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Surprise Greek vote sinks bank stocks

November 1, 2011: 6:05 PM ET

NEW YORK (CNNMoney) -- Bank stocks got hammered on Tuesday, as nervousness over the Greek prime minister's surprise plan to have a public vote on Europe's debt deal spread across the Atlantic and rattled Wall Street.

Prime Minister George Papandreou announced on Monday a national referendum to approve the bailout deal that was reached at last week's summit of the European Union.

The bailout would involve reducing Greek loan payments by as much as 50%, in exchange for $138 billion in fresh aid to the Hellenic nation.

Investors also pushed bank shares lower in the wake of MF MF Global's bankruptcy filing, which was precipitated Monday in part by bad bets the firm made on European debt. They fear that U.S. banks have similar exposure.

The declines were across the board:

--Morgan Stanley (MS, Fortune 500) 8%

--Citigroup (C, Fortune 500) 7.7%

--Bank of America (BAC, Fortune 500) 6.3%

--JPMorgan Chase (JPM, Fortune 500) 5.9%

--Goldman Sachs (GS, Fortune 500) 5.5%

--Wells Fargo (WFC, Fortune 500) 4.4%

Investors were particularly nervous about the mid sized bank Jefferies Group (JEF), which saw its shares drop 9.4% despite the firm's insistence that it isn't exposed to European debt.

The company said it "currently has no meaningful exposure to the sovereign debt of the nations of Portugal, Italy, Ireland, Greece and Spain."

Overall, the Dow Jones industrial average (INDU) finished 297 points lower, falling 2.5%; the S&P 500 (SPX) sank 35 points, or 2.8%; and the Nasdaq (COMP) lost 77 points, or 2.9%.

European markets also fell. France's CAC 40 (CAC40) and Germany's DAX (DAX) plunged about 5%, while London's FTSE (UKX) declined 2%.

John Lonski, chief economist for Moody's Capital Markets Group, said that uncertainty in the banking industry, and the widening spread on investment grade bank bonds, could have a profound impact on the larger economy.

"I can't say that anything is an overreaction these days," he said. "I think you need to be very much concerned about the sell-off on banks."

The insecurity took a bigger toll on European finance firms. French banks Societe Generale plunged 16% and Credit Agricole dropped 12%, while German firm Deutsche Bank (DB) fell 7%.

Lonski said that trouble in the banking sector could stifle the banks' ability or desire to dole out loans, which "will probably lead to a more cautious approach towards spending by businesses and perhaps consumers."

"This may be the time not to expand production capacity," he added. "It might be better to just hoard the cash." To top of page

Index Last Change % Change
Dow 20,992.54 228.65 1.10%
Nasdaq 6,016.93 33.11 0.55%
S&P 500 2,387.63 13.48 0.57%
Treasuries 2.30 0.03 1.19%
Data as of 10:41am ET
Company Price Change % Change
Bank of America Corp... 24.20 0.57 2.39%
Express Scripts Hold... 59.67 -7.58 -11.27%
Freeport-McMoRan Inc... 13.22 0.99 8.09%
Chesapeake Energy Co... 5.42 0.04 0.65%
General Electric Co 29.51 -0.04 -0.14%
Data as of 10:26am ET
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