Bank stocks tumbled Friday as investors mulled over bank earnings reports that showed improved second-quarter profit as loan losses fell, but trading revenue also dropped as result of the market's plunge this spring.
Bank of America Corp. shares saw the biggest drop, 8.3 percent, to $14.11 at midday, even as it reported net income rose 15 percent and beat Wall Street expectations. However, revenue in the company's trading business, which includes the Merrill Lynch operation, fell 42 percent from a year ago because of the steep dive the stock market took during the spring.
Citigroup and JPMorgan Chase reported a similar slump in trading income.
Investors soured on the sector with Fifth Third Bancorp shares dropping 8 percent to $12.19 and Comerica Inc. falling 6.2 percent to $36.33.
Many other bank stocks fell 4 to 6 percent, steeper than the general market downward trend of about 2 percent.
Morgan Keegan analyst Robert Patten wrote in an investor note published Tuesday that bank stocks are heavily discounted because of uncertainty around the Gulf oil spill, financial regulations and European bank stress tests. Resolution of those issues will provide a catalyst for bank stocks, he said.
"We continue to maintain our fundamental thesis that an improving macro economic environment should lead to an improving credit and earnings outlook for regional banks," he wrote. "It is just happening slower than the market wants and we believe the recent pullback provides excellent entry points in our "Outperform" rated names."
They include BB&T Corp. and Huntington Bancshares Inc. Shares in both companies fell more than 3 percent on Friday.
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