So much for a big bank bounce

By David Ellis, staff writer


NEW YORK (CNNMoney.com) -- Who cares about strong bank earnings when Goldman Sachs is under siege from the federal government?

News that Securities and Exchange Commission brought fraud charges against the venerated Wall Street firm Friday torpedoed what had been shaping up to be yet another bounce for bank stocks. Shares of Goldman Sachs (GS, Fortune 500) plunged 13% Friday.

Bank of America (BAC, Fortune 500) stock was up as much as 3% in pre-market trading after the company reported $3.2 billion in first-quarter profits, but those gains quickly evaporated following the SEC's stunning mid-morning announcement. Shares of BofA fell over 5%.

Shares of both Citigroup (C, Fortune 500) and Wells Fargo (WFC, Fortune 500) had been edging higher at the start of Friday's session as anxious investors were betting that they too would deliver better-than-expected results next week. At the closing bell, Wells Fargo's stock finished 2% lower while Citi's closed down over 5%.

"There was some non-discriminatory selling going on today," said Mark Lane, an equity research analyst who tracks Goldman Sachs for at Chicago-based investment firm William Blair & Co.

Bank stocks have been bounding higher this week -- and much of this year for that matter -- on the belief that the long-standing troubles the industry has faced are finally starting to subside.

Now there may be new fears that other large financial institutions could become targets for similar, and potentially expensive, federal enforcement actions.

Robert Khuzami, director of the Division of Enforcement for the SEC, left the door open to that possibility on Friday, saying that his agency was continuing to investigate both the investments that helped fuel the financial crisis as well those that helped create them.

"We are moving across the entire spectrum of products, entities and investors that might have been involved," Khuzami said in a phone call with reporters.

Others suggested that Friday's announcement was a calculated effort to stir up Main Street anger at Wall Street and get financial regulatory reform going again in Washington. Lawmakers have backed away from some of the most anti-bank proposals in recent months amid intense lobbying by the industry.

It remains uncertain whether the SEC's fraud charge could spur lawmakers to take up the so-called Volcker Rule, which would prevent banks from operating a hedge fund.

However, it could provide additional momentum to efforts aimed at imposing new rules on banks' derivatives trading business, which would eat away at some of the big profits Wall Street institutions have enjoyed in recent years. Lane said that's the biggest concern for bank investors. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,042.90 -28.32 -0.17%
Nasdaq 4,493.39 -12.46 -0.28%
S&P 500 1,972.29 -5.51 -0.28%
Treasuries 2.51 0.02 0.68%
Data as of 6:38am ET
Company Price Change % Change
Ford Motor Co 14.79 -0.32 -2.12%
Bank of America Corp... 17.05 0.04 0.24%
eBay Inc 56.63 3.97 7.54%
Apple Inc 100.75 0.64 0.64%
General Electric Co 25.62 0.20 0.79%
Data as of Sep 30

Sections

CNNMoney's Italian-American investing correspondents did a taste test of Olive Garden's food. They agree with hedge fund Starboard: It's not very appetizing. More

Even limited air operations could cost up to $4 billion a year, says a think tank, while large ground forces could cost $1.8 billion a month. More

Pro-democracy protesters in Hong Kong are using FireChat to improve communication and organize. More

On Wednesday, 17% of First Green Bank's 66 employees will get a raise under the company's new "living wage" program. The guarantee: At least about $30,000 a year. More

This mom of four only makes $29,000 a year and is losing $400 a month because the state is garnishing her paycheck over a debt. Now she is about to be evicted from her apartment. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.