Big bank stocks get dumped again

JPMorgan Chase and US Bancorp extend Thursday's decline; Wells Fargo shoots higher after dividend cut.

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By David Ellis, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Just a day after Citigroup stock dipped below $1, bank stocks endured another selloff Friday, even as investors were encouraged about the strength of West Coast banking leader Wells Fargo.

Shares of US Bancorp (USB, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) both fell Friday, declining 2% and 4% respectively. Bank of America (BAC, Fortune 500), which has come under heavy fire recently for its purchase of Merrill Lynch last fall, ended the day narrowly lower.

One of the most closely-watched sector indexes, the KBW Bank Index, closed nearly 2% lower Friday and finished the week down 23%.

Bucking the trend was Wells Fargo (WFC, Fortune 500), whose shares gained 6% during the trading session.

Investors were encouraged by comments from CEO John Stumpf, who indicated that the bank's operating results for the first two months of the year were strong.

His remarks, however, came as the San Francisco-based banking giant unveiled plans to cut its quarterly dividend 85%. The company said it expected the move to save $5 billion annually and help the firm grow its market share at a time when some of its peers are receiving extensive assistance from the government.

"This was a very difficult decision but it's absolutely right for our company and our shareholders," Stumpf said in a statement.

Ongoing fears about the health of the nation's largest banks have weighed not only on financial stocks, but the broader market. Major indexes finished at their lowest levels in nearly 12 years Thursday, hurt, in part, by worries about the big banks.

Stocks tumbled to new lows Friday afternoon on the latest jobs report, which revealed that the unemployment rate climbed to 8.1% - its highest level in 25 years.

"Some days are better than others for financials," said Lawrence Creatura, a fund manager at Federated Investors in Rochester, New York. "Today is more of a case where financials are going out with a tide that is taking most sectors with it."

But what continues to trouble investors in financials are banks' exposure to soured mortgages and worries about rising losses tied to other consumer loans.

Many experts are betting that loan losses are likely to increase as a result of the nation's souring economy. As a result, some analysts have warned that the entire banking sector could require as much as $1 trillion or more in additional capital.

Federal regulators are currently "stress testing" the nation's 19 largest banks in order to determine whether future bailouts might be needed and how costly they may be.

Those tests, which are expected to be made public no later than the end of April, will estimate potential losses over the next two years and the bank's ability to absorb such losses. To top of page

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