Bank stocks fall as mortgage fears mount
WASHINGTON -- Lurking mortgage problems left over from the collapse of the housing market sent bank stocks tumbling for a second day Friday and the cost of buying protection for bank debt, now perceived to carry new risks, climbed steadily higher.
Bank of America Corp.'s stock hit a 52-week low and Wells Fargo & Co. tumbled nearly 5 percent. Shares of JPMorgan Chase & Co., Citigroup Inc. and other major mortgage players slid as well.
The big banks had recovered strongly from the crisis that ensued when home loans began to sour during the real estate bust that started in 2007.
But recent revelations about mortgage fraud and flawed foreclosure paperwork fueled doubts about the health of major banks and how quickly they can put the mortgage mess behind them.
Standard & Poor's downgraded Bank of America stock to "hold" from "strong buy" Friday. S&P analysts said the nation's biggest bank may not have set aside enough cash to cover losses on fraudulent loans that were resold to investors. They also are concerned about costly legal bills after the bank agreed to review paperwork for thousands of foreclosures .
The same issues drove higher the cost of insuring the debt issued by banks.
On Friday, it cost between about 10 percent more to insure bonds issued by Bank of America, Wells Fargo, Citigroup Inc. and JPMorgan than it had just two days earlier, according to financial data firm Markit Group Ltd. The cost of insuring debt from Bank of America was up 8 basis points, to 200 basis points .
The swings reflect investors' view that the banks are weaker and the chances are greater that they would be unable to repay bondholders.
