced that it would eliminate 1,600 jobs in the San Francisco area.
Wells Fargo (WFC, Fortune 500), which beat out Citigroup in a battle to buy struggling regional bank Wachovia last month, also finished the day lower, falling about 3% after declining as much as 12% earlier Friday.
Shares of Bank of America (BAC, Fortune 500) actually finished the day up 2% after being down as much as 11% Friday afternoon. The stock plunged 14% Thursday and has plummeted more than 70% in the past year.
And the shares of the two former standalone investment banks, Goldman Sachs and Morgan Stanley, also held up better than many of their peers. Goldman Sachs (GS, Fortune 500) moved into positive territory after the Geithner reports and finished up nearly 3%.
Meanwhile, Morgan Stanley (MS, Fortune 500) finished the day up 9% after being down about 4%. The two companies recently converted from investment banks to bank holding companies, which will allow them to buy more bank branches and consumer deposits.
Another factor hurting bank stocks Friday was the continued deterioration of the economy. "Until we get some kind of light at the end of the tunnel with the economy, it is going to be hard for investors to get excited about investing in financials generally," said Cannon.
As banks struggle to deal with toxic mortgage assets on their balance sheets in the wake of the subprime mortgage meltdown, the government has bought up billions of dollars of their stocks in order to keep banks afloat.
In the first round of capital injections from the Treasury Department as part of the $700 billion bailout, Wells Fargo, JPMorgan Chase, and Citigroup all were granted $25 billion injections of capital. Bank of America got $15 billion.
Goldman Sachs, Morgan Stanley and Merrill Lynch, which is in the process of being bought by Bank of America, were given $10 billion each. 
