Ugly end to brutal month for banks

NEW YORK (CNNMoney.com) -- Bank stocks took a nosedive Friday, as investors worried about dour economic data and questions about how soon aid for the financial sector will arrive.

Among the biggest losers were two institutions that have been at the center of the bailout controversy, Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500). Shares in Citi slid nearly 9% and Bank of America slipped about 3%.

Other big decliners included Cincinnati-based Fifth Third (FITB, Fortune 500), which dropped more than 20% after an analyst downgraded the stock.

The selloff comes on a day dominated by the news that the economy contracted at a 3.8% annualized rate in the fourth quarter. That's the steepest quarterly decline in economic activity in more than two decades.

Meanwhile, announced layoffs topped 100,000 for the week.

The entire market fell Friday, leaving the S&P 500 with its biggest ever January loss. But banks in particular have been hard hit. Citigroup has lost nearly half its value this year, for example. And the KBW Bank Index has plunged more than 35%.

Adding to the gloom for banks, a news report indicated that progress may have slowed in the government's efforts to devise a plan to remove toxic assets from bank balance sheets. Citing unnamed sources, CNBC said key details of the plans have yet to be worked out.

Friday's slide comes two days after bank stocks staged a substantial rally on word that the Obama administration was making headway on a multifaceted effort to ease strains in the banking industry.

The plan is expected to include a government-backed so-called aggregator bank that would take over bad loans and securities from private lenders, and an insurance plan that would reduce the risk of substantial losses on other bank holdings.

Investors have been hopeful that a comprehensive federal response to the banking crisis could lure private capital back into the markets after a year where several major global stock indexes plunged more than 40% and numerous financial institutions collapsed.

Treasury Secretary Tim Geithner has said the administration is working on a program that may be ready for public consumption in coming weeks.

But observers say the administration will likely need to go to Congress for more money to fund any rescue plan -- an overture that isn't likely to be popular with the public or Republicans in Congress, who unanimously opposed the fiscal stimulus plan that passed the House this week.

Geithner told Congress earlier this month that he hadn't reached the conclusion that the administration will need more money than the $350 billion available under the Troubled Asset Relief Program, but he stressed that this could change were the economy to worsen.

Obama spokesman Robert Gibbs told reporters at a White House briefing Friday afternoon that officials are still discussing the shape of any financial stability package. He said that for now, the administration is more focused on making sure that spending under the second half of the TARP is more precisely focused and better managed than the first half.

The Bush administration drew scathing criticism in Congress for its failure to insist that banks getting money use it for lending, and for generally failing to give taxpayers a good handle on how the money was being spent.

"I know there have been different reports about different ideas and different money figures that have floated around," Gibbs said. "The administration right now is focused on ways of changing the way that program has been administered for this set of money differently than that last set."